<PAGE>
1933 Act Registration No. 33-11351
1940 Act File No. 811-4978
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 31 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 32 [X]
STEIN ROE INVESTMENT TRUST
P. O. Box 804058, Chicago, Illinois 60680
Telephone Number: 1-800-338-2550
Jilaine Hummel Bauer Cameron S. Avery
Executive Vice-President Bell, Boyd & Lloyd
& Secretary Three First National Plaza
Stein Roe Investment Trust Suite 3200
One South Wacker Drive 70 W. Madison Street
Chicago, Illinois 60606 Chicago, Illinois 60602
(Agents for Service)
It is proposed that this filing will become effective (check
appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on February 1, 1996 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
Registrant has elected to register pursuant to Rule 24f-2 an
indefinite number of shares of beneficial interest of the
following series: SteinRoe Prime Equities (to be named Stein Roe
Growth & Income Fund effective February 1, 1996), Stein Roe Total
Return Fund, Stein Roe Growth Stock Fund, Stein Roe Capital
Opportunities Fund, Stein Roe Special Fund, Stein Roe International
Fund, Stein Roe Young Investor Fund, and Stein Roe Special Venture
Fund. The Rule 24f-2 Notice for the fiscal year ended September
30, 1995 was filed on November 29, 1995.
<PAGE>
STEIN ROE INVESTMENT TRUST
CROSS REFERENCE SHEET
Item
No. Caption
Part A (Prospectus of Growth & Income Funds and Growth Funds)
1 Front cover
2 Fee Table; Summary
3 (a) Financial Highlights
(b) Financial Highlights
(c) Investment Return
(d) Financial Highlights
4 Organization and Description of Shares; The Funds; How the
Funds Invest; Restrictions on the Funds' Investments; Risks
and Investment Considerations; Portfolio Investments and
Strategies; Summary--Investment Risks
5 (a) Management of the Funds--Trustees and Investment Adviser
(b) Management of the Funds--Trustees and Investment Adviser,
Fees and Expenses
(c) Management of the Funds--Portfolio Managers
(d) Inapplicable
(e) Management of the Funds--Transfer Agent
(f) Management of the Funds--Fees and Expenses; Financial
Highlights
(g) Inapplicable
5A Inapplicable
6 (a) Organization and Description of Shares; see Statement of
Additional Information--General Information and History
(b) Inapplicable
(c) Organization and Description of Shares
(d) Organization and Description of Shares
(e) Summary; back cover
(f) Distributions and Income Taxes; Shareholder Services
(g) Distributions and Income Taxes
(h) Inapplicable
7 How to Purchase Shares
(a) Management of the Funds--Distributor
(b) How to Purchase Shares--Purchase Price and Effective Date;
Net Asset Value
(c) Inapplicable
(d) How to Purchase Shares
(e) Inapplicable
(f) Inapplicable
8 (a) How to Redeem Shares; Shareholder Services
(b) How to Purchase Shares--Purchases Through Third Parties
(c) How to Redeem Shares--General Redemption Policies
(d) How to Redeem Shares--Special Redemption Privileges,
General Redemption Policies
9 Inapplicable
Part A (Defined Contribution Plans Prospectuses)
1 Front cover
2 (a) Fee Table
(b) Inapplicable
(c) Inapplicable
3 (a) Financial Highlights
(b) Financial Highlights
(c) Investment Return
(d) Financial Highlights
4 Organization and Description of Shares; The Fund; How the
Fund Invests; Restrictions on the Fund's Investments; Risks
and Investment Considerations; Portfolio Investments and
Strategies
5 (a) Management of the Fund--Trustees and Investment Adviser
(b) Management of the Fund--Trustees and Investment Adviser,
Fees and Expenses
(c) Management of the Fund--Portfolio Managers
(d) Inapplicable
(e) Management of the Fund--Transfer Agent
(f) Management of the Fund--Fees and Expenses; Financial
Highlights
(g) Inapplicable
5A Inapplicable
6 (a) Organization and Description of Shares; see Statement of
Additional Information--General Information and History
(b) Inapplicable
(c) Organization and Description of Shares
(d) Organization and Description of Shares
(e) For More Information
(f) Distributions and Income Taxes
(g) Distributions and Income Taxes
(h) Inapplicable
7 How to Purchase Shares
(a) Management of the Fund--Distributor
(b) How to Purchase Shares; Net Asset Value
(c) Inapplicable
(d) How to Purchase Shares
(e) Inapplicable
(f) Inapplicable
8 (a) How to Redeem Shares
(b) Inapplicable
(c) Inapplicable
(d) Inapplicable
9 Inapplicable
Part A (Prospectuses of Stein Roe International Fund
and Stein Roe Young Investor Fund)
1 Front cover
2 Fee Table; Summary
3 (a) Financial Highlights
(b) Inapplicable
(c) Investment Return
(d) Financial Highlights
4 Organization and Description of Shares; The Fund;
[International Fund ] How the Fund Invests; [Young Investor
Fund] Investment Policies; [International Fund]
Restrictions on the Fund's Investments; [Young Investor
Fund] Investment Restrictions; Portfolio Investments and
Strategies; Risks and Investment Considerations; Summary--
Investment Risks
5 (a) Management of the Fund--Trustees and Investment Adviser
(b) Management of the Fund--Trustees and Investment Adviser,
Fees and Expenses
(c) Management of the Fund--Portfolio Managers
(d) Inapplicable
(e) Management of the Fund--Transfer Agent
(f) Management of the Fund--Fees and Expenses; Financial
Highlights
(g) Inapplicable
5A Inapplicable
6 (a) Organization and Description of Shares; see Statement of
Additional Information--General Information and History
(b) Inapplicable
(c) Organization and Description of Shares
(d) Organization and Description of Shares
(e) Summary; back cover
(f) Distributions and Income Taxes; Shareholder Services
(g) Distributions and Income Taxes
(h) Inapplicable
7 How to Purchase Shares
(a) Management of the Fund--Distributor
(b) How to Purchase Shares--Purchase Price and Effective Date;
Net Asset Value
(c) Inapplicable
(d) How to Purchase Shares
(e) Inapplicable
(f) Inapplicable
8 (a) How to Redeem Shares; Shareholder Services
(b) How to Purchase Shares
(c) How to Redeem Shares--General Redemption Policies
(d) How to Redeem Shares--Special Redemption Privileges,
General Redemption Policies
9 Inapplicable
Part B (Statements of Additional Information)
10 Cover page
11 Table of Contents
12 General Information and History
13 Investment Policies; Portfolio Investments and Strategies;
Investment Restrictions
14 Management
15(a) Inapplicable
(b) Principal Shareholders
(c) Principal Shareholders
16(a) Investment Advisory Services; Management; see prospectus:
Management of the Fund[s]
(b) Investment Advisory Services
(c) Inapplicable
(d) Investment Advisory Services
(e) Inapplicable
(f) Inapplicable
(g) Inapplicable
(h) Custodian; Independent Public Accountants
(i) Transfer Agent
17(a) Portfolio Transactions
(b) Inapplicable
(c) Portfolio Transactions
(d) Portfolio Transactions
(e) Inapplicable
18 General Information and History
19(a) Purchases and Redemptions; see prospectus: How to Purchase
Shares, How to Redeem Shares, Shareholder Services
(b) Purchases and Redemptions; see prospectus: Net Asset Value
(c) Purchases and Redemptions
20 Additional Income Tax Considerations; Portfolio Investments
and Strategies--Taxation of Options and Futures
21(a) Distributor
(b) Inapplicable
(c) Inapplicable
22(a) Inapplicable
(b) Investment Performance
23 Financial Statements
Part C
24 Financial Statements and Exhibits
25 Persons Controlled By or Under Common Control with Registrant
26 Number of Holders of Securities
27 Indemnification
28 Business and Other Connections of Investment Adviser
29 Principal Underwriters
30 Location of Accounts and Records
31 Management Services
32 Undertakings
<PAGE> 1
GROWTH & INCOME FUND (formerly named SteinRoe Prime Equities)
seeks to provide both growth of capital and current income.
TOTAL RETURN FUND seeks to obtain current income and capital
appreciation in order to achieve maximum total return consistent
with reasonable investment risk through investment in a
combination of equity, convertible, and fixed income securities.
GROWTH STOCK FUND seeks long-term capital appreciation by
investing in common stock and other equity-type securities.
SPECIAL FUND seeks capital appreciation by investing in securities
that are considered to have limited downside risk relative to
their potential for above-average growth, including securities of
undervalued, underfollowed, or out-of-favor companies.
SPECIAL VENTURE FUND seeks long-term capital appreciation by
investing primarily in a diversified portfolio of equity
securities of entrepreneurially managed companies. The Fund
emphasizes investments in financially strong small and medium-
sized companies, based principally on management appraisal and
stock valuation.
CAPITAL OPPORTUNITIES FUND seeks long-term capital appreciation by
investing in aggressive growth companies.
Each Fund is a "no-load" fund. There are no sales or redemption
charges, and the Funds have no 12b-1 plans. The Funds are series
of the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Funds. Please read it carefully and retain it
for future reference.
A Statement of Additional Information dated February 1, 1996,
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 the most recent financial
statements may be obtained without charge by writing to the
Secretary at the address shown on the back cover or by calling
800-338-2550.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February 1, 1996.
<PAGE> 2
TABLE OF CONTENTS
Page
Summary ....................................2
Fee Table .................................5
Financial Highlights .......................6
The Funds .................................10
How the Funds Invest ......................10
Growth & Income Fund.....................10
Total Return Fund........................11
Growth Stock Fund........................11
Special Fund.............................11
Special Venture Fund.....................12
Capital Opportunities Fund...............12
Portfolio Investments and Strategies ......13
Restrictions on the Funds' Investments.....15
Risks and Investment Considerations........16
How to Purchase Shares ....................18
By Check ................................18
By Wire..................................18
By Electronic Transfer ..................19
By Exchange .............................19
Purchase Price and Effective Date .......19
Conditions of Purchase ..................19
Purchases Through Third Parties..........19
How to Redeem Shares ......................20
By Written Request ......................20
By Exchange .............................20
Special Redemption Privileges ...........20
General Redemption Policies .............22
Shareholder Services ......................23
Net Asset Value ...........................25
Distributions and Income Taxes ............26
Investment Return .........................27
Management of the Funds ...................27
Organization and Description of Shares.....30
Certificate of Authorization...............31
SUMMARY
The mutual funds described in this prospectus are series of the
Stein Roe Investment Trust, an open-end diversified management
investment company. Each Fund is a "no-load" fund. There are no
sales or redemption charges. (See The Funds and Organization and
Description of Shares.)
INVESTMENT OBJECTIVES AND POLICIES. GROWTH & INCOME FUND seeks to
provide both growth of capital and current income. It is designed
for investors seeking a diversified portfolio of securities that
offers the opportunity for long-term growth of capital while also
providing a steady stream of income. In seeking to meet this
objective, the Fund
<PAGE> 3
invests primarily in well-established companies whose common
stocks are believed to have both the potential to appreciate in
value and to pay dividends to shareholders.
TOTAL RETURN FUND seeks current income and capital appreciation in
order to achieve maximum total return consistent with reasonable
investment risk through investment in a combination of equity,
fixed income, and convertible securities. There are no
limitations on the amount of the Fund's assets that may be
allocated to the various types of securities. Generally, the
equity portion of the Fund's portfolio will be invested in common
stocks that the Adviser believes to have long-term growth
possibilities. With respect to the fixed income portion of the
portfolio, emphasis is placed on acquiring investment grade
securities. Securities in the fourth highest grade may have
speculative characteristics.
GROWTH STOCK FUND seeks long-term capital appreciation by
investing, under normal conditions, at least 65% of its total
assets in common stocks and other equity-type securities that the
Adviser believes to have long-term appreciation possibilities.
SPECIAL FUND invests in securities selected for possible capital
appreciation. Particular emphasis is placed on securities that
are considered to have limited downside risk relative to their
potential for above-average growth--including securities of
undervalued, underfollowed or out-of-favor companies, and
companies that are low-cost producers of goods or services,
financially strong, or run by well-respected managers. The Fund's
investments may include securities of seasoned, established
companies that appear to have appreciation potential, as well as
securities of relatively small, new companies; securities with
limited marketability; new issues of securities; securities of
companies that, in the Adviser's opinion, will benefit from
management change, new technology, new product or service
development, or change in demand; and other securities that the
Adviser believes have capital appreciation possibilities.
SPECIAL VENTURE FUND seeks long-term capital appreciation by
investing primarily in a diversified portfolio of equity
securities of entrepreneurially managed companies that the Adviser
believes represent special opportunities. The Fund emphasizes
investments in financially strong small and medium-sized
companies, based principally on management appraisal and stock
valuation.
CAPITAL OPPORTUNITIES FUND seeks long-term capital appreciation by
investing in aggressive growth companies. An aggressive growth
company, in general, is one that appears to have the ability to
increase its earnings at an above-average rate. These may include
securities of smaller emerging companies as well as securities of
well-seasoned companies of any size that offer strong earnings
growth potential. Such companies may benefit from new products or
services, technological developments, or changes in management.
There can be no guarantee that the Funds will achieve their
investment objectives. Please see How the Funds Invest and
Portfolio Investments and Strategies for further information.
INVESTMENT RISKS. Growth & Income Fund is designed for long-term
investors who desire to participate in the stock market with
moderate investment risk while seeking to
<PAGE> 4
limit market volatility. Total Return Fund is designed for long-
term investors who can accept the fluctuations in portfolio value
and other risks associated with seeking long-term capital
appreciation through investments in securities. Growth Stock Fund
and Special Fund are designed for long-term investors who desire
to participate in the stock market with more investment risk and
volatility than the stock market in general, but with less
investment risk and volatility than aggressive capital
appreciation funds. Special Venture Fund is designed for long-
term investors who want greater return potential than is available
from the stock market in general, and who are willing to tolerate
the greater investment risk and market volatility associated with
investments in small and medium-sized companies. Capital
Opportunities Fund is an aggressive growth fund and is designed
for long-term investors who can accept the fluctuations in
portfolio value and other risks associated with seeking long-term
capital appreciation through investments in common stocks.
Since the Funds may invest in foreign securities, investors should
understand and consider carefully the risks involved in foreign
investing. Investing in foreign securities involves certain
considerations involving both risks and opportunities not
typically associated with investing in U.S. securities. Such
risks include fluctuations in foreign currency exchange rates,
possible imposition of exchange controls, less complete financial
information, political instability, less liquidity, and greater
price volatility.
Please see How the Funds Invest, Portfolio Investments and
Strategies, and Risks and Investment Considerations for further
information.
PURCHASES. The minimum initial investment for each Fund is
$2,500, and additional investments must be at least $100 (only $50
for purchases by electronic transfer). Shares may be purchased by
check, by bank wire, by electronic transfer, or by exchange from
another Stein Roe Fund. For more detailed information, see How to
Purchase Shares.
REDEMPTIONS. For information on redeeming Fund shares, including
the special redemption privileges, see How to Redeem Shares.
NET ASSET VALUE. The purchase and redemption price of a Fund's
shares is its net asset value per share. The net asset value is
determined as of the close of trading on the New York Stock
Exchange. (For more detailed information, see Net Asset Value.)
DISTRIBUTIONS. Dividends for Growth & Income Fund and Total
Return Fund are normally declared and paid quarterly, and
dividends for the other Funds are normally declared and paid
annually. Distributions will be reinvested into your Fund account
unless you elect to have them paid in cash, deposited by
electronic transfer into your bank checking account, or invested
in another Stein Roe Fund account. (See Distributions and Income
Taxes and Shareholder Services.)
ADVISER AND FEES. Stein Roe & Farnham Incorporated (the
"Adviser") provides administrative, management, and investment
advisory services to the Funds. For a description of the Adviser
and the fees paid by the Funds, see Management of the Funds.
If you have any additional questions about the Funds, please feel
free to discuss them with an account representative by calling
800-338-2550.
<PAGE> 5
FEE TABLE
<TABLE>
<CAPTION>
Growth & Total Growth Special Capital
Income Return Stock Special Venture Opportunities
Fund Fund Fund Fund Fund Fund
------- -------- ----- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None None None None
Sales Load Imposed on
Reinvested Dividends None None None None None None
Deferred Sales Load None None None None None None
Redemption Fees None None None None None None
Exchange Fees None None None None None None
ANNUAL FUND OPERATING EXPENSES
(after expense reimbursement in
the case of Special Venture
Fund; as a percentage of average
net assets)
Management and Administrative
Fees (after expense reimbursement
in the case of Special Venture
Fund) 0.75% 0.70% 0.75% 0.84% 0.48% 0.90%
12b-1 Fees None None None None None None
Other Expenses 0.40% 0.37% 0.33% 0.32% 0.77% 0.35%
----- ----- ----- ----- ----- -----
Total Fund Operating Expenses
(after expense reimbursement in
the case of Special Venture Fund) 1.15% 1.07% 1.08% 1.16% 1.25% 1.25%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
EXAMPLES. You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return; and (2) redemption at
the end of each time period:
1 year 3 years 5 years 10 years
------ ------- -------- ---------
Growth & Income Fund $12 $37 $63 $140
Total Return Fund 11 34 59 131
Growth Stock Fund 11 34 60 132
Special Fund 12 37 64 142
Special Venture Fund 13 40 69 151
Capital Opportunities Fund 13 40 69 151
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 a Fund. The Funds' transfer agency
fees were changed effective May 1, 1995, and changes in management
and administrative fees became effective on September 1, 1995, for
all Funds except Special Venture Fund. The above table
illustrates expenses that would have been borne by investors in
the last fiscal year assuming that the fee changes had been in
effect for the entire year; in the case, of Special Venture Fund,
which had less than one year of operation for the reporting
period, the expenses have been adjusted for the transfer agency
fee increase and annualized.
From time to time, the Adviser may voluntarily absorb certain
expenses of a Fund. The Adviser has agreed to voluntarily waive
its management fee and absorb the expenses of Special Venture Fund
to the extent that such fees and expenses on an annualized basis
exceed 1.25% of its annual average net assets through January 31,
1997, subject to earlier termination by the Adviser on 30 days'
notice. Any such absorption will temporarily lower the Fund's
overall expense ratio and increase its overall return to
investors. Absent such expense undertaking, Management and
Administrative Fees and Total Fund
<PAGE> 6
Operating Expenses for Special Venture Fund would have been 0.90%
and 1.67%, respectively. (Also see Management of the Funds--Fees
and Expenses.)
For purposes of the Examples above, the figures assume that the
percentage amounts listed for the respective Funds under Annual
Fund Operating Expenses remain the same in each of the periods;
that all income dividends and capital gain distributions are
reinvested in additional Fund shares; and that, for purposes of
management fee breakpoints, net assets remain at the same level as
in the most recently completed fiscal year.
The figures in the Examples 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
Examples and Fee Table is useful in reviewing the Funds' 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.
FINANCIAL HIGHLIGHTS
The tables below reflect the results of operations of the Funds on
a per-share basis for the periods shown. Information for periods
after December 31, 1987, for Total Return Fund and the tables for
the other Funds have been audited by Arthur Andersen LLP,
independent public accountants. All of the auditors' reports were
unqualified. These tables should be read in conjunction with the
respective Fund's financial statements and notes thereto. The
Funds' annual report, which may be obtained from the Trust without
charge upon request, contains additional performance information.
TOTAL RETURN FUND
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $21.37 $25.04 $25.07 $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 1.41 1.33 1.32 0.97 1.37 1.28 1.32 1.31 1.26 1.15 1.33
Net realized and
unrealized gains
(losses) on investments 3.87 2.75 (1.06) 0.45 3.10 (2.92) 4.85 1.48 2.37 (1.06) 2.22
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 5.28 4.08 0.26 1.42 4.47 (1.64) 6.17 2.79 3.63 0.09 3.55
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (1.42) (1.35) (1.63) (0.90) (1.34) (1.36) (1.26) (1.34) (1.30) (1.17) (1.23)
Net realized capital
gains (0.19) (2.70) (1.45) (0.11) (0.38) (0.73) (0.51) (0.62) (1.67) (0.71) (0.28)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (1.61) (4.05) (3.08) (1.01) (1.72) (2.09) (1.77) (1.96) (2.97) (1.88) (1.51)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $25.04 $25.07 $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78 $27.82
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.77% 0.79% 0.80% *0.87% 0.90% 0.88% 0.87% 0.85% 0.81% 0.83% 0.87%
Ratio of net investment
income to average net
assets 6.30% 5.21% 5.12% *5.68% 5.83% 5.36% 5.50% 4.94% 4.69% 4.53% 5.14%
Portfolio turnover rate 100% 108% 86% 85% 93% 75% 71% 59% 53% 29% 45%
Total return 25.78% 17.11% 0.74% 6.51% 20.76% (6.86%) 29.67% 11.13% 14.57% 0.36% 14.49%
Net assets, end of
period (000 omitted) $128,676 $149,831 $140,279 134,225 $144,890 $124,592 $150,689 $173,417 $222,292 $229,274 $228,560
</TABLE>
<PAGE> 7
GROWTH & INCOME FUND
<TABLE>
<CAPTION>
Period Ended
Sept. 30, Years Ended September 30,
1987 (a) 1988 1989 1990 1991 1992 1993 1994 1995
------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.00 $10.49 $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54
------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.05 0.17 0.22 0.26 0.26 0.19 0.17 0.18 0.34
Net realized and
unrealized gains
(losses) on investments 0.47 (1.64) 2.46 (0.85) 2.17 1.49 2.16 0.40 2.56
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.52 (1.47) 2.68 (0.59) 2.43 1.68 2.33 0.58 2.90
------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (0.03) (0.14) (0.22) (0.26) (0.29) (0.18) (0.16) (0.16) (0.20)
Net realized capital
gains -- -- -- -- (0.36) (0.35) (0.76) (0.71) (0.59)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.03) (0.14) (0.22) (0.26) (0.65) (0.53) (0.92) (0.87) (0.79)
------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $10.49 $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54 $16.65
------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of net expenses
to average net
assets (b) *1.91% 1.47% 1.24% 1.08% 1.00% 0.97% 0.88% 0.90% 0.96%
Ratio of net investment
income to average net
assets (c) *1.43% 2.03% 2.28% 2.40% 2.27% 1.46% 1.23% 1.18% 1.78%
Portfolio turnover rate 32% 105% 63% 51% 48% 40% 50% 85% 70%
Total return 5.20% (13.90%) 30.63% (5.25%) 24.12% 14.00% 17.98% 4.03% 21.12%
Net assets, end of
period (000 omitted) $22,863 $23,002 $32,562 $43,446 $54,820 $70,724 $100,365 $129,680 $139,539
</TABLE>
GROWTH STOCK FUND
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $14.04 $17.43 $16.97 $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.31 0.26 0.24 0.19 0.34 0.39 0.33 0.18 0.15 0.13 0.12
Net realized and
unrealized gains (losses)
on investments 3.38 2.75 0.46 (0.11) 4.51 (1.17) 5.90 3.01 1.14 0.41 5.60
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 3.69 3.01 0.70 0.08 4.85 (0.78) 6.23 3.19 1.29 0.54 5.72
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (0.30) (0.25) (0.29) (0.15) (0.34) (0.37) (0.42) (0.16) (0.10) (0.12) (0.15)
Net realized capital gains -- (3.22) (2.71) -- (0.06) -- (0.92) (1.17) (0.95) (1.73) (3.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.30) (3.47) (3.00) (0.15) (0.40) (0.37) (1.34) (1.33) (1.05) (1.85) (3.17)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $17.43 $16.97 $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58 $26.13
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.67% 0.67% 0.65% *0.76% 0.77% 0.73% 0.79% 0.92% 0.93% 0.94% 0.99%
Ratio of net investment
income to average net
assets 1.89% 1.34% 1.25% *1.62% 2.05% 2.03% 1.63% 0.75% 0.59% 0.50% 0.56%
Portfolio turnover rate 114% 137% 143% 84% 47% 40% 34% 23% 29% 27% 36%
Total return 26.35% 16.91% 5.57% 0.54% 33.86% (4.17%) 36.64% 14.37% 5.09% 2.10% 28.18%
Net assets, end
of period (000 omitted) $224,371 $226,604 $232,658 $195,641 $206,476 $206,031 $291,767 $372,758 $373,921 $321,502 $360,336
</TABLE>
<PAGE> 8
SPECIAL FUND
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $14.88 $18.41 $16.95 $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.25 0.35 0.23 0.14 0.36 0.42 0.34 0.21 0.17 0.15 0.13
Net realized and
unrealized gains
(losses) on investments 4.01 2.33 0.12 2.16 5.58 (2.10) 4.55 1.50 5.31 0.33 3.05
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 4.26 2.68 0.35 2.30 5.94 (1.68) 4.89 1.71 5.48 0.48 3.18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investmentincome (0.19) (0.34) (0.57) (0.01) (0.21) (0.39) (0.34) (0.37) (0.18) (0.21) (0.15)
Net realized capital
gains (0.54) (3.80) (3.90) -- (0.06) (2.08) (1.32) (0.31) (1.16) (1.77) (1.31)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.73) (4.14) (4.47) (0.01) (0.27) (2.47) (1.66) (0.68) (1.34) (1.98) (1.46)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $18.41 $16.95 $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54 $25.26
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.92% 0.92% 0.96% *0.99% 0.96% 1.02% 1.04% 0.99% 0.97% 0.96% 1.02%
Ratio of net
investment income to
average net assets 2.07% 1.75% 1.32% *1.31% 2.12% 2.33% 2.11% 0.99% 0.92% 0.91% 0.56%
Portfolio turnoverrate 96% 116% 103% 42% 85% 70% 50% 40% 42% 58% 41%
Total return 29.41% 14.70% 4.27% 17.94% 40.00% (8.78%) 32.18% 8.96% 27.35% 2.02% 14.60%
Net assets, end of
period (000 omitted) $278,082 $253,693 $187,997 $224,628 $322,056 $361,065 $587,259 $626,080 $1,076,818 $1,243,885 $1,201,469
</TABLE>
SPECIAL VENTURE FUND
Period Ended
Sept. 30, 1995 (a)
------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.01
Net realized and unrealized gains on investments 2.67
------
Total from investment operations 2.68
------
DISTRIBUTIONS
Net investment income (0.03)
Net realized capital gains (0.05)
------
Total distributions (0.08)
------
NET ASSET VALUE, END OF PERIOD $12.60
------
------
Ratio of net expenses to average net assets (b) *1.25%
Ratio of net investment income to average net assets (c) *1.64%
Portfolio turnover rate 84%
Total return 26.96%
Net assets, end of period (000 omitted) $60,533
<PAGE> 9
CAPITAL OPPORTUNITIES FUND (D)
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.69 $11.91 $13.38 $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 15.79
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.10 0.03 0.03 0.03 0.05 0.06 0.11 0.06 0.01 0.02 0.01
Net realized and
unrealized gains
(losses) on investments 2.27 1.97 0.62 0.13 3.86 (4.72) 3.73 0.60 3.91 0.34 5.91
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 2.37 2.00 0.65 0.16 3.91 (4.66) 3.84 0.66 3.92 0.36 5.92
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (0.15) (0.10) (0.05) -- (0.05) (0.06) (0.08) (0.10) (0.04) (0.01) (0.02)
Net realized capital
gains -- (0.43) (3.36) -- (0.06) (2.54) (0.08) -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.15) (0.53) (3.41) -- (0.11) (2.60) (0.16) (0.10) (0.04) (0.01) (0.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $11.91 $13.38 $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 $15.79 $21.69
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.95% 0.95% 0.95% *1.01% 1.09% 1.14% 1.18% 1.06% 1.06% 0.97% 1.05%
Ratio of net investment
income to average
net assets 0.94% 0.19% 0.18% *0.34% 0.42% 0.43% 1.19% 0.42% 0.09% 0.04% 0.08%
Portfolio turnover rate 90% 116% 133% 164% 245% 171% 69% 46% 55% 46% 60%
Total return 24.58% 16.77% 9.38% 1.51% 36.68% (37.51%) 53.51% 5.99% 34.01% 2.31% 37.46%
Net assets, end of
period (000 omitted) $176,099 $191,415 $171,973 $194,160 $272,805 $86,342 $129,711 $118,726 $153,101 $175,687 $242,381
</TABLE>
*Annualized.
