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Prospectus, Jan. 26, 1998
Stein Roe Advisor Young Investor [service mark] Fund
The investment objective of Advisor Young Investor Fund is to
provide long-term capital appreciation. Advisor Young
Investor Fund invests all of its net investable assets in
SR&F Growth Investor Portfolio, a portfolio of SR&F Base
Trust that has the same investment objective and
substantially the same investment policies as Advisor Young
Investor Fund. The investment experience of Advisor Young
Investor Fund will correspond to Growth Investor Portfolio.
(See Master Fund/Feeder Fund: Structure and Risk Factors)
Advisor Young Investor Fund also has an educational objective.
It seeks to provide education and insight about mutual funds.
Advisor Young Investor Fund is a multi-class series of Stein
Roe Advisor Trust and SR&F Growth Investor Portfolio is a
series of SR&F Base Trust. Each Trust is an open-end
management investment company. This prospectus relates only
to Class A shares of Advisor Young Investor Fund. For
information on Class K shares, please call Retirement
Services at (800) 322-1130 or Advisor/Broker Services at
(800) 322-0593.
This prospectus contains information you should know before
investing in Advisor Young Investor Fund. Please read it
carefully and retain it for future reference. Please consult
your full-service financial adviser to determine how
investing in this mutual fund may suit your unique needs,
time horizon and risk tolerance.
A Statement of Additional Information dated Jan. 26, 1998,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference.
The Statement of Additional Information and most recent
financial statements may be obtained without charge by
calling (800) 426-3750.
Class A shares are offered at net asset value. Class A
shares are subject to an annual distribution fee and a
contingent deferred sales charge on redemptions made within
three years after purchase. See How to Purchase Shares.
NOT FDIC INSURED MAY LOSE VALUE
NO BANK GUARANTEE
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page
Summary................................2
Fee Table..............................3
The Fund...............................6
Investment Policies....................6
Performance Information................6
Risks and Investment Considerations ...7
Investment Restrictions ...............7
Portfolio Investments and Strategies...8
Net Asset Value ......................10
How to Purchase Shares................11
How to Sell (Redeem) Shares ..........13
Distributions and Income Taxes........15
Management ...........................15
Organization and Description of
Shares..............................17
Master Fund/Feeder Fund: Structure
and Risk Factors....................18
For More Information .................19
SUMMARY
Stein Roe Advisor Young Investor Fund ("Advisor Young
Investor Fund") is a series of Stein Roe Advisor Trust
("Advisor Trust"), an open-end management investment company
organized as a Massachusetts business trust. (See The Fund
and Organization and Description of Shares.) This prospectus
is not a solicitation in any jurisdiction in which shares of
Advisor Young Investor Fund are not qualified for sale.
Investment Objective and Policies. The investment objective
of Advisor Young Investor Fund is to provide long-term
capital appreciation by investing in common stocks and other
equity-type securities that the Adviser believes to have
long-term appreciation potential. Advisor Young Investor
Fund invests all of its net investable assets in SR&F Growth
Investor Portfolio ("Growth Investor Portfolio") which has
the same investment objective and investment policies
substantially similar to those of Advisor Young Investor
Fund. Growth Investor Portfolio invests primarily in
securities of companies that are believed to have above-
average growth prospects, many of which affect the lives of
young people.
In addition to the investment objective and policies, Advisor
Young Investor Fund also has an educational objective. It
seeks to provide education and insight about mutual funds,
basic economic principles, and personal finance through a
variety of educational materials prepared and paid for by
Advisor Young Investor Fund.
Advisor Young Investor Fund is designed to be appropriate for
growth-oriented investors of all ages. Its focus on
companies that affect the lives of young people and its
educational objective and materials may make it especially
appropriate for young people and investors for whom education
is an important objective.
For a more detailed discussion of the investment objective
and policies, please see Investment Policies and Portfolio
Investments and Strategies. There is, of course, no
guarantee that Advisor Young Investor Fund or Growth
Investor Portfolio will achieve their common investment
objective.
Investment Risks. Advisor Young Investor Fund is designed for
long-term investors who desire to participate in the stock
market and places an emphasis on companies that are believed
to have above-average growth prospects, many of which affect
the lives of young people. These investors can accept more
investment risk and volatility than the stock market in
general but want less investment risk and volatility than
aggressive capital appreciation funds. Growth Investor
Portfolio may invest in foreign securities, which may entail
a greater degree of risk than investing in securities of
domestic issuers. Please see Investment Restrictions and
Risks and Investment Considerations for further information.
Purchases and Redemptions. Class A shares of Advisor Young
Investor Fund are available through your full-service
financial service firm ("FSF"). For information on
purchasing and redeeming Advisor Young Investor Fund shares,
please see How to Purchase Shares, How to Sell (Redeem)
Shares, and Management--Distributor.
Management and Fees. Stein Roe & Farnham Incorporated (the
"Adviser") is investment adviser to Growth Investor
Portfolio. In addition, it provides administrative services
to Advisor Young Investor Fund and Growth Investor Portfolio.
For a description of the Adviser and these service
arrangements, see Management.
FEE TABLE
Expenses are one of several factors to consider when
investing in Advisor Young Investor Fund. The following
tables summarize your maximum transaction costs and annual
expenses for an investment in each class of shares of Advisor
Young Investor Fund. See Management for more complete
descriptions of the various costs and expenses of Advisor
Young Investor Fund.
Shareholder Transaction Expenses1, 2
Class A
Maximum Initial Sales Charges
(as a % of offering price)........... ..None
Maximum Contingent Deferred Sales Charge
(as a % of offering price)3...............2.00%4
_________________
1. For accounts less than $1,000 an annual fee of $10 may be
deducted. See How to Purchase Shares.
2. Redemption proceeds exceeding $500 sent via federal funds
wire will be subject to a $7.50 charge per transaction.
3. Does not apply to reinvested dividends.
4. A 1.00% contingent deferred sales charge applies to
purchases of $1 million to $5 million redeemed within
approximately 18 months after purchase. See How to
Purchase Shares.
Estimated Annual Operating Expenses
Class A
Management and Administrative Fee .........0.80%
12b-1 Fees ................................0.30%
Other Expenses.............................0.55%
Total Operating Expenses ..................1.65%
Example.
You would pay the following expenses on a $1,000 investment
in Class A shares assuming 5% annual return.
Example 1 (assumes redemption at end of period):
Class A
Period:
1 Year $ 37
3 Years 72
5 Years 90
10 Years 195
Example 2 (assumes no redemption at end of period):
Class A
Period:
1 Year $ 17
3 Years 52
5 Years 90
10 Years 195
The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will
bear directly or indirectly as an investor in Advisor Young
Investor Fund. The Fee Table reflects the combined expenses
of both Advisor Young Investor Fund and Growth Investor
Portfolio. Anticipated Total Operating Expenses for Class A
shares of Advisor Young Investor Fund are annualized
projections based upon current administrative fees and
management fees. Other Expenses are estimated amounts for
the current fiscal year. The figures assume that the
percentage amounts listed under Estimated Annual Fund
Operating Expenses remain the same during each of the periods
and that all income dividends and capital gains distributions
are reinvested in additional shares.
Advisor Young Investor Fund pays the Adviser an
administrative fee based on its average daily net assets and
Growth Investor Portfolio pays the Adviser a management fee
based on its average daily net assets. The trustees of
Advisor Trust have considered whether the annual operating
expenses of Advisor Young Investor Fund, including its share
of the expenses of Growth Investor Portfolio, would be more
or less than if Advisor Young Investor Fund invested directly
in the securities held by Growth Investor Portfolio. The
trustees concluded that Advisor Young Investor Fund's expenses
would not be materially greater in such case.
The figures in the Example are not necessarily indicative of
past or future expenses, and actual expenses may be greater
or less than those shown. Although information such as that
shown in the Example and Fee Table is useful in reviewing
expenses and in providing a basis for comparison with other
mutual funds, it should not be used for comparison with other
investments using different assumptions or time periods.
Because Advisor Young Investor Fund pays a 12b-1 fee, long-
term investors in Advisor Young Investor Fund may pay more
over long periods of time in distribution expenses than the
maximum front-end sales charges permitted by the NASD. For
further information on Advisor Young Investor Fund's 12b-1
fee, see Management--Distributor or call your financial
representative.
THE FUND
Stein Roe Advisor Young Investor Fund ("Advisor Young
Investor Fund") is a multi-class series of Advisor Trust, which
is an open-end management investment company authorized to issue
shares of beneficial interest in separate series.
Rather than invest in securities directly, Advisor Young
Investor Fund seeks to achieve its investment objective by
using the "master fund/feeder fund structure." Under that
structure, a feeder fund and one or more other feeder funds
pool their assets in a master portfolio that has the same
investment objective and substantially the same investment
policies as the feeder funds. (See Master Fund/Feeder Fund:
Structure and Risk Factors.) Advisor Young Investor Fund
invests all of its net investable assets in SR&F Growth
Investor Portfolio ("Growth Investor Portfolio"), which is a
series of SR&F Base Trust ("Base Trust").
Stein Roe & Farnham Incorporated (the "Adviser") provides
portfolio management services to Growth Investor Portfolio
and administrative services to Advisor Young Investor Fund
and Growth Investor Portfolio.
INVESTMENT POLICIES
The investment objective of Advisor Young Investor Fund is to
provide long-term capital appreciation. Advisor Young
Investor Fund invests all of its net investable assets in
Growth Investor Portfolio, which has the same investment
objective and investment policies substantially similar to
Advisor Young Investor Fund. Growth Investor Portfolio seeks
to achieve this objective by investing primarily in common
stocks and other equity-type securities that, in the opinion
of the Adviser, have long-term appreciation potential.
Under normal circumstances, at least 65% of the total assets
of Growth Investor Portfolio will be invested in securities
of companies that, in the opinion of the Adviser, directly or
through one or more subsidiaries, affect the lives of young
people. Such companies may include companies that produce
products or services that young people use, are aware of, or
could potentially have an interest in. Although Growth
Investor Portfolio invests primarily in common stocks and
other equity-type securities (such as preferred stocks,
securities convertible into or exchangeable for common
stocks, and warrants or rights to purchase common stocks), it
may invest up to 35% of its total assets in debt securities.
Further information on investment techniques that may be
employed by Growth Investor Portfolio and the risks
associated with such techniques may be found under Risks and
Investment Considerations and Portfolio Investments and
Strategies in this prospectus and in the Statement of
Additional Information.
In addition to the investment objective and policies, Advisor
Young Investor Fund also has an educational objective.
Advisor Young Investor Fund seeks to educate its shareholders
by providing educational materials regarding personal finance
and investing as well as materials on the Fund and its
portfolio holdings.
PERFORMANCE INFORMATION
The total return from an investment in a class of shares of
Advisor Young Investor Fund is measured by the distributions
received, plus or minus the change in the net asset value per
share for a given period, assuming reinvestment of all
distributions on Class A shares and the contingent deferred
sales charges applicable to the time period quoted. A total
return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of
the period and subtracting one. For a given period, an
average annual total return may be calculated by finding the
average annual compounded rate that would equate a
hypothetical $1,000 investment to the ending redeemable
value. When the Fund compares the total return of its shares
to those of other mutual funds or relevant indices, its total
return may be computed without reflecting any sales charges
so long as the sales charge is stated separately in
connection with the comparison.
Comparison of the class's total return with alternative
investments should consider differences between the class and
the alternative investments, the periods and methods used in
calculation of the return being compared including the
inclusion of initial or contingent deferred sales charges,
and the impact of taxes on alternative investments. Of
course, past performance is no guarantee of future results.
Share prices may vary, and your shares when redeemed may be
worth more or less than your original purchase price.
The performance of Class A may be compared to various
indices. Performance and quotations from various
publications may be included in sales literature and
advertisements.
Advisor Young Investor Fund invests all of its net investable
assets in Growth Investor Portfolio, which has the same
investment objective and substantially the same investment
policies as Advisor Young Investor Fund. Advisor Young
Investor Fund commenced operations on Feb. 14, 1997, but
until Jan. 26, 1998, offered only the shares that are now
designated Class K shares. The historical performance of
Class A shares of Advisor Young Investor Fund for all periods
are based on the performance of Growth Investor Portfolio,
restated to reflect the sales charges, 12b-1 fees and other
expenses applicable to the class as set forth in the Fee
Table, without giving effect to any fee reimbursements
described therein and assuming reinvestment of dividends and
capital gains. Historical performance as restated should not
be interpreted as indicative of Advisor Young Investor Fund's
future performance. Had Class A shares been outstanding, the
average annual returns for Class A shares as of Sept. 30,
1997 and Dec. 31, 1997 would have been as follows:
Sept. 30 Dec. 31
1 year 24.00% 23.91%
3 years 33.26 32.83
Inception (April
( 29, 1994) 29.81 28.85
RISKS AND INVESTMENT CONSIDERATIONS
Advisor Young Investor Fund is designed for long-term
investors who desire to participate in the stock market and
places an emphasis on companies that are believed to have
above-average growth prospects, many of which affect the
lives of young people. These investors can accept more
investment risk and volatility than the stock market in
general but want less investment risk and volatility than
aggressive capital appreciation funds. Growth Investor
Portfolio usually allocates its investments among a number of
different industries rather than concentrating in a
particular industry or group of industries, but this does not
eliminate all risk. It will not, however, invest more than
25% of the total value of its assets (at the time of
investment) in the securities of companies in any one
industry. There can be no guarantee that Advisor Young
Investor Fund or Growth Investor Portfolio will achieve its
objective. Advisor Young Investor Fund also has an
educational objective. It seeks to provide education and
insight about mutual funds, basic economic principles, and
personal finance through a variety of educational materials
prepared and paid for by Advisor Young Investor Fund.
Growth Investor Portfolio may invest up to 35% of its total
assets in debt securities. Debt securities rated in the
fourth highest grade may have some speculative
characteristics, and changes in economic conditions or other
circumstances may lead to a weakened capacity of the issuers
of such securities to make principal and interest payments.
Securities rated below investment grade may possess
speculative characteristics, and changes in economic
conditions are more likely to affect the issuer's capacity to
pay interest or repay principal.
Growth Investor Portfolio may invest in securities of smaller
emerging companies as well as securities of well-seasoned
companies of any size. Smaller companies, however, involve
higher risks in that they typically have limited product
lines, markets, and financial or management resources. In
addition, the securities of smaller companies may trade less
frequently and have greater price fluctuation than larger
companies, particularly those operating in countries with
developing markets.
Growth Investor Portfolio may invest up to 25% of its total
assets in foreign securities. For purposes of this limit,
foreign securities exclude American Depositary Receipts
(ADRs), foreign debt securities denominated in U.S. dollars,
and securities guaranteed by a U.S. person. Investment in
foreign securities may represent a greater degree of risk
(including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation
of assets) than investment in securities of domestic issuers.
Other risks of foreign investing include less complete
financial information on issuers, different accounting,
auditing and financial reporting standards, different
settlement practices, less market liquidity, more market
volatility, less developed and regulated markets, and greater
political instability. In addition, various restrictions by
foreign governments on investments by nonresidents may apply,
including imposition of exchange controls and withholding
taxes on dividends, and seizure or nationalization of
investments owned by nonresidents. Foreign investments also
tend to involve higher transaction and custody costs.
Further information on investment techniques that may be
employed by Growth Investor Portfolio may be found under
Portfolio Investments and Strategies.
INVESTMENT RESTRICTIONS
Each of Advisor Young Investor Fund and Growth Investor
Portfolio is diversified as that term is defined in the
Investment Company Act of 1940.
Neither Advisor Young Investor Fund nor Growth Investor
Portfolio may invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only
to 75% of the investment portfolio, and does not apply to
securities of the U.S. Government or repurchase agreements /1/
for such securities. This restriction also does not prevent
Advisor Young Investor Fund from investing all of its assets
in shares of another investment company (such as Growth
Investor Portfolio) having the identical investment objective
under a master/feeder structure.
- ---------
/1/ A repurchase agreement involves a sale of securities to
Growth Investor Portfolio in which the seller agrees to
repurchase the securities at a higher price, which includes
an amount representing interest on the purchase price, within
a specified time. In the event of bankruptcy of the seller,
Growth Investor Portfolio could experience both losses and
delays in liquidating its collateral.
- ---------
Neither Advisor Young Investor Fund nor Growth Investor
Portfolio will acquire more than 10% of the outstanding
voting securities of any one issuer. Advisor Young Investor
Fund may, however, invest all of its assets in shares of
another investment company having the identical investment
objective under a master/feeder structure.
While Advisor Young Investor Fund and Growth Investor
Portfolio may not make loans, each may (1) purchase
money market instruments and enter into repurchase
agreements; (2) acquire publicly distributed or privately
placed debt securities; (3) lend portfolio securities under
certain conditions; and (4) participate in an interfund
lending program with other Stein Roe Funds and Portfolios.
Advisor Young Investor Fund and Growth Investor Portfolio may
not borrow money, except for nonleveraging, temporary, or
emergency purposes or in connection with participation in the
interfund lending program. Neither the aggregate borrowings
(including reverse repurchase agreements) nor the aggregate
loans at any one time may exceed 33 1/3% of the value of
total assets. Additional securities may not be purchased
when borrowings less proceeds receivable from sales of
portfolio securities exceed 5% of total assets.
Growth Investor Portfolio may invest in repurchase
agreements, provided that it will not invest more than 15% of
its net assets in illiquid securities, including repurchase
agreements maturing in more than seven days.
The policies summarized in the second, third, and fourth
paragraphs under this section and the policy with respect to
concentration of investments in any one industry described
under Risks and Investment Considerations are fundamental
policies of Advisor Young Investor Fund and Growth Investor
Portfolio and, as such, can be changed only with the approval
of a "majority of the outstanding voting securities" as
defined in the Investment Company Act of 1940. The common
investment objective of Advisor Young Investor Fund and
Growth Investor Portfolio is nonfundamental and, as such, may
be changed by the Board of Trustees without shareholder
approval. All of the investment restrictions are set forth
in the Statement of Additional Information.
PORTFOLIO INVESTMNTS AND STRATEGIES
Debt Securities. A debt security is an obligation of a
borrower to make payments of principal and interest to the
holder of the security. To the extent Growth Investor
Portfolio invests in debt securities, such holdings will be
subject to interest rate risk and credit risk. Interest rate
risk is the risk that the value of a portfolio will fluctuate
in response to changes in interest rates. Generally, the
debt component of a portfolio will tend to decrease in value
when interest rates rise and increase in value when interest
rates fall. Credit risk is the risk that an issuer will be
unable to make principal and interest payments when due.
Investments in debt securities are limited to those that are
rated within the four highest grades (generally referred to
as "investment grade") assigned by a nationally recognized
statistical rating organization. Investments in unrated debt
securities are limited to those deemed to be of comparable
quality by the Adviser. Securities rated within the fourth
highest grade may possess speculative characteristics. If
the rating of a security held by Growth Investor Portfolio is
lost or reduced below investment grade, Growth Investor
Portfolio is not required to dispose of the security--the
Adviser will, however, consider that fact in determining
whether it should continue to hold the security. When the
Adviser considers a temporary defensive position advisable,
Growth Investor Portfolio may invest without limitation in
high-quality fixed income securities, or hold assets in cash
or cash equivalents.
Foreign Securities. Growth Investor Portfolio may invest in
sponsored or unsponsored ADRs. In addition to, or in lieu
of, such direct investment, Growth Investor Portfolio may
construct a synthetic foreign debt position by (a) purchasing
a debt instrument denominated in one currency, generally U.S.
dollars; and (b) concurrently entering into a forward
contract to deliver a corresponding amount of that currency
in exchange for a different currency on a future date and at
a specified rate of exchange. Because of the availability of
a variety of highly liquid U.S. dollar debt instruments, a
synthetic foreign debt position utilizing such U.S. dollar
instruments may offer greater liquidity than direct
investment in foreign currency debt instruments.
In connection with the purchase of foreign securities, Growth
Investor Portfolio may enter into foreign currency forward
and futures contracts to hedge the currency risk in
settlement of a particular security transaction or relative
to the entire portfolio. A forward contract to purchase an
amount of foreign currency sufficient to pay the purchase
price of securities at settlement date involves the risk that
the value of the foreign currency may decline relative to the
value of the dollar prior to the settlement date. This risk
is in addition to the risk that the value of the foreign
security purchased may decline. Growth Investor Portfolio
also may enter into foreign currency contracts as a hedging
technique to limit or reduce exposure of the entire portfolio
to currency fluctuations. In addition, Growth Investor
Portfolio may use options and futures contracts, as described
below, to limit or reduce exposure to currency fluctuations.
Convertible Securities. By investing in convertible
securities, Growth Investor Portfolio obtains the right to
benefit from the capital appreciation potential in the
underlying stock upon exercise of the conversion right, while
earning higher current income than would be available if the
stock were purchased directly. In determining whether to
purchase a convertible security, the Adviser will consider
substantially the same criteria that would be considered in
purchasing the underlying stock. Although convertible
securities are frequently rated investment grade, Growth
Investor Portfolio also may purchase unrated securities or
securities rated below investment grade if the securities
meet the Adviser's other investment criteria. Convertible
securities rated below investment grade tend to be more
sensitive to interest rate and economic changes, may be
obligations of issuers who are less creditworthy than issuers
of higher-quality convertible securities, and may be more
thinly traded due to the fact that such securities are less
well known to investors than either common stock or
conventional debt securities. As a result, the Adviser's own
investment research and analysis tend to be more important
than other factors in the purchase of convertible securities.
Lending Portfolio Securities; When-Issued and Delayed-
Delivery Securities. Growth Investor Portfolio may make
loans of its portfolio securities to broker-dealers and banks
subject to certain restrictions described in the Statement of
Additional Information. Growth Investor Portfolio may
participate in an interfund lending program, subject to
certain restrictions described in the Statement of Additional
Information. Growth Investor Portfolio may invest in
securities purchased on a when-issued or delayed-delivery
basis. Although the payment terms of these securities are
established at the time Growth Investor Portfolio enters into
the commitment, the securities may be delivered and paid for
a month or more after the date of purchase, when their value
may have changed. Growth Investor Portfolio will make such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement
date if it is deemed advisable for investment reasons.
Short Sales Against the Box. Growth Investor Portfolio may
sell short securities it owns or has the right to acquire
without further consideration, using a technique called
selling short "against the box." Short sales against the box
may protect Growth Investor Portfolio against the risk of
losses in the value of its portfolio securities because any
unrealized losses with respect to such securities should be
wholly or partly offset by a corresponding gain in the short
position. However, any potential gains in such securities
should be wholly or partially offset by a corresponding loss
in the short position. Short sales against the box may be
used to lock in a profit on a security when, for tax reasons
or otherwise, the Adviser does not want to sell the security.
Growth Investor Portfolio does not expect to commit more than
5% of its net assets to short sales against the box. For a
more complete explanation, please refer to the Statement of
Additional Information.
Derivatives. Consistent with its objective, Growth Investor
Portfolio may invest in a broad array of financial
instruments and securities, including conventional exchange-
traded and non-exchange-traded options; futures contracts;
futures options; securities collateralized by underlying
pools of mortgages or other receivables; floating rate
instruments; and other instruments that securitize assets of
various types ("Derivatives"). In each case, the value of
the instrument or security is "derived" from the performance
of an underlying asset or a "benchmark" such as a security
index, an interest rate, or a currency. Growth Investor
Portfolio does not expect to invest more than 5% of its net
assets in any type of Derivative except for options, futures
contracts, and futures options.
In seeking to achieve its desired investment objective,
provide additional revenue, or hedge against changes in
security prices, interest rates or currency fluctuations,
Growth Investor Portfolio may: (1) purchase and write both
call options and put options on securities, indexes and
foreign currencies; (2) enter into interest rate, index and
foreign currency futures contracts; (3) write options on such
futures contracts; and (4) purchase other types of forward or
investment contracts linked to individual securities, indexes
or other benchmarks. Growth Investor Portfolio may write a
call or put option only if the option is covered. As the
writer of a covered call option, Growth Investor Portfolio
foregoes, during the option's life, the opportunity to profit
from increases in market value of the security covering the
call option above the sum of the premium and the exercise
price of the call. There can be no assurance that a liquid
market will exist when Growth Investor Portfolio seeks to
close out a position. In addition, because futures positions
may require low margin deposits, the use of futures contracts
involves a high degree of leverage and may result in losses
in excess of the amount of the margin deposit.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because they are
more efficient or less costly than direct investment. They
also may be used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and
directions of movements in security prices, interest rates
and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as
well regulated and may be less marketable than exchange-
traded Derivatives. For additional information on
Derivatives, please refer to the Statement of Additional
Information.
Portfolio Turnover. Although Growth Investor Portfolio does
not purchase securities with a view to rapid turnover, there
are no limitations on the length of time portfolio securities
must be held. Accordingly, the portfolio turnover rate may
vary significantly from year to year, but is not expected to
exceed 100% under normal market conditions. A high rate of
portfolio turnover may result in increased transaction
expenses and the realization of capital gains and losses.
(See Distributions and Income Taxes.)
NET ASSET VALUE
Advisor Young Investor Fund determines the net asset value of
its shares as of the close of regular session trading on the New
York Stock Exchange ("NYSE") (currently 3:00 p.m., central time
or 4:00 p.m., eastern time) by dividing the difference between the
value of its assets and liabilities allocable to that class
by the number of shares of that class outstanding. Growth Investor
Portfolio allocates net asset value, income, and expenses to Advisor
Young Investor Fund and any other of its feeder funds in proportion
to their respective interests in Growth Investor Portfolio.
Net asset value will not be determined on days when the NYSE
is closed unless, in the judgment of the Board of Trustees,
the net asset value of Advisor Young Investor Fund should be
determined on any such day, in which case the determination
will be made at 3:00 p.m., central time or 4:00 p.m., eastern
time.
Each security traded on a national stock exchange is valued
at its last sale price on that exchange on the day of
valuation or, if there are no sales that day, at the latest
bid quotation. Each over-the-counter security for which the
last sale price on the day of valuation is available from
Nasdaq is valued at that price. All other over-the-counter
securities for which reliable quotations are available are
valued at the latest bid quotation.
Long-term straight-debt obligations and securities
convertible into stocks are valued at a fair value using a
procedure determined in good faith by the Board of Trustees.
Pricing services approved by the Board provide valuations
(some of which may be "readily available market quotations").
These valuations are reviewed by the Adviser. If the Adviser
believes that a valuation received from the service does not
represent a fair value, it values the obligation using a
method that the Board believes represents fair value. The
Board may approve the use of other pricing services and any
pricing service used may employ electronic data processing
techniques, including a so-called "matrix" system, to
determine valuations. Other assets and securities are valued
by a method that the Board believes represents fair value.
HOW TO PURCHASE SHARES
Shares of each class of Advisor Young Investor Fund are
offered continuously. Orders for a class received in good
order prior to the time at which Advisor Young Investor Fund
values the shares of that class (or placed with a FSF before
such time and transmitted by the FSF before Advisor Young
Investor Fund processes that day's share transactions or at
such other times as agreed by the parties) will be processed
based on that day's closing net asset value for the class,
plus any applicable initial sales charge.
With respect to all accounts other than UGMA, UTMA and Education
IRA accounts, the initial purchase minimum per account is $1,000;
subsequent investments may be as small as $50. The minimum
initial investment for the Fundamatic program (as discussed
in the Statement of Additional Information) is $50, and the
minimum initial investment for a retirement account sponsored
by Liberty Financial Investments, Inc. (the "Distributor"), an
affiliate of the Adviser, is $25. Advisor Young Investor Fund may
refuse any purchase order for its shares. See How to Sell (Redeem)
Shares and the Statement of Additional Information for more
information.
Class A Shares. Class A shares are offered at net asset
value. On purchases of less than $1 million, the Distributor pays
the FSF a commission of 2.00%. On purchases of $1 million or more,
the Distributor pays the FSF a cumulative commission as
follows:
Amount Purchased Commission
First $3,000,000 1.00%
Next $2,000,000 0.50
Over $5,000,000 0.251
_______________________
1. Paid over 12 months but only to the extent the shares
remain outstanding.
In determining the commission applicable to a new purchase
under the above schedule, the amount of the current purchase
is added to the current value of shares previously purchased
and still held by an investor. If a purchase results in an
account having a value from $1 million to $5 million, then
the shares purchased will be subject to a 1.00% contingent
deferred sales charge payable to the Distributor, if redeemed
within 18 months from the first day of the month following
the purchase. If the purchase results in an account having a
value in excess of $5 million, the contingent deferred sales
charge will not apply to the portion of the purchased shares
comprising such excess amount.
Purchases of $1 million to $5 million are subject to a 1.00%
contingent deferred sales charge payable to the Distributor
on redemptions within 18 months from the first day of the
month following the purchase. The contingent deferred sales
charge does not apply to the excess of any purchase over $5
million.
Purchases of less than $1 million are subject to a contingent
deferred sales charge of 2.00% if the shares are redeemed
within three years from the first day of the month following
the month in which the purchase was accepted.
General. All contingent deferred sales charges are deducted
from the amount redeemed, not the amount remaining in the
account, and are paid to the Distributor. Shares issued upon
distribution reinvestment and amounts representing
appreciation are not subject to a contingent deferred sales
charge. The contingent deferred sales charge is imposed on
redemptions which result in the account value falling below
its Base Amount (the total dollar value of purchase payments
(including initial sales charges, if any) in the account,
reduced by prior redemptions on which a contingent deferred
sales charge was paid and any exempt redemptions). When a
redemption subject to a contingent deferred sales charge is
made, generally older shares will be redeemed first. This may
mean that the shares redeemed will be those closest to being
outside the period in which the contingent deferred sales charge
is in effect. See the Statement of Additional Information for
more information.
FSFs may receive different compensation rates for selling
different classes of shares. The Distributor may pay
additional compensation for FSFs which have made or may make
significant sales. See the Statement of Additional
Information for more information.
Special Purchase Programs. Advisor Young Investor Fund
allows certain investors or groups of investors to purchase
shares with reduced or without initial or contingent deferred
sales charges. The programs are described in the Statement
of Additional Information under Purchases and Redemptions--
Special Purchase Programs/Investor Services.
Conditions of Purchase. Each purchase order for Advisor
Young Investor Fund must be accepted by an authorized officer
of the Distributor or its authorized agent and is not binding
until accepted and entered on the books of Advisor Young
Investor Fund. Advisor Trust reserves the right not to
accept any purchase order that it determines not to be in the
best interests of Advisor Trust or of Advisor Young Investor
Fund's shareholders.
To reduce the volume of mail you receive, only one copy of certain
Materials, such as prospectuses and shareholder reports, will be
mailed to your household (same address). Please call 800-322-0593 if
you wish to receive additional copies free of charge.
Shareholder Services and Account Fees. A variety of
shareholder services are available. For more information
about these services or your account call (800) 345-6611.
Some services are described in the attached account
application. A Shareholder's Manual explaining all available
services will be provided upon request.
With respect to all accounts other than UGMA, UTMA and Education
IRA accounts, in June of any year, the Fund may deduct $10 (payable
to the Transfer Agent) from accounts valued at less than $1,000
unless the account value has dropped below $1,000 solely as a
result of share value depreciation. Shareholders will
receive 60 days' written notice to increase the account value
before the fee is deducted. The Fund may also deduct annual
maintenance and processing fees (payable to the Transfer
Agent) in connection with certain retirement plan accounts.
(See Purchases and Redemptions--Special Purchase
Programs/Investor Services in the Statement of Additional
Information.)
HOW TO SELL (REDEEM) SHARES
Selling Shares Directly to Advisor Young Investor Fund. You
may redeem all or a portion of your shares by submitting a
written request, in English, in good order. Send a signed letter of
instruction to the Transfer Agent. The sale price is the net
asset value (less any contingent deferred sales charge) next
determined after receipt of your redemption request in good
order. Signatures must be guaranteed by a bank, a member
firm of a national stock exchange or another eligible
guarantor institution. Additional documentation is required
for sales by corporations, agents, fiduciaries, surviving
joint owners and individual retirement account holders. For
details contact:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
(800) 345-6611
Selling Shares through FSFs. FSFs must receive requests
prior to the time at which Advisor Young Investor Fund values
its shares to receive that day's price, are responsible for
furnishing all necessary documentation to the Transfer Agent,
and may charge for this service. Your FSF may be closed on
days when the NYSE is open. As a result, prices for shares
may be significantly affected on days when you have no access
to your FSF to sell shares. If you wish to sell shares
through your FSF, please contact it for instructions.
Exchange Privilege. For a period of 90 days following the
purchase of Class A shares of Advisor Young Investor Fund,
exchanges at net asset value may be made among Class A shares
of Colonial Municipal Money Market Fund or Colonial Government
Money Market Fund (or its successor). Thereafter, exchanges at
net asset value may be made among Class A shares of any other
fund that is a series of Advisor Trust or of most funds advised
by Colonial Management Associates, Inc. or distributed by the
Distributor, each an affiliate of the Adviser. A contingent
deferred sales charge, if any, continues to apply to the
exchanged shares. For more information on the Colonial Funds, see
your financial adviser or call (800) 426-3750. Not all Advisor
Trust Funds offer Class A shares. An exchange transaction is a
sale and purchase of shares for federal income tax purposes and may
result in capital gain or loss. Before exchanging into
another fund, you should obtain the prospectus for the fund
in which you wish to invest and read it carefully. The
registration of the account to which you are making an
exchange must be exactly the same as that of the account from
which the exchange is made. Advisor Young Investor Fund
reserves the right to suspend, limit, modify, or terminate
the exchange privilege (including the telephone exchange
privilege) or its use in any manner by any person or class.
Advisor Young Investor Fund will terminate the exchange
privilege as to a particular shareholder if the Adviser
determines, in its sole and absolute discretion, that the
shareholder's exchange activity is likely to adversely impact
the Adviser's ability to manage the investment portfolio in
accordance with the investment objective or otherwise harm
Advisor Young Investor Fund or its remaining shareholders.
Shares will continue to age without regard to the exchange
for the purpose of determining the contingent deferred sales
charge, if any, upon redemption.
An exchange from a money market fund into a non-money market
fund will be at the applicable offering price next determined
(including sales charge), except for amounts on which an
initial sales charge was paid. Non-money market fund shares
must be held for five months before qualifying for exchange
into a fund with a higher sales charge, after which an
exchange is made at the net asset value next determined.
Exchanges of Class A shares are not subject to the contingent
deferred sales charge. However, if shares received in the
exchange are redeemed within three years after the original
purchase, a contingent deferred sales charge will be assessed
using the schedule of the fund into which the original
investment was made.
Telephone Transactions. Shareholders and/or their financial
advisers are automatically eligible to exchange shares and
redeem shares up to $50,000 by calling (800) 422-3737 any
business day between 10:00 a.m., central time (or 9:00 a.m.,
eastern time) and the time as of which Advisor Young Investor
Fund values its shares. Telephone redemption privileges for
larger amounts may be elected on the account application.
Generally, other than as set forth herein, you will be
limited to four telephone exchange round-trips per year, and
Advisor Young Investor Fund may refuse requests for telephone
exchanges in excess of four round-trips.
Advisor Trust reserves the right to terminate at any time and
without prior notice the use of the telephone exchange by any
person or class of persons. Advisor Trust believes that use
of the telephone exchange by investors utilizing market-
timing strategies adversely affects the Advisor Trust Funds.
Therefore, regardless of the number of telephone exchange
round-trips made by an investor, Advisor Trust generally will
not honor requests for telephone exchanges by shareholders
identified by Advisor Trust as "market-timers" if the
officers of the Trust determine the order not to be in the
best interests of the Trust or its shareholders. Advisor
Trust generally identifies as a "market-timer" an investor
whose investment decisions appear to be based on actual or
anticipated near-term changes in the securities markets
rather than other investment considerations.
The Transfer Agent employs procedures reasonably designed to
confirm that instructions communicated by telephone are
genuine. If Advisor Young Investor Fund and/or the Transfer
Agent does not follow reasonable procedures for protecting
shareholders against loss on telephone transactions, it may
be liable for any losses due to unauthorized or fraudulent
instructions. Such procedures include restrictions on where
proceeds of telephone redemptions may be sent, limitations on
the ability to redeem by telephone shortly after an address
change, recording of telephone lines and requirements that
the redeeming shareholder and/or his/her financial adviser
provide certain identifying information. Shareholders and/or
their financial advisers wishing to redeem or exchange shares
by telephone may experience difficulty in reaching Advisor
Young Investor Fund at the toll free number during periods of
drastic economic or market changes. In that event,
shareholders and/or their financial advisers should follow
the procedures for redemption or exchange by mail as
described above under How to Sell (Redeem) Shares. The
Transfer Agent and Advisor Young Investor Fund reserve the
right to change, modify or terminate the telephone redemption
or exchange services at any time upon prior written notice to
shareholders. Shareholders and/or their financial advisers
are not obligated to transact by telephone.
General Redemption Policies. Shares of Advisor Young
Investor Fund may be sold on any day the NYSE is open, either
directly with Advisor Young Investor Fund or through your
FSF. Advisor Trust will pay redemption proceeds (less any
applicable contingent deferred sales charge) as soon as
practicable, generally within seven days after proper
instructions are received. However, for shares recently
purchased by check, Advisor Young Investor Fund will delay
sending proceeds for 15 days in order to protect the Fund
against financial losses and dilution in net asset value
caused by dishonored purchase payment checks. To avoid delay
in payment, investors are advised to purchase shares
unconditionally, such as by certified check or other
immediately available funds. Advisor Trust cannot accept a
redemption request that specifies a particular date or price
for redemption or any special conditions.
The price at which your redemption order will be executed is
the net asset value next determined after receipt of your
redemption request in good order by Advisor Young Investor
Fund. (See Net Asset Value.) Because the redemption price
you receive depends upon Advisor Young Investor Fund's net
asset value per share at the time of redemption, it may be
more or less than the price you originally paid for the
shares, may result in a realized capital gain or loss and may
be subject to a contingent deferred sales charge. The
contingent deferred sales charge may be waived under certain
circumstances. See the Statement of Additional Information
for more information.
DISTRIBUTIONS AND INCOME TAXES
Distributions. Income dividends are declared and paid
annually. Advisor Young Investor Fund intends to distribute
by the end of each calendar year at least 98% of any net
capital gains realized from the sale of securities during the
12-month period ended Oct. 31 in that year. Advisor Young
Investor Fund intends to distribute any undistributed net
investment income and net realized capital gains in the
following year.
All income dividends and capital gains distributions on
shares of Advisor Young Investor Fund will be reinvested in
additional shares of the same class of Advisor Young Investor
Fund unless you elect to have distributions paid by check.
Reinvestment normally occurs on the payable date. Regardless
of your election, distributions of $10 or less will not be
paid by check to the shareholder, but will be reinvested in
additional shares of the same class of Advisor Young Investor
Fund at net asset value. If you have elected to receive
dividends and/or capital gains distributions in cash and the
postal or other delivery service selected by the Transfer
Agent is unable to deliver checks to your address of record,
your distribution option will automatically be converted to
having all dividend and other distributions reinvested in
additional shares. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
To change your election, call the Transfer Agent for
instructions.
Income Taxes. For federal income tax purposes, Advisor Young
Investor Fund is treated as a separate taxable entity
distinct from the other series of Advisor Trust. Advisor
Young Investor Fund intends to qualify for the special tax
treatment afforded regulated investment companies under
Subchapter M of the Internal Revenue Code, so that it will be
relieved of federal income tax on that part of its net
investment income and net capital gains that is distributed
to shareholders.
Generally distributions are taxable as ordinary income,
except that any distributions of net long-term capital gains
will be taxed as such. However, distributions to plans that
qualify for tax-exempt treatment under federal income tax
laws will not be taxable. Special tax rules apply to
investments through such plans.
The Taxpayer Relief Act of 1997 (the "Act") reduced from 28%
to 20% the maximum tax rate on long-term capital gains. This
reduced rate generally applies to securities held for more
than 18 months and sold after July 28, 1997, and securities
held for more than one year and sold between May 6, 1997 and
July 29, 1997.
If you buy shares shortly before a distribution is declared,
the distribution will be taxable although it is, in effect, a
partial return of the amount invested.
This section is not intended to be a full discussion of
income tax laws and their effect on shareholders. You may
wish to consult your own tax advisor.
MANAGEMENT
Trustees and Investment Adviser. The Board of Trustees of
Advisor Trust and the Board of Trustees of Base Trust have
overall management responsibility for Advisor Young Investor
Fund and Growth Investor Portfolio, respectively. See
Management in the Statement of Additional Information for the
names of and other information about the trustees and
officers. Since Advisor Trust and Base Trust have the same
trustees, the trustees have adopted conflict of interest
procedures to monitor and address potential conflicts between
the interests of Advisor Young Investor Fund and Growth
Investor Portfolio and other feeder funds investing in Growth
Investor Portfolio that share a common Board of Trustees with
Advisor Trust and Base Trust.
The Adviser, Stein Roe & Farnham Incorporated, One South
Wacker Drive, Chicago, Illinois 60606, is responsible for
managing the investment portfolio of Growth Investor
Portfolio and the business affairs of Advisor Young Investor
Fund, Growth Investor Portfolio, Advisor Trust, and Base
Trust, subject to the direction of the respective Board. The
Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940. The Adviser and its
predecessor have advised and managed mutual funds since 1949.
The Adviser is a wholly owned indirect subsidiary of Liberty
Financial Companies, Inc. ("Liberty Financial"), which in
turn is a majority owned indirect subsidiary of Liberty
Mutual Insurance Company.
Portfolio Managers. Erik P. Gustafson and David P. Brady
have been portfolio managers of Growth Investor Portfolio
since its inception in 1997 and had managed its predecessor
since Feb. 1995 and Mar. 1995, respectively. As of Sept. 30,
1997, Messrs. Gustafson and Brady were responsible for co-
managing $1.2 billion and $475 million in mutual fund net
assets, respectively. Mr. Gustafson is a senior vice
president of the Adviser and Mr. Brady is a vice president of
the Adviser. Before joining the Adviser, Mr. Gustafson was
an attorney with Fowler, White, Burnett, Hurley, Banick &
Strickroot from 1989 to 1992. He holds a B.A. from the
University of Virginia (1985) and M.B.A. and J.D. degrees
from Florida State University (1989). Mr. Brady, who joined
the Adviser in 1993, was an equity investment analyst with
State Farm Mutual Automobile Insurance Company from 1986 to
1993. A chartered financial analyst, Mr. Brady earned a B.S.
in Finance, graduating Magna Cum Laude, from the University
of Arizona (1986), and an M.B.A. from the University of
Chicago (1989).
Fees and Expenses. The Adviser is entitled to receive a
monthly administrative fee from Advisor Young Investor Fund,
computed and accrued daily, at an annual rate of 0.20% of the
first $500 million of average net assets, 0.15% of the next
$500 million, and 0.125% thereafter; and a monthly management
fee from Growth Investor Portfolio, computed and accrued
daily, at an annual rate of 0.60% of the first $500 million
of average net assets, 0.55% of the next $500 million, and
0.50% thereafter. However, as noted above under Fee Table,
the Adviser may voluntarily undertake to reimburse Advisor
Young Investor Fund for a portion of its operating expenses
and its pro rata share of Growth Investor Portfolio's
operating expenses. For the fiscal year ended Sept. 30,
1997, Advisor Young Investor Fund's administrative fee, in
addition to the pro rata portion of Growth Investor
Portfolio's management fees, was 0.00% of average net assets,
after the fee waiver.
Under a separate agreement with each Trust, the Adviser
provides certain accounting and bookkeeping services to
Advisor Young Investor Fund and Growth Investor Portfolio
including computation of net asset value and calculation of
its net income and capital gains and losses on disposition of
assets.
In addition, the Adviser is free to make additional payments
out of its own assets to promote the sale of shares of
Advisor Young Investor Fund.
Portfolio Transactions. The Adviser places the orders for
the purchase and sale of portfolio securities and options and
futures contracts for Growth Investor Portfolio. In doing
so, the Adviser seeks to obtain the best combination of price
and execution, which involves a number of judgmental factors.
Transfer Agent and Shareholder Services. Colonial Investors
Service Center, Inc. ("Transfer Agent"), P.O. Box 1722,
Boston, MA 02105-1722, an indirect subsidiary of Liberty
Financial, is the agent of Advisor Trust for the transfer of
shares, disbursement of dividends, and maintenance of
shareholder accounting records.
Some FSFs that maintain nominee accounts with Advisor Young
Investor Fund for their clients who are Fund shareholders may
be paid a fee by the Transfer Agent for shareholder servicing
and accounting services they provide with respect to the
underlying Fund shares.
Distributor. The shares of Advisor Young Investor Fund are
offered for sale through Liberty Financial Investments, Inc.
The Distributor is a subsidiary of Colonial Management
Associates, Inc., which is an indirect subsidiary of Liberty
Financial. The business address of the Distributor is One
Financial Center, Boston, Massachusetts 02111-2621; however,
all Fund correspondence (including purchase and redemption
orders) should be mailed to Colonial Investors Service
Center, Inc., the Transfer Agent, at P.O. Box 1722, Boston,
Massachusetts 02105-1722.
The trustees of Advisor Trust have adopted a plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 ("Plan").
The Plan provides that, as compensation for personal service
and/or the maintenance of shareholder accounts, the
Distributor receives from Advisor Young Investor Fund a
service fee at an annual rate not to exceed 0.25% of the
Fund's net assets attributed to Class A shares. The Plan
also provides that, as compensation for expenses related to
the promotion and distribution of shares of Advisor Young
Investor Fund including its expenses related to the sale and
promotion of Advisor Young Investor Fund shares, the
Distributor receives from Advisor Young Investor Fund a
distribution fee at an annual rate not exceeding 0.10% of the
average net assets attributed to Class A shares. At this
time, the Distributor has voluntarily agreed to limit the
Class A distribution fee to 0.05% annually. The Distributor
may terminate this voluntary limitation without shareholder
approval. The Distributor generally pays this compensation
to institutions that distribute Advisor Young Investor Fund
shares and provide services to Advisor Young Investor Fund
and its shareholders. Those institutions may use the
payments for, among other purposes, compensating employees
engaged in sales and/or shareholder servicing. The amount of
fees paid by Advisor Young Investor Fund during any year may
be more or less than the cost of distribution or other
services provided to Advisor Young Investor Fund. NASD rules
limit the amount of annual distribution fees that may be paid
by a mutual fund and impose a ceiling on the cumulative sales
charges paid.
Custodian. State Street Bank and Trust Company (the "Bank"),
225 Franklin Street, Boston, Massachusetts 02101, is the
custodian for Advisor Young Investor Fund and Growth Investor
Portfolio. Foreign securities are maintained in the custody
of foreign banks and trust companies that are members of the
Bank's Global Custody Network or foreign depositories used by
such members. (See Custodian in the Statement of Additional
Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
Advisor Trust is a Massachusetts business trust organized
under an Agreement and Declaration of Trust ("Declaration of
Trust") dated July 31, 1996, which provides that each
shareholder shall be deemed to have agreed to be bound by the
terms thereof. The Declaration of Trust may be amended by a
vote of either Advisor Trust's shareholders or its trustees.
Advisor Trust may issue an unlimited number of shares, in one
or more series as the Board may authorize. Currently, ten
series are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as Advisor Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides
that persons extending credit to, contracting with, or having
any claim against, Advisor Trust or any particular series
shall look only to the assets of Advisor Trust or of the
respective series for payment under such credit, contract or
claim, and that the shareholders, trustees and officers shall
have no personal liability therefor. The Declaration of
Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or
made on behalf of Advisor Trust. The Declaration of Trust
provides for indemnification of any shareholder against any
loss and expense arising from personal liability solely by
reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of
shareholder liability is believed to be remote, because it
would be limited to circumstances in which the disclaimer was
inoperative and Advisor Trust was unable to meet its
obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of Advisor
Trust also is believed to be remote, because it would be
limited to claims to which the disclaimer did not apply and
to circumstances in which the other series was unable to meet
its obligations.
As a business trust, Advisor Trust is not required to hold annual
shareholder meetings. However, special meetings may be called for
purposes such as electing or removing trustees, changing fundamental
policies, or approving an investment advisory contract.
MASTER FUND/FEEDER FUND: STRUCTURE AND RISK FACTORS
Advisor Young Investor Fund, an open-end management
investment company, seeks to achieve its objective by
investing all of its assets in another mutual fund having an
investment objective identical to that of Advisor Young
Investor Fund. The initial shareholder of Advisor Young
Investor Fund approved this policy of permitting Advisor
Young Investor Fund to act as a feeder fund by investing in
Growth Investor Portfolio. Please refer to Investment
Policies, Portfolio Investments and Strategies, and
Investment Restrictions for a description of the investment
objective, policies, and restrictions of Advisor Young
Investor Fund and Growth Investor Portfolio. The management
and expenses of both Advisor Young Investor Fund and Growth
Investor Portfolio are described under Fee Table and
Management. Advisor Young Investor Fund bears its
proportionate share of Portfolio expenses.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
Growth Investor Portfolio is a separate series of SR&F Base
Trust ("Base Trust"), a Massachusetts common law trust
organized under an Agreement and Declaration of Trust
("Declaration of Trust") dated Aug. 23, 1993. The
Declaration of Trust of Base Trust provides that Advisor
Young Investor Fund and other investors in Growth Investor
Portfolio will each be liable for all obligations of Growth
Investor Portfolio that are not satisfied by the Portfolio.
However, the risk of Advisor Young Investor Fund incurring
financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and
Growth Investor Portfolio itself was unable to meet its
obligations. Accordingly, the trustees of Advisor Trust
believe that neither Advisor Young Investor Fund nor its
shareholders will be adversely affected by reason of Advisor
Young Investor Fund's investing in Growth Investor Portfolio.
The Declaration of Trust of Base Trust provides that Growth
Investor Portfolio will terminate 120 days after the
withdrawal of Advisor Young Investor Fund or any other
investor in Growth Investor Portfolio, unless the remaining
investors vote to agree to continue the business of Growth
Investor Portfolio. The trustees of Advisor Trust may vote
Advisor Young Investor Fund's interests in Growth Investor
Portfolio for such continuation without approval of Advisor
Young Investor Fund's shareholders.
The common investment objective of Advisor Young Investor
Fund and Growth Investor Portfolio is nonfundamental and may
be changed without shareholder approval. The fundamental
policies of Advisor Young Investor Fund and the corresponding
fundamental policies of Growth Investor Portfolio can be
changed only with shareholder approval. Class A shareholders
may incur a contingent deferred sales charge if they redeem
shares in response to a change in investment objective.
If Advisor Young Investor Fund, as a Portfolio investor, is
requested to vote on a proposed change in fundamental policy
of Growth Investor Portfolio or any other matter pertaining
to Growth Investor Portfolio (other than continuation of the
business of Growth Investor Portfolio after withdrawal of
another investor), Advisor Young Investor Fund will solicit
proxies from its shareholders and vote its interest in Growth
Investor Portfolio for and against such matters
proportionately to the instructions to vote for and against
such matters received from Advisor Young Investor Fund
shareholders. Advisor Young Investor Fund will vote shares
for which it receives no voting instructions in the same
proportion as the shares for which it receives voting
instructions. There can be no assurance that any matter
receiving a majority of votes cast by Fund shareholders will
receive a majority of votes cast by all Growth Investor
Portfolio investors. If other investors hold a majority
interest in Growth Investor Portfolio, they could have voting
control over Growth Investor Portfolio.