(a) From the commencement of operations: March 23, 1987 for
Growth & Income Fund and October 17, 1994 for Special Venture
Fund.
(b) If the Funds had paid all of their expenses and there had
been no reimbursement by the Adviser, this ratio would have
been 2.49% for the period ended September 30, 1987 and 1.09%
for the year ended September 30, 1990 for Growth & Income Fund;
and 2.87% for the period ended September 30, 1995 for Special
Venture Fund.
(c) Computed giving effect to the Adviser's expense limitation
undertaking.
(d) For Capital Opportunities Fund, all per share amounts and
Average Shares Outstanding During Period on the debt table
reflect a two-for-one stock split effective August 25, 1995.
(e) For the periods indicated below, bank borrowing activity was
as follows:
Debt
outstanding Average debt Average shares Average
at end of outstanding outstanding debt per
Period period (in during period during period during
Ended thousands) (in thousands) (in thousands) period
- ------------ ----------- ------------ -------------- --------
Total Return
Fund
12/31/86 $-- 2 5,506 $0.0004
Growth Stock
Fund
12/31/85 -- 5 13,977 0.0004
9/30/89 -- 124 11,745 0.0106
Special Fund
12/31/86 -- 203 15,251 0.0133
Capital
Opportunities
Fund
12/31/85 -- 43 17,050 0.0026
12/31/86 -- 55 13,906 0.0039
12/31/87 -- 292 16,008 0.0183
9/30/88 -- 56 17,206 0.0033
9/30/89 -- 422 16,066 0.0263
9/30/90 200 1,042 15,944 0.0654
<PAGE> 10
The Funds had no bank borrowings during any other periods.
THE FUNDS
The mutual funds offered by this prospectus are STEIN ROE GROWTH &
INCOME FUND ("Growth & Income Fund"), STEIN ROE TOTAL RETURN FUND
("Total Return Fund"), STEIN ROE GROWTH STOCK FUND ("Growth Stock
Fund"), STEIN ROE SPECIAL FUND ("Special Fund"), STEIN ROE SPECIAL
VENTURE FUND ("Special Venture Fund"), and STEIN ROE CAPITAL
OPPORTUNITIES FUND ("Capital Opportunities Fund") (collectively,
the "Funds"). Each of the Funds is a no-load, diversified "mutual
fund." Mutual funds sell their own shares to investors and use
the money they receive to invest in a portfolio of securities such
as common stocks. A mutual fund allows you to pool your money
with that of other investors in order to obtain professional
investment management. Mutual funds generally make it possible
for you to obtain greater diversification of your investments and
simplify your recordkeeping. The Funds do not impose commissions
or charges when shares are purchased or redeemed.
The Funds are series of the Stein Roe Investment Trust (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Funds. The Adviser also manages and
provides investment advisory services for several other no-load
mutual funds with different investment objectives, including
equity funds, international funds, taxable and tax-exempt bond
funds, and money market funds. To obtain prospectuses and other
information on any of those mutual funds, please call 800-338-
2550.
HOW THE FUNDS INVEST
The Funds invest as described below. Further information on
portfolio investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.
GROWTH & INCOME FUND.
This Fund's investment objective is to provide both growth of
capital and current income. It is designed for investors seeking
a diversified portfolio of securities that offers the opportunity
for long-term growth of capital while also providing a steady
stream of income.
In seeking to meet this objective, the Fund invests primarily in
well-established companies whose common stocks are believed to
have both the potential to appreciate in value and to pay
dividends to shareholders.
Although it may invest in a broad range of securities (including
common stocks, preferred stocks, securities convertible into or
exchangeable for common stocks, and warrants or rights to purchase
common stocks), normally the Fund will emphasize investments in
equity securities of companies having market capitalizations in
excess of $1
<PAGE> 11
billion. Securities of these well-established companies are
believed to be generally less volatile than those of companies
with smaller capitalizations because companies with larger
capitalizations tend to have experienced management; broad, highly
diversified product lines; deep resources; and easy access to
credit.
TOTAL RETURN FUND.
This Fund's investment objective is to obtain current income and
capital appreciation in order to achieve maximum total return
consistent with reasonable investment risk through investment in a
combination of equity, fixed income and convertible securities.
The percentages of Fund assets invested in various types of
securities will vary in accordance with the judgment of the
Adviser. There are no limitations on the amount of the Fund's
assets that may be allocated to the various types of securities.
Generally, the equity portion of the Fund's portfolio will be
invested in common stocks that the Adviser believes have long-term
growth possibilities. With respect to the fixed income portion of
the portfolio, emphasis is placed on acquiring investment grade
securities.
GROWTH STOCK FUND.
This Fund's investment objective is long-term capital
appreciation, which it attempts to achieve by investing, under
normal conditions, at least 65% of its total assets 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) that, in the opinion
of the Adviser, have long-term appreciation possibilities.
The Fund's investments are selected by the Adviser. Although the
Fund invests primarily in equity securities, it may invest up to
35% of its total assets in debt securities.
SPECIAL FUND.
This Fund's investment objective is to invest in securities
selected for capital appreciation. Particular emphasis is placed
on securities that are considered to have limited downside risk
relative to their potential for above-average growth--including
securities of undervalued, underfollowed or out-of-favor
companies, and companies that are low-cost producers of goods or
services, financially strong, or run by well-respected managers.
The Fund may invest in securities of seasoned, established
companies that appear to have appreciation potential, as well as
securities of relatively small, new companies. In addition, it
may invest in securities with limited marketability; new issues of
securities; securities of companies that, in the Adviser's
opinion, will benefit from management change, new technology, new
product or service development, or change in demand; and other
securities that the Adviser believes have capital appreciation
possibilities. However, the Fund does not currently intend to
invest, nor has it invested in the past fiscal year, more than 5%
of its net assets in any of these types of securities. Securities
of smaller, newer companies may be subject to greater price
volatility than securities of larger, well-established companies.
In addition, many smaller companies are less well known to the
investing public and may not be as widely followed by the
investment community.
The Fund invests primarily in common stocks and other equity-type
securities, including preferred stocks and securities convertible
into equity securities. The Fund may also invest up to 35% of its
total assets in debt securities, but it does not currently intend
<PAGE> 12
to invest, nor in its past fiscal year has it invested, more than
5% of its net assets in debt securities rated below investment
grade.
SPECIAL VENTURE FUND.
This Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of common stocks and other
equity-type securities (such as preferred stocks, securities
convertible or exchangeable for common stocks, and warrants or
rights to purchase common stocks) of entrepreneurially managed
companies that the Adviser believes represent special
opportunities. The Fund emphasizes investments in financially
strong small and medium-sized companies, based principally on
management appraisal and stock valuation. The Adviser considers
"small" and "medium-sized" companies to be those with market
capitalizations of less than $1 billion and $1 to $3 billion,
respectively.
In both its initial and ongoing appraisals of a company's
management, the Adviser seeks to know both the principal owners
and senior management and to assess their business judgment and
strategies through personal visits. The Adviser favors companies
whose management has an owner/operator, risk-averse orientation
and a demonstrated ability to create wealth for investors.
Attractive company characteristics include unit growth, favorable
cost structures or competitive positions, and financial strength
that enables management to execute business strategies under
difficult conditions. A company is attractively valued when its
stock can be purchased at a meaningful discount to the value of
the underlying business.
The Fund may invest up to 35% of its net assets in debt
securities, but it does not currently intend to invest more than
5% of its net assets in debt securities rated below investment
grade.
CAPITAL OPPORTUNITIES FUND.
This Fund's investment objective is long-term capital
appreciation, which it attempts to achieve by investing in
selected companies that, in the opinion of the Adviser, offer
opportunities for capital appreciation.
The Fund pursues its objective by investing in aggressive growth
companies. An aggressive growth company, in general, is one that
appears to have the ability to increase its earnings at an above-
average rate. These may include securities of smaller emerging
companies as well as securities of well-seasoned companies of any
size that offer strong earnings growth potential. Such companies
may benefit from new products or services, technological
developments, or changes in management. Securities of smaller
companies may be subject to greater price volatility than
securities of larger companies. In addition, many smaller
companies are less well known to the investing public and may not
be as widely followed by the investment community.
Although it invests primarily in common stocks, the Fund may
invest in all types of equity securities, including preferred
stocks and securities convertible into common stocks. The Fund
may also invest up to 35% of its total assets in debt securities,
but does not currently intend to invest, nor in the past fiscal
year has it invested, more than 5% of its net assets in debt
securities rated below investment grade.
<PAGE> 13
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES. In pursuing its investment objective, each Fund
may invest in debt securities of corporate and governmental
issuers. Investments in debt securities by Growth & Income Fund,
Total Return Fund, and Growth Stock Fund 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 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
a Fund is lost or reduced below investment grade, the Fund is not
required to dispose of the security--the Adviser will, however,
consider that fact in determining whether that Fund should
continue to hold the security. Special Venture Fund does not
expect to invest more than 5% of net assets in debt securities
rated below investment grade. Capital Opportunities Fund and
Special Fund may invest up to 35% of their net assets in debt
securities that are rated below investment grade.
The risks inherent in debt securities depend primarily on the term
and quality of the obligations in a Fund's portfolio as well as on
market conditions. A decline in the prevailing levels of interest
rates generally increases the value of debt securities.
Conversely, an increase in rates usually reduces the value of debt
securities. 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.
When the Adviser determines that adverse market or economic
conditions exist and considers a temporary defensive position
advisable, the Funds may invest without limitation in high-quality
fixed income securities or hold assets in cash or cash
equivalents.
CONVERTIBLE SECURITIES. By investing in convertible securities, a
Fund 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. Although convertible securities purchased by a
Fund are frequently rated investment grade, the Funds 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;
- - 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 tends to be more important than
other factors in the purchase of such securities.
<PAGE> 14
FOREIGN SECURITIES. Each Fund may invest in foreign securities.
Other than American Depositary Receipts (ADRs), foreign debt
securities denominated in U.S. dollars, and securities guaranteed
by a U.S. person, each Fund is limited to investing no more than
25% of its total assets in foreign securities. (See Risks and
Investment Considerations.) The Funds may invest in sponsored or
unsponsored ADRs. In addition to, or in lieu of, such direct
investment, a Fund may construct a synthetic foreign 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 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, the Funds may contract to purchase an amount of
foreign currency sufficient to pay the purchase price of the
securities at the settlement date. Such a contract 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. The Funds also may enter into foreign
currency contracts as a hedging technique to limit or reduce
exposure to currency fluctuations. In addition, the Funds may use
options and futures contracts, as described below, to limit or
reduce exposure to currency fluctuations.
As of September 30, 1995, the Funds' holdings of foreign
companies, as a percentage of net assets, were as follows: Growth
& Income Fund, 4.4% (1.5% in foreign securities and 1.9% in ADRs),
Total Return Fund, 5.2% (1.0% in foreign securities and 4.2% in
ADRs), Growth Stock Fund, 6.3% (1.2% in foreign securities and
5.1% in ADRs), Special Fund, 7.5% (6.0% in foreign securities and
1.5% in ADRs); Special Venture Fund, 4.9% (4.9% in foreign
securities and none in ADRs); and Capital Opportunities Fund, 2.5%
(none in foreign securities and 2.5% in ADRs).
LENDING PORTFOLIO SECURITIES; WHEN-ISSUED AND DELAYED-DELIVERY
SECURITIES. Each Fund may make loans of its portfolio securities
to broker-dealers and banks subject to certain restrictions
described in the Statement of Additional Information. Each Fund
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 the Fund 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. A Fund
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.
PORTFOLIO TURNOVER. Although the Funds do not purchase securities
with a view to rapid turnover, there are no limitations on the
length of time portfolio securities must be held, and the
portfolio turnover rate may vary significantly from year to year.
Under normal circumstances, Special Venture Fund expects to
experience moderate portfolio turnover with an investment time
horizon of three to five years, but its portfolio turnover is not
expected to exceed 100%. At times, Special Fund and Capital
Opportunities Fund may invest for short-term capital appreciation.
Flexibility of investment and emphasis on capital appreciation may
involve greater portfolio turnover than that of mutual funds that
have the objectives of income or maintenance of a balanced
<PAGE> 15
investment position. A high rate of portfolio turnover may result
in increased transaction expenses and the realization of capital
gains and losses. (See Financial Highlights and Distributions and
Income Taxes.) Growth Stock Fund, Special Fund, Special Venture
Fund, and Capital Opportunities Fund are not intended to be
income-producing investments, although they may produce varying
amounts of income.
DERIVATIVES. Consistent with its objective, each Fund 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. No Fund expects
to invest more than 5% of its net assets in any type of Derivative
except for options, futures contracts, and futures options.
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 currency exchange rates, 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.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuation, each Fund 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. A Fund may write a call
or put option only if the option is covered. As the writer of a
covered call option, a Fund 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 a Fund 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.
RESTRICTIONS ON THE FUNDS' INVESTMENTS
No Fund will invest more than 5% of its assets in the securities
of any one issuer. This restriction applies only to 75% of a
Fund's portfolio, but does not apply to securities of the U.S.
Government or repurchase agreements for such securities, and would
not
<PAGE> 16
prevent a Fund from investing all of its assets in shares of
another investment company having the identical investment
objective.
No Fund will acquire more than 10% of the outstanding voting
securities of any one issuer. Each Fund may, however, invest all
of its assets in shares of another investment company having the
identical investment objective.
No Fund will borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). No Fund will purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The Funds may invest in repurchase agreements, /1/ provided that
no Fund will invest more than 15% of its net assets in repurchase
agreements maturing in more than seven days, and any other
illiquid securities.
The policies summarized in the first three paragraphs under this
section (except for the first and second paragraphs as they relate
to Special Fund) and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" of a Fund as defined in the
Investment Company Act of 1940. The Funds' investment objectives
are non-fundamental and, as such, may be changed by the Board of
Trustees without shareholder approval. Any such change may result
in a Fund having an investment objective different from the
objective the shareholder considered appropriate at the time of
investment in the Fund. All of the investment restrictions are
set forth in the Statement of Additional Information.
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Growth & Income Fund is
designed for long-term investors who desire to participate in the
stock market with moderate investment risk while seeking to limit
market volatility. Total Return Fund is designed for long-term
investors who can accept the fluctuations in portfolio value and
other risks associated with seeking long-term capital appreciation
through investments in securities. Growth Stock Fund and Special
Fund are designed for long-term investors who desire to
participate in the stock market with more investment risk and
volatility than the stock market in general, but with less
investment risk and volatility than aggressive capital
appreciation funds. Special Venture Fund is designed for long-
term investors who want greater return potential than is available
from the stock market in general, and who are willing to tolerate
the greater investment risk and market volatility associated with
investments in small and medium-sized companies. Capital
Opportunities Fund is an aggressive growth fund
- ------------------------
/1/ A repurchase agreement involves a sale of securities to a Fund
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, the Fund could experience both losses
and delays in liquidating its collateral.
- --------------------------
<PAGE> 17
and is designed for long-term investors who can accept the
fluctuations in portfolio value and other risks associated with
seeking long-term capital appreciation through investments in
common stocks. Of course, there can be no guarantee that a Fund
will achieve its objective.
Securities of small and medium-sized companies may be subject to
greater price volatility than securities of larger companies and
tend to have a lower degree of market liquidity. They also may be
more sensitive to changes in economic and business conditions, and
may react differently than securities of larger companies. In
addition, such companies are less well known to the investing
public and may not be as widely followed by the investment
community.
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.
Although Growth & Income Fund, Total Return Fund, Special Fund,
Special Venture Fund, and Capital Opportunities Fund do not
attempt to reduce or limit risk through wide industry
diversification of investment, they usually allocate their
investments among a number of different industries rather than
concentrating in a particular industry or group of industries.
Growth Stock Fund seeks to reduce risk by investing in a
diversified portfolio, but this does not eliminate all risk. No
Fund, however, will 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. (See How the Funds Invest.)
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; 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 non-residents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
non-residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION. Rather than invest in securities
directly, each Fund may in the future seek to achieve its
investment objective by pooling its assets with assets of other
mutual funds managed by the Adviser for investment in another
investment company having the same investment objective and
substantially the same investment policies and restrictions as the
Fund. The purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected that
any such investment company would be managed by the Adviser in
substantially the same manner as the Fund. Shareholders of a Fund
will be given at least 30 days' prior notice of any such
investment, although they will not be entitled to vote on the
action. Such
<PAGE> 18
investment would be made only if the Trustees determine it to be
in the best interests of the Fund and its shareholders.
HOW TO PURCHASE SHARES
You may purchase shares of any of the Funds by check, by wire, by
electronic transfer, or by exchange from your account with another
Stein Roe Fund. The initial purchase minimum per Fund account is
$2,500; the minimum for Uniform Gifts/Transfers to Minors Act
("UGMA") accounts is $1,000; the minimum for accounts established
under an automatic investment plan (i.e., Regular Investments,
Dividend Purchase Option, or Automatic Exchange Plan) is $1,000
for regular accounts and $500 for UGMA accounts; and the minimum
per account for Stein Roe IRAs is $500. The initial purchase
minimum is waived for shareholders who participate in the Stein
Roe Counselor [SERVICE MARK] and Stein Roe Counselor Preferred
[SERVICE MARK] programs and for clients of the Adviser.
Subsequent purchases must be at least $100, or at least $50 if you
purchase by electronic transfer. If you wish to purchase shares
to be held by a tax-sheltered retirement plan sponsored by the
Adviser, you must obtain special forms for those plans. (See
Shareholder Services.)
BY CHECK. To make an initial purchase of shares of a Fund by
check, please complete and sign the Application and mail it,
together with a check made payable to Stein Roe Funds, to P.O. Box
804058, Chicago, Illinois 60680.
You may make subsequent investments by submitting a check along
with either the stub from your Fund account confirmation statement
or a note indicating the amount of the purchase, your account
number, and the name in which your account is registered. Each
individual check submitted for purchase must be at least $100, and
the Trust generally will not accept cash, drafts, third party
checks, or checks drawn on banks outside the United States.
Should an order to purchase shares of a Fund be cancelled because
your check does not clear, you will be responsible for any
resulting loss incurred by that Fund.
BY WIRE. You also may pay for shares by instructing your bank to
wire federal funds (monies of member banks within the Federal
Reserve System) to the Funds' custodian bank. Your bank may
charge you a fee for sending the wire. If you are opening a new
account by wire transfer, you must first telephone the Trust to
request an account number and furnish your social security or
other tax identification number. Neither the Funds nor the Trust
will be responsible for the consequences of delays, including
delays in the banking or Federal Reserve wire systems. Your bank
must include the full name(s) in which your account is registered
and your Fund account number, and should address its wire as
follows:
State Street Bank & Trust Company
ABA Routing No. 011000028
Boston, Massachusetts
Attention: Custody
Fund No. ___; Stein Roe _____ Fund
Account of (exact name(s) in registration)
Shareholder Account No. ________
<PAGE> 19
Fund Numbers:
7111--Growth & Income Fund
7105--Total Return Fund
7103--Growth Stock Fund
7106--Special Fund
7125--Special Venture Fund
7104--Capital Opportunities Fund
BY ELECTRONIC TRANSFER. You also may make subsequent investments
by an electronic transfer of funds from your bank checking
account. Electronic transfer allows you to make purchases at your
request ("Special Investments") by calling 800-338-2550 or at pre-
scheduled intervals ("Regular Investments"). (See Shareholder
Services.) Electronic transfer purchases are subject to a $50
minimum and a $100,000 maximum. You may not open a new account
through electronic transfer. Should an order to purchase shares
of a Fund be cancelled because your electronic transfer does not
clear, you will be responsible for any resulting loss incurred by
that Fund.
BY EXCHANGE. You may purchase shares by exchange of shares from
another Stein Roe Fund account either by phone (if the Telephone
Exchange Privilege has been established on the account from which
the exchange is being made), by mail, in person, or automatically
at regular intervals (if you have elected Automatic Exchanges).
Restrictions apply; please review the information on the Exchange
Privilege under How to Redeem Shares--By Exchange.
PURCHASE PRICE AND EFFECTIVE DATE. Each purchase of a Fund's
shares is made at that Fund's net asset value (see Net Asset
Value) next determined after receipt of payment as follows:
A purchase by check or wire transfer is made at the net asset
value next determined after the Fund receives the check or wire
transfer of funds in payment of the purchase.
A purchase by electronic transfer is made at the net asset value
next determined after the Fund receives the electronic transfer
from your bank. A Special Electronic Transfer Investment order
received by telephone on a business day before 2:00 p.m., Central
time, is effective on the next business day.
CONDITIONS OF PURCHASE. Each purchase order for a Fund must be
accepted by an authorized officer of the Trust in Chicago and is
not binding until accepted and entered on the books of that Fund.
Once your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interest of the Trust or of a
Fund's shareholders. The Trust also reserves the right to waive
or lower its investment minimums for any reason. The Trust does
not issue certificates for shares.
PURCHASES THROUGH THIRD PARTIES. You may purchase (or redeem)
shares through investment dealers, banks, or other financial
institutions. These institutions may charge for their services or
place limitations on the extent to which you may use the services
offered by the Trust. There are no charges or limitations imposed
by the Trust, other than those described in this prospectus, if
shares are purchased (or redeemed) directly from the Trust.
<PAGE> 20
Some financial institutions that maintain nominee accounts with
the Funds for their clients for whom they hold Fund shares charge
an annual fee of up to 0.25% of the average net assets held in
such accounts for accounting, servicing, and distribution services
they provide with respect to the underlying Fund shares. Such
fees are paid by the Adviser.
HOW TO REDEEM SHARES
BY WRITTEN REQUEST. You may redeem all or a portion of your
shares of a Fund by submitting a written request in "good order"
to the Trust at P.O. Box 804058, Chicago, Illinois 60680. A
redemption request will be considered to have been received in
good order if the following conditions are satisfied:
(1) The request must be in writing, and must indicate the number
of shares or dollar amount to be redeemed and identify the
shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The request must be accompanied by any certificates for the
shares, either properly endorsed for transfer, or accompanied
by a stock assignment properly endorsed exactly as the shares
are registered;
(4) The signatures on either the written redemption request or the
certificates (or the accompanying stock power) must be
guaranteed (a signature guarantee is not a notarization, but is
a widely accepted way to protect you and the Funds by verifying
your signature);
(5) Corporations and associations must submit with each request a
completed Certificate of Authorization included in this
prospectus (or a form of resolution acceptable to the Trust);
and
(6) The request must include other supporting legal documents as
required from organizations, executors, administrators,
trustees, or others acting on accounts not registered in their
names.
BY EXCHANGE. You may redeem all or any portion of your Fund
shares and use the proceeds to purchase shares of any other Stein
Roe Fund offered for sale in your state if your signed, properly
completed Application is on file. AN EXCHANGE TRANSACTION IS A
SALE AND PURCHASE OF SHARES FOR FEDERAL INCOME TAX PURPOSES AND
MAY RESULT IN CAPITAL GAIN OR LOSS. Before exercising the
Exchange Privilege, you should obtain the prospectus for the Stein
Roe 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 Fund account from which
the exchange is made and the amount you exchange must meet any
applicable minimum investment of the Stein Roe Fund being
purchased. An exchange may be made by following the redemption
procedure described above under By Written Request and indicating
the Stein Roe Fund to be purchased--a signature guarantee normally
is not required. (See also the discussion below of the Telephone
Exchange Privilege and Automatic Exchanges.)