In the event that Growth Investor Portfolio's fundamental
policies were changed so as to be inconsistent with those of
Advisor Young Investor Fund, the Board of Trustees of Advisor
Trust would consider what action might be taken, including
changes to Advisor Young Investor Fund's fundamental
policies, withdrawal of Advisor Young Investor Fund's assets
from Growth Investor Portfolio and investment of such assets
in another pooled investment entity, or the retention of
another investment adviser. Any of these actions would
require the approval of Advisor Young Investor Fund's
shareholders. Advisor Young Investor Fund's inability to
find a substitute master fund or comparable investment
management could have a significant impact upon its
shareholders' investments. Any withdrawal of Advisor Young
Investor Fund's assets could result in a distribution in kind
of portfolio securities (as opposed to a cash distribution)
to Advisor Young Investor Fund. Should such a distribution
occur, Advisor Young Investor Fund would incur brokerage fees
or other transaction costs in converting such securities to
cash. In addition, a distribution in kind could result in a
less diversified portfolio of investments for Advisor Young
Investor Fund and could affect the liquidity of Advisor Young
Investor Fund.
Each investor in Growth Investor Portfolio, including Advisor
Young Investor Fund, may add to or reduce its investment in
Growth Investor Portfolio on each day the NYSE is open for
business. The investor's percentage of the aggregate
interests in Growth Investor Portfolio will be computed as
the percentage equal to the fraction (i) the numerator of
which is the beginning of the day value of such investor's
investment in Growth Investor Portfolio on such day plus or
minus, as the case may be, the amount of any additions to or
withdrawals from the investor's investment in Growth Investor
Portfolio effected on such day; and (ii) the denominator of
which is the aggregate beginning of the day net asset value
of Growth Investor Portfolio on such day plus or minus, as
the case may be, the amount of the net additions to or
withdrawals from the aggregate investments in Growth Investor
Portfolio by all investors in Growth Investor Portfolio. The
percentage so determined will then be applied to determine
the value of the investor's interest in Growth Investor
Portfolio as of the close of business.
Base Trust may permit other investment companies and/or other
institutional investors to invest in Growth Investor
Portfolio, but members of the general public may not invest
directly in Growth Investor Portfolio. Other investors in
Growth Investor Portfolio are not required to sell their
shares at the same public offering price as Advisor Young
Investor Fund and might incur different administrative fees
and expenses than Advisor Young Investor Fund. Therefore,
Advisor Young Investor Fund shareholders might have different
investment returns than shareholders in another investment
company that invests exclusively in Growth Investor
Portfolio. Investment by such other investors in Growth
Investor Portfolio would provide funds for the purchase of
additional portfolio securities and would tend to reduce the
Portfolio's operating expenses as a percentage of its net
assets. Conversely, large-scale redemptions by any such
other investors in Growth Investor Portfolio could result in
untimely liquidations of Growth Investor Portfolio's security
holdings, loss of investment flexibility, and increases in
the operating expenses of Growth Investor Portfolio as a
percentage of its net assets. As a result, Growth Investor
Portfolio's security holdings may become less diverse,
resulting in increased risk.
Growth Investor Portfolio commenced operations in Feb. 1997
when Stein Roe Young Investor Fund, a mutual fund that,
together with its corporate predecessor, had invested
directly in securities since 1958, converted into a feeder
fund by investing all of its assets in the Portfolio.
Currently Stein Roe Young Investor Fund, which is a series of
Stein Roe Investment Trust, is the only other investment
company investing in Growth Investor Portfolio. Information
regarding any investment company that may invest in Growth
Investor Portfolio in the future may be obtained by writing
to SR&F Base Trust, Suite 3200, One South Wacker Drive,
Chicago, Illinois 60606, or by calling (800) 338-2550. The
Adviser may provide administrative or other services to one
or more of such investors.
FOR MORE INFORMATION
For more information about Advisor Young Investor Fund, call
(800) 345-6611.
<PAGE>
Prospectus, Jan. 26, 1998
Stein Roe Advisor Young Investor Fund
The investment objective of Advisor Young Investor Fund is to
provide long-term capital appreciation. Advisor Young
Investor Fund invests all of its net investable assets in
SR&F Growth Investor Portfolio, a portfolio of SR&F Base
Trust that has the same investment objective and
substantially the same investment policies as Advisor Young
Investor Fund. The investment experience of Advisor Young
Investor Fund will correspond to Growth Investor Portfolio.
(See Master Fund/Feeder Fund: Structure and Risk Factors)
Advisor Young Investor Fund also has an educational objective.
It seeks to provide education and insight about mutual funds.
Advisor Young Investor Fund is a multi-class series of Stein
Roe Advisor Trust and SR&F Growth Investor Portfolio is a
series of SR&F Base Trust. Each Trust is an open-end
management investment company. This prospectus relates only
to Class K of Advisor Young Investor Fund. Class K shares
are offered at net asset value and are subject to an annual
distribution fee. (See How to Purchase Shares.) For
information on Class A shares, please call (800) 345-6611.
This prospectus contains information you should know before
investing in Advisor Young Investor Fund. Please read it
carefully and retain it for future reference. Please consult
your full-service financial adviser to determine how
investing in this mutual fund may suit your unique needs,
time horizon and risk tolerance.
A Statement of Additional Information dated Jan. 26, 1998,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference.
The Statement of Additional Information and most recent
financial statements may be obtained without charge by
calling (800) 426-3750.
NOT FDIC INSURED MAY LOSE VALUE
NO BANK GUARANTEE
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
TABLE OF CONTENTS
Page
Summary..............................2
Fee Table............................3
Financial Highlights.................5
The Fund.............................6
Investment Policies..................6
Performance Information..............6
Risks and Investment Considerations .7
Investment Restrictions .............7
Portfolio Investments and Strategies.8
Net Asset Value ....................10
How to Purchase Shares..............11
How to Sell (Redeem) Shares ........13
Distributions and Income Taxes......15
Management .........................15
Organization and Description of
Shares............................17
Master Fund/Feeder Fund: Structure
and Risk Factors..................18
For More Information ...............19
SUMMARY
Stein Roe Advisor Young Investor Fund ("Advisor Young
Investor Fund") is a series of Stein Roe Advisor Trust
("Advisor Trust"), an open-end management investment company
organized as a Massachusetts business trust. (See The Fund
and Organization and Description of Shares.) This prospectus
is not a solicitation in any jurisdiction in which shares of
Advisor Young Investor Fund are not qualified for sale.
Investment Objective and Policies. The investment objective
of Advisor Young Investor Fund is to provide long-term
capital appreciation by investing in common stocks and other
equity-type securities that the Adviser believes to have
long-term appreciation potential. Advisor Young Investor
Fund invests all of its net investable assets in SR&F Growth
Investor Portfolio ("Growth Investor Portfolio") which has
the same investment objective and investment policies
substantially similar to those of Advisor Young Investor
Fund. Growth Investor Portfolio invests primarily in
securities of companies that are believed to have above-
average growth prospects, many of which affect the lives of
young people.
In addition to the investment objective and policies, Advisor
Young Investor Fund also has an educational objective. It
seeks to provide education and insight about mutual funds,
basic economic principles, and personal finance through a
variety of educational materials prepared and paid for by
Advisor Young Investor Fund.
Advisor Young Investor Fund is designed to be appropriate for
growth-oriented investors of all ages. Its focus on
companies that affect the lives of young people and its
educational objective and materials may make it especially
appropriate for young people and investors for whom education
is an important objective.
For a more detailed discussion of the investment objective
and policies, please see Investment Policies and Portfolio
Investments and Strategies. There is, of course, no
guarantee that Advisor Young Investor Fund or Growth
Investor Portfolio will achieve their common investment
objective.
Investment Risks. Advisor Young Investor Fund is designed for
long-term investors who desire to participate in the stock
market and places an emphasis on companies that are believed
to have above-average growth prospects, many of which affect
the lives of young people. These investors can accept more
investment risk and volatility than the stock market in
general but want less investment risk and volatility than
aggressive capital appreciation funds. Growth Investor
Portfolio may invest in foreign securities, which may entail
a greater degree of risk than investing in securities of
domestic issuers. Please see Investment Restrictions and
Risks and Investment Considerations for further information.
Purchases and Redemptions. Class K shares of Advisor Young Investor
Fund may be purchased only through intermediaries, including
certain broker-dealers, bank trust departments, asset
allocation programs sponsored by the Adviser, wrap fee
programs and retirement plan service providers
("Intermediaries"). For information on purchasing and
redeeming Advisor Young Investor Fund shares, please see How
to Purchase Shares, How to Sell (Redeem) Shares, and
Management--Distributor.
Management and Fees. Stein Roe & Farnham Incorporated (the
"Adviser") is investment adviser to Growth Investor
Portfolio. In addition, it provides administrative services
to Advisor Young Investor Fund and Growth Investor Portfolio.
For a description of the Adviser and these service
arrangements, see Management.
FEE TABLE
Expenses are one of several factors to consider when
investing in Advisor Young Investor Fund. The following
tables summarize your maximum transaction costs and annual
expenses for an investment in Class K shares of Advisor
Young Investor Fund. See Management for more complete
descriptions of the various costs and expenses of Advisor
Young Investor Fund.
Shareholder Transaction Expenses*
Sales Load Imposed on Purchases...................None
Sales Load Imposed on Reinvested Dividends........None
Deferred Sales Load...............................None
Redemption Fees*..................................None
Exchange Fees.....................................None
____________________
* Redemption proceeds exceeding $500 sent via federal funds
wire will be subject to a $7.50 charge per transaction.
Estimated Annual Operating Expenses
Class K
Management and Administrative Fee ...............0.80%
12b-1 Fees ......................................0.25%
Other Expenses (after reimbursement).............0.45%
Total Operating Expenses (after reimbursement)...1.50%
Example.
You would pay the following expenses on a $1,000 investment
in Class K shares assuming 5% annual return.
Example 1 (assumes redemption at end of period):
Class K
Period:
1 Year $15
3 Years 47
5 Years 82
10 Years 179
The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will
bear directly or indirectly as an investor in Advisor Young
Investor Fund. The Fee Table reflects the combined expenses
of both Advisor Young Investor Fund and Growth Investor
Portfolio. Anticipated Total Operating Expenses for
Class K shares of Advisor Young Investor Fund are annualized
projections based upon current administrative fees and
management fees. Other Expenses are estimated amounts for
the current fiscal year. The figures assume that the
percentage amounts listed under Estimated Annual Fund
Operating Expenses remain the same during each of the periods
and that all income dividends and capital gains distributions
are reinvested in additional shares.
Other Expenses and Total Operating Expenses reflect fee
reimbursements by the Adviser or the Distributor, as
hereinafter defined. Absent such reimbursements, Other
Expenses and Total Operating Expenses for Class K shares
would have been 0.30% and 1.65%, respectively. Any such
reimbursement will lower the overall expense ratio and
increase the overall return to investors. (Also see
Management--Fees and Expenses.)
Advisor Young Investor Fund pays the Adviser an
administrative fee based on its average daily net assets and
Growth Investor Portfolio pays the Adviser a management fee
based on its average daily net assets. The trustees of
Advisor Trust have considered whether the annual operating
expenses of Advisor Young Investor Fund, including its share
of the expenses of Growth Investor Portfolio, would be more
or less than if Advisor Young Investor Fund invested directly
in the securities held by Growth Investor Portfolio. The
trustees concluded that Advisor Young Investor Fund's expenses
would not be materially greater in such case.
The figures in the Example are not necessarily indicative of
past or future expenses, and actual expenses may be greater
or less than those shown. Although information such as that
shown in the Example and Fee Table is useful in reviewing
expenses and in providing a basis for comparison with other
mutual funds, it should not be used for comparison with other
investments using different assumptions or time periods.
Because Advisor Young Investor Fund pays a 12b-1 fee, long-
term investors in Advisor Young Investor Fund may pay more
over long periods of time in distribution expenses than the
maximum front-end sales charges permitted by the NASD. For
further information on Advisor Young Investor Fund's 12b-1
fee, see Management--Distributor or call your financial
representative.
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of Class K
shares of Advisor Young Investor Fund on a per-share basis
for the period shown and has been audited by Arthur Andersen
LLP, independent public accountants. The table should be
read in conjunction with Advisor Young Investor Fund's
financial statements and notes thereto. The financial
statements may be obtained from Advisor Trust without charge
upon request.
Period Ended
Sept. 30,
1997 (b)
-------------
Net Asset Value, Beginning of Period $10.00
------
Income from Investment Operations
Net investment loss (0.02)
Net realized and unrealized gains on
investments 1.51
------
Total from investment operations 1.49
------
Net Asset Value, End of Period $11.49
======
Ratio of net expenses to average net
assets (c) 1.50%*
Ratio of net investment income to
average net assets (d) (0.24%)*
Total return (d) 14.90%
Net assets, end of period (000 omitted) $116
________________
*Annualized.
(a) The financial history presented in this section for Class
K shares is that of the Advisor Young Investor Fund. As
presented in other parts of this prospectus, the
historical performance of Class K shares for the period
prior to Feb. 14, 1997, and the historical performance of
each other class of shares of Advisor Young Investor Fund
for all periods are based on the performance of Growth
Investor Portfolio, restated to reflect 12b-1 fees and
other expenses applicable to that class, without giving
effect to any expense reimbursements described herein and
assuming reinvestment of dividends and capital gains.
(b) From commencement of operations on Feb. 14, 1997,
reflects information relating to the initial shares of
Advisor Young Investor Fund that were redesignated Class
K shares as of Oct. 15, 1997.
(c) If Advisor Young Investor Fund had paid all of its
expenses and there had been no reimbursement of expenses,
this ratio would have been 89.45% for the period ended
Sept. 30, 1997.
(d) Computed giving effect to the expense limitation
undertaking.
THE FUND
Stein Roe Advisor Young Investor Fund ("Advisor Young
Investor Fund") is a multi-class series of Advisor Trust,
which is an open-end management investment company authorized
to issue shares of beneficial interest in separate series.
Rather than invest in securities directly, Advisor Young
Investor Fund seeks to achieve its investment objective by
using the "master fund/feeder fund structure." Under that
structure, a feeder fund and one or more other feeder funds
pool their assets in a master portfolio that has the same
investment objective and substantially the same investment
policies as the feeder funds. (See Master Fund/Feeder Fund:
Structure and Risk Factors.) Advisor Young Investor Fund
invests all of its net investable assets in SR&F Growth
Investor Portfolio ("Growth Investor Portfolio"), which is a
series of SR&F Base Trust ("Base Trust").
Stein Roe & Farnham Incorporated (the "Adviser") provides
portfolio management services to Growth Investor Portfolio
and administrative services to Advisor Young Investor Fund
and Growth Investor Portfolio.
INVESTMENT POLICIES
The investment objective of Advisor Young Investor Fund is to
provide long-term capital appreciation. Advisor Young
Investor Fund invests all of its net investable assets in
Growth Investor Portfolio, which has the same investment
objective and investment policies substantially similar to
Advisor Young Investor Fund. Growth Investor Portfolio seeks
to achieve this objective by investing primarily in common
stocks and other equity-type securities that, in the opinion
of the Adviser, have long-term appreciation potential.
Under normal circumstances, at least 65% of the total assets
of Growth Investor Portfolio will be invested in securities
of companies that, in the opinion of the Adviser, directly or
through one or more subsidiaries, affect the lives of young
people. Such companies may include companies that produce
products or services that young people use, are aware of, or
could potentially have an interest in. Although Growth
Investor Portfolio invests primarily in common stocks and
other equity-type securities (such as preferred stocks,
securities convertible into or exchangeable for common
stocks, and warrants or rights to purchase common stocks), it
may invest up to 35% of its total assets in debt securities.
Further information on investment techniques that may be
employed by Growth Investor Portfolio and the risks
associated with such techniques may be found under Risks and
Investment Considerations and Portfolio Investments and
Strategies in this prospectus and in the Statement of
Additional Information.
In addition to the investment objective and policies, Advisor
Young Investor Fund also has an educational objective.
Advisor Young Investor Fund seeks to educate its shareholders
by providing educational materials regarding personal finance
and investing as well as materials on the Fund and its
portfolio holdings.
PERFORMANCE INFORMATION
The total return from an investment in a class of shares of
Advisor Young Investor Fund is measured by the distributions
received, plus or minus the change in the net asset value per
share for a given period, assuming reinvestment of all
distributions. A total return percentage may be calculated
by dividing the value of a share at the end of the period
(including reinvestment of distributions) by the value of the
share at the beginning of the period and subtracting one.
For a given period, an average annual total return may be
calculated by finding the average annual compounded rate that
would equate a hypothetical $1,000 investment to the ending
redeemable value. When the Fund compares the total return of
its shares to those of other mutual funds or relevant
indices, its total return may be computed without reflecting
any sales charges so long as the sales charge is stated
separately in connection with the comparison.
Comparison of the class' total return with alternative
investments should consider differences between the class and
the alternative investments, the periods and methods used in
calculation of the return being compared including the
inclusion of initial or contingent deferred sales charges,
and the impact of taxes on alternative investments. Of
course, past performance is no guarantee of future results.
Share prices may vary, and your shares when redeemed may be
worth more or less than your original purchase price.
Each class' performance may be compared to various indices.
Performance and quotations from various publications may be
included in sales literature and advertisements.
Advisor Young Investor Fund invests all of its net investable
assets in Growth Investor Portfolio, which has the same
investment objective and substantially the same investment
policies as Advisor Young Investor Fund. Advisor Young
Investor Fund commenced operations on Feb. 14, 1997, but
until Jan. 26, 1998, offered only the shares that are now
designated Class K shares. The historical performance of
Class K shares for the period prior to Feb. 14, 1997, is
based on the performance of Growth Investor Portfolio,
restated to reflect 12b-1 fees and other expenses applicable
to the class as set forth in the Fee Table, without giving
effect to any fee reimbursements described therein and
assuming reinvestment of dividends and capital gains.
Historical performance as restated should not be interpreted
as indicative of Advisor Young Investor Fund's future
performance. The average annual returns for each class of
shares as of Sept. 30, 1997 and Dec. 31, 1997 were as
follows:
Sept. 30 Dec. 31
1 year 26.26% 26.41%
3 years 33.77 33.43
Inception
(April 29, 1994) 29.92 29.00
RISKS AND INVESTMENT CONSIDERATIONS
Advisor Young Investor Fund is designed for long-term
investors who desire to participate in the stock market and
places an emphasis on companies that are believed to have
above-average growth prospects, many of which affect the
lives of young people. These investors can accept more
investment risk and volatility than the stock market in
general but want less investment risk and volatility than
aggressive capital appreciation funds. Growth Investor
Portfolio usually allocates its investments among a number of
different industries rather than concentrating in a
particular industry or group of industries, but this does not
eliminate all risk. It will not, however, invest more than
25% of the total value of its assets (at the time of
investment) in the securities of companies in any one
industry. There can be no guarantee that Advisor Young
Investor Fund or Growth Investor Portfolio will achieve its
objective. Advisor Young Investor Fund also has an
educational objective. It seeks to provide education and
insight about mutual funds, basic economic principles, and
personal finance through a variety of educational materials
prepared and paid for by Advisor Young Investor Fund.
Growth Investor Portfolio may invest up to 35% of its total
assets in debt securities. Debt securities rated in the
fourth highest grade may have some speculative
characteristics, and changes in economic conditions or other
circumstances may lead to a weakened capacity of the issuers
of such securities to make principal and interest payments.
Securities rated below investment grade may possess
speculative characteristics, and changes in economic
conditions are more likely to affect the issuer's capacity to
pay interest or repay principal.
Growth Investor Portfolio may invest in securities of smaller
emerging companies as well as securities of well-seasoned
companies of any size. Smaller companies, however, involve
higher risks in that they typically have limited product
lines, markets, and financial or management resources. In
addition, the securities of smaller companies may trade less
frequently and have greater price fluctuation than larger
companies, particularly those operating in countries with
developing markets.
Growth Investor Portfolio may invest up to 25% of its total
assets in foreign securities. For purposes of this limit,
foreign securities exclude American Depositary Receipts
(ADRs), foreign debt securities denominated in U.S. dollars,
and securities guaranteed by a U.S. person. Investment in
foreign securities may represent a greater degree of risk
(including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation
of assets) than investment in securities of domestic issuers.
Other risks of foreign investing include less complete
financial information on issuers, different accounting,
auditing and financial reporting standards, different
settlement practices, less market liquidity, more market
volatility, less developed and regulated markets, and greater
political instability. In addition, various restrictions by
foreign governments on investments by nonresidents may apply,
including imposition of exchange controls and withholding
taxes on dividends, and seizure or nationalization of
investments owned by nonresidents. Foreign investments also
tend to involve higher transaction and custody costs.
Further information on investment techniques that may be
employed by Growth Investor Portfolio may be found under
Portfolio Investments and Strategies.
INVESTMENT RESTRICTIONS
Each of Advisor Young Investor Fund and Growth Investor
Portfolio is diversified as that term is defined in the
Investment Company Act of 1940.
Neither Advisor Young Investor Fund nor Growth Investor
Portfolio may invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only
to 75% of the investment portfolio, and does not apply to
securities of the U.S. Government or repurchase agreements /1/
for such securities. This restriction also does not prevent
Advisor Young Investor Fund from investing all of its assets
in shares of another investment company (such as Growth
Investor Portfolio) having the identical investment objective
under a master/feeder structure.
- ------------
/1/ A repurchase agreement involves a sale of securities to
Growth Investor Portfolio in which the seller agrees to
repurchase the securities at a higher price, which includes
an amount representing interest on the purchase price, within
a specified time. In the event of bankruptcy of the seller,
Growth Investor Portfolio could experience both losses and
delays in liquidating its collateral.
- ------------
Neither Advisor Young Investor Fund nor Growth Investor
Portfolio will acquire more than 10% of the outstanding
voting securities of any one issuer. Advisor Young Investor
Fund may, however, invest all of its assets in shares of
another investment company having the identical investment
objective under a master/feeder structure.
While Advisor Young Investor Fund and Growth Investor
Portfolio may not make loans, each may (1) purchase
money market instruments and enter into repurchase
agreements; (2) acquire publicly distributed or privately
placed debt securities; (3) lend portfolio securities under
certain conditions; and (4) participate in an interfund
lending program with other Stein Roe Funds and Portfolios.
Advisor Young Investor Fund and Growth Investor Portfolio may
not borrow money, except for nonleveraging, temporary, or
emergency purposes or in connection with participation in the
interfund lending program. Neither the aggregate borrowings
(including reverse repurchase agreements) nor the aggregate
loans at any one time may exceed 33 1/3% of the value of
total assets. Additional securities may not be purchased
when borrowings less proceeds receivable from sales of
portfolio securities exceed 5% of total assets.
Growth Investor Portfolio may invest in repurchase
agreements, provided that it will not invest more than 15% of
its net assets in illiquid securities, including repurchase
agreements maturing in more than seven days.
The policies summarized in the second, third, and fourth
paragraphs under this section and the policy with respect to
concentration of investments in any one industry described
under Risks and Investment Considerations are fundamental
policies of Advisor Young Investor Fund and Growth Investor
Portfolio and, as such, can be changed only with the approval
of a "majority of the outstanding voting securities" as
defined in the Investment Company Act of 1940. The common
investment objective of Advisor Young Investor Fund and
Growth Investor Portfolio is nonfundamental and, as such, may
be changed by the Board of Trustees without shareholder
approval. All of the investment restrictions are set forth
in the Statement of Additional Information.
PORTFOLIO INVESTMENTS AND STRATEGIES
Debt Securities. A debt security is an obligation of a
borrower to make payments of principal and interest to the
holder of the security. To the extent Growth Investor
Portfolio invests in debt securities, such holdings will be
subject to interest rate risk and credit risk. Interest rate
risk is the risk that the value of a portfolio will fluctuate
in response to changes in interest rates. Generally, the
debt component of a portfolio will tend to decrease in value
when interest rates rise and increase in value when interest
rates fall. Credit risk is the risk that an issuer will be
unable to make principal and interest payments when due.
Investments in debt securities are limited to those that are
rated within the four highest grades (generally referred to
as "investment grade") assigned by a nationally recognized
statistical rating organization. Investments in unrated debt
securities are limited to those deemed to be of comparable
quality by the Adviser. Securities rated within the fourth
highest grade may possess speculative characteristics. If
the rating of a security held by Growth Investor Portfolio is
lost or reduced below investment grade, Growth Investor
Portfolio is not required to dispose of the security--the
Adviser will, however, consider that fact in determining
whether it should continue to hold the security. When the
Adviser considers a temporary defensive position advisable,
Growth Investor Portfolio may invest without limitation in
high-quality fixed income securities, or hold assets in cash
or cash equivalents.
Foreign Securities. Growth Investor Portfolio may invest in
sponsored or unsponsored ADRs. In addition to, or in lieu
of, such direct investment, Growth Investor Portfolio may
construct a synthetic foreign debt position by (a) purchasing
a debt instrument denominated in one currency, generally U.S.
dollars; and (b) concurrently entering into a forward
contract to deliver a corresponding amount of that currency
in exchange for a different currency on a future date and at
a specified rate of exchange. Because of the availability of
a variety of highly liquid U.S. dollar debt instruments, a
synthetic foreign debt position utilizing such U.S. dollar
instruments may offer greater liquidity than direct
investment in foreign currency debt instruments.
In connection with the purchase of foreign securities, Growth
Investor Portfolio may enter into foreign currency forward
and futures contracts to hedge the currency risk in
settlement of a particular security transaction or relative
to the entire portfolio. A forward contract to purchase an
amount of foreign currency sufficient to pay the purchase
price of securities at settlement date involves the risk that
the value of the foreign currency may decline relative to the
value of the dollar prior to the settlement date. This risk
is in addition to the risk that the value of the foreign
security purchased may decline. Growth Investor Portfolio
also may enter into foreign currency contracts as a hedging
technique to limit or reduce exposure of the entire portfolio
to currency fluctuations. In addition, Growth Investor
Portfolio may use options and futures contracts, as described
below, to limit or reduce exposure to currency fluctuations.
Convertible Securities. By investing in convertible
securities, Growth Investor Portfolio obtains the right to
benefit from the capital appreciation potential in the
underlying stock upon exercise of the conversion right, while
earning higher current income than would be available if the
stock were purchased directly. In determining whether to
purchase a convertible security, the Adviser will consider
substantially the same criteria that would be considered in
purchasing the underlying stock. Although convertible
securities are frequently rated investment grade, Growth
Investor Portfolio also may purchase unrated securities or
securities rated below investment grade if the securities
meet the Adviser's other investment criteria. Convertible
securities rated below investment grade tend to be more
sensitive to interest rate and economic changes, may be
obligations of issuers who are less creditworthy than issuers
of higher-quality convertible securities, and may be more
thinly traded due to the fact that such securities are less
well known to investors than either common stock or
conventional debt securities. As a result, the Adviser's own
investment research and analysis tend to be more important
than other factors in the purchase of convertible securities.
Lending Portfolio Securities; When-Issued and Delayed-
Delivery Securities. Growth Investor Portfolio may make
loans of its portfolio securities to broker-dealers and banks
subject to certain restrictions described in the Statement of
Additional Information. Growth Investor Portfolio may
participate in an interfund lending program, subject to
certain restrictions described in the Statement of Additional
Information. Growth Investor Portfolio may invest in
securities purchased on a when-issued or delayed-delivery
basis. Although the payment terms of these securities are
established at the time Growth Investor Portfolio enters into
the commitment, the securities may be delivered and paid for
a month or more after the date of purchase, when their value
may have changed. Growth Investor Portfolio will make such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement
date if it is deemed advisable for investment reasons.
Short Sales Against the Box. Growth Investor Portfolio may
sell short securities it owns or has the right to acquire
without further consideration, using a technique called
selling short "against the box." Short sales against the box
may protect Growth Investor Portfolio against the risk of
losses in the value of its portfolio securities because any
unrealized losses with respect to such securities should be
wholly or partly offset by a corresponding gain in the short
position. However, any potential gains in such securities
should be wholly or partially offset by a corresponding loss
in the short position. Short sales against the box may be
used to lock in a profit on a security when, for tax reasons
or otherwise, the Adviser does not want to sell the security.
Growth Investor Portfolio does not expect to commit more than
5% of its net assets to short sales against the box. For a
more complete explanation, please refer to the Statement of
Additional Information.
Derivatives. Consistent with its objective, Growth Investor
Portfolio may invest in a broad array of financial
instruments and securities, including conventional exchange-
traded and non-exchange-traded options; futures contracts;
futures options; securities collateralized by underlying
pools of mortgages or other receivables; floating rate
instruments; and other instruments that securitize assets of
various types ("Derivatives"). In each case, the value of
the instrument or security is "derived" from the performance
of an underlying asset or a "benchmark" such as a security
index, an interest rate, or a currency. Growth Investor
Portfolio does not expect to invest more than 5% of its net
assets in any type of Derivative except for options, futures
contracts, and futures options.
In seeking to achieve its desired investment objective,
provide additional revenue, or hedge against changes in
security prices, interest rates or currency fluctuations,
Growth Investor Portfolio may: (1) purchase and write both
call options and put options on securities, indexes and
foreign currencies; (2) enter into interest rate, index and
foreign currency futures contracts; (3) write options on such
futures contracts; and (4) purchase other types of forward or
investment contracts linked to individual securities, indexes
or other benchmarks. Growth Investor Portfolio may write a
call or put option only if the option is covered. As the
writer of a covered call option, Growth Investor Portfolio
foregoes, during the option's life, the opportunity to profit
from increases in market value of the security covering the
call option above the sum of the premium and the exercise
price of the call. There can be no assurance that a liquid
market will exist when Growth Investor Portfolio seeks to
close out a position. In addition, because futures positions
may require low margin deposits, the use of futures contracts
involves a high degree of leverage and may result in losses
in excess of the amount of the margin deposit.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because they are
more efficient or less costly than direct investment. They
also may be used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and
directions of movements in security prices, interest rates
and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as
well regulated and may be less marketable than exchange-
traded Derivatives. For additional information on
Derivatives, please refer to the Statement of Additional
Information.
Portfolio Turnover. Although Growth Investor Portfolio does
not purchase securities with a view to rapid turnover, there
are no limitations on the length of time portfolio securities
must be held. Accordingly, the portfolio turnover rate may
vary significantly from year to year, but is not expected to
exceed 100% under normal market conditions. A high rate of
portfolio turnover may result in increased transaction
expenses and the realization of capital gains and losses.
(See Distributions and Income Taxes.)
NET ASSET VALUE
Advisor Young Investor Fund determines the net asset value of
its shares as of the close of regular session trading on the New
York Stock Exchange ("NYSE") (currently 3:00 p.m., central time
or 4:00 p.m., eastern time) by dividing the difference between
the value of its assets and liabilities allocable to that class
by the number of shares of that class outstanding. Growth
Investor Portfolio allocates net asset value, income, and
expenses to Advisor Young Investor Fund and any other of its
feeder funds in proportion to their respective interests in
Growth Investor Portfolio.
Net asset value will not be determined on days when the NYSE
is closed unless, in the judgment of the Board of Trustees,
the net asset value of Advisor Young Investor Fund should be
determined on any such day, in which case the determination
will be made at 3:00 p.m., central time or 4:00 p.m., eastern
time.
Each security traded on a national stock exchange is valued
at its last sale price on that exchange on the day of
valuation or, if there are no sales that day, at the latest
bid quotation. Each over-the-counter security for which the
last sale price on the day of valuation is available from
Nasdaq is valued at that price. All other over-the-counter
securities for which reliable quotations are available are
valued at the latest bid quotation.
Long-term straight-debt obligations and securities
convertible into stocks are valued at a fair value using a
procedure determined in good faith by the Board of Trustees.
Pricing services approved by the Board provide valuations
(some of which may be "readily available market quotations").
These valuations are reviewed by the Adviser. If the Adviser
believes that a valuation received from the service does not
represent a fair value, it values the obligation using a
method that the Board believes represents fair value. The
Board may approve the use of other pricing services and any
pricing service used may employ electronic data processing
techniques, including a so-called "matrix" system, to
determine valuations. Other assets and securities are valued
by a method that the Board believes represents fair value.
HOW TO PURCHASE SHARES
You may purchase Class K shares of Advisor Young Investor
Fund shares only through intermediaries, including certain
broker-dealers, bank trust departments, asset allocation
programs sponsored by the Adviser, wrap fee programs, and other
retirement plan service providers ("Intermediaries"). The Adviser
and Advisor Young Investor Fund do not recommend, endorse, or
receive payments from any Intermediary.
Class K shares of Advisor Young Investor Fund are offered
continuously. Orders received in good order prior to the
time at which Advisor Young Investor Fund values its shares
(or placed with an Intermediary before such time and
transmitted by the Intermediary before Advisor Young Investor
Fund processes that day's share transactions or at such other
times as agreed by the parties) will be processed based on
that day's closing net asset value.
Conditions of Purchase. Each purchase order for Advisor
Young Investor Fund must be accepted by an authorized officer
of the Distributor or its authorized agent and is not binding
until accepted and entered on the books of Advisor Young
Investor Fund. Advisor Trust reserves the right not to
accept any purchase order that it determines not to be in the
best interests of Advisor Trust or of Advisor Young Investor
Fund's shareholders.
To reduce the volume of mail you receive, only one copy of certain
Materials, such as prospectuses and shareholder reports, will be
mailed to your household (same address). Please call 800-322-0593 if
you wish to receive additional copies free of charge.
Purchases Through Intermediaries. You must purchase shares
through Intermediaries. These Intermediaries may charge for
their services or place limitations on the extent to which
you may use the services offered by Advisor Trust. In
addition, each Intermediary will establish its own procedures
for the purchase of shares of Advisor Young Investor Fund,
including minimum initial and additional investments, and the
acceptable methods of payment for shares. Your Intermediary
may be closed on days when the NYSE is open. As a result,
prices of Fund shares may be significantly affected on days
when you have no access to your Intermediary to buy shares.
If you wish to purchase shares, please contact your
Intermediary for instructions.
HOW TO SELL (REDEEM) SHARES
You may redeem shares only through Intermediaries. Each
Intermediary will establish its own procedures for the sale
of shares of Advisor Young Investor Fund. Your Intermediary
may be closed on days when the NYSE is open. As a result,
prices for Fund shares may be significantly affected on days
when you have no access to your Intermediary to sell shares.
If you wish to redeem shares through an Intermediary, please
contact the Intermediary for instructions.
Exchange Privilege. Through an account with an Intermediary,
you may redeem all or any portion of your Advisor Young
Investor Fund shares and use the proceeds to purchase shares
of any other Fund that is a series of Advisor Trust offered
for sale in the state in which the Intermediary is located.
Each Intermediary will establish its own exchange policies
and procedures. In particular, individual participants of
qualified retirement plans may exchange shares through the
plan sponsor or administrator. Those participants may
exchange shares only for shares of the same class of other
Advisor Trust Funds that are included in the plan. An exchange
transaction is a sale and purchase of shares for federal income
tax purposes and may result in capital gain or loss. Before
exchanging into another Advisor Trust Fund, you should obtain the
prospectus for the Advisor Trust Fund in which you wish to
invest and read it carefully. The registration of the
account to which you are making an exchange must be exactly
the same as that of the account from which the exchange is
made. Advisor Young Investor Fund reserves the right to
suspend, limit, modify, or terminate the Exchange Privilege
or its use in any manner by any person or class;
Intermediaries would be notified of such a change.
General Redemption Policies. Advisor Young Investor Fund
will terminate the exchange privilege as to a particular
shareholder if the Adviser determines, in its sole
discretion, that the shareholder's exchange activity is
likely to adversely impact the Adviser's ability to manage
the investment portfolio in accordance with the investment
objectives or otherwise harm Advisor Young Investor Fund or
its remaining shareholders. Advisor Trust cannot accept a
redemption request that specifies a particular date or price
for redemption or any special conditions.
The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received by the Intermediary. (See Net
Asset Value.) Because the redemption price you receive
depends upon the net asset value per share at the time of
redemption, it may be more or less than the price you
originally paid for the shares and may result in a realized
capital gain or loss. (See Distributions and Income Taxes.)
Advisor Trust will pay redemption proceeds as soon as
practicable, generally within seven days after proper
instructions are received. However, for shares recently
purchased by check, Advisor Young Investor Fund will delay
sending proceeds 15 days in order to protect the Fund against
financial losses and dilution in net asset value caused by
dishonest purchase payment checks. To avoid delay in
payment, investors are advised to purchase shares
unconditionally, such as by certified check or other
immediately available funds.
DISTRIBUTIONS AND INCOME TAXES
Distributions. Income dividends are declared and paid
annually. Advisor Young Investor Fund intends to distribute
by the end of each calendar year at least 98% of any net
capital gains realized from the sale of securities during the
12-month period ended Oct. 31 in that year. Advisor Young
Investor Fund intends to distribute any undistributed net
investment income and net realized capital gains in the
following year.
All income dividends and capital gains distributions on
shares of Advisor Young Investor Fund will be reinvested in
additional shares of the same class of Advisor Young Investor
Fund unless you elect to have distributions paid by check.
Reinvestment normally occurs on the payable date. Regardless
of your election, distributions of $10 or less will not be
paid by check to the shareholder, but will be reinvested in
additional shares of the same class of Advisor Young Investor
Fund at net asset value. If you have elected to receive
dividends and/or capital gains distributions in cash and the
postal or other delivery service selected by the Transfer
Agent is unable to deliver checks to your address of record,
your distribution option will automatically be converted to
having all dividends and other distributions reinvested in
additional shares. Advisor Trust reserves the right to reinvest
the proceeds and future distributions in additional shares of a
Fund if checks mailed to you for distributions are returned as
undeliverable or are not presented for payment within six months.
No interest will accrue on amounts represented by uncashed
distribution or redemption checks. To change your election, call
the Fund for instructions.
Income Taxes. For federal income tax purposes, Advisor Young
Investor Fund is treated as a separate taxable entity
distinct from the other series of Advisor Trust. Advisor
Young Investor Fund intends to qualify for the special tax
treatment afforded regulated investment companies under
Subchapter M of the Internal Revenue Code, so that it will be
relieved of federal income tax on that part of its net
investment income and net capital gains that is distributed
to shareholders.
Generally distributions are taxable as ordinary income,
except that any distributions of net long-term capital gains
will be taxed as such. However, distributions to plans that
qualify for tax-exempt treatment under federal income tax
laws will not be taxable. Special tax rules apply to
investments through such plans.
The Taxpayer Relief Act of 1997 (the "Act") reduced from 28%
to 20% the maximum tax rate on long-term capital gains. This
reduced rate generally applies to securities held for more
than 18 months and sold after July 28, 1997, and securities
held for more than one year and sold between May 6, 1997 and
July 29, 1997.
If you buy shares shortly before a distribution is declared,
the distribution will be taxable although it is, in effect, a
partial return of the amount invested.
This section is not intended to be a full discussion of
income tax laws and their effect on shareholders. You may
wish to consult your own tax advisor.
MANAGEMENT
Trustees and Investment Adviser. The Board of Trustees of
Advisor Trust and the Board of Trustees of Base Trust have
overall management responsibility for Advisor Young Investor
Fund and Growth Investor Portfolio, respectively. See
Management in the Statement of Additional Information for the
names of and other information about the trustees and
officers. Since Advisor Trust and Base Trust have the same
trustees, the trustees have adopted conflict of interest
procedures to monitor and address potential conflicts between
the interests of Advisor Young Investor Fund and Growth
Investor Portfolio and other feeder funds investing in Growth
Investor Portfolio that share a common Board of Trustees with
Advisor Trust and Base Trust.
The Adviser, Stein Roe & Farnham Incorporated, One South
Wacker Drive, Chicago, Illinois 60606, is responsible for
managing the investment portfolio of Growth Investor
Portfolio and the business affairs of Advisor Young Investor
Fund, Growth Investor Portfolio, Advisor Trust, and Base
Trust, subject to the direction of the respective Board. The
Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940. The Adviser and its
predecessor have advised and managed mutual funds since 1949.
The Adviser is a wholly owned indirect subsidiary of Liberty
Financial Companies, Inc. ("Liberty Financial"), which in
turn is a majority owned indirect subsidiary of Liberty
Mutual Insurance Company.
Portfolio Managers. Erik P. Gustafson and David P. Brady
have been portfolio managers of Growth Investor Portfolio
since its inception in 1997 and had managed its predecessor
since Feb. 1995 and Mar. 1995, respectively. As of Sept. 30,
1997, Messrs. Gustafson and Brady were responsible for co-
managing $1.2 billion and $475 million in mutual fund net
assets, respectively. Mr. Gustafson is a senior vice
president of the Adviser and Mr. Brady is a vice president of
the Adviser. Before joining the Adviser, Mr. Gustafson was
an attorney with Fowler, White, Burnett, Hurley, Banick &
Strickroot from 1989 to 1992. He holds a B.A. from the
University of Virginia (1985) and M.B.A. and J.D. degrees
from Florida State University (1989). Mr. Brady, who joined
the Adviser in 1993, was an equity investment analyst with
State Farm Mutual Automobile Insurance Company from 1986 to
1993. A chartered financial analyst, Mr. Brady earned a B.S.
in Finance, graduating Magna Cum Laude, from the University
of Arizona (1986), and an M.B.A. from the University of
Chicago (1989).
Fees and Expenses. The Adviser is entitled to receive a
monthly administrative fee from Advisor Young Investor Fund,
computed and accrued daily, at an annual rate of 0.20% of the
first $500 million of average net assets, 0.15% of the next
$500 million, and 0.125% thereafter; and a monthly management
fee from Growth Investor Portfolio, computed and accrued
daily, at an annual rate of 0.60% of the first $500 million
of average net assets, 0.55% of the next $500 million, and
0.50% thereafter. However, as noted above under Fee Table,
the Adviser may voluntarily undertake to reimburse Advisor
Young Investor Fund for a portion of its operating expenses
and its pro rata share of Growth Investor Portfolio's
operating expenses. For the fiscal year ended Sept. 30,
1997, Advisor Young Investor Fund's administrative fee, in
addition to the pro rata portion of Growth Investor
Portfolio's management fees, was 0.00% of average net assets,
after the fee waiver.
Under a separate agreement with each Trust, the Adviser
provides certain accounting and bookkeeping services to
Advisor Young Investor Fund and Growth Investor Portfolio
including computation of net asset value and calculation of
its net income and capital gains and losses on disposition of
assets.
In addition, the Adviser is free to make additional payments
out of its own assets to promote the sale of shares of
Advisor Young Investor Fund.
Portfolio Transactions. The Adviser places the orders for
the purchase and sale of portfolio securities and options and
futures contracts for Growth Investor Portfolio. In doing
so, the Adviser seeks to obtain the best combination of price
and execution, which involves a number of judgmental factors.
Transfer Agent and Shareholder Services. Colonial Investors
Service Center, Inc. ("Transfer Agent"), P.O. Box 1722,
Boston, MA 02105-1722, an indirect subsidiary of Liberty
Financial, is the agent of Advisor Trust for the transfer of
shares, disbursement of dividends, and maintenance of
shareholder accounting records.
Some Intermediaries that maintain nominee accounts with
Advisor Young Investor Fund for their clients who are Fund
shareholders may be paid a fee by the Transfer Agent for
shareholder servicing and accounting services they provide
with respect to the underlying Fund shares.
Distributor. The shares of Advisor Young Investor Fund are
offered for sale through Liberty Financial Investments, Inc.
The Distributor is a subsidiary of Colonial Management
Associates, Inc., which is an indirect subsidiary of Liberty
Financial. The business address of the Distributor is One
Financial Center, Boston, Massachusetts 02111-2621; however,
all Fund correspondence (including purchase and redemption
orders) should be mailed to Colonial Investors Service
Center, Inc., the Transfer Agent, at P.O. Box 1722, Boston,
Massachusetts 02105-1722.
The trustees of Advisor Trust have adopted a plan pursuant to
Rule 12b-1 under the Investment Company Act of 1940 ("Plan").
The Plan provides that, as compensation for expenses related
to the promotion and distribution of shares of Advisor Young
Investor Fund including its expenses related to the sale and
promotion of Advisor Young Investor Fund shares and to
servicing of the shares, the Distributor receives from
Advisor Young Investor Fund a servicing and/or distribution
fee at an annual rate not exceeding 0.25% of the average net
assets attributable to its Class K shares. The Distributor
generally pays this compensation to institutions that
distribute Advisor Young Investor Fund shares and provide
services to Advisor Young Investor Fund and its shareholders.
Those institutions may use the payments for, among other
purposes, compensating employees engaged in sales and/or
shareholder servicing. The amount of fees paid by Advisor
Young Investor Fund during any year may be more or less than
the cost of distribution or other services provided to
Advisor Young Investor Fund. NASD rules limit the amount of
annual distribution fees that may be paid by a mutual fund
and impose a ceiling on the cumulative sales charges paid.
Custodian. State Street Bank and Trust Company (the "Bank"),
225 Franklin Street, Boston, Massachusetts 02101, is the
custodian for Advisor Young Investor Fund and Growth Investor
Portfolio. Foreign securities are maintained in the custody
of foreign banks and trust companies that are members of the
Bank's Global Custody Network or foreign depositories used by
such members. (See Custodian in the Statement of Additional
Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
Advisor Trust is a Massachusetts business trust organized
under an Agreement and Declaration of Trust ("Declaration of
Trust") dated July 31, 1996, which provides that each
shareholder shall be deemed to have agreed to be bound by the
terms thereof. The Declaration of Trust may be amended by a
vote of either Advisor Trust's shareholders or its trustees.
Advisor Trust may issue an unlimited number of shares, in one
or more series as the Board may authorize. Currently, ten
series are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as Advisor Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides
that persons extending credit to, contracting with, or having
any claim against, Advisor Trust or any particular series
shall look only to the assets of Advisor Trust or of the
respective series for payment under such credit, contract or
claim, and that the shareholders, trustees and officers shall
have no personal liability therefor. The Declaration of
Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or
made on behalf of Advisor Trust. The Declaration of Trust
provides for indemnification of any shareholder against any
loss and expense arising from personal liability solely by
reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of
shareholder liability is believed to be remote, because it
would be limited to circumstances in which the disclaimer was
inoperative and Advisor Trust was unable to meet its
obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of Advisor
Trust also is believed to be remote, because it would be
limited to claims to which the disclaimer did not apply and
to circumstances in which the other series was unable to meet
its obligations.
As a business trust, Advisor Trust is not required to hold annual
shareholder meetings. However, special meetings may be called for
purposes such as electing or removing trustees, changing fundamental
policies, or approving an investment advisory contract.
MASTER FUND/FEEDER FUND: STRUCTURE AND RISK FACTORS
Advisor Young Investor Fund, an open-end management
investment company, seeks to achieve its objective by
investing all of its assets in another mutual fund having an
investment objective identical to that of Advisor Young
Investor Fund. The initial shareholder of Advisor Young
Investor Fund approved this policy of permitting Advisor
Young Investor Fund to act as a feeder fund by investing in
Growth Investor Portfolio. Please refer to Investment
Policies, Portfolio Investments and Strategies, and
Investment Restrictions for a description of the investment
objective, policies, and restrictions of Advisor Young
Investor Fund and Growth Investor Portfolio. The management
and expenses of both Advisor Young Investor Fund and Growth
Investor Portfolio are described under Fee Table and
Management. Advisor Young Investor Fund bears its
proportionate share of Portfolio expenses.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
Growth Investor Portfolio is a separate series of SR&F Base
Trust ("Base Trust"), a Massachusetts common law trust
organized under an Agreement and Declaration of Trust
("Declaration of Trust") dated Aug. 23, 1993. The
Declaration of Trust of Base Trust provides that Advisor
Young Investor Fund and other investors in Growth Investor
Portfolio will each be liable for all obligations of Growth
Investor Portfolio that are not satisfied by the Portfolio.
However, the risk of Advisor Young Investor Fund incurring
financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and
Growth Investor Portfolio itself was unable to meet its
obligations. Accordingly, the trustees of Advisor Trust
believe that neither Advisor Young Investor Fund nor its
shareholders will be adversely affected by reason of Advisor
Young Investor Fund's investing in Growth Investor Portfolio.
The Declaration of Trust of Base Trust provides that Growth
Investor Portfolio will terminate 120 days after the
withdrawal of Advisor Young Investor Fund or any other
investor in Growth Investor Portfolio, unless the remaining
investors vote to agree to continue the business of Growth
Investor Portfolio. The trustees of Advisor Trust may vote
Advisor Young Investor Fund's interests in Growth Investor
Portfolio for such continuation without approval of Advisor
Young Investor Fund's shareholders.
The common investment objective of Advisor Young Investor
Fund and Growth Investor Portfolio is nonfundamental and may
be changed without shareholder approval. The fundamental
policies of Advisor Young Investor Fund and the corresponding
fundamental policies of Growth Investor Portfolio can be
changed only with shareholder approval.
If Advisor Young Investor Fund, as a Portfolio investor, is
requested to vote on a proposed change in fundamental policy
of Growth Investor Portfolio or any other matter pertaining
to Growth Investor Portfolio (other than continuation of the
business of Growth Investor Portfolio after withdrawal of
another investor), Advisor Young Investor Fund will solicit
proxies from its shareholders and vote its interest in Growth
Investor Portfolio for and against such matters
proportionately to the instructions to vote for and against
such matters received from Advisor Young Investor Fund
shareholders. Advisor Young Investor Fund will vote shares
for which it receives no voting instructions in the same
proportion as the shares for which it receives voting
instructions. There can be no assurance that any matter
receiving a majority of votes cast by Fund shareholders will
receive a majority of votes cast by all Growth Investor
Portfolio investors. If other investors hold a majority
interest in Growth Investor Portfolio, they could have voting
control over Growth Investor Portfolio.
In the event that Growth Investor Portfolio's fundamental
policies were changed so as to be inconsistent with those of
Advisor Young Investor Fund, the Board of Trustees of Advisor
Trust would consider what action might be taken, including
changes to Advisor Young Investor Fund's fundamental
policies, withdrawal of Advisor Young Investor Fund's assets
from Growth Investor Portfolio and investment of such assets
in another pooled investment entity, or the retention of
another investment adviser. Any of these actions would
require the approval of Advisor Young Investor Fund's
shareholders. Advisor Young Investor Fund's inability to
find a substitute master fund or comparable investment
management could have a significant impact upon its
shareholders' investments. Any withdrawal of Advisor Young
Investor Fund's assets could result in a distribution in kind
of portfolio securities (as opposed to a cash distribution)
to Advisor Young Investor Fund. Should such a distribution
occur, Advisor Young Investor Fund would incur brokerage fees
or other transaction costs in converting such securities to
cash. In addition, a distribution in kind could result in a
less diversified portfolio of investments for Advisor Young
Investor Fund and could affect the liquidity of Advisor Young
Investor Fund.