SPECIAL REDEMPTION PRIVILEGES. The Telephone Exchange Privilege
and the Telephone Redemption by Check Privilege will be
established automatically for you when you open your account
unless you decline these Privileges on your Application. Other
Privileges
<PAGE> 21
must be specifically elected. If you do not want the Telephone
Exchange and Redemption Privileges, check the box(es) under the
section "Telephone Redemption Options" when completing your
Application. In addition, a signature guarantee may be required
to establish a Privilege after you open your account. If you
establish both the Telephone Redemption by Wire Privilege and the
Electronic Transfer Privilege, the bank account that you designate
for both Privileges must be the same.
You may not use any of the Special Redemption Privileges if you
hold certificates for any of your Fund shares. The Telephone
Redemption by Check Privilege, Telephone Redemption by Wire
Privilege, and Special Electronic Transfer Redemptions are not
available to redeem shares held by a tax-sheltered retirement plan
sponsored by the Adviser. (See also General Redemption Policies.)
Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account
by calling 800-338-2550 or by sending a telegram; new accounts
opened by exchange are subject to the $2,500 initial purchase
minimum. GENERALLY, YOU WILL BE LIMITED TO FOUR TELEPHONE
EXCHANGE ROUND-TRIPS PER YEAR AND THE FUNDS MAY REFUSE REQUESTS
FOR TELEPHONE EXCHANGES IN EXCESS OF FOUR ROUND-TRIPS (A ROUND-
TRIP BEING THE EXCHANGE OUT OF A FUND INTO ANOTHER STEIN ROE FUND,
AND THEN BACK TO THAT FUND). In addition, the Trust's general
redemption policies apply to redemptions of shares by Telephone
Exchange. (See General Redemption Policies.)
The Trust reserves the right to suspend or terminate, at any time
and without prior notice, the use of the Telephone Exchange
Privilege by any person or class of persons. The Trust believes
that use of the Telephone Exchange Privilege by investors
utilizing market-timing strategies adversely affects the Funds.
THEREFORE, THE TRUST GENERALLY WILL NOT HONOR REQUESTS FOR
TELEPHONE EXCHANGES BY SHAREHOLDERS IDENTIFIED BY THE TRUST AS
"MARKET-TIMERS." Moreover, the Trust reserves the right to
suspend, limit, modify, or terminate, at any time and without
prior notice, the Telephone Exchange Privilege in its entirety.
Because such a step would be taken only if the Board of Trustees
believes it would be in the best interests of the Funds, the Trust
expects that it would provide shareholders with prior written
notice of any such action unless the resulting delay in the
suspension, limitation, modification, or termination of the
Telephone Exchange Privilege would adversely affect the Funds. IF
THE TRUST WERE TO SUSPEND, LIMIT, MODIFY, OR TERMINATE THE
TELEPHONE EXCHANGE PRIVILEGE, A SHAREHOLDER EXPECTING TO MAKE A
TELEPHONE EXCHANGE MIGHT FIND THAT AN EXCHANGE COULD NOT BE
PROCESSED OR THAT THERE MIGHT BE A DELAY IN THE IMPLEMENTATION OF
THE EXCHANGE. (See How to Redeem Shares--By Exchange.) During
periods of volatile economic and market conditions, you may have
difficulty placing your exchange by telephone.
Automatic Exchanges. You may use the Automatic Exchange Privilege
to automatically redeem a fixed amount from your Fund account for
investment in another Stein Roe Fund account on a regular basis.
Telephone Redemption by Check Privilege. You may use the
Telephone Redemption by Check Privilege to redeem an amount of
$1,000 or more from your account by calling 800-338-2550. The
proceeds will be sent by check to your registered address. The
<PAGE> 22
Telephone Redemption by Check Privilege is not available to redeem
shares held by a tax-sheltered retirement plan sponsored by the
Adviser.
Telephone Redemption by Wire Privilege. You may use this
Privilege to redeem an amount of $1,000 or more from your account
by calling 800-338-2550. The proceeds will be transmitted by wire
to your account at a commercial bank previously designated by you
that is a member of the Federal Reserve System. The fee for
wiring proceeds (currently $3.50 per transaction) will be deducted
from the amount wired.
Electronic Transfer Privilege. You may redeem shares by calling
800-338-2550 and requesting an electronic transfer ("Special
Redemption") of the proceeds to a checking account previously
designated by you at a bank that is a member of the Automated
Clearing House. You may also request electronic transfers at
scheduled intervals ("Automatic Redemptions"--see Shareholder
Services). Electronic transfers are subject to a $50 minimum and
a $100,000 maximum. A Special Redemption request received by
telephone after 2:00 p.m., Central time, is deemed received on the
next business day.
GENERAL REDEMPTION POLICIES. You may not cancel or revoke your
redemption order once instructions have been received and
accepted. The Trust cannot accept a redemption request that
specifies a particular date or price for redemption or any special
conditions. Please telephone the Trust if you have any questions
about requirements for a redemption before submitting your
request. If you wish to redeem shares held by a tax-sheltered
retirement plan sponsored by the Adviser, special procedures of
those plans apply to such redemptions. (See Shareholder Services-
- -Tax-Sheltered Retirement Plans.) The Trust reserves the right to
require a properly completed Application before making payment for
shares redeemed.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon that 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 and may result
in a realized capital gain or loss.
The Trust will generally mail payment for shares redeemed within
seven days after proper instructions are received. However, the
Trust normally intends to pay proceeds of a Telephone Redemption
paid by wire on the next business day. If you attempt to redeem
shares within 15 days after they have been purchased by check or
electronic transfer, the Trust may delay payment of the redemption
proceeds to you until it can verify that payment for the purchase
of those shares has been (or will be) collected. To reduce such
delays, the Trust recommends that your purchase be made by federal
funds wire through your bank.
Generally, you may not use the Exchange Privilege or any Special
Redemption Privilege to redeem shares purchased by check (other
than certified or cashiers' checks) or electronic transfer until
15 days after their date of purchase.
The Trust reserves the right to suspend, limit, modify, or
terminate, at any time without prior notice, any Privilege or its
use in any manner by any person or class.
<PAGE> 23
Neither the Trust, its transfer agent, nor their respective
officers, trustees, directors, employees, or agents will be
responsible for the authenticity of instructions provided under
the Privileges, nor for any loss, liability, cost or expense for
acting upon instructions furnished thereunder if they reasonably
believe that such instructions are genuine. The Funds employ
procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special Electronic Transfer Redemption Privilege are
genuine. Use of any Special Redemption Privilege or the Special
Electronic Transfer Redemption Privilege authorizes the Funds and
their transfer agent to tape-record all instructions to redeem.
In addition, callers are asked to identify the account number and
registration, and may be required to provide other forms of
identification. Written confirmations of transactions are mailed
promptly to the registered address; a legend on the confirmation
requests that the shareholder review the transactions and inform
the Fund immediately if there is a problem. If a Fund 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.
The Trust reserves the right to redeem shares in any account and
send the proceeds to the owner if the shares in the account do not
have a value of at least $1,000. A shareholder would be notified
that his account is below the minimum and would be allowed 30 days
to increase the account before the redemption is processed.
Shares in any account you maintain with a Fund or any of the other
Stein Roe Funds may be redeemed to the extent necessary to
reimburse any Stein Roe Fund for any loss it sustains that is
caused by you (such as losses from uncollected checks and
electronic transfers for the purchase of shares, or any Stein Roe
Fund liability under the Internal Revenue Code provisions on
backup withholding).
SHAREHOLDER SERVICES
REPORTING TO SHAREHOLDERS. You will receive a confirmation
statement reflecting each of your purchases and redemptions of
shares of a Fund, as well as periodic statements detailing
distributions made by that Fund. Shares purchased by reinvestment
of dividends, by cross-reinvestment of dividends from another
Fund, or through an automatic investment plan will be confirmed to
you quarterly. In addition, the Trust will send you semiannual
and annual reports showing Fund portfolio holdings and will
provide you annually with tax information.
FUNDS-ON-CALL [REGISTERED] 24-HOUR INFORMATION SERVICE. To
access the Stein Roe Funds-on-Call [registered] automated
telephone service, just call 800-338-2550 on any touch-tone
telephone and follow the recorded instructions. Funds-on-Call
[registered] provides yields, prices, latest dividends, account
balances, last transaction, and other information 24 hours a day,
seven days a week.
FUNDS-ON-CALL [REGISTERED] AUTOMATED TELEPHONE TRANSACTIONS. If
you have established the Funds-on-Call [registered] transaction
privilege (Funds-on-Call [registered] Application will be
required), you may initiate Special Investments and Redemptions,
Telephone Exchanges, and Telephone Redemptions by Check 24 hours a
day, seven days a week by calling 800-338-2550 on a touch-tone
telephone. These transactions are subject to the terms and
<PAGE> 24
conditions of the individual privileges. (See How to Purchase
Shares and How to Redeem Shares.)
STEIN ROE COUNSELOR [SERVICE MARK] PROGRAM. The Stein Roe
Counselor [SERVICE MARK] and Stein Roe Counselor Preferred
[SERVICE MARK] programs are professional investment advisory
services available to shareholders. These programs are designed
to provide investment guidance in helping investors to select a
portfolio of Stein Roe Funds. The Stein Roe Counselor Preferred
[SERVICE MARK] program, which automatically adjusts client
portfolios among the Stein Roe Funds, has a fee of up to 1% of
assets.
TAX-SHELTERED RETIREMENT PLANS. Booklets describing the following
programs and special forms necessary for establishing them are
available on request. You may use all of the Stein Roe Funds,
except those investing primarily in tax-exempt securities, in
these plans. Please read the prospectus for each fund in which
you plan to invest before making your investment.
Individual Retirement Accounts ("IRAs") for employed persons and
their non-employed spouses.
Prototype Money Purchase Pension and Profit-Sharing Plans for
self-employed individuals, partnerships, and corporations.
Simplified Employee Pension Plans permitting employers to provide
retirement benefits to their employees by utilizing IRAs while
minimizing administration and reporting requirements.
SPECIAL SERVICES. The following special services are available to
shareholders. Please call 800-338-2550 or write the Trust for
additional information and forms.
Dividend Purchase Option--to diversify your Fund investments by
having distributions from one Fund account automatically invested
in another Stein Roe Fund account. Before establishing this
option, you should obtain and read carefully the prospectus of the
Stein Roe Fund into which you wish to have your distributions
invested. The account from which distributions are made must be
of sufficient size to allow each distribution to usually be at
least $25. The account into which distributions are to be
invested may be opened with an initial investment of only $1,000.
Automatic Dividend Deposit (electronic transfer)--to have income
dividends and capital gain distributions deposited directly into
your bank checking account.
Telephone Redemption by Check Privilege ($1,000 minimum) and
Telephone Exchange Privilege ($50 minimum)--established
automatically when you open your account unless you decline them
on your Application. (See How to Redeem Shares--Special
Redemption Privileges.)
Telephone Redemption by Wire Privilege--to redeem shares from your
account by phone and have the proceeds transmitted by wire to your
checking account ($1,000 minimum).
<PAGE> 25
Special Redemption Option (electronic transfer)--to redeem shares
at any time and have the proceeds deposited directly to your bank
checking account ($50 minimum; $100,000 maximum).
Regular Investments (electronic transfer)--to purchase Fund shares
at regular intervals directly from your bank checking account ($50
minimum; $100,000 maximum).
Special Investments (electronic transfer)--to purchase Fund shares
by telephone and pay for them by electronic transfer of funds from
your checking account ($50 minimum; $100,000 maximum).
Automatic Exchange Plan--to automatically redeem a fixed dollar
amount from your Fund account and invest it in another Stein Roe
Fund account on a regular basis ($50 minimum; $100,000 maximum).
Automatic Redemptions (electronic transfer)--to have a fixed
dollar amount redeemed and sent at regular intervals directly to
your bank checking account ($50 minimum; $100,000 maximum).
Systematic Withdrawals--to have a fixed dollar amount, declining
balance, or fixed percentage of your account redeemed and sent at
regular intervals by check to you or another payee.
NET ASSET VALUE
The purchase and redemption price of each Fund's shares is its net
asset value per share. The net asset value of a share of each
Fund is determined as of the close of trading on the New York
Stock Exchange ("NYSE") (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's assets
and liabilities by the number of shares outstanding. 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 a Fund should be determined on any such day, in which
case the determination will be made at 3:00 p.m., Central 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 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.
Securities convertible into stocks are valued at the latest
valuation from a principal market
<PAGE> 26
maker. Other assets and securities are valued by a method that
the Board believes represents fair value.
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS. Income dividends for Growth & Income Fund and
Total Return Fund are normally declared and paid quarterly; and
income dividends for Growth Stock Fund, Special Fund, Special
Venture Fund, and Capital Opportunities Fund are normally declared
and paid annually. Each 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 twelve-month period ended
October 31 in that year. Therefore, an additional dividend may be
declared near year end. The Funds intend to distribute any
undistributed net investment income and net realized capital gains
in the following year.
All of your income dividends and capital gain distributions will
be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank checking account; (3) applied
to purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment into
the same Fund account normally occurs one business day after the
record date. Investment of distributions into another Stein Roe
Fund account occurs on the payable date. If you choose to receive
your distributions in cash, your distribution check normally will
be mailed approximately 15 days after the record date. The Trust
reserves the right to reinvest the proceeds and future
distributions in additional Fund shares if checks mailed to you
for distributions are returned as undeliverable or are not
presented for payment within six months.
INCOME TAXES. Your distributions will be taxable to you, under
income tax law, whether received in cash or reinvested in
additional shares. For federal income tax purposes, any
distribution that is paid in January but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital gain.
Distributions of net long-term capital gain will be taxable to you
as long-term capital gain regardless of the length of time you
have held your shares.
You will be advised annually as to the source of distributions for
tax purposes. If you are not subject to tax on your income, you
will not be required to pay tax on these amounts.
If you realize a loss on the sale or exchange of Fund shares held
for six months or less, your short-term loss is recharacterized as
long-term to the extent of any long-term capital gain
distributions you have received with respect to those shares.
For federal income tax purposes, each Fund is treated as a
separate taxable entity distinct from the other series of the
Trust.
<PAGE> 27
This discussion of taxation 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. The foregoing
information applies to U.S. shareholders. Foreign shareholders
should consult their tax advisors as to the tax consequences of
ownership of Fund shares.
BACKUP WITHHOLDING. The Trust may be required to withhold federal
income tax ("backup withholding") from certain payments to you,
generally redemption proceeds. Backup withholding may be required
if:
- - You fail to furnish your properly certified social security or
other tax identification number;
- - You fail to certify that your tax identification number is
correct or that you are not subject to backup withholding due to
the underreporting of certain income;
- - The Internal Revenue Service informs the Trust that your tax
identification number is incorrect.
These certifications are contained in the Application that you
should complete and return when you open an account. The Funds
must promptly pay to the IRS all amounts withheld. Therefore, it
is usually not possible for a Fund to reimburse you for amounts
withheld. You may, however, claim the amount withheld as a credit
on your federal income tax return.
INVESTMENT RETURN
The total return from an investment in a Fund is measured by the
distributions received (assuming reinvestment), plus or minus the
change in the net asset value per share for a given period. 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.
Comparison of a Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. Of course, past performance is not necessarily
indicative of future results.
MANAGEMENT OF THE FUNDS
TRUSTEES AND ADVISER. The Board of Trustees of the Trust has
overall management responsibility for the Trust and the Funds.
See the Statement of Additional Information for the names of and
additional information about the trustees and officers. The
Funds' Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing the
Funds, subject to the direction of the Board of Trustees. The
Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had advised and managed
mutual funds since 1949. The Adviser is a
<PAGE> 28
wholly owned subsidiary of Liberty Financial Companies, Inc.
("Liberty Financial"), which in turn is a majority owned indirect
subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS. Daniel K. Cantor and Robert A. Christensen
are co-portfolio managers of Growth & Income Fund. Mr.
Christensen has been portfolio manager of the Fund since 1994 and
Mr. Cantor became co-manager in 1995. Mr. Christensen is a vice-
president of the Trust and a senior vice president of the Adviser,
and has been associated with the Adviser since 1962. A chartered
investment counselor, he received his B.A. degree from Vanderbilt
University in 1955 and M.B.A. from Harvard University in 1962.
Mr. Cantor is a senior vice president of the Adviser, which he
joined in 1985. A chartered financial analyst, he received a B.A.
degree from the University of Rochester in 1981 and an M.B.A. from
the Wharton School of the University of Pennsylvania in 1985.
Messrs. Cantor and Christensen are responsible for co-managing
$139 million and $811 million, respectively, in mutual fund
assets.
Robert A. Christensen and Lynn C. Maddox are co-portfolio managers
of Total Return Fund. Mr. Christensen has been portfolio manager
since 1981, and Mr. Maddox became co-portfolio manager in 1995.
Mr. Maddox joined the Adviser in 1971 and is a senior vice
president. He received a B.S. from the Georgia Institute of
Technology in 1964 and an M.B.A. from Indiana University in 1971.
As of September 30, 1995, Mr. Maddox was responsible for co-
managing $228 million in mutual fund assets. William Garrison
is associate portfolio manager of Total Return Fund. Mr. Garrison
joined the Adviser in 1989. He received his A.B. from Princeton
University in 1988.
Growth Stock Fund is managed by Erik P. Gustafson and Harvey B.
Hirschhorn, who became co-managers of the Fund in 1994 and 1995,
respectively. Mr. Gustafson is a vice president of the Adviser,
having joined it in 1992. From 1989 to 1992 he was an attorney
with Fowler, White, Burnett, Hurley, Banick & Strickroot. He
holds a B.A. from the University of Virginia (1985) and M.B.A. and
J.D. degrees (1989) from Florida State University. Mr.
Hirschhorn is executive vice president and director of research
services of the Adviser, which he joined in 1973. He received an
A.B. degree from Rutgers College in 1971 and an M.B.A. from the
University of Chicago in 1973, and is a chartered financial
analyst. Messrs. Gustafson and Hirschhorn were responsible for
managing $523 million and $179 million, respectively, in mutual
fund assets.
Gloria J. Santella has been portfolio manager of Capital
Opportunities Fund since October, 1994; she had been co-portfolio
manager of the Fund since March, 1991. Ms. Santella is a vice-
president of the Trust and of the Adviser, having been associated
with the Adviser since 1979. She received her B.B.A. from Loyola
University in 1979 and M.B.A. from the University of Chicago in
1983. As of September 30, 1995, she managed $242 million in
mutual fund assets. Eric S. Maddix is associate portfolio manager
of Capital Opportunities Fund. Mr. Maddix joined the Adviser in
1987. He received his B.B.A. degree from Iowa State University in
1986 and his M.B.A. from the University of Chicago in 1992.
E. Bruce Dunn and Richard B. Peterson have been co-portfolio
managers of Special Fund since 1991 and of Special Venture Fund
since its inception in 1994. Each is a vice-president of the
Trust and a senior vice president of the Adviser. Mr. Dunn has
been
<PAGE> 29
associated with the Adviser since 1964. He received his A.B.
degree from Yale University in 1956 and his M.B.A. from Harvard
University in 1958 and is a chartered investment counselor. Mr.
Peterson, who began his investment career at Stein Roe & Farnham
in 1965 after graduating with a B.A. from Carleton College in 1962
and the Woodrow Wilson School at Princeton University in 1964 with
a Masters in Public Administration, rejoined the Adviser in 1991
after 15 years of equity research and portfolio management
experience with State Farm Investment Management Corporation. As
of September 30, 1995, Messrs. Dunn and Peterson were responsible
for co-managing $1.4 billion in mutual fund assets.
FEES AND EXPENSES.
In return for its services, the Adviser receives a monthly
investment advisory fee from Special Venture Fund, computed and
accrued daily, based on an annual rate of .9% of average net
assets. The investment advisory agreements relating to the other
Funds were replaced on September 1, 1995, with an administrative
agreement and a management agreement. Under the terminated
advisory agreements, the annual fees, based on average net assets,
were: for Growth & Income Fund, .6% of the first $100 million,
.55% of the next $100 million, and .5% thereafter; for Total
Return Fund, .625% of the first $100 million and 0.5 of 1% above
that amount; for Growth Stock Fund, .75% of the first $250
million, .70% of the next $250 million, and .60% thereafter; and
for Special Fund and Capital Opportunities Fund, .75%. The new
fee schedules are as follows:
Management Administrative Total
Fund Fee Fee Fees
- --------------------- -------------- -------------- ---------------
Growth & Income Fund, .60% up to $500, .15% up to $500, .75% up to $500,
Growth Stock Fund .55% next $500, .125% next $500, .675% next $500,
. .50% thereafter .10% thereafter .60% thereafter
Total Return Fund .55% up to $500, .15% up to $500, .70% up to $500
.50% next $500, .125% next $500, .625% next $500,
.45% thereafter .10% thereafter .55% thereafter
Special Fund; .75% up to $500, .15% up to $500, .90% up to $500,
Capital Opportunities .70% next $500, .125% next $500, .825% next $500,
Fund .65% next $500, .10% next $500, .75% next $500,
.60% thereafter .075% thereafter .675% thereafter
The fees for Special Venture Fund, Special Fund, and Capital
Opportunities Fund are higher than those paid by most mutual
funds. For the year ended September 30, 1995, the fees for Growth
& Income Fund, Growth Stock Fund, Total Return Fund, Special Fund,
and Capital Opportunities Fund amounted to .60%, .74%, .57%, .76%,
and .75% of average net assets, respectively; and the fee for
Special Venture Fund, after the Fund's expense limitation
described under Fee Table, amounted to .49% of average net assets.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Funds,
including computation of each Fund's net asset value and
calculation of its net income and capital gains and losses on
disposition of Fund assets.
PORTFOLIO TRANSACTIONS. The Adviser places the orders for the
purchase and sale of portfolio securities and options and futures
transactions for each Fund. In doing so, the Adviser seeks to
obtain the best combination of price and execution, which involves
a number of judgmental factors.
<PAGE> 30
TRANSFER AGENT. SteinRoe Services Inc., One South Wacker Drive,
Chicago, Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of shares,
disbursement of dividends, and maintenance of shareholder
accounting records.
DISTRIBUTOR. The shares of each Fund are offered for sale through
Liberty Securities Corporation ("Distributor") without any sales
commissions or charges to the Funds or to their shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN. State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
the Funds. 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
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, 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 the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the 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, the Trust or any
particular Fund shall look only to the assets of the Trust or of
the respective Fund for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust 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 the 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 the
Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on account
of unsatisfied liability of another Fund of the Trust is also
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 Fund was unable to meet its obligations.
<PAGE> 31
CERTIFICATE OF AUTHORIZATION (FOR USE BY CORPORATIONS AND
ASSOCIATIONS ONLY)
A corporation or association must complete this Certificate and
submit it with the Fund Application, each written redemption,
transfer or exchange request, and each request to terminate or
change any of the Privileges or special service elections.
If the entity submitting the Certificate is an association, the
word "association" shall be deemed to appear each place the word
"corporation" appears. If the officer signing this Certificate is
named as an authorized person, another officer must countersign
the Certificate. If there is no other officer, the person signing
the Certificate must have his signature guaranteed. If you are
not sure whether you are required to complete this Certificate,
call the office of the Stein Roe Funds, 800-338-2550 toll-free.
The undersigned hereby certifies that he is the duly elected
Secretary of ____________ _____________________________
(Name of Corporation/Association)
(the "Corporation") and that the following individual(s):
Authorized Persons
- -------------------------- ----------------------------
Name Title
- -------------------------- ----------------------------
Name Title
- -------------------------- ----------------------------
Name Title
is (are) duly authorized by resolution or otherwise to act on
behalf of the Corporation in connection with the Corporation's
ownership of shares of any mutual fund managed by Stein Roe &
Farnham Incorporated (individually, the "Fund" and collectively,
the "Funds") including, without limitation, furnishing any such
Fund and its transfer agent with instructions to transfer or
redeem shares of that Fund payable to any person or in any manner,
or to redeem shares of that Fund and apply the proceeds of such
redemption to purchase shares of another Fund (an "exchange"), and
to execute any necessary forms in connection therewith.
Unless a lesser number is specified, all of the Authorized Persons
must sign written instructions. Number of signatures required:
________.
If the undersigned is the only person authorized to act on behalf
of the Corporation, the undersigned certifies that he is the sole
shareholder, director, and officer of the Corporation and that the
Corporation's Charter and Bylaws provide that he is the only
person authorized to so act.
Unless expressly declined on the Application (or other form
acceptable to the Funds), the undersigned further certifies that
the Corporation has authorized by resolution or otherwise the
establishment of the Telephone Exchange and Telephone Redemption
by Check Privileges for the Corporation's account with any Fund
offering any such Privilege. If elected on the Application (or
other form acceptable to the Funds), the undersigned also
certifies that the Corporation has similarly authorized
establishment of the Electronic Transfer, Telephone Redemption by
Wire, and Check-Writing Privileges for the Corporation's account
with any Fund offering said Privileges. The undersigned has
further authorized each Fund and its transfer agent to honor any
written, telephonic, or telegraphic instructions furnished
pursuant to any such Privilege by any person believed by the Fund
or its transfer agent or their agents, officers, directors,
trustees, or employees to be authorized to act on behalf of the
Corporation and agrees that neither the Fund nor its transfer
agent, their agents, officers, directors, trustees, or employees
will be liable for any loss, liability, cost, or expense for
acting upon any such instructions.
These authorizations shall continue in effect until five business
days after the Fund and its transfer agent receive written notice
from the Corporation of any change.
IN WITNESS WHEREOF, I have hereunto subscribed my name as
Secretary and affixed the seal of this Corporation this ____ day
of _________________, 19___.
<PAGE> 32
-------------------------
Secretary
-------------------------
Signature Guarantee*
*Only required if the person signing
the Certificate is the only person
named as "Authorized Person."