Each investor in Growth Investor Portfolio, including Advisor
Young Investor Fund, may add to or reduce its investment in
Growth Investor Portfolio on each day the NYSE is open for
business. The investor's percentage of the aggregate
interests in Growth Investor Portfolio will be computed as
the percentage equal to the fraction (i) the numerator of
which is the beginning of the day value of such investor's
investment in Growth Investor Portfolio on such day plus or
minus, as the case may be, the amount of any additions to or
withdrawals from the investor's investment in Growth Investor
Portfolio effected on such day; and (ii) the denominator of
which is the aggregate beginning of the day net asset value
of Growth Investor Portfolio on such day plus or minus, as
the case may be, the amount of the net additions to or
withdrawals from the aggregate investments in Growth Investor
Portfolio by all investors in Growth Investor Portfolio. The
percentage so determined will then be applied to determine
the value of the investor's interest in Growth Investor
Portfolio as of the close of business.
Base Trust may permit other investment companies and/or other
institutional investors to invest in Growth Investor
Portfolio, but members of the general public may not invest
directly in Growth Investor Portfolio. Other investors in
Growth Investor Portfolio are not required to sell their
shares at the same public offering price as Advisor Young
Investor Fund and might incur different administrative fees
and expenses than Advisor Young Investor Fund. Therefore,
Advisor Young Investor Fund shareholders might have different
investment returns than shareholders in another investment
company that invests exclusively in Growth Investor
Portfolio. Investment by such other investors in Growth
Investor Portfolio would provide funds for the purchase of
additional portfolio securities and would tend to reduce the
Portfolio's operating expenses as a percentage of its net
assets. Conversely, large-scale redemptions by any such
other investors in Growth Investor Portfolio could result in
untimely liquidations of Growth Investor Portfolio's security
holdings, loss of investment flexibility, and increases in
the operating expenses of Growth Investor Portfolio as a
percentage of its net assets. As a result, Growth Investor
Portfolio's security holdings may become less diverse,
resulting in increased risk.
Growth Investor Portfolio commenced operations in Feb. 1997
when Stein Roe Young Investor Fund, a mutual fund that,
together with its corporate predecessor, had invested
directly in securities since 1958, converted into a feeder
fund by investing all of its assets in the Portfolio.
Currently Stein Roe Young Investor Fund, which is a series of
Stein Roe Investment Trust, is the only other investment
company investing in Growth Investor Portfolio. Information
regarding any investment company that may invest in Growth
Investor Portfolio in the future may be obtained by writing
to SR&F Base Trust, Suite 3200, One South Wacker Drive,
Chicago, Illinois 60606, or by calling (800) 338-2550. The
Adviser may provide administrative or other services to one
or more of such investors.
FOR MORE INFORMATION
For more information about Advisor Young Investor Fund, call
(800) 345-6611.
<PAGE>
Statement of Additional Information Dated Jan. 26, 1998
STEIN ROE ADVISOR TRUST
Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
Stein Roe Advisor Young Investor Fund
This Statement of Additional Information is not a
prospectus, but provides additional information that should
be read in conjunction with the prospectus dated Jan. 26,
1998, and any supplements thereto ("Prospectus"). A
Prospectus may be obtained at no charge by calling (800) 426-
3720.
TABLE OF CONTENTS
Page
General Information and History...................2
Investment Policies...............................3
Portfolio Investments and Strategies..............3
Investment Restrictions..........................21
Additional Investment Considerations.............23
Management.......................................24
Financial Statements.............................28
Principal Shareholders...........................28
Investment Advisory Services.....................28
Custodian........................................30
Independent Public Accountants...................32
Distributor......................................33
Transfer Agent and Shareholder Servicing.........33
Purchases And Redemptions........................34
Portfolio Transactions...........................42
Additional Income Tax Considerations.............43
Investment Performance...........................44
Appendix--Ratings................................48
GENERAL INFORMATION AND HISTORY
Stein Roe Advisor Young Investor Fund is a separate
multi-class series of Stein Roe Advisor Trust ("Advisor
Trust"). On Sept. 13, 1996, the spelling of the name of the
Trust was changed from Stein Roe Adviser Trust to Stein Roe
Advisor Trust.
Currently 10 series of Advisor Trust are authorized and
outstanding. Each share of a series, without par value, is
entitled to participate pro rata in any dividends and other
distributions declared by the Board on shares of that series,
and all shares of a series have equal rights in the event of
liquidation of that series. Each whole share (or fractional
share) outstanding on the record date established in
accordance with the By-Laws shall be entitled to a number of
votes on any matter on which it is entitled to vote equal to
the net asset value of the share (or fractional share) in
United States dollars determined at the close of business on
the record date (for example, a share having a net asset
value of $10.50 would be entitled to 10.5 votes). As a
business trust, Advisor Trust is not required to hold annual
shareholder meetings. However, special meetings may be
called for purposes such as electing or removing trustees,
changing fundamental policies, or approving an investment
advisory contract. If requested to do so by the holders of
at least 10% of its outstanding shares, Advisor Trust will
call a special meeting for the purpose of voting upon the
question of removal of a trustee or trustees and will assist
in the communications with other shareholders as if Advisor
Trust were subject to Section 16(c) of the Investment Company
Act of 1940. All shares of all series of Advisor Trust are
voted together in the election of trustees. On any other
matter submitted to a vote of shareholders, shares are voted
in the aggregate and not by individual series, except that
shares are voted by individual series when required by the
Investment Company Act of 1940 or other applicable law, or
when the Board of Trustees determines that the matter affects
only the interests of one or more series, in which case
shareholders of the unaffected series are not entitled to
vote on such matters.
Special Considerations Regarding Master Fund/Feeder Fund
Structure
Advisor Young Investor Fund acts as a "feeder fund"
rather than investing in securities directly; that is, it
seeks to achieve its objective by pooling its assets with
those of other investment companies for investment in a
separate "master fund" having the same investment objective
and substantially the same investment policies as Advisor
Young Investor Fund. The purpose of such an arrangement is
to achieve greater operational efficiencies and reduce costs.
Each master fund is a series of SR&F Base Trust ("Base
Trust"). For more information, please refer to the
Prospectus under the caption Master Fund/Feeder Fund:
Structure and Risk Factors.
Stein Roe & Farnham Incorporated (the "Adviser")
provides administrative and accounting and recordkeeping
services to Advisor Young Investor Fund and Growth Investor
Portfolio and provides investment advisory services to Growth
Investor Portfolio.
INVESTMENT POLICIES
In pursuing its objective, Growth Investor Portfolio
will invest as described below and may employ the investment
techniques described under Portfolio Investments and
Strategies. The investment objective is a non-fundamental
policy and may be changed by the Board of Trustees without
the approval of a "majority of the outstanding voting
securities." /1/
- -----------
/1/ A "majority of the outstanding voting securities" means the
approval of the lesser of (i) 67% or more of the shares at a
meeting if the holders of more than 50% of the outstanding
shares are present or represented by proxy or (ii) more than
50% of the outstanding shares.
- -----------
Stein Roe Advisor Young Investor Fund ("Advisor Young
Investor Fund") seeks to achieve its objective by investing
in SR&F Growth Investor Portfolio ("Growth Investor
Portfolio"). Their common investment objective is long-term
capital appreciation. Growth Investor Portfolio invests
primarily in common stocks and other equity-type securities
that, in the opinion of the Adviser, have long-term
appreciation potential.
Under normal circumstances, at least 65% of the total
assets of Growth Investor Portfolio will be invested in
securities of companies that, in the opinion of the Adviser,
directly or through one or more subsidiaries, affect the
lives of young people. Such companies may include companies
that produce products or services that young people use, are
aware of, or could potentially have an interest in. Although
Growth Investor Portfolio invests primarily in common stocks
and other equity-type securities (such as preferred stocks,
securities convertible into or exchangeable for common
stocks, and warrants or rights to purchase common stocks), it
may invest up to 35% of its total assets in debt securities.
PORTFOLIO INVESTMENTS AND STRATEGIES
Debt Securities
In pursuing its investment objective, Growth Investor
Portfolio may invest in debt securities of corporate and
governmental issuers. The risks inherent in debt securities
depend primarily on the term and quality of the obligations
in the investment portfolio as well as on market conditions.
A decline in the prevailing levels of interest rates
generally increases the value of debt securities, while an
increase in rates usually reduces the value of those
securities.
Growth Investor Portfolio may invest up to 35% of its
net assets in debt securities, but does not expect to invest
more than 5% of its net assets in debt securities that are
rated below investment grade. "Investment" grade refers to
debt securities that are within the four highest grades
assigned by a nationally recognized statistical rating
organization or, if unrated, deemed to be of comparable
quality by the Adviser.
Securities in the fourth highest grade may possess
speculative characteristics, and changes in economic
conditions are more likely to affect the issuer's capacity to
pay interest and repay principal. If the rating of a
security held by Growth Investor Portfolio is lost or reduced
below investment grade, it is not required to dispose of the
security, but the Adviser will consider that fact in
determining whether to continue to hold the security.
Securities that are rated below investment grade are
considered predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal
according to the terms of the obligation and therefore carry
greater investment risk, including the possibility of issuer
default and bankruptcy and are commonly referred to as "junk
bonds."
When the Adviser determines that adverse market or
economic conditions exist and considers a temporary defensive
position advisable, Growth Investor Portfolio may invest
without limitation in high-quality fixed income securities or
hold assets in cash or cash equivalents.
Derivatives
Consistent with its objective, Growth Investor Portfolio
may invest in a broad array of financial instruments and
securities, including conventional exchange-traded and non-
exchange-traded options, futures contracts, futures options,
securities collateralized by underlying pools of mortgages or
other receivables, floating rate instruments, and other
instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument
or security is "derived" from the performance of an
underlying asset or a "benchmark" such as a security index,
an interest rate, or a currency.
Derivatives are most often used to manage investment
risk or to create an investment position indirectly because
it is more efficient or less costly than direct investment
that cannot be readily established directly due to portfolio
size, cash availability, or other factors. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the
Adviser's ability to correctly predict changes in the levels
and directions of movements in security prices, interest
rates and other market factors affecting the Derivative
itself or the value of the underlying asset or benchmark. In
addition, correlations in the performance of an underlying
asset to a Derivative may not be well established. Finally,
privately negotiated and over-the-counter Derivatives may not
be as well regulated and may be less marketable than
exchange-traded Derivatives.
Growth Investor Portfolio does not currently intend to
invest more than 5% of its net assets in any type of
Derivative except for options, futures contracts, and futures
options. (See Options and Futures below.)
Some mortgage-backed debt securities are of the
"modified pass-through type," which means the interest and
principal payments on mortgages in the pool are "passed
through" to investors. During periods of declining interest
rates, there is increased likelihood that mortgages will be
prepaid, with a resulting loss of the full-term benefit of
any premium paid by a Portfolio on purchase of such
securities; in addition, the proceeds of prepayment would
likely be invested at lower interest rates.
Mortgage-backed securities provide either a pro rata
interest in underlying mortgages or an interest in
collateralized mortgage obligations ("CMOs") that represent a
right to interest and/or principal payments from an
underlying mortgage pool. CMOs are not guaranteed by either
the U.S. Government or by its agencies or instrumentalities,
and are usually issued in multiple classes each of which has
different payment rights, prepayment risks, and yield
characteristics. Mortgage-backed securities involve the risk
of prepayment on the underlying mortgages at a faster or
slower rate than the established schedule. Prepayments
generally increase with falling interest rates and decrease
with rising rates but they also are influenced by economic,
social, and market factors. If mortgages are pre-paid during
periods of declining interest rates, there would be a
resulting loss of the full-term benefit of any premium paid
by the Portfolio on purchase of the CMO, and the proceeds of
prepayment would likely be invested at lower interest rates.
Non-mortgage asset-backed securities usually have less
prepayment risk than mortgage-backed securities, but have the
risk that the collateral will not be available to support
payments on the underlying loans that finance payments on the
securities themselves.
Floating rate instruments provide for periodic
adjustments in coupon interest rates that are automatically
reset based on changes in amount and direction of specified
market interest rates. In addition, the adjusted duration of
some of these instruments may be materially shorter than
their stated maturities. To the extent such instruments are
subject to lifetime or periodic interest rate caps or floors,
such instruments may experience greater price volatility than
debt instruments without such features. Adjusted duration is
an inverse relationship between market price and interest
rates and refers to the approximate percentage change in
price for a 100 basis point change in yield. For example, if
interest rates decrease by 100 basis points, a market price
of a security with an adjusted duration of 2 would increase
by approximately 2%.
Convertible Securities
By investing in convertible securities, Growth Investor
Portfolio obtains the right to benefit from the capital
appreciation potential in the underlying stock upon exercise
of the conversion right, while earning higher current income
than would be available if the stock were purchased directly.
In determining whether to purchase a convertible, the Adviser
will consider substantially the same criteria that would be
considered in purchasing the underlying stock. While
convertible securities purchased by Growth Investor Portfolio
are frequently rated investment grade, it may purchase
unrated securities or securities rated below investment grade
if the securities meet the Adviser's other investment
criteria. Convertible securities rated below investment
grade (a) tend to be more sensitive to interest rate and
economic changes, (b) may be obligations of issuers who are
less creditworthy than issuers of higher quality convertible
securities, and (c) may be more thinly traded due to such
securities being less well known to investors than either
common stock or conventional debt securities. As a result,
the Adviser's own investment research and analysis tends to
be more important in the purchase of such securities than
other factors.
Foreign Securities
Growth Investor Portfolio may invest up to 25% of its
total assets in foreign securities, which may entail a
greater degree of risk (including risks relating to exchange
rate fluctuations, tax provisions, or expropriation of
assets) than investment in securities of domestic issuers.
For this purpose, foreign securities do not include American
Depositary Receipts (ADRs) or securities guaranteed by a
United States person. ADRs are receipts typically issued by
an American bank or trust company evidencing ownership of the
underlying securities. Growth Investor Portfolio may invest
in sponsored or unsponsored ADRs. In the case of an
unsponsored ADR, it is likely to bear its proportionate share
of the expenses of the depositary and it may have greater
difficulty in receiving shareholder communications than it
would have with a sponsored ADR. Growth Investor Portfolio
does not currently intend to invest more than 5% of its net
assets in unsponsored ADRs.
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, Growth
Investor Portfolio's investment performance is affected by
the strength or weakness of the U.S. dollar against these
currencies. For example, if the dollar falls in value
relative to the Japanese yen, the dollar value of a yen-
denominated stock held in Growth Investor Portfolio will rise
even though the price of the stock remains unchanged.
Conversely, if the dollar rises in value relative to the yen,
the dollar value of the yen-denominated stock will fall.
(See discussion of transaction hedging and portfolio hedging
under Currency Exchange Transactions.)
Investors should understand and consider carefully the
risks involved in foreign investing. Investing in foreign
securities, positions which are generally denominated in
foreign currencies, and utilization of forward foreign
currency exchange contracts involve certain considerations
comprising both risks and opportunities not typically
associated with investing in U.S. securities. These
considerations include: fluctuations in exchange rates of
foreign currencies; possible imposition of exchange control
regulation or currency restrictions that would prevent cash
from being brought back to the United States; less public
information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities
brokers, and issuers of securities; lack of uniform
accounting, auditing, and financial reporting standards; lack
of uniform settlement periods and trading practices; less
liquidity and frequently greater price volatility in foreign
markets than in the United States; possible imposition of
foreign taxes; possible investment in securities of companies
in developing as well as developed countries; and sometimes
less advantageous legal, operational, and financial
protections applicable to foreign sub-custodial arrangements.
Although Growth Investor Portfolio will try to invest in
companies and governments of countries having stable
political environments, there is the possibility of
expropriation or confiscatory taxation, seizure or
nationalization of foreign bank deposits or other assets,
establishment of exchange controls, the adoption of foreign
government restrictions, or other adverse political, social
or diplomatic developments that could affect investment in
these nations.
Currency Exchange Transactions. Currency exchange
transactions may be conducted either on a spot (i.e., cash)
basis at the spot rate for purchasing or selling currency
prevailing in the foreign exchange market or through forward
currency exchange contracts ("forward contracts"). Forward
contracts are contractual agreements to purchase or sell a
specified currency at a specified future date (or within a
specified time period) and price set at the time of the
contract. Forward contracts are usually entered into with
banks and broker-dealers, are not exchange traded, and are
usually for less than one year, but may be renewed.
Growth Investor Portfolio's foreign currency exchange
transactions are limited to transaction and portfolio hedging
involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of
forward contracts with respect to specific receivables or
payables of Growth Investor Portfolio arising in connection
with the purchase and sale of its portfolio securities.
Portfolio hedging is the use of forward contracts with
respect to portfolio security positions denominated or quoted
in a particular foreign currency. Portfolio hedging allows
Growth Investor Portfolio to limit or reduce its exposure in
a foreign currency by entering into a forward contract to
sell such foreign currency (or another foreign currency that
acts as a proxy for that currency) at a future date for a
price payable in U.S. dollars so that the value of the
foreign-denominated portfolio securities can be approximately
matched by a foreign-denominated liability. Growth Investor
Portfolio may not engage in portfolio hedging with respect to
the currency of a particular country to an extent greater
than the aggregate market value (at the time of making such
sale) of the securities held in its portfolio denominated or
quoted in that particular currency, except that it may hedge
all or part of its foreign currency exposure through the use
of a basket of currencies or a proxy currency where such
currencies or currency act as an effective proxy for other
currencies. In such a case, Growth Investor Portfolio may
enter into a forward contract where the amount of the foreign
currency to be sold exceeds the value of the securities
denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering
into separate forward contracts for each currency held.
Growth Investor Portfolio may not engage in "speculative"
currency exchange transactions.
At the maturity of a forward contract to deliver a
particular currency, Growth Investor Portfolio may either
sell the portfolio security related to such contract and make
delivery of the currency, or it may retain the security and
either acquire the currency on the spot market or terminate
its contractual obligation to deliver the currency by
purchasing an offsetting contract with the same currency
trader obligating it to purchase on the same maturity date
the same amount of the currency.
It is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of a
forward contract. Accordingly, it may be necessary for
Growth Investor Portfolio to purchase additional currency on
the spot market (and bear the expense of such purchase) if
the market value of the security is less than the amount of
currency it is obligated to deliver and if a decision is made
to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market
some of the currency received upon the sale of the portfolio
security if its market value exceeds the amount of currency
it is obligated to deliver.
If Growth Investor Portfolio retains the portfolio
security and engages in an offsetting transaction, it will
incur a gain or a loss to the extent that there has been
movement in forward contract prices. If Growth Investor
Portfolio engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period
between Growth Investor Portfolio's entering into a forward
contract for the sale of a currency and the date it enters
into an offsetting contract for the purchase of the currency,
it will realize a gain to the extent the price of the
currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices
increase, Growth Investor Portfolio will suffer a loss to the
extent the price of the currency it has agreed to purchase
exceeds the price of the currency it has agreed to sell. A
default on the contract would deprive Growth Investor
Portfolio of unrealized profits or force it to cover its
commitments for purchase or sale of currency, if any, at the
current market price.
Hedging against a decline in the value of a currency
does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities
decline. Such transactions also preclude the opportunity for
gain if the value of the hedged currency should rise.
Moreover, it may not be possible for Growth Investor
Portfolio to hedge against a devaluation that is so generally
anticipated that it is not able to contract to sell the
currency at a price above the devaluation level it
anticipates. The cost to Growth Investor Portfolio of
engaging in currency exchange transactions varies with such
factors as the currency involved, the length of the contract
period, and prevailing market conditions. Since currency
exchange transactions are usually conducted on a principal
basis, no fees or commissions are involved.
Lending of Portfolio Securities
Subject to restriction (5) under Investment Restrictions
in this Statement of Additional Information, Growth Investor
Portfolio may lend its portfolio securities to broker-dealers
and banks. Any such loan must be continuously secured by
collateral in cash or cash equivalents maintained on a
current basis in an amount at least equal to the market value
of the securities loaned by Growth Investor Portfolio.
Growth Investor Portfolio would continue to receive the
equivalent of the interest or dividends paid by the issuer on
the securities loaned, and would also receive an additional
return that may be in the form of a fixed fee or a percentage
of the collateral. Growth Investor Portfolio would have the
right to call the loan and obtain the securities loaned at
any time on notice of not more than five business days.
Growth Investor Portfolio would not have the right to vote
the securities during the existence of the loan but would
call the loan to permit voting of the securities if, in the
Adviser's judgment, a material event requiring a shareholder
vote would otherwise occur before the loan was repaid. In
the event of bankruptcy or other default of the borrower, it
could experience both delays in liquidating the loan
collateral or recovering the loaned securities and losses,
including (a) possible decline in the value of the collateral
or in the value of the securities loaned during the period
while it seeks to enforce its rights thereto, (b) possible
subnormal levels of income and lack of access to income
during this period, and (c) expenses of enforcing its rights.
Repurchase Agreements
Growth Investor Portfolio may invest in repurchase
agreements, provided that it will not invest more than 15% of
net assets in repurchase agreements maturing in more than
seven days and any other illiquid securities. A repurchase
agreement is a sale of securities to Growth Investor
Portfolio in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a
specified time. In the event of bankruptcy of the seller,
Growth Investor Portfolio could experience both losses and
delays in liquidating its collateral.
When-Issued and Delayed-Delivery Securities; Reverse
Repurchase Agreements
Growth Investor Portfolio may purchase securities on a
when-issued or delayed-delivery basis. Although the payment
and interest terms of these securities are established at the
time it enters into the commitment, the securities may be
delivered and paid for a month or more after the date of
purchase, when their value may have changed. Growth Investor
Portfolio makes such commitments only with the intention of
actually acquiring the securities, but may sell the
securities before settlement date if the Adviser deems it
advisable for investment reasons. Growth Investor Portfolio
does not currently intend to make commitments to purchase
when-issued securities in excess of 5% of its net assets.
Growth Investor Portfolio may enter into reverse
repurchase agreements with banks and securities dealers. A
reverse repurchase agreement is a repurchase agreement in
which it is the seller of, rather than the investor in,
securities and agrees to repurchase them at an agreed-upon
time and price. Use of a reverse repurchase agreement may be
preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and
transaction costs.
At the time Growth Investor Portfolio enters into a
binding obligation to purchase securities on a when-issued
basis or enters into a reverse repurchase agreement, liquid
assets (cash, U.S. Government securities or other "high-
grade" debt obligations) having a value at least as great as
the purchase price of the securities to be purchased will be
segregated on its books and held by the custodian throughout
the period of the obligation. The use of these investment
strategies, as well as borrowing under a line of credit as
described below, may increase net asset value fluctuation.
Short Sales "Against the Box"
Growth Investor Portfolio may sell securities short
against the box; that is, enter into short sales of
securities that it currently owns or has the right to acquire
through the conversion or exchange of other securities that
it owns at no additional cost. Growth Investor Portfolio may
make short sales of securities only if at all times when a
short position is open it owns at least an equal amount of
such securities or securities convertible into or
exchangeable for securities of the same issue as, and equal
in amount to, the securities sold short, at no additional
cost.
In a short sale against the box, Growth Investor
Portfolio does not deliver from its portfolio the securities
sold. Instead, Growth Investor Portfolio borrows the
securities sold short from a broker-dealer through which the
short sale is executed, and the broker-dealer delivers such
securities, on behalf of Growth Investor Portfolio, to the
purchaser of such securities. Growth Investor Portfolio is
required to pay to the broker-dealer the amount of any
dividends paid on shares sold short. Finally, to secure its
obligation to deliver to such broker-dealer the securities
sold short, Growth Investor Portfolio must deposit and
continuously maintain in a separate account with its
custodian an equivalent amount of the securities sold short
or securities convertible into or exchangeable for such
securities at no additional cost. Growth Investor Portfolio
is said to have a short position in the securities sold until
it delivers to the broker-dealer the securities sold. Growth
Investor Portfolio may close out a short position by
purchasing on the open market and delivering to the broker-
dealer an equal amount of the securities sold short, rather
than by delivering portfolio securities.
Short sales may protect Growth Investor Portfolio
against the risk of losses in the value of its portfolio
securities because any unrealized losses with respect to such
portfolio securities should be wholly or partially offset by
a corresponding gain in the short position. However, any
potential gains in such portfolio securities should be wholly
or partially offset by a corresponding loss in the short
position. The extent to which such gains or losses are
offset will depend upon the amount of securities sold short
relative to the amount Growth Investor Portfolio owns, either
directly or indirectly, and, in the case where it owns
convertible securities, changes in the conversion premium.
Short sale transactions involve certain risks. If the
price of the security sold short increases between the time
of the short sale and the time Growth Investor Portfolio
replaces the borrowed security, it will incur a loss and if
the price declines during this period, it will realize a
short-term capital gain. Any realized short-term capital
gain will be decreased, and any incurred loss increased, by
the amount of transaction costs and any premium, dividend or
interest which Growth Investor Portfolio may have to pay in
connection with such short sale. Certain provisions of the
Internal Revenue Code may limit the degree to which Growth
Investor Portfolio is able to enter into short sales. There
is no limitation on the amount of assets that, in the
aggregate, may be deposited as collateral for the obligation
to replace securities borrowed to effect short sales and
allocated to segregated accounts in connection with short
sales. Growth Investor Portfolio will not invest more than
5% of its total assets in short sales against the box.
Rule 144A Securities
Growth Investor Portfolio may purchase securities that
have been privately placed but that are eligible for purchase
and sale under Rule 144A under the 1933 Act. That Rule
permits certain qualified institutional buyers, such as
Growth Investor Portfolio, to trade in privately placed
securities that have not been registered for sale under the
1933 Act. The Adviser, under the supervision of the Board of
Trustees, will consider whether securities purchased under
Rule 144A are illiquid and thus subject to the restriction on
investing no more than 15% of its net assets in illiquid
securities. A determination of whether a Rule 144A security
is liquid or not is a question of fact. In making this
determination, the Adviser will consider the trading markets
for the specific security, taking into account the
unregistered nature of a Rule 144A security. In addition,
the Adviser could consider the (1) frequency of trades and
quotes, (2) number of dealers and potential purchasers, (3)
dealer undertakings to make a market, and (4) nature of the
security and of marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and
the mechanics of transfer). The liquidity of Rule 144A
securities would be monitored and if, as a result of changed
conditions, it is determined that a Rule 144A security is no
longer liquid, Growth Investor Portfolio's holdings of
illiquid securities would be reviewed to determine what, if
any, steps are required to assure that it does not invest
more than 15% of its assets in illiquid securities.
Investing in Rule 144A securities could have the effect of
increasing the amount of its assets invested in illiquid
securities if qualified institutional buyers are unwilling to
purchase such securities. Growth Investor Portfolio does not
expect to invest as much as 5% of its total assets in Rule
144A securities that have not been deemed to be liquid by the
Adviser.
Swaps, Caps, Floors and Collars
Growth Investor Portfolio may enter into swaps and may
purchase or sell related caps, floors and collars. Growth
Investor Portfolio would enter into these transactions
primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against
currency fluctuations, as a duration management technique or
to protect against any increase in the price of securities it
anticipates purchasing at a later date. Growth Investor
Portfolio intends to use these techniques as hedges and not
as speculative investments and will not sell interest rate
income stream they may be obligated to pay.
A swap agreement is generally individually negotiated
and structured to include exposure to a variety of different
types of investments or market factors. Depending on its
structure, a swap agreement may increase or decrease Growth
Investor Portfolio's exposure to changes in the value of an
index of securities in which it might invest, the value of a
particular security or group of securities, or foreign
currency values. Swap agreements can take many different
forms and are known by a variety of names. Growth Investor
Portfolio may enter into any form of swap agreement if the
Adviser determines it is consistent with its investment
objective and policies.
A swap agreement tends to shift investment exposure from
one type of investment to another. For example, if Growth
Investor Portfolio agrees to exchange payments in dollars at
a fixed rate for payments in a foreign currency the amount of
which is determined by movements of a foreign securities
index, the swap agreement would tend to increase its exposure
to foreign stock market movements and foreign currencies.
Depending on how it is used, a swap agreement may increase or
decrease the overall volatility of Growth Investor
Portfolio's investments and its net asset value.
The performance of a swap agreement is determined by the
change in the specific currency, market index, security, or
other factors that determine the amounts of payments due to
and from Growth Investor Portfolio. If a swap agreement
calls for payments by Growth Investor Portfolio, it must be
prepared to make such payments when due. If the
counterparty's creditworthiness declines, the value of a swap
agreement would be likely to decline, potentially resulting
in a loss. Growth Investor Portfolio will not enter into any
swap, cap, floor or collar transaction unless, at the time of
entering into such transaction, the unsecured long-term debt
of the counterparty, combined with any credit enhancements,
is rated at least A by Standard & Poor's Corporation or
Moody's or has an equivalent rating from a nationally
recognized statistical rating organization or is determined
to be of equivalent credit quality by the Adviser.
The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party
selling the cap to the extent that a specified index exceeds
a predetermined interest rate or amount. The purchase of a
floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor
to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a
combination of a cap and floor that preserves a certain
return within a predetermined range of interest rates or
values.
At the time Growth Investor Portfolio enters into swap
arrangements or purchases or sells caps, floors or collars,
liquid assets of Growth Investor Portfolio having a value at
least as great as the commitment underlying the obligations
will be segregated on its books and held by the custodian
throughout the period of the obligation.
Line of Credit
Subject to restriction (6) under Investment Restrictions
in this Statement of Additional Information, Growth Investor
Portfolio may establish and maintain a line of credit with a
major bank in order to permit borrowing on a temporary basis
to meet share redemption requests in circumstances in which
temporary borrowing may be preferable to liquidation of
portfolio securities.
Interfund Borrowing and Lending Program
Pursuant to an exemptive order issued by the Securities
and Exchange Commission, Advisor Young Investor Fund has
received permission to lend money to, and borrow money from,
other mutual funds advised by the Adviser. Advisor Young
Investor Fund will borrow through the program when borrowing
is necessary and appropriate and the costs are equal to or
lower than the costs of bank loans.
Portfolio Turnover
Although Growth Investor Portfolio does not purchase
securities with a view to rapid turnover, there are no
limitations on the length of time that portfolio securities
must be held. At times, Special Portfolio may invest for
short-term capital appreciation. Portfolio turnover can
occur for a number of reasons such as general conditions in
the securities markets, more favorable investment
opportunities in other securities, or other factors relating
to the desirability of holding or changing Growth Investor
Portfolio investment. Because of Growth Investor Portfolio's
flexibility of investment and emphasis on growth of capital,
they may have greater portfolio turnover than that of mutual
funds that have primary objectives of income or maintenance
of a balanced investment position. The future turnover rate
may vary greatly from year to year. A high rate of portfolio
turnover if it should occur, would result in increased
transaction expenses, which must be borne by Growth Investor
Portfolio. High portfolio turnover may also result in the
realization of capital gains or losses and, to the extent net
short-term capital gains are realized, any distributions
resulting from such gains will be considered ordinary income
for federal income tax purposes. (See Risks and Investment
Considerations and Distributions and Income Taxes in the
Prospectus, and Additional Income Tax Considerations in this
Statement of Additional Information.)
Options on Securities and Indexes
Growth Investor Portfolio may purchase and sell put
options 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. Growth Investor Portfolio may purchase
agreements, sometimes called cash puts, that may accompany
the purchase of a new issue of bonds from a dealer.
An option on a security (or index) is a contract that
gives the purchaser (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) 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 economic indicators.)
Growth Investor Portfolio 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 Growth Investor Portfolio owns the security underlying the
call or has an absolute and immediate right to acquire that
security without additional cash consideration (or, if
additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account
by its custodian) upon conversion or exchange of other
securities held in its portfolio.
If an option written by Growth Investor Portfolio
expires, it realizes a capital gain equal to the premium
received at the time the option was written. If an option
purchased by Growth Investor Portfolio expires, it 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 or index, exercise price, and expiration). There
can be no assurance, however, that a closing purchase or sale
transaction can be effected when Growth Investor Portfolio
desires.
Growth Investor Portfolio 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, it will realize a capital
loss. If the premium received from a closing sale
transaction is more than the premium paid to purchase the
option, Growth Investor Portfolio will realize a capital gain
or, if it is less, it 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 or index in
relation to the exercise price of the option, the volatility
of the underlying security or index, and the time remaining
until the expiration date.
A put or call option purchased by Growth Investor
Portfolio is an asset, valued initially at the premium paid
for the option. The premium received for an option written
by Growth Investor Portfolio 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 on Securities and Indexes.
There are several risks associated with transactions in
options. For example, there are significant differences
between the securities markets, 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 Growth Investor Portfolio seeks to close out an
option position. If Growth Investor Portfolio were unable to
close out an option that it had purchased on a security, it
would have to exercise the option in order to realize any
profit or the option would expire and become worthless. If
Growth Investor Portfolio were unable to close out a covered
call option that it had written on a security, it would not
be able to sell the underlying security until the option
expired. As the writer of a covered call option on a
security, Growth Investor Portfolio 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.
If trading were suspended in an option purchased or
written by Growth Investor Portfolio, it would not be able to
close out the option. If restrictions on exercise were
imposed, It might be unable to exercise an option it has
purchased.
Futures Contracts and Options on Futures Contracts
Growth Investor Portfolio may use interest rate futures
contracts, index futures contracts, 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 or the cash value of an index /2/ 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 Index, the Value Line
Composite Index, and the New York Stock Exchange Composite
Index) as well as financial instruments (including, but not
limited to: U.S. Treasury bonds, U.S. Treasury notes,
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.
- ---------
/2/ 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 price 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.
- ---------
Growth Investor Portfolio 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 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.
Growth Investor Portfolio might, for example, use futures
contracts to hedge against or gain exposure to fluctuations
in the general level of stock prices, anticipated changes in
interest rates or currency fluctuations that might adversely
affect either the value of the portfolio securities or the
price of the securities that Growth Investor Portfolio
intends to purchase. Although other techniques could be used
to reduce or increase portfolio exposure to stock price,
interest rate and currency fluctuations, it may be able to
achieve its exposure more effectively and perhaps at a lower
cost by using futures contracts and futures options.
Growth Investor Portfolio 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 the
Adviser correctly predicting changes in the level and
direction of stock prices, interest rates, currency exchange
rates and other factors. Should those predictions be
incorrect, Growth Investor Portfolio's return might have been
better had the transaction not been attempted; however, in
the absence of the ability to use futures contracts, the
Adviser 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
Growth Investor Portfolio, it 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 contract 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 Growth Investor
Portfolio upon termination of the contract, assuming all
contractual obligations have been satisfied. Growth Investor
Portfolio expects to earn interest income on its initial
margin deposits. A futures contract held by Growth Investor
Portfolio is valued daily at the official settlement price of
the exchange on which it is traded. Each day Growth Investor
Portfolio 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 Growth Investor Portfolio does not
represent a borrowing or loan by it but is instead settlement
between Growth Investor Portfolio 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, Growth Investor Portfolio will mark-to-
market its open futures positions.
Growth Investor Portfolio 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 Growth Investor Portfolio.
Although some futures contracts call for making or
taking delivery of the underlying securities, usually these
obligations are closed out prior to delivery by offsetting
purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month).
If an offsetting purchase price is less than the original
sale price, Growth Investor Portfolio realizes a capital
gain, or if it is more, it realizes a capital loss.
Conversely, if an offsetting sale price is more than the
original purchase price, it realizes a capital gain, or if it
is less, it 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. In trying to
increase or reduce market exposure, there can be no guarantee
that there will be a correlation between price movements in
the futures contract and in Growth Investor Portfolio
exposure sought. In addition, there are significant
differences between the securities and 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, including technical influences in futures and
futures options trading and differences between the
securities market and the securities 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 investment 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 investment 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 stock price or interest 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 Growth Investor Portfolio seeks to close
out a futures or futures option position. Growth Investor
Portfolio 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
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
If other options, futures contracts, or futures options
of types other than those described herein are traded in the
future, Growth Investor Portfolio may also use those
investment vehicles, provided the Board of Trustees
determines that their use is consistent with the investment
objective.
Growth Investor Portfolio will not enter into a futures
contract or purchase an option thereon if, immediately
thereafter, the initial margin deposits for futures contracts
held by it plus premiums paid by it for open futures option
positions, less the amount by which any such positions are
"in-the-money," /3/ would exceed 5% of total assets.
- ----------
/3/ 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, Growth Investor Portfolio 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, Growth Investor Portfolio 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.
Growth Investor Portfolio 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 Growth Investor Portfolio and the
positions. For this purpose, to the extent Growth Investor
Portfolio 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 Regulation 4.5 and thereby avoid being deemed a
"commodity pool operator," Growth Investor Portfolio will use
commodity futures or commodity options contracts solely for
bona fide hedging purposes within the meaning and intent of
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 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, 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 Commission Regulations) may be excluded in
computing such 5%].
Taxation of Options and Futures
If Growth Investor Portfolio exercises a call or put
option that 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 it,
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 Growth Investor
Portfolio 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 Growth
Investor Portfolio, 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 Growth
Investor Portfolio 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 Growth Investor Portfolio writes an equity call
option /4/ 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.
- ---------
/4/ 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 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 Growth Investor Portfolio delivers
securities under a futures contract, it also realizes a
capital gain or loss on those securities.
For federal income tax purposes, Growth Investor
Portfolio 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 Growth Investor
Portfolio: (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 Growth Investor Portfolio were to enter into a short
index future, short index futures option or short index
option position and its portfolio were deemed to "mimic" the
performance of the index underlying such contract, the option
or futures contract position and its stock positions would be
deemed to be positions in a mixed straddle, subject to the
above-mentioned loss deferral rules.
In order for Growth Investor Portfolio 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, futures, or forward contracts). 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.
Advisor Young Investor Fund distributes to shareholders
annually any net capital gains that have been recognized for
federal income tax purposes (including year-end mark-to-
market gains) on options and futures transactions. Such
distributions are combined with distributions of capital
gains realized on the other investments, and shareholders are
advised of the nature of the payments.
The Taxpayer Relief Act of 1997 (the "Act") imposed
constructive sale treatment for federal income tax purposes
on certain hedging strategies with respect to appreciated
securities. Under these rules, taxpayers will recognize
gain, but not loss, with respect to securities if they enter
into short sales of "offsetting notional principal contracts"
(as defined by the Act) or futures or "forward contracts" (as
defined by the Act) with respect to the same or substantially
identical property, or if they enter into such transactions
and then acquire the same or substantially identical
property. These changes generally apply to constructive
sales after June 8, 1997. Furthermore, the Secretary of the
Treasury is authorized to promulgate regulations that will
treat as constructive sales certain transactions that have
substantially the same effect as short sales, offsetting
notional principal contracts, and futures or forward
contracts to deliver the same or substantially similar
property.
INVESTMENT RESTRICTIONS
Advisor Young Investor Fund and Growth Investor
Portfolio operate under the following investment
restrictions. They may not:
(1) with respect to 75% of its total assets, invest more
than 5% of its total assets, taken at market value at the
time of a particular purchase, in the securities of a single
issuer, except for securities issued or guaranteed by the
U.S. Government or any of its agencies or instrumentalities
or repurchase agreements for such securities, and [Advisor
Young Investor Fund only] except that all or substantially
all of the assets of the Fund may be invested in another
registered investment company having the same investment
objective and substantially similar investment policies as
the Fund;
(2) acquire more than 10%, taken at the time of a
particular purchase, of the outstanding voting securities of
any one issuer, [Advisor Young Investor Fund only] except
that all or substantially all of the assets of the Fund may
be invested in another registered investment company having
the same investment objective and substantially similar
investment policies as the Fund;
(3) 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,
[Advisor Young Investor Fund only] except that all or
substantially all of the assets of the Fund may be invested
in another registered investment company having the same
investment objective and substantially similar investment
policies as the Fund;
(4) purchase or sell real estate (although it may
purchase securities secured by real estate or interests
therein, or 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;
(5) make loans, although it may (a) lend portfolio
securities and participate in an interfund lending program
with other Stein Roe Funds and Portfolios provided that no
such loan may be made if, as a result, the aggregate of such
loans would exceed 33 1/3% of the value of its total assets
(taken at market value at the time of such loans); (b)
purchase money market instruments and enter into repurchase
agreements; and (c) acquire publicly distributed or privately
placed debt securities;
(6) borrow except that it may (a) borrow for
nonleveraging, temporary or emergency purposes, (b) engage in
reverse repurchase agreements and make other borrowings,
provided that the combination of (a) and (b) shall not exceed
33 1/3% of the value of its total assets (including the
amount borrowed) less liabilities (other than borrowings) or
such other percentage permitted by law, and (c) enter into
futures and options transactions; it may borrow from banks,
other Stein Roe Funds and Portfolios, and other persons to
the extent permitted by applicable law;
(7) 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 securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, and [Advisor
Young Investor Fund only] except that all or substantially
all of the assets of the Fund may be invested in another
registered investment company having the same investment
objective and substantially similar investment policies as
the Fund; or
(8) issue any senior security except to the extent
permitted under the Investment Company Act of 1940.
The above restrictions (other than bracketed portions
thereof are fundamental policies and may not be changed
without the approval of a "majority of the outstanding voting
securities" as defined above. Advisor Young Investor Fund
and Growth Investor Portfolio are also subject to the
following non-fundamental restrictions and policies, which
may be changed by the Board of Trustees. None of the
following restrictions shall prevent Advisor Young Investor
Fund from investing all or substantially all of its assets in
another investment company having the same investment
objective and substantially the same investment policies.
Advisor Young Investor Fund and Growth Investor Portfolio may
not:
(a) invest in any of the following: (i) interests in
oil, gas, or other mineral leases or exploration or
development programs (except readily marketable securities,
including but not limited to master limited partnership
interests, that may represent indirect interests in oil, gas,
or other mineral exploration or development programs); (ii)
puts, calls, straddles, spreads, or any combination thereof
(except that it may enter into transactions in options,
futures, and options on futures); (iii) shares of other open-
end investment companies, except in connection with a merger,
consolidation, acquisition, or reorganization; and (iv)
limited partnerships in real estate unless they are readily
marketable;
(b) invest in companies for the purpose of exercising
control or management;
(c) 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 its total assets
(valued at time of purchase) in the case of any one other
investment company and 10% of such assets (valued at 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;
(d) 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 Exchange;
(e) write an option on a security unless the option is
issued by the Options Clearing Corporation, an exchange, or
similar entity;
(f) invest more than 25% of its total assets (valued at
time of purchase) in securities of foreign issuers (other
than securities represented by American Depositary Receipts
(ADRs) or securities guaranteed by a U.S. person);
(g) 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;
(h) purchase securities on margin (except for use of
short-term credits as are necessary for the clearance of
transactions), or sell securities short unless (i) it owns or
has the right to obtain securities equivalent in kind and
amount to those sold short at no added cost or (ii) the
securities sold are "when issued" or "when distributed"
securities which it expects to receive in a recapitalization,
reorganization, or other exchange for securities the it
contemporaneously owns or has the right to obtain and
provided that transactions in options, futures, and options
on futures are not treated as short sales;
(i) invest more than 5% of its total assets (taken at
market value at the time of a particular investment) in
restricted securities, other than securities eligible for
resale pursuant to Rule 144A under the Securities Act of
1933;
(j) invest more than 15% of its net assets (taken at
market value at the time of a particular investment) in
illiquid securities, including repurchase agreements maturing
in more than seven days.
ADDITIONAL INVESTMENT CONSIDERATIONS
The Adviser seeks to provide superior long-term
investment results through a disciplined, research-intensive
approach to investment selection and prudent risk management.
In working to build wealth for generations, it has been
guided by three primary objectives which it believes are the
foundation of a successful investment program. These
objectives are preservation of capital, limited volatility
through managed risk, and consistent above-average returns,
as appropriate for the particular client or managed account.
The Adviser's focus on a long-term investment style can
result in lower turnover rates, often leading to increased
tax efficiencies for shareholders subject to income tax.
Because every investor's needs are different, Stein Roe
mutual funds are designed to accommodate different investment
objectives, risk tolerance levels, and time horizons. In
selecting a mutual fund, investors should ask the following
questions:
What are my investment goals?
It is important to a choose a fund that has investment
objectives compatible with your investment goals.
What is my investment time frame?
If you have a short investment time frame (e.g., less than
three years), a mutual fund that seeks to provide a stable
share price, such as a money market fund, or one that seeks
capital preservation as one of its objectives may be
appropriate. If you have a longer investment time frame, you
may seek to maximize your investment returns by investing in
a mutual fund that offers greater yield or appreciation
potential in exchange for greater investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks
which will vary depending on investment objective and
security type. However, mutual funds seek to reduce risk
through professional investment management and portfolio
diversification.
In general, equity mutual funds emphasize long-term
capital appreciation and tend to have more volatile net asset
values than bond or money market mutual funds. Although
there is no guarantee that they will be able to maintain a
stable net asset value of $1.00 per share, money market
funds emphasize safety of principal and liquidity, but tend
to offer lower income potential than bond funds. Bond funds
tend to offer higher income potential than money market funds
but tend to have greater risk of principal and yield
volatility.
In addition, the Adviser believes that investment in a
high yield fund provides an opportunity to diversify an
investment portfolio because the economic factors that affect
the performance of high-yield, high-risk debt securities
differ from those that affect the performance of high-quality
debt securities or equity securities.
MANAGEMENT
The following table sets forth certain information with
respect to the trustees and officers of Advisor Trust:
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME AGE WITH THE TRUST PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ----------------------- --- ---------------------- ----------------------------------------------------
<S> <C> <C> <C>
William D. Andrews 50 Executive Vice-President Executive vice president of Stein Roe & Farnham
(4) Incorporated (the "Adviser")
Gary A. Anetsberger (4) 42 Senior Vice-President Chief financial officer of the Mutual Funds division of
the Adviser; senior vice president of the Adviser
since Apr. 1996; vice president of the Adviser prior
thereto
Timothy K. Armour 48 President; Trustee President of the Mutual Funds division of the Adviser
(1) (2)(4) and director of the Adviser
William W. Boyd(2)(3)(4) 71 Trustee Chairman and director of Sterling Plumbing Group,
Inc. (manufacturer of plumbing products)
David P. Brady 34 Vice-President Vice president of the Adviser since Nov., 1995;
portfolio manager for the Adviser since 1993; equity
investment analyst, State Farm Mutual Automobile
Insurance Company prior thereto
Thomas W. Butch (4) 41 Executive Vice-President Senior vice president of the Adviser since Sept.
1994; first vice president, corporate communications,
of Mellon Bank Corporation prior thereto
Daniel K. Cantor 38 Vice-President Senior vice president of the Adviser
Lindsay Cook (1)(4) 45 Trustee Executive vice president of Liberty Financial
Companies, Inc. (the indirect parent of the Adviser) since Mar.
1997; senior vice president prior thereto
Philip J. Crosley 51 Vice-President Senior vice president of the Adviser since Feb.,
1996; vice president, institutional sales - advisor
sales, Invesco Funds Group prior thereto
Erik P. Gustafson 34 Vice-President Senior portfolio manager of the Adviser; senior vice
president of the Adviser since Apr. 1996; vice
president of the Adviser from May, 1994 to Apr. 1996;
associate of the Adviser prior thereto
Douglas A. Hacker (3)(4) 42 Trustee Senior vice president and chief financial officer of
United Airlines, since July, 1994; senior vice
president, finance, United Airlines, Feb. 1993 to
July, 1994; vice president, American Airlines prior
thereto
David P. Harris 33 Vice-President Vice president of Colonial Management Associates,
Inc. since Jan. 1996; vice president of the Adviser
since May, 1995; global equity portfolio manager with
Rockefeller & Co. prior thereto
Loren A. Hansen (4) 49 Executive Vice-President Executive vice president of the Adviser since Dec.,
1995; vice president of The Northern Trust (bank)
prior thereto
Harvey B. Hirschhorn 48 Vice-President Executive vice president, senior portfolio manager,
and chief economist and investment strategist of the
Adviser; director of research of the Adviser, 1991 to
1995
Janet Langford Kelly 40 Trustee Senior vice president, secretary and general counsel
(3)(4) of Sara Lee Corporation (branded, packaged, consumer-
products manufacturer) since 1995; partner, Sidley &
Austin (law firm) prior thereto
Michael T. Kennedy 35 Vice-President Senior vice president of the Adviser since Oct. 1994;
vice president of the Adviser prior thereto
Stephen F. Lockman 36 Vice-President Senior vice president, portfolio manager, and credit
analyst of the Adviser; portfolio manager for
Illinois State Board of Investment prior thereto
Eric S. Maddix 34 Vice-President Vice president of the Adviser since Nov. 1995;
portfolio manager or research assistant for the
Adviser since 1987
M. Jane McCart 42 Vice-President Senior vice president of the Adviser
John S. McLandsborough 30 Vice-President Portfolio manager for the Adviser since Apr. 1996;
securities analyst, CS First Boston from June, 1993
to Dec. 1995; securities analyst, National City Bank
of Cleveland from Nov. 1992 to June, 1993
Anne E. Marcel 40 Vice-President Vice president of the Adviser since Apr. 1996;
manager, mutual fund sales & services of the Adviser
since Oct. 1994; supervisor of the Counselor
Department of the Adviser prior thereto
Arthur J. McQueen 39 Vice-President Senior vice president of the Adviser
Lynn C. Maddox 57 Vice-President Senior vice president of the Adviser
Charles R. Nelson (3)(4) 55 Trustee Van Voorhis Professor of Political Economy,
Department of Economics of the University of
Washington
Nicolette D. Parrish (4) 48 Vice-President; Senior compliance administrator and assistant
Assistant Secretary secretary of the Adviser since Nov. 1995; senior
legal assistant for the Adviser prior thereto
Richard B. Peterson 56 Vice-President Senior vice president of the Adviser
Sharon R. Robertson (4) 36 Controller Accounting manager for the Adviser's Mutual Funds
division
Janet B. Rysz (4) 42 Assistant Secretary Senior compliance administrator and assistant
secretary of the Adviser
M. Gerard Sandel 43 Vice-President Senior vice president of the Adviser since July,
1997; vice president of M&I Investment Management
Corporation from Oct. 1993 to June, 1997; vice
president of Acorn Asset Management Corporation prior
thereto
Gloria J. Santella 40 Vice-President Senior vice president of the Adviser since Nov. 1995;
vice president of the Adviser prior thereto
Thomas C. Theobald 60 Trustee Managing director, William Blair Capital Partners
(3)(4) (private equity fund) since 1994; chief executive
officer and chairman of the Board of Directors of
Continental Bank Corporation, 1987-1994
Scott E. Volk (4) 26 Treasurer Financial reporting manager for the Adviser's Mutual
Funds division since Oct. 1997; senior auditor with
Ernst & Young LLP from Sept. 1993 to Apr. 1996 and
from Oct. 1996 to Sept. 1997; financial analyst with
John Nuveen & Company Inc. from May 1996 to Sept.