CORPORATE
SEAL
HERE
<PAGE> 33
[STEIN ROE FUNDS LOGO]
The Stein Roe Funds
Stein Roe Government Reserves Fund
Stein Roe Cash Reserves Fund
Stein Roe Limited Maturity Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Total Return Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
Stein Roe Special Venture Fund
P.O. Box 804058
Chicago, Illinois 60680
800-338-2550
In Chicago, visit our Fund Center
at One South Wacker Drive
Liberty Securities Corporation, Distributor
05016
<PAGE> 1
INTERNATIONAL FUND
The Fund seeks long-term growth of capital by investing in a
diversified portfolio of foreign securities.
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated February 1, 1996,
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 writing to the
Secretary at the address shown on the back cover or by calling
800-338-2550.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February 1, 1996.
<PAGE> 2
TABLE OF CONTENTS
Page
Summary..................................2
Fee Table ..............................4
Financial Highlights.....................4
The Fund ................................5
How the Fund Invests ....................5
Portfolio Investments and Strategies.....7
Restrictions on the Fund's Investments...9
Risks and Investment Considerations.....10
How to Purchase Shares .................12
By Check ...........................12
By Wire ............................12
By Electronic Transfer .............13
By Exchange ........................13
Purchase Price and Effective Date ..13
Conditions of Purchase .............13
Purchases Through Third Parties.....13
How to Redeem Shares ...................14
By Written Request .................14
By Exchange ........................14
Special Redemption Privileges ......14
General Redemption Policies ........16
Shareholder Services ...................17
Net Asset Value ........................19
Distributions and Income Taxes .........19
Investment Return ......................21
Management of the Fund .................21
Organization and Description of Shares..23
Certificate of Authorization............24
SUMMARY
The Stein Roe International Fund (the "Fund") is a series of the
Stein Roe Investment Trust, an open-end diversified management
investment company. The Fund is a "no-load" fund. There are no
sales or redemption charges. (See The Fund and Organization and
Description of Shares.)
INVESTMENT OBJECTIVE AND POLICIES. The Fund seeks long-term
growth of capital by investing primarily in a diversified
portfolio of foreign securities. The Fund invests primarily in
equity securities. Under normal market conditions, the Fund will
invest at least 65% of its total assets (taken at market value) in
foreign securities of at least three countries outside the United
States. The Fund diversifies its investments among several
countries and does not concentrate investments in any particular
industry.
There can be no guarantee that the Fund will achieve its
investment objective. Please see How the Fund Invests and
Portfolio Investments and Strategies for further information.
<PAGE> 3
INVESTMENT RISKS. The Fund is intended for long-term investors
who can accept the risks entailed in investing in foreign
securities.
Since the Fund invests primarily in foreign securities, investors
should understand and consider carefully the risks involved in
foreign investing. Investing in foreign securities involves
certain considerations involving both risks and opportunities not
typically associated with investing in U.S. securities. Such
risks include fluctuations in exchange rates on foreign
currencies, less public information, less government supervision,
less liquidity, and greater price volatility.
Please see How the Fund Invests, Portfolio Investments and
Strategies, and Risks and Investment Considerations for further
information.
PURCHASES. The minimum initial investment for the Fund is $2,500
and additional investments must be at least $100 (only $50 for
purchases by electronic transfer). Shares may be purchased by
check, by bank wire, by electronic transfer, or by exchange from
another Stein Roe Fund. For more detailed information, see How to
Purchase Shares.
REDEMPTIONS. For information on redeeming Fund shares, including
the special redemption privileges, see How to Redeem Shares.
NET ASSET VALUE. The purchase and redemption price of the Fund's
shares is its net asset value per share. The net asset value is
determined as of the close of trading on the New York Stock
Exchange. (For more detailed information, see Net Asset Value.)
DISTRIBUTIONS. Dividends for the Fund are normally declared and
paid annually. Distributions will be reinvested into your Fund
account unless you elect to have them paid in cash, deposited by
electronic transfer into your bank checking account, or invested
in another Stein Roe Fund account. (See Distributions and Income
Taxes and Shareholder Services.)
ADVISERS AND FEES. Stein Roe & Farnham Incorporated (the
"Adviser") provides management services and investment advisory
services to the Fund. For a description of the Adviser and the
advisory fees paid by the Fund, see Management of the Fund.
If you have any additional questions about the Fund, please feel
free to discuss them with an account representative by calling
800-338-2550.
<PAGE> 4
FEE TABLE
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
ANNUAL FUND OPERATING EXPENSES (as a percentage
of average net assets)
Management Fees 1.00%
12b-1 Fees None
Other Expenses 0.65%
-----
Total Fund Operating Expenses 1.65%
-----
-----
EXAMPLE. You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return; and (2) redemption at
the end of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- ---------
$17 $52 $90 $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 the Fund. The table is based on
expenses incurred in the last fiscal year, except that it has been
adjusted to reflect changes in the Fund's transfer agency services
and fees. From time to time, the Adviser may voluntarily absorb
certain expenses of the Fund. The Adviser has agreed to
voluntarily waive its management fee and absorb the expenses of
the Fund to the extent that such fees and expenses on an
annualized basis exceed 1.65% of its annual average net assets
from May 1, 1995 through January 31, 1997, subject to earlier
termination by the Adviser on 30 days' notice. Any such
absorption will temporarily lower the Fund's overall expense ratio
and increase its overall return to investors. The Fund's expenses
were not limited during the period since they did not exceed the
limitation. (Also see Management of the Fund--Fees and Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts listed for the Fund under Annual Fund Operating
Expenses remain the same in each of the periods and that all
income dividends and capital gain distributions are reinvested in
additional Fund shares.
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 the Fund's 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.
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund on
a per-share basis for the period shown and has been audited by
Arthur Andersen LLP, independent public accountants. The
auditors' report was unqualified. The table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust without charge upon request, contains additional performance
information.
<PAGE> 5
Period Ended Year Ended
Sept. 30, Sept. 30,
1994 (a) 1995
------------ ---------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.61
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.12
Net realized and unrealized gains (losses)
on investments and foreign currency
transactions 0.58 (0.26)
------ ------
Total from investment operations 0.61 (0.14)
------ ------
DISTRIBUTIONS
Net investment income -- (0.05)
Net realized capital gains -- (0.17)
------ ------
Total distributions -- (0.22)
------ ------
NET ASSET VALUE, END OF PERIOD $10.61 $10.25
------ ------
------ ------
Ratio of net expenses to average net assets *1.61% 1.59%
Ratio of net investment income to average
net assets *0.61% 1.41%
Portfolio turnover rate 48% 59%
Total return 6.10% (1.28%)
Net assets, end of period (000 omitted) $74,817 $83,020
- -----------
*Annualized.
(a) From commencement of operations on March 1, 1994.
THE FUND
The STEIN ROE INTERNATIONAL FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own shares to
investors and use the money they receive to invest in a portfolio
of securities such as common stocks. A mutual fund allows you to
pool your money with that of other investors in order to obtain
professional investment management. Mutual funds generally make
it possible for you to obtain greater diversification of your
investments and simplify your recordkeeping. The Fund does not
impose commissions or charges when shares are purchased or
redeemed.
The Fund is a series of the Stein Roe Investment Trust (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages and
provides investment advisory services for several other no-load
mutual funds with different investment objectives, including
equity funds, taxable and tax-exempt bond funds, and money market
funds. To obtain prospectuses and other information on any of
those mutual funds, please call 800-338-2550.
HOW THE FUND INVESTS
The Fund invests as described below and may also employ investment
techniques described under Portfolio Investments and Strategies
in this prospectus.
<PAGE> 6
The Fund's investment objective is to seek long-term growth of
capital by investing primarily in a diversified portfolio of
foreign securities. Current income is not a primary factor in the
selection of portfolio securities. The Fund invests primarily in
common stocks and other equity-type securities (such as preferred
stocks, securities convertible or exchangeable for common stocks,
and warrants or rights to purchase common stocks). The Fund 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.
The Fund diversifies its investments among several countries and
does not concentrate investments in any particular industry. In
pursuing its objective, the Fund varies the geographic allocation
and types of securities in which it invests based on the Adviser's
continuing evaluation of economic, market, and political trends
throughout the world. While the Fund has not established limits
on geographic asset distribution, it ordinarily invests in the
securities markets of at least three countries outside the United
States, including but not limited to Western European countries
(such as Belgium, France, Germany, Ireland, Italy, The
Netherlands, the countries of Scandinavia, Spain, Switzerland, and
the United Kingdom); countries in the Pacific Basin (such as
Australia, Hong Kong, Japan, Malaysia, the Philippines, Singapore,
and Thailand); and countries in the Americas (such as Argentina,
Brazil, Chile, and Mexico).
Under normal market conditions, the Fund will invest at least 65%
of its total assets (taken at market value) in foreign securities.
If, however, investments in foreign securities appear to be
relatively unattractive in the judgment of the Adviser because of
current or anticipated adverse political or economic conditions,
the Fund may hold cash or invest any portion of its assets in
securities of the U.S. Government and equity and debt securities
of U.S. companies, as a temporary defensive strategy. To meet
liquidity needs, the Fund may also hold cash in domestic and
foreign currencies and invest in domestic and foreign money market
securities (including repurchase agreements and foreign money
market positions).
In the past the U.S. Government has from time to time imposed
restrictions, through taxation and other methods, on foreign
investments by U.S. investors such as the Fund. If such
restrictions should be reinstated, it might become necessary for
the Fund to invest all or substantially all of its assets in U.S.
securities. In such an event, the Fund would review its
investment objective and policies to determine whether changes are
appropriate.
The Fund may purchase foreign securities in the form of American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs),
or other securities representing underlying shares of foreign
issuers. The Fund may invest in sponsored or unsponsored ADRs.
(For a description of ADRs and EDRs, see the Statement of
Additional Information.)
<PAGE> 7
PORTFOLIO INVESTMENTS AND STRATEGIES
DERIVATIVES. Consistent with its objective, the Fund may invest
in a broad array of financial instruments and securities,
including conventional exchange-traded and non-exchange-traded
options, futures contracts, futures options, forward contracts,
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. The Fund does not expect to invest more than 5% of its
net assets in any type of Derivative except for options, futures
contracts, futures options, and forward contracts.
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 currency exchange rates, 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.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, the Fund 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. The Fund may write a
call or put option only if the option is covered. As the writer
of a covered call option, the Fund 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 the Fund 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.
DEBT SECURITIES. In pursuing its investment objective, the Fund
may invest up to 35% of its total assets in debt securities.
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 in the fourth highest grade may
possess speculative characteristics. If the rating of a security
held by the Fund is lost or reduced below investment grade, the
Fund is not required to dispose of the security--the Adviser will,
however, consider
<PAGE> 8
that fact in determining whether the Fund should continue to hold
the security. The risks inherent in debt securities depend
primarily on the term and quality of the obligations in the Fund's
portfolio, as well as on market conditions. A decline in the
prevailing levels of interest rates generally increases the value
of debt securities. Conversely, an increase in rates usually
reduces the value of debt securities.
SETTLEMENT TRANSACTIONS. When the Fund enters into a contract
for the purchase or sale of a foreign portfolio security, it
usually is required to settle the purchase transaction in the
relevant foreign currency or receive the proceeds of the sale in
that currency. In either event, the Fund is obliged to acquire or
dispose of an appropriate amount of foreign currency by selling or
buying an equivalent amount of U.S. dollars. At or near the time
of the purchase or sale of the foreign portfolio security, the
Fund may wish to lock in the U.S. dollar value of a transaction at
the exchange rate or rates then prevailing between the U.S. dollar
and the currency in which the security is denominated. Known as
"transaction hedging," this may be accomplished by purchasing or
selling such foreign securities on a "spot," or cash, basis.
Transaction hedging also may be accomplished on a forward basis,
whereby the Fund purchases or sells a specific amount of foreign
currency, at a price set at the time of the contract, for receipt
or delivery at either a specified date or at any time within a
specified time period. In so doing, the Fund will attempt to
insulate itself against possible losses and gains resulting from a
change in the relationship between the U.S. dollar and the foreign
currency during the period between the date the security is
purchased or sold and the date on which payment is made or
received. Similar transactions may be entered into by using other
currencies if the Fund seeks to move investments denominated in
one currency to investments denominated in another.
CURRENCY HEDGING. Most of the Fund's portfolio will be invested
in foreign securities. As a result, in addition to the risk of
change in the market value of portfolio securities, the value of
the portfolio in U.S. dollars is subject to fluctuations in the
exchange rate between the foreign currencies and the U.S. dollar.
When, in the opinion of the Adviser, it is desirable to limit or
reduce exposure in a foreign currency to moderate potential
changes in the U.S. dollar value of the portfolio, the Fund may
enter into a forward currency exchange contract to sell or buy
such foreign currency (or another foreign currency that acts as a
proxy for that currency)--through the contract, the U.S. dollar
value of certain underlying foreign portfolio securities can be
approximately matched by an equivalent U.S. dollar liability.
This technique is known as "currency hedging." By locking in a
rate of exchange, currency hedging is intended to moderate or
reduce the risk of change in the U.S. dollar value of the Fund's
portfolio only during the period of the forward contract. Forward
contracts usually are entered into with banks and broker-dealers;
are not exchange traded; and while they are usually less than one
year, may be renewed. A default on the contract would deprive the
Fund of unrealized profits or force the Fund to cover its
commitments for purchase or sale of currency, if any, at the
current market price.
Neither type of foreign currency transaction will eliminate
fluctuations in the prices of the Fund's portfolio securities or
prevent loss if the price of such securities should decline. In
addition, such forward currency exchange contracts will diminish
the benefit of the appreciation in the U.S. dollar value of that
foreign currency. (For further
<PAGE> 9
information on forward foreign currency exchange transactions, see
the Statement of Additional Information.)
PORTFOLIO TURNOVER. Although the Fund 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. Flexibility of investment and emphasis on
capital appreciation may involve greater portfolio turnover than
that of mutual funds that have the objectives of income or
maintenance of a balanced investment position. 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.) The Fund is not intended to be
an income-producing investment.
OTHER TECHNIQUES. The Fund 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 the Fund
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. The Fund 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. The Fund may utilize spot and
forward foreign exchange transactions to reduce the risk caused by
exchange rate fluctuations between one currency and another when
securities are purchased or sold on a when-issued basis. It may
also invest in synthetic money market instruments. The Fund may
invest in repurchase agreements, provided that it will not invest
more than 15% of its net assets in repurchase agreements maturing
in more than seven days and any other illiquid securities. (See
the Statement of Additional Information.)
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S. Government or repurchase agreements for such securities,
and would not prevent the Fund from investing all of its assets in
shares of another investment company having the identical
investment objective.
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. It may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
The Fund will not borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
<PAGE> 10
The Fund may invest in repurchase agreements, /1/ provided that
the Fund will not invest more than 15% of its net assets in
repurchase agreements maturing in more than seven days, and any
other illiquid securities.
The policies summarized in the first three paragraphs of this
section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" of the Fund as defined in the
Investment Company Act of 1940. The Fund's investment objective
is non-fundamental and, as such, may be changed by the Board of
Trustees without shareholder approval. Any such change may result
in the Fund having an investment objective different from the
objective the shareholder considered appropriate at the time of
investment in the Fund. All of the investment restrictions are
set forth in the Statement of Additional Information.
Nothing in the investment restrictions outlined here shall be
deemed to prohibit the Fund from purchasing the securities of any
issuer pursuant to the exercise of subscription rights distributed
to the Fund by the issuer. No such purchase may be made if, as a
result, the Fund will no longer be a diversified investment
company as defined in the Investment Company Act of 1940 or if the
Fund will fail to meet the diversification requirements of the
Internal Revenue Code.
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. THE FUND IS INTENDED
FOR LONG-TERM INVESTORS WHO CAN ACCEPT THE RISKS ENTAILED IN
INVESTING IN FOREIGN SECURITIES. Of course, there can be no
guarantee that the Fund will achieve its objective.
Although the Fund does not attempt to reduce or limit risk through
wide industry diversification of investment, the Fund usually
allocates its investments among a number of different industries
rather than concentrating in a particular industry or group of
industries. The Fund will not, however, invest more than 25% of
its total assets (at the time of investment) in the securities of
companies in any one industry.
FOREIGN INVESTING. The Fund provides long-term investors with an
opportunity to invest a portion of their assets in a diversified
portfolio of foreign securities. Non-U.S. investments may be
attractive because they increase diversification, as compared to a
portfolio comprised solely of U.S. investments. In addition, many
foreign economies have, from time to time, grown faster than the
U.S. economy, and the returns on investments in these countries
have exceeded those of similar U.S. investments--there can be no
assurance, however, that these conditions will continue.
International diversification allows the Fund and an investor to
achieve greater diversification and to take advantage of changes
in foreign economies and market conditions.
- -----------------
/1/ A repurchase agreement involves a sale of securities to the
Fund 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, the Fund could experience both losses
and delays in liquidating its collateral.
- -----------------
<PAGE> 11
Investors should understand and consider carefully the greater
risks involved in foreign investing. Investing in foreign
securities--positions in 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 regulations 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 the 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. These risks are greater for emerging market
countries.
Although the Fund 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, and other adverse political, social or
diplomatic developments that could affect investment in these
nations.
The price of securities of small, rapidly growing companies is
expected to fluctuate more widely than the general market due to
the difficulty in assessing financial prospects of companies
developing new products or operating in countries with developing
markets.
The strategy for selecting investments will be based on various
criteria. A company proposed for investment should have a good
market position in a fast-growing segment of the economy, strong
management, preferably a leading position in its business,
prospects of superior financial returns, ability to self-finance,
and securities available for purchase at a reasonable market
valuation. Because of the foreign domicile of such companies,
however, information on some of the above factors may be
difficult, if not impossible, to obtain.
To the extent portfolio securities are issued by foreign issuers
or denominated in foreign currencies, the Fund's investment
performance is affected by the strength or weakness of the U.S.
dollar against these currencies. If the dollar falls relative to
the Japanese yen, for example, the dollar value of a yen-
denominated stock held in the 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 the discussion of portfolio and
transaction hedging under Portfolio Investments and Strategies.)
MASTER FUND/FEEDER FUND OPTION. Rather than invest in securities
directly, the Fund may in the future seek to achieve its
investment objective by pooling its assets with assets of other
mutual funds managed by the Adviser for investment in another
<PAGE> 12
investment company having the same investment objective and
substantially the same investment policies and restrictions as the
Fund. The purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected that
any such investment company would be managed by the Adviser in
substantially the same manner as the Fund. Shareholders of the
Fund will be given at least 30 days' prior notice of any such
investment, although they will not be entitled to vote on the
action. Such investment would be made only if the Trustees
determine it to be in the best interests of the Fund and its
shareholders.
HOW TO PURCHASE SHARES
You may purchase Fund shares by check, by wire, by electronic
transfer, or by exchange from your account with another Stein Roe
Fund. The initial purchase minimum per Fund account is $2,500;
the minimum for Uniform Gifts/Transfers to Minors Act ("UGMA")
accounts is $1,000; the minimum for accounts established under an
automatic investment plan (i.e., Regular Investments, Dividend
Purchase Option, or the Automatic Exchange Plan) is $1,000 for
regular accounts and $500 for UGMA accounts; and the minimum per
account for Stein Roe IRAs is $500. The initial purchase minimum
is waived for shareholders who participate in the Stein Roe
Counselor [SERVICE MARK] and Stein Roe Counselor Preferred
[SERVICE MARK] programs and for clients of the Adviser.
Subsequent purchases must be at least $100, or at least $50 if you
purchase by electronic transfer. If you wish to purchase shares
to be held by a tax-sheltered retirement plan sponsored by the
Adviser, you must obtain special forms for those plans. (See
Shareholder Services.)
BY CHECK. To make an initial purchase of shares of the Fund by
check, please complete and sign the Application and mail it,
together with a check made payable to Stein Roe Funds, to P.O. Box
804058, Chicago, Illinois 60680.
You may make subsequent investments by submitting a check along
with either the stub from your Fund account confirmation statement
or a note indicating the amount of the purchase, your account
number, and the name in which your account is registered. Each
individual check submitted for purchase must be at least $100, and
the Trust generally will not accept cash, drafts, third party
checks, or checks drawn on banks outside the United States.
Should an order to purchase shares of the Fund be cancelled
because your check does not clear, you will be responsible for any
resulting loss incurred by the Fund.
BY WIRE. You also may pay for shares by instructing your bank to
wire federal funds (monies of member banks within the Federal
Reserve System) to the Fund's custodian bank. Your bank may
charge you a fee for sending the wire. If you are opening a new
account by wire transfer, you must first telephone the Trust to
request an account number and furnish your social security or
other tax identification number. Neither the Fund nor the Trust
will be responsible for the consequences of delays, including
delays in the banking or Federal Reserve wire systems. Your bank
must include the full name(s) in which your account is registered
and your Fund account number, and should address its wire as
follows:
<PAGE> 13
State Street Bank & Trust Company
ABA Routing No. 011000028
Boston, Massachusetts
Attention: Custody
Fund No. 7123; Stein Roe International Fund
Account of (exact name(s) in registration)
Shareholder Account No. _________
BY ELECTRONIC TRANSFER. You may also make subsequent investments
by an electronic transfer of funds from your bank checking
account. Electronic transfer allows you to make purchases at your
request ("Special Investments") by calling 800-338-2550 or at pre-
scheduled intervals ("Regular Investments"). (See Shareholder
Services.) Electronic transfer purchases are subject to a $50
minimum and a $100,000 maximum. You may not open a new account
through electronic transfer. Should an order to purchase shares
of the Fund be cancelled because your electronic transfer does not
clear, you will be responsible for any resulting loss incurred by
the Fund.
BY EXCHANGE. You may purchase shares by exchange of shares from
another Stein Roe Fund account either by phone (if the Telephone
Exchange Privilege has been established on the account from which
the exchange is being made), by mail, in person, or automatically
at regular intervals (if you have elected Automatic Exchanges).
Restrictions apply; please review the information on the Exchange
Privilege under How to Redeem Shares--By Exchange.
PURCHASE PRICE AND EFFECTIVE DATE. Each purchase of the Fund's
shares is made at the Fund's net asset value (see Net Asset Value)
next determined after receipt of payment as follows:
A purchase by check or wire transfer is made at the net asset
value next determined after the Fund receives the check or wire
transfer of funds in payment of the purchase.
A purchase by electronic transfer is made at the net asset value
next determined after the Fund receives the electronic transfer
from your bank. A Special Electronic Transfer Investment order
received by telephone on a business day before 2:00 p.m., Central
time, is effective on the next business day.
CONDITIONS OF PURCHASE. Each purchase order for the Fund must be
accepted by an authorized officer of the Trust in Chicago and is
not binding until accepted and entered on the books of the Fund.
Once your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interests of the Trust or of the
Fund's shareholders. The Trust also reserves the right to waive
or lower its investment minimums for any reason.
PURCHASES THROUGH THIRD PARTIES.
You may purchase (or redeem) shares through investment dealers,
banks, or other financial institutions. These institutions may
charge for their services or place limitations on the extent to
which you may use the services offered by the Trust. There are no
charges or limitations imposed by the Trust, other than those
described in this prospectus, if shares are purchased (or
redeemed) directly from the Trust.
<PAGE> 14
Some financial institutions that maintain nominee accounts with
the Fund for their clients for whom they hold Fund shares charge
an annual fee of up to 0.25% of the average net assets held in
such accounts for accounting, servicing, and distribution services
they provide with respect to the underlying Fund shares. Such
fees are paid by the Adviser.
HOW TO REDEEM SHARES
BY WRITTEN REQUEST. You may redeem all or a portion of your
shares of the Fund by submitting a written request in "good order"
to the Trust at P.O. Box 804058, Chicago, Illinois 60680. A
redemption request will be considered to have been received in
good order if the following conditions are satisfied:
(1) The request must be in writing, and must indicate the number
of shares or dollar amount to be redeemed and identify the
shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The signatures on the written redemption request must be
guaranteed (a signature guarantee is not a notarization, but is a
widely accepted way to protect you and the Fund by verifying your
signature);
(4) Corporations and associations must submit with each request a
completed Certificate of Authorization included in this prospectus
(or a form of resolution acceptable to the Trust); and
(5) The request must include other supporting legal documents as
required from organizations, executors, administrators, trustees,
or others acting on accounts not registered in their names.
BY EXCHANGE. You may redeem all or any portion of your Fund
shares and use the proceeds to purchase shares of any other Stein
Roe Fund offered for sale in your state if your signed, properly
completed Application is on file. AN EXCHANGE TRANSACTION IS A
SALE AND PURCHASE OF SHARES FOR FEDERAL INCOME TAX PURPOSES AND
MAY RESULT IN CAPITAL GAIN OR LOSS. Before exercising the
Exchange Privilege, you should obtain the prospectus for the Stein
Roe 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 Fund account from which
the exchange is made and the amount you exchange must meet any
applicable minimum investment of the Stein Roe Fund being
purchased. An exchange may be made by following the redemption
procedure described above under By Written Request and indicating
the Stein Roe Fund to be purchased--a signature guarantee normally
is not required. (See also the discussion below of the Telephone
Exchange Privilege and Automatic Exchanges.)
SPECIAL REDEMPTION PRIVILEGES. The Telephone Exchange Privilege
and the Telephone Redemption by Check Privilege will be
established automatically for you when you open your account
unless you decline these Privileges on your Application. Other
Privileges must be specifically elected. If you do not want the
Telephone Exchange and Redemption Privileges, check the box(es)
under the section "Telephone Redemption Options" when completing
your Application. In addition, a signature guarantee may be
required to establish a Privilege after you open your account. If
you establish both the Telephone
<PAGE> 15
Redemption by Wire Privilege and the Electronic Transfer
Privilege, the bank account that you designate for both Privileges
must be the same.
The Telephone Redemption by Check Privilege, Telephone Redemption
by Wire Privilege, and Special Electronic Transfer Redemptions are
not available to redeem shares held by a tax-sheltered retirement
plan sponsored by the Adviser. (See also General Redemption
Policies.)
Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account
by calling 800-338-2550 or by sending a telegram; new accounts
opened by exchange are subject to the initial purchase minimum for
the Fund being purchased. GENERALLY, YOU WILL BE LIMITED TO FOUR
TELEPHONE EXCHANGE ROUND-TRIPS PER YEAR AND THE FUND MAY REFUSE
REQUESTS FOR TELEPHONE EXCHANGES IN EXCESS OF FOUR ROUND-TRIPS (A
ROUND-TRIP BEING THE EXCHANGE OUT OF THE FUND INTO ANOTHER STEIN
ROE FUND, AND THEN BACK TO THE FUND). In addition, the Trust's
general redemption policies apply to redemptions of shares by
Telephone Exchange. (See General Redemption Policies.)
The Trust reserves the right to suspend or terminate, at any time
and without prior notice, the use of the Telephone Exchange
Privilege by any person or class of persons. The Trust believes
that use of the Telephone Exchange Privilege by investors
utilizing market-timing strategies adversely affects the Fund.
THEREFORE, THE TRUST GENERALLY WILL NOT HONOR REQUESTS FOR
TELEPHONE EXCHANGES BY SHAREHOLDERS IDENTIFIED BY THE TRUST AS
"MARKET-TIMERS." Moreover, the Trust reserves the right to
suspend, limit, modify, or terminate, at any time and without
prior notice, the Telephone Exchange Privilege in its entirety.
Because such a step would be taken only if the Board of Trustees
believes it would be in the best interests of the Fund, the Trust
expects that it would provide shareholders with prior written
notice of any such action unless the resulting delay in the
suspension, limitation, modification, or termination of the
Telephone Exchange Privilege would adversely affect the Fund. IF
THE TRUST WERE TO SUSPEND, LIMIT, MODIFY, OR TERMINATE THE
TELEPHONE EXCHANGE PRIVILEGE, A SHAREHOLDER EXPECTING TO MAKE A
TELEPHONE EXCHANGE MIGHT FIND THAT AN EXCHANGE COULD NOT BE
PROCESSED OR THAT THERE MIGHT BE A DELAY IN THE IMPLEMENTATION OF
THE EXCHANGE. (See How to Redeem Shares--By Exchange.) During
periods of volatile economic and market conditions, you may have
difficulty placing your exchange by telephone.
Automatic Exchanges. You may use the Automatic Exchange Privilege
to automatically redeem a fixed amount from your Fund account for
investment in another Stein Roe Fund account on a regular basis.
Telephone Redemption by Check Privilege. You may use the
Telephone Redemption by Check Privilege to redeem an amount of
$1,000 or more from your account by calling 800-338-2550. The
proceeds will be sent by check to your registered address. The
Telephone Redemption by Check Privilege is not available to redeem
shares held by a tax-sheltered retirement plan sponsored by the
Adviser.
Telephone Redemption by Wire Privilege. You may use this
Privilege to redeem an amount of $1,000 or more from your account
by calling 800-338-2550. The proceeds will be transmitted by wire
to your account at a commercial bank previously designated by you
<PAGE> 16
that is a member of the Federal Reserve System. The fee for
wiring proceeds (currently $3.50 per transaction) will be deducted
from the amount wired.
Electronic Transfer Privilege. You may redeem shares by calling
800-338-2550 and requesting an electronic transfer ("Special
Redemption") of the proceeds to a checking account previously
designated by you at a bank that is a member of the Automated
Clearing House. You may also request electronic transfers at
scheduled intervals ("Automatic Redemptions"--see Shareholder
Services). Electronic transfers are subject to a $50 minimum and
a $100,000 maximum. A Special Redemption request received by
telephone after 2:00 p.m., Central time, is deemed received on the
next business day.
GENERAL REDEMPTION POLICIES. You may not cancel or revoke your
redemption order once instructions have been received and
accepted. The Trust cannot accept a redemption request that
specifies a particular date or price for redemption or any special
conditions. Please telephone the Trust if you have any questions
about requirements for a redemption before submitting your
request. If you wish to redeem shares held by a tax-sheltered
retirement plan sponsored by the Adviser, special procedures of
those plans apply to such redemptions. (See Shareholder Services-
- -Tax-Sheltered Retirement Plans.) The Trust reserves the right to
require a properly completed Application before making payment for
shares redeemed.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the 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 and may result
in a realized capital gain or loss.
The Trust will generally mail payment for shares redeemed within
seven days after proper instructions are received. However, the
Trust normally intends to pay proceeds of a Telephone Redemption
paid by wire on the next business day. If you attempt to redeem
shares within 15 days after they have been purchased by check or
electronic transfer, the Trust may delay payment of the redemption
proceeds to you until it can verify that payment for the purchase
of those shares has been (or will be) collected. To reduce such
delays, the Trust recommends that your purchase be made by federal
funds wire through your bank.
Generally, you may not use the Exchange Privilege or any Special
Redemption Privilege to redeem shares purchased by check (other
than certified or cashiers' checks) or electronic transfer until
15 days after their date of purchase.
The Trust reserves the right to suspend, limit, modify, or
terminate, at any time and without prior notice, any Privilege or
its use in any manner by any person or class.
Neither the Trust, its transfer agent, nor their respective
officers, trustees, directors, employees, or agents will be
responsible for the authenticity of instructions provided under
the Privileges, nor for any loss, liability, cost or expense for
acting upon instructions furnished thereunder if they reasonably
believe that such instructions are genuine. The Fund employs
procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special
<PAGE> 17
Electronic Transfer Redemption Privilege are genuine. Use of any
Special Redemption Privilege or the Special Electronic Transfer
Redemption Privilege authorizes the Fund and its transfer agent to
tape-record all instructions to redeem. In addition, callers are
asked to identify the account number and registration, and may be
required to provide other forms of identification. Written
confirmations of transactions are mailed promptly to the
registered address; a legend on the confirmation requests that the
shareholder review the transactions and inform the Fund
immediately if there is a problem. If the Fund 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.
The Trust reserves the right to redeem shares in any account and
send the proceeds to the owner if the shares in the account do not
have a value of at least $1,000. A shareholder would be notified
that his account is below the minimum and would be allowed 30 days
to increase the account before the redemption is processed.
Shares in any account you maintain with the Fund or any of the
other Stein Roe Funds may be redeemed to the extent necessary to
reimburse any Stein Roe Fund for any loss it sustains that is
caused by you (such as losses from uncollected checks and
electronic transfers for the purchase of shares, or any Stein Roe
Fund liability under the Internal Revenue Code provisions on
backup withholding).
SHAREHOLDER SERVICES
REPORTING TO SHAREHOLDERS. You will receive a confirmation
statement reflecting each of your purchases and redemptions of
shares of the Fund, as well as periodic statements detailing
distributions made by the Fund. Shares purchased by reinvestment
of dividends, by cross-reinvestment of dividends from another
Fund, or through an automatic investment plan will be confirmed to
you quarterly. In addition, the Trust will send you semiannual
and annual reports showing Fund portfolio holdings and will
provide you annually with tax information.
FUNDS-ON-CALL [REGISTERED] 24-HOUR INFORMATION SERVICE. To
access the Stein Roe Funds-on-Call [registered] automated
telephone service, just call 800-338-2550 on any touch-tone
telephone and follow the recorded instructions. Funds-on-Call
[registered] provides yields, prices, latest dividends, account
balances, last transaction, and other information 24 hours a day,
seven days a week.
FUNDS-ON-CALL [REGISTERED] AUTOMATED TELEPHONE TRANSACTIONS. If
you have established the Funds-on-Call [registered] transaction
privilege (Funds-on-Call [registered] Application will be
required), you may initiate Special Investments and Redemptions,
Telephone Exchanges, and Telephone Redemptions by Check 24 hours a
day, seven days a week by calling 800-338-2550 on a touch-tone
telephone. These transactions are subject to the terms and
conditions of the individual privileges. (See How to Purchase
Shares and How to Redeem Shares.)
STEIN ROE COUNSELOR [SERVICE MARK] PROGRAM. The Stein Roe
Counselor [SERVICE MARK] and Stein Roe Counselor Preferred
[SERVICE MARK] programs are professional investment advisory
services available to shareholders. These programs are designed
to provide investment guidance in helping
<PAGE> 18
investors to select a portfolio of Stein Roe Funds. The Stein Roe
Counselor Preferred [SERVICE MARK] program, which automatically
adjusts client portfolios among the Stein Roe Funds, has a fee of
up to 1% of assets.
TAX-SHELTERED RETIREMENT PLANS. Booklets describing the following
programs and special forms necessary for establishing them are
available on request. You may use all of the Stein Roe Funds,
except those investing primarily in tax-exempt securities, in
these plans. Please read the prospectus for each fund in which
you plan to invest before making your investment.
Individual Retirement Accounts ("IRAs") for employed persons and
their non-employed spouses.
Prototype Money Purchase Pension and Profit-Sharing Plans for
self-employed individuals, partnerships, and corporations.
Simplified Employee Pension Plans permitting employers to provide
retirement benefits to their employees by utilizing IRAs while
minimizing administration and reporting requirements.
SPECIAL SERVICES. The following special services are available to
shareholders. Please call 800-338-2550 or write the Trust for
additional information and forms.
Dividend Purchase Option--to diversify your Fund investments by
having distributions from one Fund account automatically invested
in another Stein Roe Fund account. Before establishing this
option, you should obtain and read carefully the prospectus of the
Stein Roe Fund into which you wish to have your distributions
invested. The account from which distributions are made must be
of sufficient size to allow each distribution to usually be at
least $25. The account into which distributions are to be
invested may be opened with an initial investment of only $1,000.
Automatic Dividend Deposit (electronic transfer)--to have income
dividends and capital gain distributions deposited directly into
your bank checking account.
Telephone Redemption by Check Privilege ($1,000 minimum) and
Telephone Exchange Privilege ($50 minimum)--established
automatically when you open your account unless you decline them
on your Application. (See How to Redeem Shares--Special
Redemption Privileges.)
Telephone Redemption by Wire Privilege--to redeem shares from your
account by phone and have the proceeds transmitted by wire to your
checking account ($1,000 minimum).
Special Redemption Option (electronic transfer)--to redeem shares
at any time and have the proceeds deposited directly to your bank
checking account ($50 minimum; $100,000 maximum).
Regular Investments (electronic transfer)--to purchase Fund shares
at regular intervals directly from your bank checking account ($50
minimum; $100,000 maximum).
<PAGE> 19
Special Investments (electronic transfer)--to purchase Fund shares
by telephone and pay for them by electronic transfer of funds from
your checking account ($50 minimum; $100,000 maximum).
Automatic Exchange Plan--to automatically redeem a fixed dollar
amount from your Fund account and invest it in another Stein Roe
Fund account on a regular basis ($50 minimum; $100,000 maximum).
Automatic Redemptions (electronic transfer)--to have a fixed
dollar amount redeemed and sent at regular intervals directly to
your bank checking account ($50 minimum; $100,000 maximum).
Systematic Withdrawals--to have a fixed dollar amount, declining
balance, or fixed percentage of your account redeemed and sent at
regular intervals by check to you or another payee.
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York Stock
Exchange ("NYSE") (currently 3:00 p.m., Central time) by dividing
the difference between the values of the Fund's assets and
liabilities by the number of shares outstanding. 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 the
Fund should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Central time.
In computing the net asset value of the Fund, the values of
portfolio securities are generally based upon market quotations.
Depending upon local convention or regulation, these market
quotations may be the last sale price, last bid or asked price, or
the mean between the last bid and asked prices as of, in each
case, the close of the appropriate exchange or other designated
time. Trading in securities on European and Far Eastern
securities exchanges and over-the-counter markets is normally
completed at various times before the close of business on each
day on which the NYSE is open. Trading of these securities may
not take place on every NYSE business day. In addition, trading
may take place in various foreign markets on Saturdays or on other
days when the NYSE is not open and on which the Fund's net asset
value is not calculated. Therefore, such calculation does not
take place contemporaneously with the determination of the prices
of many of the portfolio securities used in such calculation and
the value of the Fund's portfolio may be significantly affected on
days when shares of the Fund may not be purchased or redeemed.
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS. Income dividends for the Fund are normally
declared and paid annually. The 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 twelve-month
period ended October 31 in that year. The Fund intends to
distribute any undistributed net investment income and net
realized capital gains in the following year.
<PAGE> 20
All of your income dividends and capital gain distributions will
be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank checking account; (3) applied
to purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment into
the same Fund account normally occurs one business day after the
record date. Investment of distributions into another Stein Roe
Fund account occurs on the payable date. If you choose to receive
your distributions in cash, your distribution check normally will
be mailed approximately 15 days after the record date. The Trust
reserves the right to reinvest the proceeds and future
distributions in additional Fund shares if checks mailed to you
for distributions are returned as undeliverable or are not
presented for payment within six months.
U.S. FEDERAL INCOME TAXES. Your distributions will be taxable to
you, under income tax law, whether received in cash or reinvested
in additional shares. For federal income tax purposes, any
distribution that is paid in January but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital
gains. Distributions of net long-term capital gains will be
taxable to you as long-term capital gain regardless of the length
of time you have held your shares.
You will be advised annually as to the source of distributions for
tax purposes. If you are not subject to tax on your income, you
will not be required to pay tax on these amounts.
If you realize a loss on the sale or exchange of Fund shares held
for six months or less, your short-term loss is recharacterized as
long-term to the extent of any long-term capital gain
distributions you have received with respect to those shares.
For federal income tax purposes, the Fund is treated as a separate
taxable entity distinct from the other series of the Trust.
FOREIGN INCOME TAXES. Investment income received by the Fund from
sources within foreign countries may be subject to foreign income
taxes withheld at the source. The United States has entered into
tax treaties with many foreign countries that entitle the Fund to
a reduced rate of tax or exemption from tax on such income. It is
impossible to determine the effective rate of foreign tax in
advance since the amount of the Fund's assets to be invested
within various countries will fluctuate and the extent to which
tax refunds will be recovered is uncertain. The Fund intends to
operate so as to qualify for treaty-reduced tax rates where
applicable.
To the extent that the Fund is liable for foreign income taxes
withheld at the source, the Fund also intends to operate so as to
meet the requirements of the U.S. Internal Revenue Code to "pass
through" to the Fund's shareholders foreign income taxes paid, but
there can be no assurance that the Fund will be able to do so.
<PAGE> 21
This discussion of U.S. and foreign taxation 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. The
foregoing information applies to U.S. shareholders. Foreign
shareholders should consult their tax advisors as to the tax
consequences of ownership of Fund shares.
BACKUP WITHHOLDING. The Trust may be required to withhold federal
income tax ("backup withholding") from certain payments to you,
generally redemption proceeds. Backup withholding may be required
if:
- - You fail to furnish your properly certified social security or
other tax identification number;
- - You fail to certify that your tax identification number is
correct or that you are not subject to backup withholding due to
the underreporting of certain income;
- - The Internal Revenue Service informs the Trust that your tax
identification number is incorrect.
These certifications are contained in the Application that you
should complete and return when you open an account. The Fund
must promptly pay to the IRS all amounts withheld. Therefore, it
is usually not possible for the Fund to reimburse you for amounts
withheld. You may, however, claim the amount withheld as a
credit on your federal income tax return.
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment), plus or minus the
change in the net asset value per share for a given period. 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.
Comparison of the Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. Of course, past performance is not necessarily
indicative of future results.
MANAGEMENT OF THE FUND
TRUSTEES AND ADVISERS. The Board of Trustees of the Trust has
overall management responsibility for the Trust and the Fund. See
the Statement of Additional Information for the names of and
additional information about the trustees and officers. The
Fund's Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing the
Fund, subject to the direction of the Board of Trustees. The
Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940. The Adviser was organized in
1986 to succeed to the business of Stein Roe & Farnham, a
partnership that had advised and managed mutual funds since
<PAGE> 22
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. Bruno Bertocci and David P. Harris, co-
portfolio managers of the Fund, joined the Adviser in 1995 to
create Stein Roe Global Capital Management, a dedicated global and
international equity management unit. Messrs. Bertocci and Harris
have also been employees of Colonial Management Associates, Inc.,
a subsidiary of Liberty Financial, since January, 1996.
Prior to joining the Adviser, Mr. Bertocci was a senior global
equity portfolio manager with Rockefeller & Co. ("Rockefeller")
from 1983 to 1995. While at Rockefeller, he served as portfolio
manager for the Fund, when Rockefeller was the Fund's sub-adviser.
Mr. Bertocci managed Rockefeller's London office from 1987 to 1989
and its Hong Kong office from 1989 to 1990. Prior to working at
Rockefeller, he served for three years at T. Rowe Price
Associates. Mr. Bertocci is a graduate of Oberlin College and
holds an M.B.A. from Harvard University.
Mr. Harris was a portfolio manager with Rockefeller from 1990 to
1995. After earning a bachelor's degree from the University of
Michigan, he was an actuarial associate for GEICO before returning
to school to earn an M.B.A. from Cornell University.
FEES AND EXPENSES. In return for its services, the Adviser
receives a monthly fee from the Fund, computed and accrued daily,
at an annual rate of 1% of average net assets. This fee is higher
than the fees paid by most mutual funds. Please refer to the Fee
Table for a description of the Fund's expense limitation.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset lue and calculation of its net
income and capital gains and losses on disposition of Fund assets.
PORTFOLIO TRANSACTIONS. The Adviser places the orders for the
purchase and sale of portfolio securities and options and futures
transactions for the Fund. In doing so, the Adviser seeks to
obtain the best combination of price and execution, which involves
a number of judgmental factors.
TRANSFER AGENT. SteinRoe Services Inc., One South Wacker Drive,
Chicago, Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of shares,
disbursement of dividends, and maintenance of shareholder
accounting records.
DISTRIBUTOR. The shares of the Fund are offered for sale through
Liberty Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
<PAGE> 23
distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN. State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
the Fund. 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
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, 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 the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the 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, the Trust or any
particular Fund shall look only to the assets of the Trust or of
the respective Fund for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust 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 the 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 the
Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on account
of unsatisfied liability of another Fund of the Trust is also
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 Fund was unable to meet its obligations.
<PAGE> 24
CERTIFICATE OF AUTHORIZATION (FOR USE BY CORPORATIONS AND
ASSOCIATIONS ONLY)
A corporation or association must complete this Certificate and
submit it with the Fund Application, each written redemption,
transfer or exchange request, and each request to terminate or
change any of the Privileges or special service elections.
If the entity submitting the Certificate is an association, the
word "association" shall be deemed to appear each place the word
"corporation" appears. If the officer signing this Certificate is
named as an authorized person, another officer must countersign
the Certificate. If there is no other officer, the person signing
the Certificate must have his signature guaranteed. If you are
not sure whether you are required to complete this Certificate,
call the office of the Stein Roe Funds, 800-338-2550 toll-free.
The undersigned hereby certifies that he is the duly elected
Secretary of _________________________________________
(Name of Corporation/Association)
(the "Corporation") and that the following individual(s):
Authorized Persons
- -------------------------- ----------------------------
Name Title
- -------------------------- ----------------------------
Name Title
- -------------------------- ----------------------------
Name Title
is (are) duly authorized by resolution or otherwise to act on
behalf of the Corporation in connection with the Corporation's
ownership of shares of any mutual fund managed by Stein Roe &
Farnham Incorporated (individually, the "Fund" and collectively,
the "Funds") including, without limitation, furnishing any such
Fund and its transfer agent with instructions to transfer or
redeem shares of that Fund payable to any person or in any manner,
or to redeem shares of that Fund and apply the proceeds of such
redemption to purchase shares of another Fund (an "exchange"), and
to execute any necessary forms in connection therewith.
Unless a lesser number is specified, all of the Authorized Persons
must sign written instructions. Number of signatures required:
________.
If the undersigned is the only person authorized to act on behalf
of the Corporation, the undersigned certifies that he is the sole
shareholder, director, and officer of the Corporation and that the
Corporation's Charter and Bylaws provide that he is the only
person authorized to so act.
Unless expressly declined on the Application (or other form
acceptable to the Funds), the undersigned further certifies that
the Corporation has authorized by resolution or otherwise the
establishment of the Telephone Exchange and Telephone Redemption
by Check Privileges for the Corporation's account with any Fund
offering any such Privilege. If elected on the Application (or
other form acceptable to the Funds), the undersigned also
certifies that the Corporation has similarly authorized
establishment of the Electronic Transfer, Telephone Redemption by
Wire, and Check-Writing Privileges for the Corporation's account
with any Fund offering said Privileges. The undersigned has
<PAGE> 25
further authorized each Fund and its transfer agent to honor any
written, telephonic, or telegraphic instructions furnished
pursuant to any such Privilege by any person believed by the Fund
or its transfer agent or their agents, officers, directors,
trustees, or employees to be authorized to act on behalf of the
Corporation and agrees that neither the Fund nor its transfer
agent, their agents, officers, directors, trustees, or employees
will be liable for any loss, liability, cost, or expense for
acting upon any such instructions.
These authorizations shall continue in effect until five business
days after the Fund and its transfer agent receive written notice
from the Corporation of any change.
IN WITNESS WHEREOF, I have hereunto subscribed my name as
Secretary and affixed the seal of this Corporation this ____ day
of _________________, 19___.
-------------------------
Secretary
-------------------------
Signature Guarantee*
*Only required if the person signing
the Certificate is the only person
named as "Authorized Person."
CORPORATE
SEAL
HERE
<PAGE> 26
[STEIN ROE FUNDS LOGO]
The Stein Roe Funds
Stein Roe Government Reserves Fund
Stein Roe Cash Reserves Fund
Stein Roe Limited Maturity Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Total Return Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
Stein Roe Special Venture Fund
P.O. Box 804058
Chicago, Illinois 60680
800-338-2550
In Chicago, visit our Fund Center
at One South Wacker Drive
Liberty Securities Corporation, Distributor
06009
<PAGE> 1
YOUNG INVESTOR FUND
The Fund's objective is long-term capital appreciation. The Fund
invests in securities of companies that affect the lives of
children or teenagers. The Fund is also intended to be a fun,
educational experience for young investors and their parents.
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INVESTMENT TRUST, an open-end management investment
company.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
If you have any questions about new Fund accounts, please call
800-403-KIDS (800-403-5437); for existing accounts, shareholders
should call 800-338-2550.
A Statement of Additional Information dated February 1, 1996,
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 the most recent financial
statements may be obtained without charge by writing to the
Secretary at the address shown on the back cover or by calling the
Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February 1, 1996.
<PAGE> 2
TABLE OF CONTENTS
Page
Summary .................................2
Fee Table ..............................3
Financial Highlights.....................4
The Fund ................................5
Investment Policies .....................6
Portfolio Investments and Strategies.....6
Investment Restrictions..................8
Risks and Investment Considerations.....10
How to Purchase Shares .................11
By Check ............................11
By Wire .............................11
By Electronic Transfer...............12
By Exchange .........................12
Purchase Price and Effective Date ...12
Conditions of Purchase ..............12
Purchases Through Third Parties......13
How to Redeem Shares ...................13
By Written Request ..................13
By Exchange .........................14
Special Redemption Privileges .......14
General Redemption Policies .........16
Shareholder Services ...................17
Net Asset Value ........................19
Distributions and Income Taxes .........19
Investment Return ......................21
Management of the Fund .................21
Organization and Description of Shares..23
SUMMARY
STEIN ROE YOUNG INVESTOR FUND (the "Fund") is a series of the
Stein Roe Investment Trust, an open-end diversified management
investment company. The Fund is a "no-load" fund. There are no
sales or redemption charges. (See The Fund and Organization and
Description of Shares.)
INVESTMENT OBJECTIVES AND POLICIES.
The Fund's investment objective is long-term capital appreciation.
It seeks to achieve its objective by investing primarily in common
stocks and other equity-type securities that Stein Roe believes to
have long-term appreciation potential. The Fund invests primarily
in securities of companies that appeal to or affect the lives of
children or teenagers. It is designed for long-term investors,
particularly children and teenagers.
In addition to the Fund's investment objective and policies, the
Fund also has an educational objective. It seeks to teach
children and teenagers about the Fund, basic economic principles,
and personal finance through a variety of educational materials
prepared and paid for by the Fund.
There can be no guarantee that the Fund will achieve its
investment objective. Please see Investment Policies and
Portfolio Investments and Strategies for further information.
<PAGE> 3
INVESTMENT RISKS.
The Fund is designed for long-term investors who are willing to
accept the investment risk and volatility of equity-type
securities in general, as well as the specific types of equity
securities emphasized by the Fund. By investing in companies
whose products or services appeal to young investors, the Fund
emphasizes various consumer goods sectors. Since the Fund may
invest in foreign securities, investors should understand and
consider carefully the risks involved in foreign investing.
Investing in foreign securities involves certain considerations
involving both risks and opportunities not typically associated
with investing in U.S. securities. Please see Investment
Policies, Portfolio Investments and Strategies, and Risks and
Investment Considerations for further information.
PURCHASES.
The minimum initial investment for the Fund is $2,500; the minimum
investment for Uniform Gifts/ Transfers to Minors Act accounts is
$1,000. Additional investments must be at least $50. Shares may
be purchased by check, by bank wire, by electronic transfer, or by
exchange from another Stein Roe Fund. For more detailed
information, see How to Purchase Shares.
REDEMPTIONS.
For information on redeeming Fund shares, including the special
redemption privileges, see How to Redeem Shares.
NET ASSET VALUE.
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value is determined as of
the close of trading on the New York Stock Exchange. (For more
detailed information, see Net Asset Value.)
DISTRIBUTIONS.
Dividends are normally declared and paid annually. Distributions
will be reinvested into your Fund account unless you elect to have
them paid in cash, deposited by electronic transfer into your bank
checking account, or invested in another Stein Roe Fund account.