1996; full-time student prior to Sept. 1993
Heidi J. Walter (4) 30 Vice-President Legal counsel for the Adviser since Mar. 1995;
associate with Beeler Schad & Diamond PC (law firm)
prior thereto
Stacy H. Winick (4) 32 Vice-President Senior legal counsel for the Adviser since Oct. 1996;
associate of Bell, Boyd & Lloyd (law firm) from June,
1993 to Sept. 1996; associate of Debevoise & Plimpton
(law firm) prior thereto
Hans P. Ziegler (4) 56 Executive Vice-President Chief executive officer of the Adviser since May,
1994; president of the Investment Counsel division of
the Adviser from July, 1993 to June, 1994; president
and chief executive officer, Pitcairn Financial
Management Group prior thereto
Margaret O. Zwick (4) 31 Assistant Treasurer Accounting manager for the Adviser's Mutual Funds
division since Apr. 1997; compliance manager from
Aug. 1995 to Apr. 1997; compliance accountant, Jan.
1995 to July 1995; section manager, Jan. 1994 to Jan.
1995; supervisor prior thereto
<FN>
_________________________
(1) Trustee who is an "interested person" of Advisor Trust and of
the Adviser, 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.
(4) This person holds the corresponding officer or trustee
position with the Base Trust.
</TABLE?
Certain of the trustees and officers of Advisor Trust
and Base Trust are trustees or officers of other investment
companies managed by the Adviser. The address of Mr. Boyd is
2900 Golf Road, Rolling Meadows, Illinois 60008; that of Mr.
Cook is 600 Atlantic Avenue, Boston, Massachusetts 02210;
that of Mr. Hacker is P.O. Box 66100, Chicago, IL 60666; that
of Ms. Kelly is Three First National Plaza, Chicago, Illinois
60602; that of Mr. Nelson is Department of Economics,
University of Washington, Seattle, Washington 98195; that of
Mr. Theobald is Suite 3300, 222 West Adams Street, Chicago,
IL 60606; that of Messrs. Bertocci, Cantor, and Harris is
1330 Avenue of the Americas, New York, New York 10019; and
that of the other officers is One South Wacker Drive,
Chicago, Illinois 60606.
Officers and trustees affiliated with the Adviser serve
without any compensation from Advisor Trust. In compensation
for their services to Advisor Trust, trustees who are not
"interested persons" of Advisor Trust or the Adviser are paid
an annual retainer of $8,000 (divided equally among the
series of Advisor Trust) plus an attendance fee from each
series for each meeting of the Board or standing committee
thereof attended at which business for that series is
conducted. The attendance fees (other than for a Nominating
Committee or Compensation Committee meeting) are based on
each series' net assets as of the preceding Dec. 31. For a
series with net assets of less than $50 million, the fee is
$50 per meeting; with $51 to $250 million, the fee is $200
per meeting; with $251 million to $500 million, $350; with
$501 million to $750 million, $500; with $751 million to $1
billion, $650; and with over $1 billion in net assets, $800.
For any series participating in the master fund/feeder fund
structure, the trustees' attendance fees are paid solely by
the master portfolio. Each non-interested trustee also
receives $500 from Advisor Trust for attending each meeting
of the Nominating Committee and Compensation Committee.
Advisor Trust has no retirement or pension plan. The
following table sets forth compensation paid to the trustees
during the fiscal year ended Sept. 30, 1997:
Aggregate Total Compensation
Name of Trustee Compensation from the Stein
from Advisor Trust Roe Fund Complex*
- ----------------- ------------------- -----------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
William W. Boyd $4,000 $92,643
Douglas A. Hacker 4,000 90,643
Janet Langford Kelly 4,000 77,500
Charles R. Nelson 4,000 92,643
Thomas C. Theobald 4,000 90,643
Kenneth L. Block** 4,000 84,743
Francis W. Morley** 4,000 90,993
_______________
* At Sept. 30, 1997, the Stein Roe Fund Complex consisted of
seven series of Advisor Trust, six series of Stein Roe
Income Trust, four series of Stein Roe Municipal Trust,
ten series of Stein Roe Investment Trust, one series of
Stein Roe Institutional Trust, one series of Stein Roe
Trust, and nine series of Base Trust.
** Messrs. Block and Morley retired as trustees on Dec. 31,
1997.
FINANCIAL STATEMENTS
Please refer to the Sept. 30, 1997 Financial Statements
(balance sheets and schedule of investments as of Sept. 30,
1997 and the statements of operations, changes in net assets,
and notes thereto) and the report of independent public
accountants contained in the Sept. 30, 1997 Annual Report.
The Financial Statements and the report of independent public
accountants (but no other material from the Annual Report)
are incorporated herein by reference. The Annual Report may
be obtained at no charge by telephoning 800-322-1130.
PRINCIPAL SHAREHOLDERS
As of Oct. 31, 1997, the only person known by Advisor
Trust to own of record or "beneficially" 5% or more of
outstanding shares of Advisor Young Investor Fund within the
definition of that term as contained in Rule 13d-3 under the
Securities Exchange Act of 1934 was Liberty Financial Companies,
Inc. (the parent company of the Adviser), 600 Atlantic Avenue,
Boston, MA 02210, which owned 87.07% of the outstanding shares
of the Fund.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated provides administrative
services to Advisor Young Investor Fund and Growth Investor
Portfolio and portfolio management services to Growth
Investor Portfolio. The Adviser is a wholly owned subsidiary
of SteinRoe Services Inc., which is a wholly owned subsidiary
of Liberty Financial Companies, Inc. ("Liberty Financial"),
which is a majority owned subsidiary of LFC Holdings, Inc.,
which is a wholly owned subsidiary of Liberty Mutual Equity
Corporation, which is a wholly owned subsidiary of Liberty
Mutual Insurance Company. Liberty Mutual Insurance Company
is a mutual insurance company, principally in the
property/casualty insurance field, organized under the laws
of Massachusetts in 1912.
The directors of the Adviser are Kenneth R. Leibler,
Harold W. Cogger, C. Allen Merritt, Jr., Timothy K. Armour,
and Hans P. Ziegler. Mr. Leibler is President and Chief
Executive Officer of Liberty Financial; Mr. Cogger is
Executive Vice President of Liberty Financial; Mr. Merritt is
Executive Vice President and Treasurer of Liberty Financial;
Mr. Armour is President of the Adviser's Mutual Funds
division; and Mr. Ziegler is Chief Executive Officer of the
Adviser. The business address of Messrs. Leibler, Cogger,
and Merritt is Federal Reserve Plaza, Boston, Massachusetts
02210; and that of Messrs. Armour, and Ziegler is One South
Wacker Drive, Chicago, Illinois 60606.
The Adviser and its predecessor have been providing
investment advisory services since 1932. The Adviser acts as
investment adviser to wealthy individuals, trustees, pension
and profit sharing plans, charitable organizations, and other
institutional investors. As of Sept. 30, 1997, the Adviser
managed over $29 billion in assets: over $5 billion in
equities and over $17 billion in fixed income securities
(including $1.7 billion in municipal securities). The $29
billion in managed assets included over $7 billion held by
open-end mutual funds managed by the Adviser (approximately
15% of the mutual fund assets were held by clients of the
Adviser). These mutual funds were owned by over 265,000
shareholders. The $7 billion in mutual fund assets included
over $728 million in over 42,000 IRA accounts. In managing
those assets, the Adviser utilizes a proprietary computer-
based information system that maintains and regularly updates
information for approximately 9,000 companies. The Adviser
also monitors over 1,400 issues via a proprietary credit
analysis system. At Sept. 30, 1997, the Adviser employed 16
research analysts and 55 account managers. The average
investment-related experience of these individuals was 24
years.
Please refer to the descriptions of the Adviser, the
management and administrative agreements, fees, expense
limitations, and transfer agency services under Management
and Fee Table in the Prospectus, which is incorporated herein
by reference. The table below shows gross fees paid and any
expense reimbursements by the Adviser during the fiscal year
ended Sept. 30, 1997:
Type of Year Ended
Fund Payment 9/30/97
- --------------------------- ------------------ ----------
Advisor Young Investor Fund Administrative fee $ 129
Reimbursement 56,653
Growth Investor Portfolio Management fee 1,191,731
The Adviser provides office space and executive and
other personnel to Advisor Young Investor Fund, and bears any
sales or promotional expenses. Advisor Young Investor Fund
pays all expenses other than those paid by the Adviser,
including but not limited to printing and postage charges and
securities registration and custodian fees and expenses
incidental to its organization.
The administrative agreement provides that the Adviser
shall reimburse Advisor Young Investor Fund to the extent
that its total annual expenses (including fees paid to the
Adviser, but excluding taxes, interest, commissions and other
normal charges incident to the purchase and sale of portfolio
securities, and expenses of litigation to the extent
permitted under applicable state law) exceed the applicable
limits prescribed by any state in which its shares are being
offered for sale to the public; provided, however, the
Adviser is not required to reimburse Advisor Young Investor
Fund an amount in excess of fees paid under that agreement
for such year. In addition, in the interest of further
limiting expenses of Advisor Young Investor Fund, the Adviser
may voluntarily waive its management fee and/or absorb
certain expenses for Advisor Young Investor Fund, as
described under Fee Table in the Prospectus. Any such
reimbursement will enhance the yield of Advisor Young
Investor Fund.
Growth Investor Portfolio's management agreement
provides that neither the Adviser, nor any of its directors,
officers, stockholders (or partners of stockholders), agents,
or employees shall have any liability to Advisor Trust or any
shareholder of Advisor Trust for any error of judgment,
mistake of law or any loss arising out of any investment, or
for any other act or omission in the performance by the
Adviser of its duties under the agreement, except for
liability resulting from willful misfeasance, bad faith or
gross negligence on its part in the performance of its duties
or from reckless disregard by it of its obligations and
duties under the agreement.
Any expenses that are attributable solely to the
organization, operation, or business of a series of Advisor
Trust shall be paid solely out of the assets of that series.
Any expenses incurred by Advisor Trust that are not solely
attributable to a particular Fund are apportioned in such
manner as the Adviser determines is fair and appropriate,
unless otherwise specified by the Board of Trustees.
Bookkeeping and Accounting Agreement
Pursuant to separate agreements with Advisor Trust and
Base Trust, the Adviser receives a fee for performing certain
bookkeeping and accounting services for Advisor Young
Investor Fund and Growth Investor Portfolio. For services
provided to Advisor Young Investor Fund, the Adviser receives
an annual fee of $25,000 per Fund plus .0025 of 1% of average
net assets over $50 million. During the fiscal year ended
Sept. 30, 1997, the Adviser received $109,375 from Advisor
Trust for services provided under this agreement.
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the
custodian for Advisor Trust and Base Trust. It is
responsible for holding all securities and cash, receiving
and paying for securities purchased, delivering against
payment securities sold, receiving and collecting income from
investments, making all payments covering expenses, 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.
Portfolio securities purchased in the U.S. are
maintained in the custody of the Bank or of other domestic
banks or depositories. Portfolio securities purchased
outside of the U.S. are maintained in the custody of foreign
banks and trust companies that are members of the Bank's
Global Custody Network and foreign depositories ("foreign
sub-custodians"). Each of the domestic and foreign custodial
institutions holding portfolio securities has been approved
by the Board of Trustees in accordance with regulations under
the Investment Company Act of 1940.
The Board of Trustees of each Trust reviews, at least
annually, whether it is in the best interests of Growth
Investor Portfolio, Advisor Young Investor Fund, and its
shareholders to maintain assets in each of the countries in
which it invests with particular foreign sub-custodians in
such countries, pursuant to contracts between such respective
foreign sub-custodians and the Bank. The review includes an
assessment of the risks of holding assets in any such country
(including risks of expropriation or imposition of exchange
controls), the operational capability and reliability of each
such foreign sub-custodian, and the impact of local laws on
each such custody arrangement. Each Board of Trustees is
aided in its review by the Bank, which has assembled the
network of foreign sub-custodians utilized, as well as by the
Adviser and counsel. However, with respect to foreign sub-
custodians, there can be no assurance that Advisor Young
Investor 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 foreign sub-custodial
arrangements. Accordingly, an investor should recognize that
the non-investment risks involved in holding assets abroad
are greater than those associated with investing in the
United States.
Growth Investor Portfolio may invest in obligations of
the Bank and may purchase or sell securities from or to the
Bank.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for Advisor Young
Investor Fund and Growth Investor Portfolio are Arthur
Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603.
The accountants audit and report on the annual financial
statements, review certain regulatory reports and the federal
income tax returns, and perform other professional
accounting, auditing, tax and advisory services when engaged
to do so by a Trust.
DISTRIBUTOR
Shares of Advisor Young Investor Fund are distributed by
Liberty Financial Investments, Inc. (the "Distributor"), an
indirect subsidiary of Liberty Financial, under a
Distribution Agreement as described under Management in the
Prospectus, which is incorporated herein by reference. The
Distributor is a subsidiary of Colonial Management
Associates, Inc., which is an indirect subsidiary of Liberty
Financial. The Distribution Agreement continues in effect
from year to year, provided such continuance is approved
annually (i) by a majority of the trustees or by a majority
of the outstanding voting securities of Advisor Trust, and
(ii) by a majority of the trustees who are not parties to the
Agreement or interested persons of any such party
("independent trustees"). The Distributor has no obligation,
as underwriter, to buy shares of Advisor Young Investor Fund,
and purchases shares only upon receipt of orders from
authorized financial service firms or investors. Advisor
Trust has agreed to pay all expenses in connection with
registration of its shares with the Securities and Exchange
Commission and auditing and filing fees in connection with
registration of its shares under the various state blue sky
laws and assumes the cost of preparation of prospectuses and
other expenses.
12b-1 Plans, Contingent Deferred Sales Charges, and
Conversion of Shares
The trustees of Advisor Trust have adopted a plan
pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "Plan"). The Plan provides that, as compensation
for personal service and/or the maintenance of shareholder
accounts, the Distributor receives a service fee at an annual
rate not to exceed 0.25% of net assets attributed to each
class of shares other than Class K shares. The Plan also
provides that as compensation for the promotion and
distribution of shares of Advisor Young Investor Fund
including its expenses related to sale and promotion of Fund
shares, the Distributor receives from Advisor Young Investor
Fund a fee at an annual rate not exceeding 0.10% of the
average net assets attributed to Class A shares. The Plan
further provides that, as compensation for services and/or
distribution, the Distributor receives a fee at an annual
rate of 0.25% of net assets attributed to Class K shares. At
this time, the Distributor has voluntarily agreed to limit
the Class A distribution fee to 0.05% annually. The
Distributor may terminate this voluntary limitation without
shareholder approval. The Distributor generally pays this
amount to institutions that distribute Fund shares and
provide services to Advisor Young Investor Fund and its
shareholders. Those institutions may use the payments for,
among other purposes, compensating employees engaged in sales
and/or shareholder servicing. The amount of fees paid by
Advisor Young Investor Fund during any year may be more or
less than the cost of distribution or other services provided
to Advisor Young Investor Fund. NASD rules limit the amount
of annual distribution fees that may be paid by a mutual fund
and impose a ceiling on the cumulative sales charges paid.
Advisor Trust's Plan complies with those rules.
The trustees believe that the 12b-1 plan could be a
significant factor in the growth and retention of Fund assets
resulting in a more advantageous expense ratio and increased
investment flexibility which could benefit each class of
shareholders. The 12b-1 Plan will continue in effect from
year to year so long as continuance is specifically approved
at least annually by a vote of the trustees, including the
independent trustees. The 12b-1 plan may not be amended to
increase the fee materially without approval by a vote of a
majority of the outstanding voting securities of the relevant
class of shares and all material amendments of the Plans must
be approved by the trustees in the manner provided in the
foregoing sentence. The 12b-1 plan may be terminated at any
time by a vote of a majority of the independent trustees or
by a vote of a majority of the outstanding voting securities
of the relevant Class of shares.
Advisor Young Investor Fund offers two classes of shares
(Class A and Class K). Advisor Young Investor Fund may in
the future offer other classes of shares. Class K shares are
offered at net asset value, subject to a Rule 12b-1 fee;
Class A shares are offered at net asset value and are subject
to a Rule 12b-1 fee; and a contingent deferred sales charge
on redemptions made within three years of purchase. The
contingent deferred sales charges are described in the
Prospectus.
No contingent deferred sales charge will be imposed on
shares derived from reinvestment of distributions or amounts
representing capital appreciation. In determining the
applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of
shares representing capital appreciation, next of shares
representing reinvestment of distributions, and finally of
other shares held by the shareholder for the longest time.
TRANSFER AGENT AND SHAREHOLDER SERVICING
Colonial Investors Service Center, Inc. (the "Transfer
Agent"), an indirect subsidiary of Liberty Financial,
performs certain transfer agency services for Advisor Trust,
as described under Management in the Prospectus. For
performing these services, the Transfer Agent receives from
Advisor Young Investor Fund a fee based on the following
annual rates:
Class K Class A
Account maintenance and -------- ------------
trade processing 0.05% Bundled Fee
Client services 0.25%
Total 0.30% 0.236%
Advisor Trust believes the charges by the Transfer Agent to
Advisor Young Investor Fund are comparable to those of other
companies performing similar services.
Some financial services firms ("FSF") or other
intermediaries having special selling arrangements with the
Distributor, including certain broker-dealers, bank trust
departments, asset allocation programs sponsored by the
Adviser, wrap fee programs and retirement plan service
providers ("Intermediaries") that maintain nominee accounts
with Advisor Young Investor Fund for their clients who are
Fund shareholders, may be paid a fee from the Transfer Agent
for shareholder servicing and accounting services they
provide with respect to the underlying Fund shares.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the
Prospectus under the headings How to Purchase Shares, How to
Sell (Redeem) Shares, and Net Asset Value, and that
information is incorporated herein by reference. It is the
responsibility of any FSF or Intermediary through whom you
purchase or redeem shares to establish procedures insuring
the prompt transmission to Advisor Trust of any order.
Advisor Young Investor Fund will accept unconditional
orders for shares to be executed at the public offering price
based on the net asset value per share next determined after
the order is received in good order. The public offering
price is the net asset value plus the applicable sales
charge, if any. In the case of orders for purchase of shares
placed through FSFs or Intermediaries, the public offering
price will be determined on the day the order is placed in
good order, but only if the FSF or Intermediary receives the
order prior to the time as of which shares are valued and
transmits it to Advisor Young Investor Fund as required by
the Fund. If the FSF or Intermediary fails to transmit
before Advisor Young Investor Fund processes that day's
transactions, the customer's entitlement to that day's
closing price must be settled between the customer and the
FSF or Intermediary. If the FSF or Intermediary receives the
order after the time at which Advisor Young Investor Fund
values its shares, the price will be based on the net asset
value determined as of the close of the NYSE on the next day
it is open. If funds for the purchase of shares are sent
directly to the Transfer Agent, they will be invested at the
public offering price next determined after receipt in good
order. Payment for shares of the Fund must be in U.S.
dollars; if made by check, the check must be drawn on a U.S.
bank.
Advisor Young Investor Fund receives the entire net
asset value of shares sold. The Distributor generally
retains 100% of any asset-based sales charge (distribution
fee) or contingent deferred sales charge. Such charges
generally reimburse the Distributor for any up-front and/or
ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of Advisor
Young Investor Fund which are returned by the purchaser's
bank will subject the purchaser to a $15 service fee for each
check returned.
The Transfer Agent acts as the shareholder's agent
whenever it receives instructions to carry out a transaction
on the shareholder's account. Upon receipt of instructions
that shares are to be purchased for a shareholder's account,
the designated FSF will receive the applicable sales
commission. Shareholders may change FSFs at any time by
written notice to the Transfer Agent, provided the new FSF
has a sales agreement with the Distributor.
Determination of Net Asset Value
The net asset value per share for each class is
determined as of the close of business (normally 3:00 p.m.,
central time, or 4:00 p.m., eastern time) on days on which
the New York Stock Exchange (the "NYSE") is open for trading.
The NYSE is regularly closed on Saturdays and Sundays and on
New Year's Day, the third Monday in Jan., the third Monday in
Feb., 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 Board
of Trustees, net asset value of Advisor Young Investor Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time.
Growth Investor Portfolio may invest in securities that
are listed primarily on foreign exchanges that are open and
allow trading on days on which Advisor Young Investor Fund
does not determine net asset value. This may significantly
affect the net asset value of Advisor Young Investor Fund's
redeemable securities on days when an investor cannot redeem
such securities. Debt securities generally are valued by a
pricing service which determines valuations based upon market
transactions for normal, institutional-size trading units of
similar securities. However, in circumstances where such
prices are not available or where the Adviser deems it
appropriate to do so, an over-the-counter or exchange bid
quotation is used. Securities listed on an exchange or on
Nasdaq are valued at the last sale price. Listed securities
for which there were no sales during the day and unlisted
securities are valued at the last quoted bid price. Options
are valued at the last sale price or in the absence of a
sale, the mean between the last quoted bid and offering
prices. Short-term obligations with a maturity of 60 days or
less are valued at amortized cost pursuant to procedures
adopted by the Board of Trustees. The values of foreign
securities quoted in foreign currencies are translated into
U.S. dollars at the exchange rate for that day. Positions
for which there are no such valuations and other assets are
valued at fair value as determined in good faith under the
direction of the Board of Trustees.
Generally, trading in certain securities (such as
foreign securities) is substantially completed each day at
various times prior to the close of the NYSE. Trading on
certain foreign securities markets may not take place on all
NYSE business days, and trading on some foreign securities
markets takes places on days that are not NYSE business days
and on which net asset value is not calculated. The values
of these securities used in determining net asset value are
computed as of such times. Also, because of the amount of
time required to collect and process trading information as
to large numbers of securities issues, the values of certain
securities (such as convertible bonds, U.S. government
securities, and tax-exempt securities) are determined based
on market quotations collected earlier in the day at the
latest practicable time prior to the close of the NYSE.
Occasionally, events affecting the value of such securities
may occur between such time and the close of the NYSE which
will not be reflected in the computation of the net asset
value. If events materially affecting the value of such
securities occur during such period, then these securities
will be valued at their fair value following procedures
approved by the Board of Trustees.
Advisor Trust intends to pay all redemptions in cash and
is obligated to redeem shares solely in cash up to the lesser
of $250,000 or one percent of the net assets of Advisor Trust
during any 90-day period for any one shareholder. However,
redemptions in excess of such limit may be paid wholly or
partly by a distribution in kind of securities. If
redemptions were made in kind, the redeeming shareholders
might incur transaction costs in selling the securities
received in the redemptions.
Due to the relatively high cost of maintaining smaller
accounts, Advisor Trust may deduct $10 (payable to the
Transfer Agent) from accounts valued at less than $1,000
unless the account value has dropped below $1,000 solely as a
result of share depreciation. An investor will be notified
that the value of his account is less than that minimum and
allowed at least 60 days to bring the value of the account up
to at least $1,000 before the fee is deducted. The Agreement
and Declaration of Trust also authorizes Advisor Trust to
redeem shares under certain other circumstances as may be
specified by the Board of Trustees.
Advisor Trust reserves the right to suspend or postpone
redemptions of shares of Advisor Young Investor Fund during
any period when: (a) trading on the NYSE is restricted, as
determined by the Securities and Exchange Commission, or the
NYSE is closed for other than customary weekend and holiday
closings; (b) the Securities and Exchange Commission has by
order permitted such suspension; or (c) an emergency, as
determined by the Securities and Exchange Commission, exists,
making disposal of portfolio securities or valuation of net
assets of Advisor Young Investor Fund not reasonably
practicable.
Special Purchase Programs/Investor Services
The following special purchase programs/investor
services may be changed or eliminated at any time.
Fundamatic Program (Class A only). As a convenience to
investors, Class A shares of Advisor Young Investor Fund may
be purchased through the Colonial Fundamatic Program.
Preauthorized monthly bank drafts or electronic funds
transfer for a fixed amount of at least $50 are used to
purchase Advisor Young Investor Fund shares at the public
offering price next determined after the Transfer Agent
receives the proceeds from the draft (normally the 5th or the
20th of each month, or the next business day thereafter). If
your Fundamatic purchase is by electronic funds transfer, you
may request the Fundamatic purchase for any day. Further
information and application forms are available from FSFs or
Intermediaries or from the Distributor.
Tax-Sheltered Retirement Plans (Class A only). The
Distributor offers prototype tax-qualified plans, including
IRAs and pension and profit-sharing plans for individuals,
corporations, employees and the self-employed. The minimum
initial investment for a retirement account sponsored by
Liberty Financial Investments, Inc., an affiliate of the
Adviser, is $25. The First National Bank of Boston is the
trustee of the Distributor's prototype plans and charges a
$10 annual fee. Detailed information concerning these
retirement plans and copies of the retirement plans are
available from the Distributor.
Participants in other prototype retirement plans (other
than IRAs) also are charged a $10 annual fee unless the plan
maintains an omnibus account with the Transfer Agent.
Participants in prototype plans offered by the Distributor
(other than IRAs) who liquidate the total value of their
account will also be charged a $15 close-out processing fee
payable to the Transfer Agent. The fee is in addition to any
applicable contingent deferred sales charge. The fee will
not apply if the participant uses the proceeds to open an IRA
Rollover account in any fund, or if the plan maintains an
omnibus account.
Consultation with a competent financial and tax advisor
regarding these plans and consideration of the suitability of
Advisor Young Investor Fund shares as an investment under the
Employee Retirement Income Security Act of 1974 or otherwise
is recommended.
Telephone Address Change Services. By calling the
Transfer Agent, shareholders, beneficiaries or their FSF or
Intermediary of record may change an address on a recorded
telephone line. Confirmations of address change will be sent
to both the old and the new addresses. Telephone redemption
privileges are suspended for 30 days after an address change
is effected.