(See Distributions and Income Taxes and Shareholder Services.)
MANAGEMENT AND FEES.
Stein Roe & Farnham Incorporated ("Stein Roe") provides management
and investment advisory services to the Fund. For a description
of Stein Roe and its fees, see Management of the Fund.
If you have any additional questions about the Fund, please feel
free to discuss them with an account representative by calling
800-338-2550.
FEE TABLE
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
ANNUAL FUND OPERATING EXPENSES (after expense
reimbursement; as a percentage of average net assets)
Management and Administrative Fees (after
expense reimbursement) None
12b-1 Fees None
<PAGE> 4
Other Expenses (after expense reimbursement) 0.99%
-----
Total Fund Operating Expenses (after expense
reimbursement) 0.99%
-----
-----
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$10 $32 $55 $121
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 the Fund. The table is based upon
actual expenses incurred in the last fiscal year, except that it
has been adjusted to reflect changes in the Fund's transfer agency
services and fees. From time to time, the Adviser may voluntarily
absorb certain expenses of the Fund. Stein Roe has agreed to
voluntarily waive its management fee and absorb the expenses of
the Fund to the extent that such fees and expenses on an
annualized basis exceed 1.25% of its annual average net assets
from February 1, 1996 through January 31, 1997, subject to earlier
termination by the Adviser on 30 days' notice (previously, Stein
Roe had undertaken to reimburse the Fund for expenses in excess of
0.99%). Any such absorption will temporarily lower the Fund's
overall expense ratio and increase its overall return to
investors. Absent the expense undertaking, Management and
Administrative Fees, Other Expenses, and Total Fund Operating
Expenses would have been 0.76%, 2.11%, and 2.87%, respectively.
(Also see Management of the Fund--Fees and Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts listed for the Fund under Annual Fund Operating
Expenses remain the same in each of the periods; that all income
dividends and capital gain distributions are reinvested in
additional Fund shares; and that, for purposes of management fee
breakpoints, net assets remain at the same level as in the most
recently completed fiscal year.
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 the Fund's 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.
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund on
a per-share basis for the period shown and has been audited by
Arthur Andersen LLP, independent public accountants. The
auditors' report was unqualified. The table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust without charge upon request, contains additional performance
information.
<PAGE> 5
Period Ended Year Ended
Sept. 30, Sept. 30,
1994 (a) 1995
-------------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.24
------ -------
Income from investment operations
Net investment income 0.03 0.06
Net realized and unrealized gains on investments 0.21 4.07
Total from investment operations 0.24 4.13
------ -------
Distributions from net investment income -- (0.08)
------ -------
NET ASSET VALUE, END OF PERIOD $10.24 $14.29
------ -------
------ -------
Ratio of net expenses to average net assets (b) *0.99% 0.99%
Ratio of net investment income to average
net assets (c) *1.07% 0.47%
Portfolio turnover rate **12% 55%
Total return **2.40% 40.58%
Net assets, end of period (000 omitted) $8,176 $31,401
________________________________
*Annualized.
**Not annualized.
(a) From commencement of operations on April 29, 1994.
(b) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the investment adviser, this
ratio would have been 4.58% for the period ended September 30,
1994 and 2.87% for the year ended September 30, 1995.
(c) Computed giving effect to the investment adviser's expense
limitation undertaking.
THE FUND
The Fund is a no-load
mutual fund
STEIN ROE YOUNG INVESTOR FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own shares to
investors and use the money they receive to invest in a
portfolio of securities such as common stocks. A mutual fund
allows you to pool your money with that of other investors in
order to obtain professional investment management. Mutual funds
generally make it possible for you to obtain greater
diversification of your investments and simplify your
recordkeeping. The Fund does not impose commissions or charges
when shares are purchased or redeemed.
The Fund is a series of the Stein Roe Investment Trust (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
The Fund is managed
by Stein Roe & Farnham
Stein Roe & Farnham Incorporated ("Stein Roe") provides investment
advisory, administrative, and bookkeeping and accounting services
to the Fund. Stein Roe also manages and
provides investment advisory services for several other no-load
mutual funds with different investment objectives, including
equity funds, international funds, taxable and tax-exempt bond
funds, and money market funds. To obtain prospectuses and
<PAGE> 6
other information on any of those mutual funds, please call 800-
338-2550.
INVESTMENT POLICIES
The Fund invests primarily
in equity securities
The Fund's investment objective is long-term capital appreciation.
It seeks to achieve its objective by investing primarily in common
stocks and other equity-type securities that, in the opinion of
Stein Roe, have long-term appreciation potential.
The Fund invests in
companies that affect
the lives of children
or teenagers
Under normal circumstances, at least 65% of the Fund's total
assets will be invested in securities of companies that, in the
opinion of Stein Roe, directly or through one or more
subsidiaries, affect the lives of children or teenagers. Such
companies may include companies that produce products or services
that children or teenagers use, are aware of, or could potentially
have an interest in.
Although the Fund 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. The Fund 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. The Fund may also employ investment
techniques described elsewhere in this prospectus. (See Risks and
Investment Considerations and Fees and Expenses.)
The Fund is intended to
be a fun, educational
experience for young investors
and their parents
In addition to the Fund's investment objective and policies, the
Fund also has an educational objective. The Fund will seek to
educate its shareholders by providing educational materials
regarding personal finance and investing as well as materials on
the Fund and its portfolio holdings.
PORTFOLIO INVESTMENTS AND STRATEGIES
The Fund may invest in
"investment grade" debt
securities
In pursuing its investment objective, the Fund may invest in 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 the Fund 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
<PAGE> 7
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 Stein Roe. Securities rated
within the fourth highest grade may possess speculative
characteristics. If the rating of a security held by the Fund is
lost or reduced below investment grade, the Fund is not required
to dispose of the security--Stein Roe will, however, consider that
fact in determining whether the Fund should continue to hold the
security. When Stein Roe considers a temporary defensive position
advisable, the Fund may invest without limitation in high-quality
fixed income securities, or hold assets in cash or cash
equivalents.
The Fund may invest up
to 25% of its assets in
foreign securities, which
may entail a greater degree
of risk than domestic securities
The Fund may invest up to 25% of its total assets in foreign
securities. (See Risks and Investment Considerations.) In
addition to, or in lieu of, such direct investment, a Fund may
construct a synthetic foreign 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 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, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
Such a contract 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.
The Fund may make loans of its portfolio securities to broker-
dealers and banks and enter into reverse repurchase agreements
subject to certain restrictions described in the Statement of
Additional Information. The Fund 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
the Fund 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. The Fund 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.
The Fund may invest
in "derivative products"
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional, exchange-traded and non-exchange-traded
<PAGE> 8
options, futures contracts, futures options, forward contracts,
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, or an interest rate.
The Fund 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.
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 Stein Roe'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.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, the Fund 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. The Fund may write a
call or put option only if the option is covered. As the writer
of a covered call option, the Fund 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 the Fund 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.
INVESTMENT RESTRICTIONS
The Fund will seek to
limit the impact of any
one investment on the
portfolio
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S.
<PAGE> 9
Government or repurchase agreements for such securities, and would
not prevent the Fund from investing all of its assets in shares of
another investment company having the identical investment
objective.
The Fund will not invest more than 25% of its total assets (at the
time of investment) in the securities of companies in any one
industry.
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. It may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
The Fund will not borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The Fund may invest in repurchase agreements, /1/ provided that
it will not invest more than 5% of its net assets in repurchase
agreements maturing in more than seven days, and any other
illiquid securities. An investment in illiquid securities could
involve relatively greater risks and costs to the Fund.
The investment restrictions described in the first four paragraphs
of this section are fundamental policies 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 investment objective is non-fundamental and, as such,
may be changed by the Board of Trustees without shareholder
approval. Any such change may result in the Fund having an
investment objective different from the objective the shareholder
considered appropriate at the time of investment in the Fund. All
of the investment restrictions are set forth in the Statement of
Additional Information.
- -----------------
/1/ A repurchase agreement involves a sale of securities to the
Fund 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, the Fund could experience both losses
and delays in liquidating its collateral.
- ------------------
<PAGE> 10
RISKS AND INVESTMENT CONSIDERATIONS
The Fund is designed for
long-term investors who
desire to participate in
the stock market and places
an emphasis on companies that
appeal to young investors.
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
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. The Fund is designed
for long-term investors who desire to participate in the stock
market and places an emphasis on companies that appeal to young
investors. 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. Of course, there can be no guarantee that the
Fund will achieve its objective. The Fund is also designed to be
a fun, educational experience for young investors and their
parents.
While the Fund seeks to reduce risk by investing in a diversified
portfolio, diversification does not eliminate all risk. The Fund
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. By investing in companies whose products or
services appeal to young investors, the Fund emphasizes various
consumer goods sectors.
Although the Fund 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.) The Fund is not intended to be
an income-producing investment, although it may produce income.
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, 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 non-residents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
non-residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER/FEEDER OPTION.
Rather than investing in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by Stein Roe for
investment in another investment company having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
<PAGE> 11
arrangement is to achieve greater operational efficiencies and to
reduce costs. It is expected that any such investment company
would be managed by Stein Roe in substantially the same manner as
the Fund. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be made
only if the Trustees determine it to be in the best interests of
the Fund and its shareholders.
HOW TO PURCHASE SHARES
$2,500 minimum investment;
$1,000 for UGMA accounts
You may purchase Fund shares by check, by wire, by electronic
transfer, or by exchange from your account with another Stein Roe
Fund. The initial purchase minimum per Fund account is
$2,500; the minimum for Uniform Gifts/Transfers to Minors Act
accounts is $1,000; the minimum for accounts established under an
automatic investment plan of at least $50 per month (i.e., Regular
Investments or the Automatic Exchange Plan) is $100 through June
30, 1996, after which time it will be $500; and the minimum per
account for Stein Roe IRAs is $500. The initial purchase minimum
is waived for shareholders who participate in the Stein Roe
Counselor [SERVICE MARK] and Stein Roe Counselor Preferred
[SERVICE MARK] programs and for clients of Stein Roe. Subsequent
purchases must be at least $50. (See Shareholder Services.)
BY CHECK.
You may purchase shares
by check, by wire, by
electronic transfer, or
by exchange
To make an initial purchase of shares of the Fund by check, please
complete and sign the Application and mail it, together with a
check made payable to Stein Roe Funds, to P.O. Box 804058,
Chicago, Illinois 60680.
You may make subsequent investments by submitting a check along
with either the stub from your Fund account confirmation statement
or a note indicating the amount of the purchase, your account
number, and the name in which your account is registered. Each
individual check submitted for purchase must be at least $50, and
the Trust generally will not accept cash, drafts, third party
checks, or checks drawn on banks outside the United States.
Should an order to purchase shares of the Fund be cancelled
because your check does not clear, you will be responsible for any
resulting loss incurred by the Fund.
BY WIRE.
You also may pay for shares by instructing your bank to wire
federal funds (monies of member banks within the Federal Reserve
System) to the Fund's custodian bank. Your bank may charge you a
fee for sending the wire. If you are opening a new account by
wire transfer, you must first telephone the Trust to request an
account number and furnish your social security or other tax
identification number. Neither the Fund nor the Trust will be
responsible for the consequences of delays, including delays in
the banking or Federal Reserve wire systems. Your bank
<PAGE> 12
must include the full name(s) in which your account is registered
and your Fund account number, and should address its wire as
follows:
State Street Bank and Trust Company
ABA Routing No. 011000028
Boston, Massachusetts
Attention: Custody
Fund No. 7124; Stein Roe Young Investor Fund
Account of (exact name(s) in registration)
Shareholder Account No. ___________
BY ELECTRONIC TRANSFER.
You may also make subsequent investments by an electronic transfer
of funds from your bank checking account. Electronic transfer
allows you to make purchases at your request ("Special
Investments") by calling 800-338-2550 or at pre-scheduled
intervals ("Regular Investments"). (See Shareholder Services.)
Electronic transfer purchases are subject to a $50 minimum and a
$100,000 maximum. You may not open a new account through
electronic transfer. Should an order to purchase shares of the
Fund be cancelled because your electronic transfer does not clear,
you will be responsible for any resulting loss incurred by the
Fund.
BY EXCHANGE.
You may purchase shares by exchange of shares from another Stein
Roe Fund account either by phone (if the Telephone Exchange
Privilege has been established on the account from which the
exchange is being made), by mail, in person, or automatically at
regular intervals (if you have elected Automatic Exchanges).
Restrictions apply; please review the information on the Exchange
Privilege under How to Redeem Shares--By Exchange.
PURCHASE PRICE AND EFFECTIVE DATE.
Purchases are made at net
asset value
Each purchase of the Fund's shares is made at the Fund's net asset
value (see Net Asset Value) next determined after receipt of
payment as follows:
A purchase by check or wire transfer is made at the net asset
value next determined after the Fund receives the check or wire
transfer of funds in payment of the purchase.
A purchase by electronic transfer is made at the net asset value
next determined after the Fund receives the electronic transfer
from your bank. A Special Electronic Transfer Investment order
received by telephone on a business day before 2:00 p.m., Central
time, is effective on the next business day.
CONDITIONS OF PURCHASE.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until
<PAGE> 13
accepted and entered on the books of the Fund. Once your purchase
order has been accepted, you may not cancel or revoke it; you may,
however, redeem the shares. The Trust reserves the right not to
accept any purchase order that it determines not to be in the best
interests of the Trust or of the Fund's shareholders. The Trust
also reserves the right to waive or lower its investment minimums
for any reason.
PURCHASES THROUGH THIRD PARTIES.
You may purchase (or redeem) shares through investment dealers,
banks, or other financial institutions. These institutions may
charge for their services or place limitations on the extent to
which you may use the services offered by the Trust. There are no
charges or limitations imposed by the Trust, other than those
described in this prospectus, if shares are purchased (or
redeemed) directly from the Trust.
Some financial institutions that maintain nominee accounts with
the Fund for their clients for whom they hold Fund shares charge
an annual fee of up to 0.25% of the average net assets held in
such accounts for accounting, servicing, and distribution services
they provide with respect to the underlying Fund shares. Such
fees are paid by Stein Roe.
HOW TO REDEEM SHARES
BY WRITTEN REQUEST.
To make sure your
redemption request is
in "good order," please
read this section carefully
You may redeem all or a portion of your shares of the Fund by
submitting a written request in "good order" to the Trust at P.O.
Box 804058, Chicago, Illinois 60680. A redemption request will be
considered to have been received in good order if the following
conditions are satisfied:
(1) The request must be in writing, and must indicate the number
of shares or dollar amount to be redeemed and identify the
shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The signatures on the written redemption request must be
guaranteed (a signature guarantee is not a notarization, but is a
widely accepted way to protect you and the Fund by verifying your
signature);
(4) The request must include other supporting legal documents as
required from organizations, executors, administrators, trustees,
or others acting on accounts not registered in their names.
<PAGE> 14
BY EXCHANGE.
You may exchange shares
of the Fund for shares of
any other Stein Roe Fund
qualified for sale to
residents of your state
You may redeem all or any portion of your Fund shares and use the
proceeds to purchase shares of any other Stein Roe Fund offered
for sale in your state if your signed, properly completed
Application is on file.
An exchange transaction is a sale and purchase of shares for
federal income tax purposes and may result in capital gain or
loss. Before exercising the Exchange Privilege, you should obtain
the prospectus for the Stein Roe 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
Fund account from which the exchange is made and the amount you
exchange must meet any applicable minimum investment of the Stein
Roe Fund being purchased. An exchange may be made by following
the redemption procedure described above under By Written Request
and indicating the Stein Roe Fund to be purchased--a signature
guarantee normally is not required. (See also the discussion
below of the Telephone Exchange Privilege and Automatic
Exchanges.)
SPECIAL REDEMPTION PRIVILEGES.
Telephone Redemption
Privileges will be established
for you automatically
The Telephone Exchange Privilege and the Telephone Redemption by
Check Privilege will be established automatically for you when you
open your account unless you decline these Privileges on your
Application. Other Privileges must be
specifically elected. If you do not want the Telephone Exchange
and Redemption Privileges, check the box(es) under the section
"Telephone Redemption Options" when completing your Application.
In addition, a signature guarantee may be required to establish a
Privilege after you open your account. If you establish both the
Telephone Redemption by Wire Privilege and the Electronic Transfer
Privilege, the bank account that you designate for both Privileges
must be the same.
The Telephone Redemption by Check Privilege, Telephone Redemption
by Wire Privilege, and Special Electronic Transfer Redemptions are
not available to redeem shares held by a tax-sheltered retirement
plan sponsored by the Adviser. (See also General Redemption
Policies.)
Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account
by calling 800-338-2550 or by sending a telegram; new accounts
opened by exchange are subject to the $2,500 initial purchase
minimum. GENERALLY, YOU WILL BE LIMITED TO FOUR TELEPHONE
EXCHANGE ROUND-TRIPS PER YEAR AND THE FUND MAY REFUSE REQUESTS FOR
TELEPHONE EXCHANGES IN EXCESS OF FOUR ROUND-TRIPS (A ROUND-TRIP
BEING THE EXCHANGE OUT OF THE FUND INTO ANOTHER STEIN ROE FUND,
AND THEN BACK TO THE FUND). In addition, the Trust's general
redemption policies apply to
<PAGE> 15
redemptions of shares by Telephone Exchange. (See General
Redemption Policies.)
Restrictions on
Special Redemption
Privileges apply
The Trust reserves the right to suspend or terminate, at any time
and without prior notice, the use of the Telephone Exchange
Privilege by any person or class of persons. The Trust believes
that use of the Telephone Exchange Privilege by investors
utilizing market-timing strategies adversely affects the Fund.
THEREFORE, THE TRUST GENERALLY WILL NOT HONOR REQUESTS FOR
TELEPHONE EXCHANGES BY SHAREHOLDERS IDENTIFIED BY THE TRUST AS
"MARKET-TIMERS." Moreover, the Trust reserves the right to
suspend, limit, modify, or terminate, at any time and without
prior notice, the Telephone Exchange Privilege in its entirety.
Because such a step would be taken only if the Board of Trustees
believes it would be in the best interests of the Fund, the Trust
expects that it would provide shareholders with prior written
notice of any such action unless the resulting delay in the
suspension, limitation, modification, or termination of the
Telephone Exchange Privilege would adversely affect the Fund. If
the Trust were to suspend, limit, modify, or terminate the
Telephone Exchange Privilege, a shareholder expecting to make a
Telephone Exchange might find that an exchange could not be
processed or that there might be a delay in the implementation of
the exchange. (See How to Redeem Shares--By Exchange.) During
periods of volatile economic and market conditions, you may have
difficulty placing your exchange by telephone.
Automatic Exchanges. You may use the Automatic Exchange Privilege
to automatically redeem a fixed amount from your Fund account for
investment in another Stein Roe Fund account on a regular basis.
Telephone Redemption by Wire Privilege. You may use this
Privilege to redeem an amount of $1,000 or more from your account
by calling 800-338-2550. The proceeds will be transmitted by wire
to your account at a commercial bank previously designated by you
that is a member of the Federal Reserve System. The fee for
wiring proceeds (currently $3.50 per transaction) will be deducted
from the amount wired.
Telephone Redemption by Check Privilege. You may use the
Telephone Redemption by Check Privilege to redeem an amount of
$1,000 or more from your account by calling 800-338-2550. The
proceeds will be sent by check to your registered address.
Electronic Transfer Privilege. You may redeem shares by calling
800-338-2550 and requesting an electronic transfer ("Special
Redemption") of the proceeds to a checking account previously
designated by you at a bank that is a member of the Automated
Clearing House. You may also request electronic transfers at
scheduled intervals ("Automatic Redemptions"--see Shareholder
Services). Electronic transfers are subject to a $50 minimum and
a
<PAGE> 16
$100,000 maximum. A Special Redemption request received by
telephone after 2:00 p.m., Central time, is deemed received on the
next business day.
GENERAL REDEMPTION POLICIES.
Please read the General
Redemption Policies carefully
You may not cancel or revoke your redemption order once
instructions have been received and accepted. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions. Please telephone
the Trust if you have any questions about requirements for a
redemption before submitting your request. The Trust reserves the
right to require a properly completed Application before making
payment for shares redeemed.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the 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 and may result
in a realized capital gain or loss.
The Trust will generally mail payment for shares redeemed within
seven days after proper instructions are received. However, the
Trust normally intends to pay proceeds of a Telephone Redemption
paid by wire on the next business day. If you attempt to redeem
shares within 15 days after they have been purchased by check or
electronic transfer, the Trust may delay payment of the redemption
proceeds to you until it can verify that payment for the purchase
of those shares has been (or will be) collected. To reduce such
delays, the Trust recommends that your purchase be made by federal
funds wire through your bank.
Generally, you may not use the Exchange Privilege or any Special
Redemption Privilege to redeem shares purchased by check (other
than certified or cashiers' checks) or electronic transfer until
15 days after their date of purchase.
The Trust reserves the right at any time without prior notice to
suspend, limit, modify, or terminate any Privilege or its use in
any manner by any person or class.
Neither the Trust, its transfer agent, nor their respective
officers, trustees, directors, employees, or agents will be
responsible for the authenticity of instructions provided under
the Privileges, nor for any loss, liability, cost or expense for
acting upon instructions furnished thereunder if they reasonably
believe that such instructions are genuine. The Fund employs
procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special Electronic Transfer Redemption Privilege are
genuine. Use of any Special Redemption Privilege or the Special
Electronic Transfer
<PAGE> 17
Redemption Privilege authorizes the Fund and its transfer agent to
tape-record all instructions to redeem. In addition, callers are
asked to identify the account number and registration, and may be
required to provide other forms of identification. Written
confirmations of transactions are mailed promptly to the
registered address; a legend on the confirmation requests that the
shareholder review the transactions and inform the Fund
immediately if there is a problem. If the Fund 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.
The Trust reserves the right to redeem shares in any account and
send the proceeds to the owner if the shares in the account do not
have a value of at least $1,000. A shareholder would be notified
that his account is below the minimum and would be allowed 30 days
to increase the account before the redemption is processed.
Shares in any account you maintain with the Fund or any of the
other Stein Roe Funds may be redeemed to the extent necessary to
reimburse any Stein Roe Fund for any loss it sustains that is
caused by you (such as losses from uncollected checks and
electronic transfers for the purchase of shares, or any Stein Roe
Fund liability under the Internal Revenue Code provisions on
backup withholding).
SHAREHOLDER SERVICES
REPORTING TO SHAREHOLDERS.
You will receive
quarterly communications
from the Fund
You will receive a confirmation statement reflecting each of your
purchases and redemptions of shares of the Fund. Shares purchased
by reinvestment of dividends, by cross-reinvestment
reinvestment of dividends, by cross-reinvestment of dividends from
another Fund, or through an automatic investment plan will be
confirmed to you quarterly. The Trust will send you quarterly
materials on the Fund and its portfolio holdings, will send you
semiannual and annual reports, and will provide you annually with
tax information.
FUNDS-ON-CALL [REGISTERED] 24-HOUR INFORMATION SERVICE.
Funds-on-Call [registered]
allows you to have 24-hour
access to information
To access the Stein Roe Funds-on-Call [registered] automated
telephone service, just call 800-338-2550 on any touch-tone
telephone and follow the recorded instructions. Funds-on-Call
[registered] provides yields, prices, latest dividends, account
balances, last
transaction, and other information 24 hours a day, seven days a
week.
FUNDS-ON-CALL [REGISTERED] AUTOMATED TELEPHONE TRANSACTIONS.
If you have established the Funds-on-Call [registered] transaction
privilege (Funds-on-Call [registered] Application will be
required), you may initiate Special Investments and Redemptions,
Telephone Exchanges,
<PAGE> 18
and Telephone Redemptions by Check 24 hours a day, seven days a
week by calling 800-338-2550 on a touch-tone telephone. These
transactions are subject to the terms and conditions of the
individual privileges. (See How to Purchase Shares and How to
Redeem Shares.)
STEIN ROE COUNSELOR [SERVICE MARK] PROGRAM.
The Stein Roe Counselor [SERVICE MARK] and Stein Roe Counselor
Preferred [SERVICE MARK] programs are professional investment
advisory services available to shareholders. These programs are
designed to provide investment guidance in helping investors to
select a portfolio of Stein Roe Funds. The Stein Roe Counselor
Preferred [SERVICE MARK] program, which automatically adjusts
client portfolios among the Stein Roe Funds, has a fee of up to 1%
of assets.
TAX-SHELTERED RETIREMENT PLAN.
Booklets describing the Individual Retirement Account ("IRA")
program and special forms necessary for establishing it are
available on request. IRAs are available for employed persons and
their non-employed spouses. You may use all of the Stein Roe
Funds, except those investing primarily in tax-exempt securities,
in the plan. Please read the prospectus for each fund in which
you plan to invest before making your investment.
SPECIAL SERVICES.
The Fund offers special
services to meet your needs
The following special services are available to shareholders.
Please call 800-338-2550 or write the Trust for additional
information and forms.
Dividend Purchase Option--to diversify your Fund investments by
having distributions from one Fund account automatically invested
in another Stein Roe Fund account. Before establishing this
option, you should obtain and read carefully the prospectus of the
Stein Roe Fund into which you wish to have your distributions
invested. The account from which distributions are made must be
of sufficient size to allow each distribution to usually be at
least $25.
Automatic Dividend Deposit (electronic transfer)--to have income
dividends and capital gain distributions deposited directly into
your bank checking account.
Telephone Redemption by Check Privilege ($1,000 minimum) and
Telephone Exchange Privilege ($50 minimum)--established
automatically when you open your account unless you decline them
on your Application. (See How to Redeem Shares--Special
Redemption Privileges.)
Telephone Redemption by Wire Privilege--to redeem shares from your
account by phone and have the proceeds transmitted by wire to your
checking account ($1,000 minimum).
<PAGE> 19
Special Redemption Option (electronic transfer)--to redeem shares
at any time and have the proceeds deposited directly to your bank
checking account ($50 minimum; $100,000 maximum).
Regular Investments (electronic transfer)--to purchase Fund shares
at regular intervals directly from your bank checking account ($50
minimum; $100,000 maximum).
Special Investments (electronic transfer)--to purchase Fund shares
by telephone and pay for them by electronic transfer of funds from
your checking account ($50 minimum; $100,000 maximum).
Automatic Exchange Plan--to automatically redeem a fixed dollar
amount from your Fund account and invest it in another Stein Roe
Fund account on a regular basis ($50 minimum; $100,000 maximum).
Automatic Redemptions (electronic transfer)--to have a fixed
dollar amount redeemed and sent at regular intervals directly to
your bank checking account ($50 minimum; $100,000 maximum).
Systematic Withdrawals--to have a fixed dollar amount, declining
balance, or fixed percentage of your account redeemed and sent at
regular intervals by check to you or another payee.
NET ASSET VALUE
The Fund's net asset
value is calculated daily
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the
Fund is determined as of the close of trading on the New York
Stock Exchange ("NYSE") (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's assets
and liabilities by the number of shares outstanding. 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 the Fund should be determined on any such day, in which
case the determination will be made at 3:00 p.m., Central 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.
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually. The
Fund intends to distribute by the end of each calendar year at
<PAGE> 20
least 98% of any net capital gains realized from the sale of
securities during the twelve-month period ended October 31 in that
year. The Fund intends to distribute any undistributed net
investment income and net realized capital gains in the following
year.
Dividends and capital
gains will be reinvested
automatically unless you
elect another option
<PAGE>
All of your income dividends and capital gain distributions will
be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank checking account; (3) applied to
purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment into
the same Fund account normally occurs one business day after the
record date. Investment of distributions into another Stein Roe
Fund account occurs on the payable date. If you choose to receive
your distributions in cash, your distribution check normally will
be mailed approximately 15 days after the record date. The Trust
reserves the right to reinvest the proceeds and future
distributions in additional Fund shares if checks mailed to you
for distributions are returned as undeliverable or are not
presented for payment within six months.
INCOME TAXES.
Fund distributions
will be taxable to you
Your distributions will be taxable to you, under income tax law,
whether received in cash or reinvested in additional shares. For
federal income tax purposes, any distribution that is paid in
January but was declared in the prior calendar year is deemed paid
in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital gain.
Distributions of net long-term capital gain will be taxable to you
as long-term capital gain regardless of the length of time you
have held your shares.
You will be advised annually as to the source of distributions for
tax purposes. If you are not subject to tax on your income, you
may not be required to pay tax on these amounts.
If you realize a loss on the sale or exchange of Fund shares held
for six months or less, your short-term loss is recharacterized as
long-term to the extent of any long-term capital gain
distributions you have received with respect to those shares.
For federal income tax purposes, the Fund is treated as a separate
taxable entity distinct from the other series of the Trust.
This discussion of taxation 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. The foregoing
information applies to U.S. shareholders. Foreign shareholders
should
<PAGE> 21
consult their tax advisors as to the tax consequences of ownership
of Fund shares.
BACKUP WITHHOLDING.
If you fail to provide
a tax identification number,
you will be subject to
backup withholding
The Trust may be required to withhold federal income tax ("backup
withholding") from certain payments to you, generally redemption
proceeds. Backup withholding may be required if:
- - You fail to furnish your properly certified social security or
other tax identification number;
- - You fail to certify that your tax identification number is
correct or that you are not subject to backup withholding due to
the underreporting of certain income;
- - The Internal Revenue Service informs the Trust that your tax
identification number is incorrect.
These certifications are contained in the Application that you
should complete and return when you open an account. The Fund
must promptly pay to the IRS all amounts withheld. Therefore, it
is usually not possible for the Fund to reimburse you for amounts
withheld. You may, however, claim the amount withheld as a credit
on your federal income tax return.
INVESTMENT RETURN
The Fund's performance is
usually quoted as an average
annual total return, which
is a historical figure and
is not intended to be
indicative of future results
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment of dividends and
capital gains), plus or minus the change in the net asset value
per share for a given period. 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.
Comparison of the Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. Of course, past performance is not necessarily
indicative of future results.
MANAGEMENT OF THE FUND
TRUSTEES AND ADVISER.
The Board of Trustees
supervises the Fund and
Stein Roe
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and additional
<PAGE> 22
information about the trustees and officers. Stein Roe & Farnham
Incorporated, One South Wacker Drive, Chicago, Illinois 60606, is
responsible for managing the investment portfolio and the business
affairs of the Fund and the Trust, subject to the direction of the
Board. Stein Roe is registered as an investment adviser under the
Investment Advisers Act of 1940.
Stein Roe (and its predecessor) has advised and managed mutual
funds since 1949. Stein Roe 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.
The Fund's portfolio is
managed by Erik Gustafson,
David Brady, and Eric Maddix
The portfolio managers of the Fund are Erik P. Gustafson, David P.
Brady, and Eric S. Maddix. Mr. Gustafson is a vice president of
Stein Roe, having joined it in 1992. From 1989 to 1992 he was an
attorney with Fowler, White, Burnett, Hurley, Banick &
Strickroot. He holds a B.A. from the University of Virginia
(1985) and M.B.A. and J.D. degrees (1989) from Florida State
University. Mr. Brady is a portfolio manager with Stein Roe,
which he joined in 1993. From 1986 to 1993, Mr. Brady was an
equity investment analyst with State Farm Mutual Automobile
Insurance Company. A chartered financial analyst, he earned a
B.S. in Finance, graduating Magna Cum Laude, from the University
of Arizona in 1986, and an M.B.A. from the University of Chicago
in 1989. Mr. Maddix joined Stein Roe in 1987 as a portfolio
manager. He received his B.B.A. degree from Iowa State University
in 1986 and M.B.A. from the University of Chicago in 1992.
FEES AND EXPENSES.
Stein Roe receives
fees from the Fund
The Fund's investment advisory agreement with Stein Roe was
replaced on September 1, 1995, with an administrative
agreement and a management agreement. Under the terminated
advisory agreement, the annual fee was .75% of the first $250
million of average net assets, .70% of the next $250 million, and
.60% thereafter. The new fee schedule calls for a management fee
of .60% of the first $500 million, .55% of the next $500 million,
and .50% thereafter; and an administrative fee of .20% of the
first $500 million, .15% of the next $500 million, and .125%
thereafter. For the fiscal year ended September 30, 1995, Stein
Roe reimbursed the Fund $322,803, resulting in a net payment by
Stein Roe of $191,821.Please refer to Fee Table, for a description
of the expense limitation.
Because of the Fund's
educational objective,
the Fund's expenses may
be higher
Because the Fund also has as an objective being an educational
experience for investors, the Fund's non-advisory expenses may be
higher than other mutual funds because of regular educational and
other reporting to shareholders.
Under a separate agreement with the Trust, Stein Roe provides
certain accounting and bookkeeping services to the Fund,
<PAGE> 23
including computation of its net asset value and calculation of
its net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
Stein Roe places the orders for the purchase and sale of portfolio
securities and options and futures transactions for the Fund. In
doing so, Stein Roe seeks to obtain the best combination of price
and execution, which involves a number of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty Financial, is
the agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The Fund's shares are
offered through Liberty
Securities Corporation
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by Stein Roe,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. 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
The Fund is part of a
Massachusetts business trust
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, 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 the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
<PAGE> 24
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust 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 the 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 the
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 the Trust is
also 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.
<PAGE> 25
[STEIN ROE FUNDS LOGO]
The Stein Roe Funds
Stein Roe Government Reserves Fund
Stein Roe Cash Reserves Fund
Stein Roe Limited Maturity Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Total Return Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
Stein Roe Special Venture Fund
P.O. Box 804058
Chicago, Illinois 60680
800-338-2550
In Chicago, visit our Fund Center
at One South Wacker Drive
Liberty Securities Corporation, Distributor
08011
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE GROWTH & INCOME FUND
(FORMERLY NAMED STEINROE PRIME EQUITIES)
The Fund seeks growth of capital by investing primarily in large,
well-established companies.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated February 1, 1996
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 the most recent financial
statements may be obtained without charge by writing to the
Secretary at P.O. Box 804058, Chicago, IL 60680 or by calling 800-
322-1130. The Statement of Additional Information contains
information relating to other series of the Stein Roe Investment
Trust that may not be available as investment vehicles for your
defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
Page
Fee Table ................................2
Financial Highlights......................2
The Fund..................................3
How the Fund Invests......................4
Portfolio Investments and Strategies......4
Restrictions on the Fund's Investments ...5
Risks and Investment Considerations ......6
How to Purchase Shares....................7
How to Redeem Shares .....................7
Net Asset Value ..........................7
Distributions and Income Taxes............8
Investment Return.........................8
Management of the Fund....................9
Organization and Description of Shares...10
For More Information ....................10
__________________________
FEE TABLE
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
ANNUAL FUND OPERATING EXPENSES (as a
percentage of average net assets)
Management and Administrative Fees.............0.75%
12b-1 Fees.....................................None
Other Expenses.................................0.40%
-----
Total Fund Operating Expenses .................1.15%
-----
-----
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- ---------
$12 $37 $63 $140
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 the Fund. The Fund's transfer agency
fees were changed effective May 1, 1995, and changes in management
and administrative fees became effective on September 1, 1995.
The above table illustrates expenses that would have been borne by
investors in the last fiscal year assuming that the fee changes
had been in effect for the entire year. (Also see Management of
the Fund--Fees and Expenses.) For purposes of the Example above,
the figures assume that the percentage amounts listed for the Fund
under Annual Fund Operating Expenses remain the same in each of
the periods; that all income dividends and capital gain
distributions are reinvested in additional Fund shares; and that,
for purposes of management fee breakpoints, the Fund's net assets
remain at the same level as in the most recently completed fiscal
year. 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 the Fund's
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. These examples do
not reflect any charges or expenses related to your employer's
plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund for
the periods shown on a per-share basis and has been audited by
Arthur Andersen LLP, independent public accountants. All of the
auditors' reports were unqualified. This table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust without charge upon request, contains additional performance
information.
<TABLE>
<CAPTION>
Period Ended
Sept. 30, Years Ended September 30,
1987 (a) 1988 1989 1990 1991 1992 1993 1994 1995
------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.00 $10.49 $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54
------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.05 0.17 0.22 0.26 0.26 0.19 0.17 0.18 0.34
Net realized and
unrealized gains
(losses) on investments 0.47 (1.64) 2.46 (0.85) 2.17 1.49 2.16 0.40 2.56
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.52 (1.47) 2.68 (0.59) 2.43 1.68 2.33 0.58 2.90
------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (0.03) (0.14) (0.22) (0.26) (0.29) (0.18) (0.16) (0.16) (0.20)
Net realized capital
gains -- -- -- -- (0.36) (0.35) (0.76) (0.71) (0.59)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.03) (0.14) (0.22) (0.26) (0.65) (0.53) (0.92) (0.87) (0.79)
------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $10.49 $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54 $16.65
------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of net expenses
to average net
assets (b) *1.91% 1.47% 1.24% 1.08% 1.00% 0.97% 0.88% 0.90% 0.96%
Ratio of net investment
income to average net
assets (c) *1.43% 2.03% 2.28% 2.40% 2.27% 1.46% 1.23% 1.18% 1.78%
Portfolio turnover rate 32% 105% 63% 51% 48% 40% 50% 85% 70%
Total return 5.20% (13.90%) 30.63% (5.25%) 24.12% 14.00% 17.98% 4.03% 21.12%
Net assets, end of
period (000 omitted) $22,863 $23,002 $32,562 $43,446 $54,820 $70,724 $100,365 $129,680 $139,539
</TABLE>
__________________________________
*Annualized.
(a) From the commencement of operations on March 23, 1987.
(b) If the Fund had paid all of its expenses and there had been
no reimbursement by the Adviser, this ratio would have been
2.49% for the period ended September 30, 1987 and 1.09% for
the year ended September 30, 1990.
(c) Computed giving effect to the Adviser's expense limitation
undertaking.
__________________________
THE FUND
STEIN ROE GROWTH & INCOME FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own shares to
investors and use the money they receive to invest in a portfolio
of securities such as common stocks. A mutual fund allows you to
pool your money with that of other investors in order to obtain
professional investment management. Mutual funds generally make
it possible for you to obtain greater diversification of your
investments and simplify your recordkeeping. The Fund does not
impose commissions or charges when shares are purchased or
redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages several
other no-load mutual funds with different investment objectives,
including equity funds, international funds, taxable and tax-
exempt bond funds, and money market funds. To obtain prospectuses
and other information on opening a regular account in any of these
mutual funds, please call 800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund's investment objective is to provide both growth of
capital and current income. It is designed for investors seeking
a diversified portfolio of securities that offers the opportunity
for long-term growth of capital while also providing a steady
stream of income.
In seeking to meet this objective, the Fund invests primarily in
well-established companies whose common stocks are believed to
have both the potential to appreciate in value and to pay
dividends to shareholders.
Although it may invest in a broad range of securities (including
common stocks, preferred stocks, securities convertible into or
exchangeable for common stocks, and warrants or rights to purchase
common stocks), normally the Fund will emphasize investments in
equity securities of companies having market capitalizations in
excess of $1 billion. Securities of these well-established
companies are believed to be generally less volatile than those of
companies with smaller capitalizations because companies with
larger capitalizations tend to have experienced management; broad,
highly diversified product lines; deep resources; and easy access
to credit.
Further information on portfolio investments and strategies may be
found under Portfolio Investments and Strategies in this
prospectus and in the Statement of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest in debt
securities of corporate and governmental issuers. Investment in
debt securities is limited to those that are rated within the four
highest grades (generally referred to as investment grade).
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 the Fund is lost
or reduced below investment grade, the Fund is not required to
dispose of the security--the Adviser will, however, consider that
fact in determining whether the Fund should continue to hold the
security. When the Adviser deems a temporary defensive position
advisable, the Fund may invest, without limitation, in high-
quality fixed income securities, or hold assets in cash or cash
equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than American
Depositary Receipts (ADRs), foreign debt securities denominated in
U.S. dollars, or securities guaranteed by a U.S. person, the Fund
is limited to investing no more than 25% of its total assets in
foreign securities. (See Risks and Investment Considerations.)
The Fund may invest in sponsored and unsponsored ADRs. In
addition to, or in lieu of, such direct investment, the Fund may
construct a synthetic foreign 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 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, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
Such a contract 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. The Fund
also may enter into foreign currency contracts as a hedging
technique to limit or reduce exposure to currency fluctuations.
In addition, the Fund may use options and futures contracts, as
described below, to limit or reduce exposure to currency
fluctuations. As of September 30, 1995, the Fund's holdings of
foreign companies, as a percentage of net assets, were 4.4% (1.5%
in foreign securities and 1.9% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund 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 the Fund 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. The Fund 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. The Fund may make loans of its portfolio
securities to broker-dealers and banks subject to certain
restrictions described in the Statement of Additional Information.
PORTFOLIO TURNOVER
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
portfolio securities must be held. The turnover rate may vary
significantly from year to year. 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 and Management of the Fund.)
DERIVATIVES.
Consistent with its objective, the Fund 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. The Fund 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.
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.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, the Fund 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. The Fund may write a
call or put option only if the option is covered. As the writer
of a covered call option, the Fund 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 the Fund 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.
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S. Government or repurchase agreements for such securities,
and would not prevent the Fund from investing all of its assets in
shares of another investment company having the identical
investment objective.
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. It may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
The Fund will not borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The Fund may invest in repurchase agreements, /1/ provided that
the Fund will not invest more than 15% of its net assets in
repurchase agreements maturing in more than seven days, and any
other illiquid securities.
- -----------------
/1/ A repurchase agreement involves a sale of securities to the
Fund 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, the Fund could experience both losses
and delays in liquidating its collateral.
- ------------------
The policies summarized in the first three 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 and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" of the Fund as defined in the
Investment Company Act of 1940. The Fund's investment objective
is non-fundamental and, as such, may be changed by the Board of
Trustees without shareholder approval. Any such change may result
in the Fund having an investment objective different from the
objective the shareholder considered appropriate at the time of
investment in the Fund. All of the investment restrictions are
set forth in the Statement of Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. The Fund is designed
for long-term investors who desire to participate in the stock
market with moderate investment risk while seeking to limit market
volatility. The Fund usually allocates its investments among a
number of different industries rather than concentrating in a
particular industry or group of industries. It may, however,
under abnormal circumstances, invest up to 25% of net assets in a
particular industry or group of industries. There can be no
guarantee that the Fund will achieve its objective.
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, 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 non-residents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
non-residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by the Adviser
for investment in another investment company having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and to
reduce costs. It is expected that any such investment company
would be managed by the Adviser in substantially the same manner
as the Fund. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be made
only if the Trustees determine it to be in the best interests of
the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until accepted
and entered on the books of the Fund. Once your purchase order
has been accepted, you may not cancel or revoke it; you may,
however, redeem the shares. The Trust reserves the right not to
accept any purchase order that it determines not to be in the best
interest of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed
quarterly. All other purchases and redemptions will be confirmed
as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The 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. (See Net Asset Value.) Because the
redemption price you receive depends upon the 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.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York Stock
Exchange (currently 3:00 p.m., Central time) by dividing the
difference between the values of the Fund's assets and liabilities
by the number of shares outstanding. Net asset value will not be
determined on days when the Exchange is closed unless, in the
judgment of the Board of Trustees, the net asset value of the Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Central 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 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.
Securities convertible into stocks are valued at the latest
valuation from a principal market maker. Other assets and
securities are valued by a method that the Board believes
represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid each calendar
quarter. However, because the Fund is required to distribute at
least 98% of its net investment income by the end of the calendar
year, an additional dividend may be declared near year end. The
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 twelve-month period ended October 31 in that
year. The Fund intends to distribute any undistributed net
investment income and net realized capital gains in the following
year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares of the
Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution 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. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment), plus or minus the
change in the net asset value per share for a given period. 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.
Comparison of the Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. The Fund's total return does not reflect any charges
or expenses related to your employer's plan. Of course, past
performance is not necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and other information
about the trustees and officers. The Fund's Adviser, Stein Roe &
Farnham Incorporated, One South Wacker Drive, Chicago, Illinois
60606, is responsible for managing the Fund's investment portfolio
and the business affairs of the Fund and the Trust, subject to the
direction of the Board of Trustees. The Adviser is registered as
an investment adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had 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.
Daniel K. Cantor and Robert A. Christensen are co-portfolio
managers of the Fund. Mr. Christensen has been portfolio manager
of the Fund since 1994 and Mr. Cantor became co-manager in 1995.
Mr. Christensen is a vice-president of the Trust and a senior vice
president of the Adviser, and has been associated with the Adviser
since 1962. A chartered investment counselor, he received his
B.A. degree from Vanderbilt University in 1955 and M.B.A. from
Harvard University in 1962. Mr. Cantor is a senior vice president
of the Adviser, which he joined in 1985. A chartered financial
analyst, he received a B.A. degree from the University of
Rochester in 1981 and an M.B.A. from the Wharton School of the
University of Pennsylvania in 1985. Messrs. Cantor and
Christensen are responsible for co-managing $139 million and $811
million, respectively, in mutual fund assets.
FEES AND EXPENSES.
The investment advisory agreement relating to the Fund was
replaced on September 1, 1995, with an administrative agreement
and a management agreement. Under the terminated advisory
agreement, the annual fee, based on average net assets, was .75%
of the first $250 million, .70% of the next $250 million, and .60%
thereafter. The new contracts call for a monthly management fee
based on an annual rate of .60% of the first $500 million, .55% of
the next $500 million, and .50% thereafter; and a monthly
administrative fee based on an annual rate of .15% of the first
$500 million, .125% of the next $500 million, and .10% thereafter.
For the year ended September 30, 1995, the fees for the Fund
amounted to .60% of average net assets.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset value and calculation of its
net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for the
Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number of
judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago, Illinois
60606, a wholly owned subsidiary of Liberty Financial, is the
agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. 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
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, 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 the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the 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, the Trust or any
particular Fund shall look only to the assets of the Trust or of
the respective Fund for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust 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 the 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 the
Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on account
of unsatisfied liability of another Fund of the Trust is also
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 Fund was unable to meet its obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about this Fund.
<PAGE>
[STEINROE MUTUAL FUNDS LOKGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE INTERNATIONAL FUND
The Fund seeks long-term growth of capital by investing in a
diversified portfolio of foreign securities.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated February 1, 1996,
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 the most recent financial
statements may be obtained without charge by writing to the
Secretary at P.O. Box 804058, Chicago, IL 60680 or by calling 800-
322-1130.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
Page
Fee Table ..............................2
Financial Highlights....................2
The Fund................................3
How the Fund Invests....................3
Portfolio Investments and Strategies....4
Restrictions on the Fund's Investments .6
Risks and Investment Considerations ....7
How to Purchase Shares .................8
How to Redeem Shares ...................8
Net Asset Value ........................9
Distributions and Income Taxes..........9
Investment Return......................10
Management of the Fund.................10
Organization and Description of Shares.11
For More Information...................12
__________________________
FEE TABLE
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
ANNUAL FUND OPERATING EXPENSES (as a percentage
of average net assets)
Management Fees 1.00%
12b-1 Fees None
Other Expenses 0.65%
-----
Total Fund Operating Expenses 1.65%
-----
-----
EXAMPLE. You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return; and (2) redemption at
the end of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- ---------
$17 $52 $90 $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 the Fund. The information in the
table is based upon actual expenses incurred in the last fiscal
year, except that it has been adjusted to reflect changes in the
Fund's transfer agency services and fees. From time to time, the
Adviser may voluntarily absorb certain expenses of the Fund. The
Adviser has agreed to voluntarily waive its management fee and
absorb the expenses of the Fund to the extent that such fees and
expenses on an annualized basis exceed 1.65% of its annual average
net assets from May 1, 1995 through January 31, 1997, subject to
earlier termination by the Adviser on 30 days' notice. Any such
absorption will temporarily lower the Fund's overall expense ratio
and increase its overall return to investors. The Fund's expenses
were not limited during the period since they did not exceed the
limitation. (Also see Management of the Fund--Fees and Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts listed for the Fund under Annual Fund Operating
Expenses remain the same in each of the periods and that all
income dividends and capital gain distributions are reinvested in
additional Fund shares. 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 the Fund's 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. The example does not reflect any charges or
expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund for
the period shown on a per-share basis and has been audited by
Arthur Andersen LLP, independent public accountants. All of the
auditors' reports were unqualified. This table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust without charge upon request, contains additional performance
information.
Period Ended Year Ended
Sept. 30, Sept. 30,
1994 (a) 1995
------------ ---------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.61
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.12
Net realized and unrealized gains (losses)
on investments and foreign currency
transactions 0.58 (0.26)
------ ------
Total from investment operations 0.61 (0.14)
------ ------
DISTRIBUTIONS
Net investment income -- (0.05)
Net realized capital gains -- (0.17)
------ ------
Total distributions -- (0.22)
------ ------
NET ASSET VALUE, END OF PERIOD $10.61 $10.25
------ ------
------ ------
Ratio of net expenses to average net assets *1.61% 1.59%
Ratio of net investment income to average
net assets *0.61% 1.41%
Portfolio turnover rate 48% 59%
Total return 6.10% (1.28%)
Net assets, end of period (000 omitted) $74,817 $83,020
___________
*Annualized.
(a) From commencement of operations on March 1, 1994.
__________________________
THE FUND
STEIN ROE INTERNATIONAL FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own shares to
investors and use the money they receive to invest in a portfolio
of securities such as common stocks. A mutual fund allows you to
pool your money with that of other investors in order to obtain
professional investment management. Mutual funds generally make
it possible for you to obtain greater diversification of your
investments and simplify your recordkeeping. The Fund does not
impose commissions or charges when shares are purchased or
redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages and
provides investment advisory services for several other no-load
mutual funds with different investment objectives, including
equity funds, taxable and tax-exempt bond funds, and money market
funds. To obtain prospectuses and other information on opening a
regular account in any of these mutual funds, please call 800-338-
2550.
__________________________
HOW THE FUND INVESTS
The Fund invests as described below. Further information on
portfolio investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.
The Fund's investment objective is to seek long-term growth of
capital by investing primarily in a diversified portfolio of
foreign securities. Current income is not a primary factor in the
selection of portfolio securities. The Fund invests primarily in
common stocks and other equity-type securities (such as preferred
stocks, securities convertible or exchangeable for common stocks,
and warrants or rights to purchase common stocks). The Fund 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.
The Fund diversifies its investments among several countries and
does not concentrate investments in any particular industry. In
pursuing its objective, the Fund varies the geographic allocation
and types of securities in which it invests based on the Adviser's
continuing evaluation of economic, market, and political trends
throughout the world. While the Fund has not established limits
on geographic asset distribution, it ordinarily invests in the
securities markets of at least three countries outside the United
States, including but not limited to Western European countries
(such as Belgium, France, Germany, Ireland, Italy, The
Netherlands, the countries of Scandinavia, Spain, Switzerland, and
the United Kingdom); countries in the Pacific Basin (such as
Australia, Hong Kong, Japan, Malaysia, the Philippines, Singapore,
and Thailand); and countries in the Americas (such as Argentina,
Brazil, Chile, and Mexico).
Under normal market conditions, the Fund will invest at least 65%
of its total assets (taken at market value) in foreign securities.
If, however, investments in foreign securities appear to be
relatively unattractive in the judgment of the Adviser because of
current or anticipated adverse political or economic conditions,
the Fund may hold cash or invest any portion of its assets in
securities of the U.S. Government and equity and debt securities
of U.S. companies, as a temporary defensive strategy. To meet
liquidity needs, the Fund may also hold cash in domestic and
foreign currencies and invest in domestic and foreign money market
securities (including repurchase agreements and foreign money
market positions).