Colonial Cash Connection. Dividends and any other
distributions, including Systematic Withdrawal Plan (SWP)
payments, on Class A shares may be automatically deposited to
a shareholder's bank account via electronic funds transfer.
Shareholders wishing to avail themselves of this electronic
transfer procedure should complete the appropriate sections
of the Application.
Reinstatement Privilege. An investor who has redeemed
Advisor Young Investor Fund shares may, upon request,
reinstate within one year a portion or all of the proceeds of
such sale in shares of the same class of Advisor Young
Investor Fund at the net asset value next determined after
the Transfer Agent receives a written reinstatement request
and payment. Any contingent deferred sales charge paid at
the time of the redemption will be credited to the
shareholder upon reinstatement. The period between the
redemption and the reinstatement will not be counted in aging
the reinstated shares for purposes of calculating any
contingent deferred sales charge or conversion date.
Investors who desire to exercise this privilege should
contact their FSF or Intermediary or the Distributor.
Shareholders may exercise this privilege an unlimited number
of times. Exercise of this privilege does not alter the
federal income tax treatment of any capital gains realized on
the prior sale of Advisor Young Investor Fund shares, but to
the extent any such shares were sold at a loss, some or all
of the loss may be disallowed for tax purposes. Consult your
tax advisor.
Waiver of Contingent Deferred Sales Charges (Class A
Only). Contingent deferred sales charges may be waived on
redemptions in the following situations with the proper
documentation:
1. Death. Contingent deferred sales charges may be
waived on redemptions within one year following the death of
(i) the sole shareholder on an individual account, (ii) a
joint tenant where the surviving joint tenant is the
deceased's spouse, or (iii) the beneficiary of a Uniform
Gifts to Minors Act ("UGMA"), Uniform Transfers to Minors Act
("UTMA") or other custodial account. If, upon the occurrence
of one of the foregoing, the account is transferred to an
account registered in the name of the deceased's estate, the
contingent deferred sales charge will be waived on any
redemption from the estate account occurring within one year
after the death. If the shares are not redeemed within one
year of the death, they will remain subject to the applicable
contingent deferred sales charge, when redeemed from the
transferee's account. If the account is transferred to a new
registration and then a redemption is requested, the
applicable contingent deferred sales charge will be charged.
2. Systematic Withdrawal Plan (SWP). Contingent deferred
sales charges may be waived on redemptions occurring pursuant
to a monthly, quarterly or semiannual SWP established with
the Transfer Agent, to the extent the redemptions do not
exceed, on an annual basis, 12% of the account's value, so
long as at the time of the first SWP redemption the account
had distributions reinvested for a period at least equal to
the period of the SWP (e.g., if it is a quarterly SWP,
distributions must have been reinvested at least for the
three month period prior to the first SWP redemption);
otherwise contingent deferred sales charges will be charged
on SWP redemptions until this requirement is met. See below
under How to Sell Shares--Systematic Withdrawal Plan.
3. Disability. Contingent deferred sales charges may be
waived on redemptions occurring within one year after the
sole shareholder on an individual account or a joint tenant
on a spousal joint tenant account becomes disabled (as
defined in Section 72(m)(7) of the Internal Revenue Code).
To be eligible for such waiver, (i) the disability must arise
after the purchase of shares and (ii) the disabled
shareholder must have been under age 65 at the time of the
initial determination of disability. If the account is
transferred to a new registration and then a redemption is
requested, the applicable contingent deferred sales charge
will be charged.
4. Death of a trustee. Contingent deferred sales charges
may be waived on redemptions occurring upon dissolution of a
revocable living or grantor trust following the death of the
sole trustee where (i) the grantor of the trust is the sole
trustee and the sole life beneficiary, (ii) death occurs
following the purchase and (iii) the trust document provides
for dissolution of the trust upon the trustee's death. If
the account is transferred to a new registration (including
that of a successor trustee), the applicable contingent
deferred sales charge will be charged upon any subsequent
redemption.
5. Returns on excess contributions. Contingent deferred
sales charges may be waived on redemptions required to return
excess contributions made to retirement plans or IRAs, so
long as the FSF or Intermediary agrees to return the
applicable portion of any commission paid by the Distributor.
6. Qualified Retirement Plans. Contingent deferred sales
charges may be waived on redemptions required to make
distributions from qualified retirement plans following (i)
normal retirement (as stated in the plan document) or (ii)
separation from service. For shares purchased in a prototype
401K plan after Sept. 1, 1997, contingent deferred sales
charges will not be waived upon separation from service
except if such plan is held in an omnibus account.
Contingent deferred sales charges also will be waived on SWP
redemptions made to make required minimum distributions from
qualified retirement plans that have invested in Advisor
Young Investor Fund for at least two years.
The contingent deferred sales charge also may be waived
where the FSF or Intermediary agrees to return all or an
agreed upon portion of the commission earned on the sale of
the shares being redeemed.
How to Sell ("Redeem") Shares
Shares may also be sold on any day the NYSE is open,
either directly to Advisor Young Investor Fund or through an
FSF or Intermediary. Sale proceeds generally are sent within
seven days (usually on the next business day after your
request is received in good form). However, for shares
recently purchased by check, Advisor Young Investor Fund will
delay sending proceeds for 15 days in order to protect the
Fund against financial losses and dilution in net asset value
caused by dishonored purchase payment checks. To avoid
delays in payment, investors are advised to purchase shares
unconditionally, such as by certified check or other
immediately available funds.
To sell shares directly to Advisor Young Investor Fund,
send a signed letter of instruction to the Transfer Agent.
The sale price is the net asset value next determined (less
any applicable contingent deferred sales charge) after
Advisor Young Investor Fund or an FSF or Intermediary
receives the request in proper form. Signatures must be
guaranteed by a bank, a member firm of a national stock
exchange or another eligible guarantor institution.
Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners and
IRA holders. Call the Transfer Agent for more information 1-
800-345-6611.
FSFs and Intermediaries must receive requests before the
time at which Advisor Young Investor Fund's shares are valued
to receive that day's price, are responsible for furnishing
all necessary documentation to the Transfer Agent and may
charge for this service.
Systematic Withdrawal Plan (Class A shares). If a
shareholder's account balance is at least $5,000, the
shareholder may establish a SWP. A specified dollar amount
or percentage of the then current net asset value of the
shareholder's investment in Advisor Young Investor Fund
designated by the shareholder will be paid monthly, quarterly
or semiannually to a designated payee. The amount or
percentage the shareholder specifies generally may not, on an
annualized basis, exceed 12% of the value, as of the time the
shareholder makes the election of the shareholder's
investment. No contingent deferred sales charges apply to a
redemption pursuant to a SWP of 12% or less, even if, after
giving effect to the redemption, the shareholder's account
balance is less than the shareholder's base amount. If a
shareholder wishes to participate in a SWP, the shareholder
must elect to have all of the shareholder's income dividends
and other distributions payable in shares of Advisor Young
Investor Fund rather than in cash.
A shareholder or its FSF of record may establish a SWP
account by telephone on a recorded line. However, SWP checks
will be payable only to the shareholder and sent to the
address of record. SWPs from retirement accounts cannot be
established by telephone.
Purchasing additional shares (other than through
dividend and distribution reinvestment) while receiving SWP
payments is ordinarily disadvantageous because of duplicative
sales charges. For this reason, a shareholder may not
maintain a plan for the accumulation of shares of Advisor
Young Investor Fund (other than through the reinvestment of
dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which
may result in a gain or loss for tax purposes, may involve
the use of principal and may eventually use up all of the
shares in a shareholder's account.
Advisor Young Investor Fund may terminate a
shareholder's SWP if the shareholder's account balance falls
below $5,000 due to any transfer or liquidation of shares
other than pursuant to the SWP. SWP payments will be
terminated on receiving satisfactory evidence of the death or
incapacity of a shareholder. Until this evidence is
received, the Transfer Agent will not be liable for any
payment made in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of
shareholders who participate in them is borne by Advisor
Young Investor Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name"
by certain FSFs may not be able to participate in a SWP. If
a shareholder's Advisor Young Investor Fund shares are held
in "street name," the shareholder should consult his or her
FSF or Intermediary to determine whether he or she may
participate in a SWP.
Telephone Redemptions. Telephone redemption privileges
are described in the Prospectus.
Non Cash-Redemptions. For redemptions of any single
shareholder within any 90-day period exceeding the lesser of
$250,000 or 1% of Advisor Young Investor Fund's net asset
value, Advisor Young Investor Fund may make the payment or a
portion of the payment with portfolio securities held by
Advisor Young Investor Fund instead of cash, in which case
the redeeming shareholder may incur brokerage and other costs
in selling the securities received.
How to Exchange Shares
With respect to Class A shares, for a period of 90 days
following the purchase of shares, exchanges at net asset
value may be made among Class A shares of Colonial
Municipal Money Market Fund or Colonial Government Money
Market Fund (or its successor). Thereafter, exchanges at net
asset value may be made among Class A shares of any
other fund that is a series of Advisor Trust or of most
Colonial Funds. For more information on the Colonial Funds,
see your FSF or call (800) 345-6611. With respect to Class K
shares, exchanges at net asset value may be made among Class K
shares of any other fund that is a series of
Advisor Trust. Shares may be exchanged on the basis of the
net asset value per share at the time of exchange. Before
exchanging into another fund, you should obtain the
prospectus for the fund in which you wish to invest and read
it carefully. Prospectuses of Colonial Funds are available
by calling (800) 426-3750. Consult the Transfer Agent before
requesting an exchange.
By calling the Transfer Agent, shareholders or their FSF
or Intermediary of record may exchange among accounts with
identical registrations, provided that the shares are held on
deposit. During periods of unusual market changes and/or
shareholder activity, shareholders may experience delays in
contacting the Transfer Agent by telephone to exercise the
telephone exchange privilege. Because an exchange involves a
redemption and reinvestment in another fund, completion of an
exchange may be delayed under unusual circumstances, such as
if Advisor Young Investor Fund suspends repurchases or
postpones payment for Advisor Young Investor Fund shares
being exchanged in accordance with federal securities law.
The Transfer Agent will also make exchanges upon receipt of a
written exchange request. If the shareholder is a
corporation, partnership, agent, or surviving joint owner,
the Transfer Agent will require customary additional
documentation.
A loss to a shareholder may result from an unauthorized
transaction reasonably believed to have been authorized. No
shareholder is obligated to use the telephone to execute
transactions.
In all cases, the shares to be exchanged must be
registered on the records of Advisor Young Investor Fund in
the name of the shareholder desiring to exchange.
An exchange is a capital sale transaction for federal
income tax purposes. The exchange privilege may be revised,
suspended or terminated at any time.
PORTFOLIO TRANSACTIONS
The Adviser places the orders for the purchase and sale
of portfolio securities and options and futures contracts.
The Adviser's overriding objective in effecting portfolio
transactions is to seek to obtain the best combination of
price and execution. The best net price, giving effect to
brokerage commissions, if any, and other transaction costs,
normally is an important factor in this decision, but a
number of other judgmental factors may also enter into the
decision. These include: the Adviser's knowledge of
negotiated commission rates currently available and other
current transaction costs; the nature of the security being
traded; the size of the transaction; the desired timing of
the trade; 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 which are considered; the Adviser's
knowledge of the financial stability of the broker or dealer
selected and such other brokers or dealers; and the Adviser's
knowledge of actual or apparent operational problems of any
broker or dealer. Recognizing the value of these factors,
Growth Investor Portfolio may pay a brokerage commission in
excess of that which another broker or dealer may have
charged for effecting the same transaction. Evaluations of
the reasonableness of brokerage commissions, based on the
foregoing factors, are made on an ongoing basis by the
Adviser's staff while effecting portfolio transactions. The
general level of brokerage commissions paid is reviewed by
the Adviser, and reports are made annually to the Board of
Trustees.
With respect to issues of securities involving brokerage
commissions, when more than one broker or dealer is believed
to be capable of providing the best combination of price and
execution with respect to a particular portfolio transaction
for Growth Investor Portfolio, the Adviser often selects a
broker or dealer that has furnished it with research products
or services such as research reports, subscriptions to
financial publications and research compilations,
compilations of securities prices, earnings, dividends, and
similar data, and computer data bases, quotation equipment
and services, research-oriented computer software and
services, and services of economic and other consultants.
Selection of brokers or dealers is not made pursuant to an
agreement or understanding with any of the brokers or
dealers; however, the Adviser uses an internal allocation
procedure to identify those brokers or dealers who provide it
with research products or services and the amount of research
products or services they provide, and endeavors to direct
sufficient commissions generated by its clients' accounts in
the aggregate, including Growth Investor Portfolio, to such
brokers or dealers to ensure the continued receipt of
research products or services the Adviser feels are useful.
In certain instances, the Adviser receives from brokers and
dealers products or services that are used both as investment
research and for administrative, marketing, or other non-
research purposes. In such instances, the Adviser makes a
good faith effort to determine the relative proportion of
such products or services which may be considered as
investment research. The portion of the costs of such
products or services attributable to research usage may be
defrayed by the Adviser (without prior agreement or
understanding, as noted above) through brokerage commissions
generated by transactions by clients (including Growth
Investor Portfolio), while the portion of the costs
attributable to non-research usage of such products or
services is paid by the Adviser in cash. No person acting on
behalf of Growth Investor Portfolio is authorized, in
recognition of the value of research products or services, to
pay a commission in excess of that which another broker or
dealer might have charged for effecting the same transaction.
The Adviser may also receive research in connection with
selling concessions and designations in fixed price offerings
in which Growth Investor Portfolio participates. Research
products or services furnished by brokers and dealers may be
used in servicing any or all of the clients of the Adviser
and not all such research products or services are used in
connection with the management of Growth Investor Portfolio.
With respect to purchases and sales of portfolio
securities transacted with a broker or dealer on a net basis,
the Adviser may also consider the part, if any, played by the
broker or dealer in bringing the security involved to the
Adviser's attention, including investment research related to
the security and provided to Growth Investor Portfolio.
The table below shows information on brokerage
commissions paid by Growth Investor Portfolio for the period
ended Sept. 30, 1997:
Total amount of brokerage commissions paid during
the period $298,009
Amount of commissions paid to brokers or dealers
who supplied research services to the Adviser 288,277
Total dollar amount involved in such transactions
(000 omitted) 215,026
Amount of commissions paid to brokers or dealers
that were allocated to such brokers or dealers
by the portfolio manager because of research
services provided to the Portfolio 79,801
Total dollar amount involved in such transactions
(000 omitted) $ 38,446
Advisor Trust and Base Trust have arranged for the
custodian to act as a soliciting dealer to accept any fees
available to the custodian as a soliciting dealer in
connection with any tender offer for portfolio securities.
The custodian will credit any such fees received against its
custodial fees. In addition, the Board of Trustees has
reviewed the legal developments pertaining to and the
practicability of attempting to recapture underwriting
discounts or selling concessions when portfolio securities
are purchased in underwritten offerings. However, the Board
has been advised by counsel that recapture by a mutual fund
currently is not permitted under the Rules of the Association
of the National Association of Securities Dealers.
ADDITIONAL INCOME TAX CONSIDERATIONS
Advisor Young Investor Fund and Growth Investor
Portfolio intend to comply with the special provisions of the
Internal Revenue Code that relieve it of federal income tax
to the extent of its net investment income and capital gains
currently distributed to shareholders.
Because dividend and capital gain distributions reduce
net asset value, a shareholder who purchases shares shortly
before a record date will, in effect, receive a return of a
portion of his investment in such distribution. The
distribution would nonetheless be taxable to him, even if the
net asset value of shares were reduced below his cost.
However, for federal income tax purposes the shareholder's
original cost would continue as his tax basis.
Advisor Young Investor Fund expects that less than 100%
of its dividends will qualify for the deduction for dividends
received by corporate shareholders.
Growth Investor Portfolio may purchase the securities of
certain foreign investment funds or trusts called passive
foreign investment companies ("PFICs"). In addition to
bearing their proportionate share of the Fund's expenses
(management fees and operating expenses), shareholders will
also indirectly bear similar expenses of PFICs. Capital
gains on the sale of PFIC holdings will be deemed to be
ordinary income regardless of how long the Portfolio holds
its investment. In addition, the Portfolio may be subject to
corporate income tax and an interest charge on certain
dividends and capital gains earned from PFICs, regardless of
whether such income and gains are distributed to
shareholders.
In accordance with tax regulations, Growth Investor
Portfolio intends to treat securities of PFICs as sold on the
last day of its fiscal year and recognize any gains for tax
purposes at that time; losses will not be recognized. Such
gains will be considered ordinary income which it will be
required to distribute even though it has not sold the
security and received cash to pay such distributions.
INVESTMENT PERFORMANCE
Advisor Young Investor Fund may quote certain total
return figures from time to time. A "Total Return" on a per
class share basis is the amount of dividends distributed per
class share plus or minus the change in the net asset value
per class share for a period. A "Total Return Percentage"
may be calculated by dividing the value of a share of a
particular class of shares at the end of a period by the
value of the share at the beginning of the period and
subtracting one. For a given period, an "Average Annual
Total Return" may be computed by finding the average annual
compounded rate that would equate a hypothetical initial
amount invested of $1,000 to the ending redeemable value.
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).
Advisor Young Investor Fund invests all of its net
investable assets in SR&F Growth Investor Portfolio, which
has the same investment objective and substantially the same
investment policies as Advisor Young Investor Fund. Advisor
Young Investor Fund commenced operations on Feb. 14, 1997 and
as of Oct. 15, 1997 offered only shares that are now
designated Class K shares. The historical performance of
Class K shares for the period prior to Feb. 14, 1997 and the
historical performance of Class A shares of Advisor Young
Investor Fund for all periods are based on the performance of
SR&F Growth Investor Portfolio restated to reflect 12b-1 fees
and other expenses as set forth in the prospectus, without
giving effect to any fee reimbursements described therein and
assuming reinvestment of dividends and capital gains.
Historical performance as restated should not be interpreted
as indicative of Advisor Young Investor Fund's future
performance. The average annual total returns for each class
of Advisor Young Investor Fund as of Sept. 30, 1997 and Dec.
31, 1997, were as follows:
Inception
1 year 3 years (4/29/94)
-------------- -------------- --------------
9/30 12/31 9/30 12/31 9/30 12/31
------ ----- ------ ----- ----- -----
Class A with
applicable CDSC 24.00% 23.91% 33.26% 32.83% 29.81% 28.85%
Class A without
applicable CDSC 26.00 25.91 33.64 33.20 29.81 28.85
Class K 26.26 26.41 33.77 33.43 29.91 29.00
Investment performance figures assume reinvestment of
all dividends and distributions and do not take into account
any federal, state, or local income taxes which shareholders
must pay on a current basis. The performance of Advisor
Young Investor Fund is a result of conditions in the
securities markets, portfolio management, and operating
expenses. Although investment performance information is
useful in reviewing Advisor Young Investor 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.
In advertising and sales literature, Advisor Young
Investor 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 Advisor Young
Investor Fund. Comparison of Advisor Young Investor Fund to
an alternative investment should be made with consideration
of differences in features and expected performance.
All of the indexes and averages noted below will be
obtained from the indicated sources or reporting services,
which Advisor Trust believes to be generally accurate.
Advisor Young Investor Fund may also note its mention or
recognition in newspapers, magazines, or other media from
time to time. However, Advisor Trust assumes no
responsibility for the accuracy of such data. Newspapers and
magazines which might mention Advisor Young Investor Fund
include, but are not limited to, the following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Associated Press
Barron's
Bloomberg
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World
Forbes
Fortune
Fund Action
Fund Decoder
Gourmet
Individual Investor
Investment Adviser
Investment Dealers' Digest
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Lipper Analytical Services
Los Angeles Times
Louis Rukeyser's Wall Street
Money
Morningstar
Mutual Fund Market News
Mutual Fund News Service
Mutual Funds Magazine
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
The San Francisco Chronicle
Securities Industry Daily
Smart Money
Smithsonian
Strategic Insight
Time
Travel & Leisure
USA Today
U.S. News & World Report
Value Line
The Wall Street Journal
The Washington Post
Working Women
Worth
Your Money
Advisor Young Investor Fund may compare its performance
to the Consumer Price Index (All Urban), a widely recognized
measure of inflation.
The performance of Advisor Young Investor Fund may be
compared to the following indexes or averages:
Dow-Jones Industrial Average New York Stock Exchange Composite
Index
Standard & Poor's 500 Stock Index American Stock Exchange Composite
Index
Standard & Poor's 400 Industrials NASDAQ Composite
Wilshire 5000 NASDAQ Industrials
(These indexes are widely (These indexes generally reflect
recognized indicators of the performance of stocks
general U.S. stock market traded in the indicated
results.) markets.)
In addition, Advisor Young Investor Fund may compare its
performance to the following benchmarks:
Lipper Equity Fund Average
Lipper General Equity Fund Average
Lipper Growth Fund Average
Lipper Growth Fund Index
Morningstar All Equity Funds Average
Morningstar Domestic Stock Average
Morningstar Equity Fund Average
Morningstar General Equity Average*
Morningstar Growth Fund Average
Morningstar Hybrid Fund Average
Morningstar Total Fund Average
Morningstar U.S. Diversified Average
Lipper Growth Fund index reflects the net asset value
weighted total return of the largest thirty growth funds and
thirty growth and income funds, respectively, as calculated
and published by Lipper. The Lipper and Morningstar averages
are unweighted averages of total return performance of mutual
funds as classified, calculated, and published by these
independent services that monitor the performance of mutual
funds. Advisor Young Investor Fund may also use comparative
performance as computed in a ranking by Lipper or category
averages and rankings provided by another independent
service. Should Lipper or another service reclassify Advisor
Young Investor Fund to a different category or develop (and
place it into) a new category, the Fund may compare its
performance or ranking with those of other funds in the newly
assigned category, as published by the service.
Advisor Young Investor Fund may also cite its rating,
recognition, or other mention by Morningstar or any other
entity. Morningstar's rating system is based on risk-
adjusted total return performance and is expressed in a star-
rating format. The risk-adjusted number is computed by
subtracting a fund's risk score (which is a function of the
fund's monthly returns less the 3-month T-bill return) from
its load-adjusted total return score. This numerical score
is then translated into rating categories, with the top 10%
labeled five star, the next 22.5% labeled four star, the next
35% labeled three star, the next 22.5% labeled two star, and
the bottom 10% one star. A high rating reflects either
above-average returns or below-average risk, or both.
Of course, past performance is not indicative of future
results.
________________
To illustrate the historical returns on various types of
financial assets, Advisor Young Investor Fund may use
historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson
constructs (or obtains) very long-term (since 1926) total
return data (including, for example, total return indexes,
total return percentages, average annual total returns and
standard deviations of such returns) for the following asset
types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
_____________________
Dollar Cost Averaging. Dollar cost averaging is an
investment strategy that requires investing a fixed amount of
money in Fund shares at set intervals. This allows you to
purchase more shares when prices are low and fewer shares
when prices are high. Over time, this tends to lower your
average cost per share. Like any investment strategy, dollar
cost averaging can't guarantee a profit or protect against
losses in a steadily declining market. Dollar cost averaging
involves uninterrupted investing regardless of share price
and therefore may not be appropriate for every investor.
APPENDIX--RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's
opinion as to the credit quality of the security being rated.
However, the ratings are general and are not absolute
standards of quality or guarantees as to the creditworthiness
of an issuer. Consequently, the Adviser believes that the
quality of debt securities in which Advisor Young Investor
Fund invests should be continuously reviewed and that
individual analysts give different weightings to the various
factors involved in credit analysis. A rating is not a
recommendation to purchase, sell or hold a security because
it does not take into account market value or suitability for
a particular investor. When a security has received a rating
from more than one service, each rating should be evaluated
independently. Ratings are based on current information
furnished by the issuer or obtained by the rating services
from other sources which they consider reliable. Ratings may
be changed, suspended or withdrawn as a result of changes in
or unavailability of such information, or for other reasons.
The following is a description of the characteristics of
ratings of corporate debt securities used by Moody's
Investors Service, Inc. ("Moody's") and Standard & Poor's
Corporation ("S&P").
RATINGS BY MOODY'S
Aaa. Bonds rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or an exceptionally stable margin and
principal is secure. Although the various protective
elements are likely to change, such changes as can be
visualized are more unlikely to impair the fundamentally
strong position of such bonds.
Aa. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in Aaa bonds or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear
somewhat larger than in Aaa bonds.
A. Bonds rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the
future.
Baa. Bonds rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may
be very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in
each generic rating classification from Aa through B in its
corporate bond rating system. The modifier 1 indicates that
the security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower
end of its generic rating category.
RATINGS BY S&P
AAA. Debt rated AAA has the highest rating. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from the highest rated issues
only in small degree.
A. Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely
to lead to a weakened capacity to pay interest and repay
principal for debt in this category than for debt in higher
rated categories.
BB, B, CCC, CC, and C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality
and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no
interest is being paid.
D. Debt rated D is in default, and payment of interest
and/or repayment of principal is in arrears. The D rating is
also used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
NOTES: The ratings from AA to CCC may be modified by the
addition of a plus (+) or minus (-) sign to show relative
standing within the major rating categories. Foreign debt is
rated on the same basis as domestic debt measuring the
creditworthiness of the issuer; ratings of foreign debt do
not take into account currency exchange and related
uncertainties.
The "r" is attached to highlight derivative, hybrid, and
certain other obligations that S&P believes may experience
high volatility or high variability in expected returns due
to non-credit risks. Examples of such obligations are:
securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and
options; and interest only and principal only mortgage
securities. The absence of an "r" symbol should not be taken
as an indication that an obligation will exhibit no
volatility or variability in total return.
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