In the past, the U.S. Government has from time to time imposed
restrictions, through taxation and otherwise, on foreign
investments by U.S. investors such as the Fund. If such
restrictions should be reinstated, it might become necessary for
the Fund to invest all or substantially all of its assets in U.S.
securities. In such an event, the Fund would review its
investment objective and policies to determine whether changes are
appropriate.
The Fund may purchase foreign securities in the form of American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs),
or other securities representing underlying shares of foreign
issuers. The Fund may invest in sponsored or unsponsored ADRs.
(For a description of ADRs and EDRs, see the Statement of
Additional Information.)
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DERIVATIVES.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, forward contracts, 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. The Fund does
not expect to invest more than 5% of its net assets in any type of
Derivative except for options, futures contracts, futures options,
and forward contracts.
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 currency exchange rates, 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.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, the Fund 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. The Fund may write a
call or put option only if the option is covered. As the writer
of a covered call option, the Fund 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 the Fund 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.
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest up to
35% of its total assets in debt securities. 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 in the fourth highest grade may possess speculative
characteristics. If the rating of a security held by the Fund is
lost or reduced below investment grade, the Fund is not required
to dispose of the security--the Adviser will, however, consider
that fact in determining whether the Fund should continue to hold
the security.
SETTLEMENT TRANSACTIONS.
When the Fund enters into a contract for the purchase or sale of
a foreign portfolio security, it usually is required to settle the
purchase transaction in the relevant foreign currency or receive
the proceeds of the sale in that currency. In either event, the
Fund is obliged to acquire or dispose of an appropriate amount of
foreign currency by selling or buying an equivalent amount of U.S.
dollars. At or near the time of the purchase or sale of the
foreign portfolio security, the Fund may wish to lock in the U.S.
dollar value of a transaction at the exchange rate or rates then
prevailing between the U.S. dollar and the currency in which the
security is denominated. Known as "transaction hedging," this may
be accomplished by purchasing or selling such foreign securities
on a "spot," or cash, basis. Transaction hedging also may be
accomplished on a forward basis, whereby the Fund purchases or
sells a specific amount of foreign currency, at a price set at the
time of the contract, for receipt or delivery at either a
specified date or at any time within a specified time period. In
so doing, the Fund will attempt to insulate itself against
possible losses and gains resulting from a change in the
relationship between the U.S. dollar and the foreign currency
during the period between the date the security is purchased or
sold and the date on which payment is made or received. Similar
transactions may be entered into by using other currencies if the
Fund seeks to move investments denominated in one currency to
investments denominated in another.
CURRENCY HEDGING.
Most of the Fund's portfolio will be invested in foreign
securities. As a result, in addition to the risk of change in the
market value of portfolio securities, the value of the portfolio
in U.S. dollars is subject to fluctuations in the exchange rate
between the foreign currencies and the U.S. dollar. When, in the
opinion of the Adviser, it is desirable to limit or reduce
exposure in a foreign currency to moderate potential changes in
the U.S. dollar value of the portfolio, the Fund may enter into a
forward currency exchange contract to sell or buy such foreign
currency (or another foreign currency that acts as a proxy for
that currency)--through the contract, the U.S. dollar value of
certain underlying foreign portfolio securities can be
approximately matched by an equivalent U.S. dollar liability.
This technique is known as "currency hedging." By locking in a
rate of exchange, currency hedging is intended to moderate or
reduce the risk of change in the U.S. dollar value of the Fund's
portfolio only during the period of the forward contract. Forward
contracts usually are entered into with banks and broker-dealers;
are not exchange traded; and while they are usually less than one
year, may be renewed. A default on the contract would deprive the
Fund of unrealized profits or force the Fund to cover its
commitments for purchase or sale of currency, if any, at the
current market price.
Neither type of foreign currency transaction will eliminate
fluctuations in the prices of the Fund's portfolio securities or
prevent loss if the price of such securities should decline. In
addition, such forward currency exchange contracts will diminish
the benefit of the appreciation in the U.S. dollar value of that
foreign currency. (For further information on forward foreign
currency exchange transactions, see the Statement of Additional
Information.)
OTHER TECHNIQUES.
The Fund 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 the Fund 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. The Fund 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. The Fund may utilize spot and forward foreign
exchange transactions to reduce the risk caused by exchange rate
fluctuations between one currency and another when securities are
purchased or sold on a when-issued basis. It may also invest in
synthetic money market instruments. The Fund may invest in
repurchase agreements, provided that it will not invest more than
15% of its net assets in repurchase agreements maturing in more
than seven days and any other illiquid securities. (See the
Statement of Additional Information.)
PORTFOLIO TURNOVER.
Although the Fund 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.
Flexibility of investment and emphasis on capital appreciation may
involve greater portfolio turnover than that of mutual funds that
have the objectives of income or maintenance of a balanced
investment position. 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.) The Fund
is not intended to be an income-producing investment.
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S. Government or repurchase agreements for such securities,
and would not prevent the Fund from investing all of its assets in
shares of another investment company having the identical
investment objective.
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. It may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
The Fund will not borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The Fund may invest in repurchase agreements,/1/ provided that the
Fund will not invest more than 15% of its net assets in repurchase
agreements maturing in more than seven days, and any other
illiquid securities.
- -----------------
/1/ A repurchase agreement involves a sale of securities to the
Fund 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, the Fund could experience both losses
and delays in liquidating its collateral.
- ------------------
The policies summarized in the first three paragraphs of this
section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" of the Fund as defined in the
Investment Company Act of 1940. The Fund's investment objective
is non-fundamental and, as such, may be changed by the Board of
Trustees without shareholder approval. Any such change may result
in the Fund having an investment objective different from the
objective the shareholder considered appropriate at the time of
investment in the Fund. All of the investment restrictions are
set forth in the Statement of Additional Information.
Nothing in the investment restrictions outlined here shall be
deemed to prohibit the Fund from purchasing the securities of any
issuer pursuant to the exercise of subscription rights distributed
to the Fund by the issuer. No such purchase may be made if, as a
result, the Fund will no longer be a diversified investment
company as defined in the Investment Company Act of 1940 or if the
Fund will fail to meet the diversification requirements of the
Internal Revenue Code.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. The Fund is intended
for long-term investors who can accept the risks entailed in
investing in foreign securities. Of course, there can be no
guarantee that the Fund will achieve its objective.
Although the Fund does not attempt to reduce or limit risk through
wide industry diversification of investment, the Fund usually
allocates its investments among a number of different industries
rather than concentrating in a particular industry or group of
industries. The Fund will, however, not invest more than 25% of
its total assets (at the time of investment) in the securities of
companies in any one industry.
FOREIGN INVESTING.
The Fund provides long-term investors with an opportunity to
invest a portion of their assets in a diversified portfolio of
foreign securities. Non-U.S. investments may be attractive
because they increase diversification, as compared to a portfolio
comprised solely of U.S. investments. In addition, many foreign
economies have, from time to time, grown faster than the U.S.
economy, and the returns on investments in these countries have
exceeded those of similar U.S. investments--there can be no
assurance, however, that these conditions will continue.
International diversification allows the Fund and an investor to
achieve greater diversification and to take advantage of changes
in foreign economies and market conditions.
Investors should understand and consider carefully the greater
risks involved in foreign investing. Investing in foreign
securities--positions in 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 regulations 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 the 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. These risks are greater for emerging markets.
Although the Fund 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, and other adverse political, social or
diplomatic developments that could affect investment in these
nations.
The price of securities of small, rapidly growing companies is
expected to fluctuate more widely than the general market due to
the difficulty in assessing financial prospects of companies
developing new products or operating in countries with developing
markets.
The strategy for selecting investments will be based on various
criteria. A company proposed for investment should have a good
market position in a fast-growing segment of the economy, strong
management, preferably a leading position in its business,
prospects of superior financial returns, ability to self-finance,
and securities available for purchase at a reasonable market
valuation. Because of the foreign domicile of such companies,
however, information on some of the above factors may be
difficult, if not impossible, to obtain.
To the extent portfolio securities are issued by foreign issuers
or denominated in foreign currencies, the Fund's investment
performance is affected by the strength or weakness of the U.S.
dollar against these currencies. If the dollar falls relative to
the Japanese yen, for example, the dollar value of a yen-
denominated stock held in the 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 the discussion of portfolio and
transaction hedging under Portfolio Investments and Strategies.)
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by the Adviser
for investment in another investment company having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and to
reduce costs. It is expected that any such investment company
would be managed by the Adviser in substantially the same manner
as the Fund. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be made
only if the Trustees determine it to be in the best interests of
the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until accepted
and entered on the books of the Fund. Once your purchase order
has been accepted, you may not cancel or revoke it; you may,
however, redeem the shares. The Trust reserves the right not to
accept any purchase order that it determines not to be in the best
interest of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed
quarterly. All other purchases and redemptions will be confirmed
as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The 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. (See Net Asset Value.) Because the
redemption price you receive depends upon the 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.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York Stock
Exchange ("NYSE") (currently 3:00 p.m., Central time) by dividing
the difference between the values of the Fund's assets and
liabilities by the number of shares outstanding. 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 the
Fund should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Central time.
In computing the net asset value of the Fund, the values of
portfolio securities are generally based upon market quotations.
Depending upon local convention or regulation, these market
quotations may be the last sale price, last bid or asked price, or
the mean between the last bid and asked prices as of, in each
case, the close of the appropriate exchange or other designated
time. Trading in securities on European and Far Eastern
securities exchanges and over-the-counter markets is normally
completed at various times before the close of business on each
day on which the NYSE is open. Trading of these securities may
not take place on every NYSE business day. In addition, trading
may take place in various foreign markets on Saturdays or on other
days when the NYSE is not open and on which the Fund's net asset
value is not calculated. Therefore, such calculation does not
take place contemporaneously with the determination of the prices
of many of the portfolio securities used in such calculation and
the value of the Fund's portfolio may be significantly affected on
days when shares of the Fund may not be purchased or redeemed.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually. The
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 twelve-month period ended October 31 in that
year. The Fund intends to distribute any undistributed net
investment income and net realized capital gains in the following
year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares of the
Fund.
U.S. FEDERAL INCOME TAXES.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution 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. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
FOREIGN INCOME TAXES.
Investment income received by the Fund from sources within foreign
countries may be subject to foreign income taxes withheld at the
source. The United States has entered into tax treaties with many
foreign countries that entitle the Fund to a reduced rate of tax
or exemption from tax on such income. It is impossible to
determine the effective rate of foreign tax in advance since the
amount of the Fund's assets to be invested within various
countries will fluctuate and the extent to which tax refunds will
be recovered is uncertain. The Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
To the extent that the Fund is liable for foreign income taxes
withheld at the source, the Fund also intends to operate so as to
meet the requirements of the U.S. Internal Revenue Code to "pass
through" to the Fund's shareholders foreign income taxes paid, but
there can be no assurance that the Fund will be able to do so.
This discussion of U.S. and foreign taxation 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. The
foregoing information applies to U.S. shareholders. Foreign
shareholders should consult their tax advisors as to the tax
consequences of ownership of Fund shares.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment), plus or minus the
change in the net asset value per share for a given period. 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.
Comparison of the Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. The Fund's total return does not reflect any charges
or expenses related to your employer's plan. Of course, past
performance is not necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND ADVISERS.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and additional information
about the trustees and officers. The Fund's Adviser, Stein Roe &
Farnham Incorporated, One South Wacker Drive, Chicago, Illinois
60606, is responsible for managing the Fund, subject to the
direction of the Board of Trustees. The Adviser is registered as
an investment adviser under the Investment Advisers Act of 1940.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had 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.
Bruno Bertocci and David P. Harris, co-portfolio managers of the
Fund, joined the Adviser in 1995 to create Stein Roe Global
Capital Management, a dedicated global and international equity
management unit. Messrs. Bertocci and Harris have also been
employees of Colonial Management Associates, Inc., a subsidiary of
Liberty Financial, since January, 1996.
Prior to joining the Adviser, Mr. Bertocci was a senior global
equity portfolio manager with Rockefeller & Co. ("Rockefeller")
from 1983 to 1995. While at Rockefeller, he served as portfolio
manager for the Fund, when Rockefeller was the Fund's sub-adviser.
Mr. Bertocci managed Rockefeller's London office from 1987 to 1989
and its Hong Kong office from 1989 to 1990. Prior to working at
Rockefeller, he served for three years at T. Rowe Price
Associates. Mr. Bertocci is a graduate of Oberlin College and
holds an M.B.A. from Harvard University.
Mr. Harris was a portfolio manager with Rockefeller from 1990 to
1995. After earning a bachelor's degree from the University of
Michigan, he was an actuarial associate for GEICO before returning
to school to earn an M.B.A. from Cornell University.
FEES AND EXPENSES.
In return for its services, the Adviser receives a monthly fee
from the Fund, computed and accrued daily, at an annual rate of 1%
of average net assets. This fee is higher than the fees paid by
most mutual funds. Please refer to the Fee Table for a
description of the Fund's expense limitation.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset value and calculation of its
net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for the
Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number of
judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago, Illinois
60606, a wholly owned subsidiary of Liberty Financial, is the
agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. 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
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, 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 the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the 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, the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust 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 the 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 the
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 the Trust is
also 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.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about this Fund.
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE SPECIAL VENTURE FUND
The Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of equity securities of
entrepreneurially managed companies. The Fund emphasizes
investments in financially strong small and medium-sized
companies, based principally on management appraisal and stock
valuation.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated February 1, 1996
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 the most recent financial
statements may be obtained without charge by writing to the
Secretary at P.O. Box 804058, Chicago, IL 60680 or by calling 800-
322-1130. The Statement of Additional Information contains
information relating to other series of the Stein Roe Investment
Trust that may not be available as investment vehicles for your
defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
Page
Fee Table ...............................2
Financial Highlights.....................2
The Fund.................................3
How the Fund Invests.....................3
Portfolio Investments and Strategies.....4
Restrictions on the Fund's Investments...5
Risks and Investment Considerations .....6
How to Purchase Shares...................7
How to Redeem Shares ....................7
Net Asset Value .........................8
Distributions and Income Taxes...........8
Investment Return........................8
Management of the Fund...................9
Organization and Description of Shares..10
For More Information ...................10
__________________________
FEE TABLE
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
ANNUAL FUND OPERATING EXPENSES (after
expense reimbursement; as a percentage
of average net assets)
Management Fees ..............................0.48%
12b-1 Fees....................................None
Other Expenses (after expense reimbursement)..0.77%
Total Fund Operating Expenses (after expense
reimbursement).........................1.25%
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------- ------- ------- --------
$13 $40 $69 $151
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 a Fund. Transfer agency fees were
changed effective May 1, 1995. The above table illustrates
expenses that would have been borne by investors in the last
fiscal year assuming that the fee changes had been in effect for
the entire year; since the Fund had less than one year of
operation for the reporting period, expenses have been annualized.
From time to time, the Adviser may voluntarily absorb certain
expenses of the Fund. The Adviser has agreed to voluntarily waive
its management fee and absorb the Fund's expenses to the extent
that such fees and expenses on an annualized basis exceed 1.25% of
its annual average net assets through January 31, 1997, subject to
earlier termination by the Adviser on 30 days' notice. Any such
absorption will temporarily lower the Fund's overall expense ratio
and increase its overall return to investors. Absent such expense
undertaking, Management and Administrative Fees and Total Fund
Operating Expenses for the Fund would have been 0.90% and 1.67%,
respectively. (Also see Management of the Funds--Fees and
Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts listed for the Fund under Annual Fund Operating
Expenses remain the same in each of the periods and that all
income dividends and capital gain distributions are reinvested in
additional Fund shares. 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 the Fund's 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. These examples do not reflect any charges or
expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund for
the period shown on a per-share basis and has been audited by
Arthur Andersen LLP, independent public accountants. All of the
auditors' reports were unqualified. This table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust without charge upon request, contains additional performance
information.
Period Ended
Sept. 30, 1995 (a)
------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.01
Net realized and unrealized gains on investments 2.67
------
Total from investment operations 2.68
------
DISTRIBUTIONS
Net investment income (0.03)
Net realized capital gains (0.05)
------
Total distributions (0.08)
------
NET ASSET VALUE, END OF PERIOD $12.60
------
------
Ratio of net expenses to average net assets (b) *1.25%
Ratio of net investment income to average net assets (c) *1.64%
Portfolio turnover rate 84%
Total return 26.96%
Net assets, end of period (000 omitted) $60,533
*Annualized.
(a) From the commencement of operations: on October 17, 1994 .
(b) If the Fund had paid all of its expenses and there had been
no reimbursement by the Adviser, this ratio would have been
2.87% for the period ended September 30, 1995.
(c) Computed giving effect to the Adviser's expense limitation
undertaking.
__________________________
THE FUND
STEIN ROE SPECIAL VENTURE FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own shares to
investors and use the money they receive to invest in a portfolio
of securities such as common stocks. A mutual fund allows you to
pool your money with that of other investors in order to obtain
professional investment management. Mutual funds generally make
it possible for you to obtain greater diversification of your
investments and simplify your recordkeeping. The Fund does not
impose commissions or charges when shares are purchased or
redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages several
other no-load mutual funds with different investment objectives,
including equity funds, international funds, taxable and tax-
exempt bond funds, and money market funds. To obtain prospectuses
and other information on opening a regular account in any of these
mutual funds, please call 800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of common stocks and other
equity-type securities (such as preferred stocks, securities
convertible or exchangeable for common stocks, and warrants or
rights to purchase common stocks) of entrepreneurially managed
companies that the Adviser believes represent special
opportunities. The Fund emphasizes investments in financially
strong small and medium-sized companies, based principally on
management appraisal and stock valuation. The Adviser considers
"small" and "medium-sized" companies to be those with market
capitalizations of less than $1 billion and $1 to $3 billion,
respectively.
In both its initial and ongoing appraisals of a company's
management, the Adviser seeks to know both the principal owners
and senior management and to assess their business judgment and
strategies through personal visits. The Adviser favors companies
whose management has an owner/operator, risk-averse orientation
and a demonstrated ability to create wealth for investors.
Attractive company characteristics include unit growth, favorable
cost structures or competitive positions, and financial strength
that enables management to execute business strategies under
difficult conditions. A company is attractively valued when its
stock can be purchased at a meaningful discount to the value of
the underlying business. Further information on portfolio
investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.
The Fund may invest up to 35% of its net assets in debt
securities, but it does not currently intend to invest more than
5% of its net assets in debt securities rated below investment
grade.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest in debt
securities of corporate and governmental issuers, but does not
expect to invest more than 5% of net assets in debt securities
that are rated below investment grade. The risks inherent in debt
securities depend primarily on the term and quality of the
obligations in the Fund's 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.
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. When the
Adviser determines that adverse market or economic conditions
exist and considers a temporary defensive position advisable, the
Fund may invest without limitation in high-quality fixed income
securities or hold assets in cash or cash equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than American
Depositary Receipts (ADRs), foreign debt securities denominated in
U.S. dollars, or securities guaranteed by a U.S. person, the Fund
is limited to investing no more than 25% of its total assets in
foreign securities. (See Risks and Investment Considerations.)
The Fund may invest in sponsored and unsponsored ADRs. In
addition to, or in lieu of, such direct investment, a Fund may
construct a synthetic foreign 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 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, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
Such a contract 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. The Fund
also may enter into foreign currency contracts as a hedging
technique to limit or reduce exposure to currency fluctuations.
In addition, the Fund may use options and futures contracts, as
described below, to limit or reduce exposure to currency
fluctuations. As of September 30, 1995, the Fund's holdings of
foreign companies, as a percentage of net assets, were 4.9% (4.9%
in foreign securities and none in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund 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 the Fund 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. The Fund 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. The Fund may make loans of its portfolio
securities to broker-dealers and banks subject to certain
restrictions described in the Statement of Additional Information.
PORTFOLIO TURNOVER
Under normal circumstances, the Fund expects to experience
moderate portfolio turnover with an investment time horizon of
three to five years. Although the portfolio turnover rate is not
expected to exceed 100% under normal market conditions, there are
no limitations on the length of time that portfolio securities
must be held. Flexibility of investment and emphasis on capital
appreciation may involve greater portfolio turnover than that of
mutual funds that have the objectives of income or maintenance of
a balanced investment position. 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.) The Fund is not intended to be an income-producing
investment.
DERIVATIVES.
Consistent with its objective, the Fund 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. The Fund 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.
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.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, the Fund 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. The Fund may write a
call or put option only if the option is covered. As the writer
of a covered call option, the Fund 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 the Fund 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.
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S. Government or repurchase agreements for such securities,
and would not prevent the Fund from investing all of its assets in
shares of another investment company having the identical
investment objective.
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. It may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
The Fund will not borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The Fund may invest in repurchase agreements, /1/ provided that
the Fund will not invest more than 15% of its net assets in
repurchase agreements maturing in more than seven days, and any
other illiquid securities.
- -----------------
/1/ A repurchase agreement involves a sale of securities to the
Fund 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, the Fund could experience both losses
and delays in liquidating its collateral.
- ------------------
The policies summarized in the first three paragraphs of this
section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" of the Fund as defined in the
Investment Company Act of 1940. The Fund's investment objective
is non-fundamental and, as such, may be changed by the Board of
Trustees without shareholder approval. Any such change may result
in the Fund having an investment objective different from the
objective the shareholder considered appropriate at the time of
investment in the Fund. All of the investment restrictions are
set forth in the Statement of Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. The Fund is designed
for long-term investors who want greater return potential than
available from the stock market in general, and who are willing to
tolerate the greater investment risk and market volatility
associated with investments in small and medium-sized companies.
Securities of such companies may be subject to greater price
volatility than securities of larger companies and tend to have a
lower degree of market liquidity. They also may be more sensitive
to changes in economic and business conditions, and may react
differently than securities of larger companies. In addition,
such companies are less well known to the investing public and may
not be as widely followed by the investment community. There can
be no guarantee that the Fund will achieve its objective.
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.
Although the Fund does not attempt to reduce or limit risk through
wide industry diversification of investment, the Fund usually
allocates its investments among a number of different industries
rather than concentrating in a particular industry or group of
industries. The Fund will not invest more than 25% of its total
assets (at the time of investment) in the securities of companies
in any one industry.
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, 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 non-residents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
non-residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by the Adviser
for investment in another investment company having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and to
reduce costs. It is expected that any such investment company
would be managed by the Adviser in substantially the same manner
as the Fund. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be made
only if the Trustees determine it to be in the best interests of
the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until accepted
and entered on the books of the Fund. Once your purchase order
has been accepted, you may not cancel or revoke it; you may,
however, redeem the shares. The Trust reserves the right not to
accept any purchase order that it determines not to be in the best
interest of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed
quarterly. All other purchases and redemptions will be confirmed
as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The 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. (See Net Asset Value.) Because the
redemption price you receive depends upon the 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.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York Stock
Exchange (currently 3:00 p.m., Central time) by dividing the
difference between the values of the Fund's assets and liabilities
by the number of shares outstanding. Net asset value will not be
determined on days when the Exchange is closed unless, in the
judgment of the Board of Trustees, the net asset value of the Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Central 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 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.
Securities convertible into stocks are valued at the latest
valuation from a principal market maker. Other assets and
securities are valued by a method that the Board believes
represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually. The
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 twelve-month period ended October 31 in that
year. The Fund intends to distribute any undistributed net
investment income and net realized capital gains in the following
year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares of the
Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution plans that
qualify for tax-exempt treatment under
income tax laws will not be taxable. Special tax rules apply to
investments through such plans. You should consult your tax
advisor to determine the suitability of the Fund as an investment
through such a plan and the tax treatment of distributions
(including distributions of amounts attributable through an
investment in the Fund) from such a plan. This section is not
intended to be a full discussion of income tax laws and their
effect on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment), plus or minus the
change in the net asset value per share for a given period. 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.
Comparison of the Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. The Fund's total return does not reflect any charges
or expenses related to your employer's plan. Of course, past
performance is not necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and other information
about the trustees and officers. The Fund's Adviser, Stein Roe &
Farnham Incorporated, One South Wacker Drive, Chicago, Illinois
60606, is responsible for managing the Fund's investment portfolio
and the business affairs of the Fund and the Trust, subject to the
direction of the Board of Trustees. The Adviser is registered as
an investment adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had 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.
E. Bruce Dunn and Richard B. Peterson have been co-portfolio
managers of the Fund since its inception in 1994. Each is a vice-
president of the Trust and a senior vice president of the Adviser.
Mr. Dunn has been associated with the Adviser since 1964. He
received his A.B. degree from Yale University in 1956 and his
M.B.A. from Harvard University in 1958 and is a chartered
investment counselor. Mr. Peterson, who began his investment
career at Stein Roe & Farnham in 1965 after graduating with a B.A.
from Carleton College in 1962 and the Woodrow Wilson School at
Princeton University in 1964 with a Masters in Public
Administration, rejoined the Adviser in 1991 after 15 years of
equity research and portfolio management experience with State
Farm Investment Management Corporation. As of September 30, 1995,
Messrs. Dunn and Peterson were responsible for co-managing $1.4
billion in mutual fund assets.
FEES AND EXPENSES.
In return for its services, pursuant to an investment advisory
agreement with the Trust relating to the Fund, the Adviser
receives a monthly fee from the Fund, computed and accrued daily,
at an annual rate of 0.9 of 1% of average net assets. This fee is
higher than the fees paid by most mutual funds. The fee for the
period ended September 30, 1995, after the expense limitation
referred to under Fee Table, amounted to .49% of average net
assets.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset value and calculation of its
net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for the
Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number of
judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago, Illinois
60606, a wholly owned subsidiary of Liberty Financial, is the
agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. 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
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, 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 the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the 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, the Trust or any
particular Fund shall look only to the assets of the Trust or of
the respective Fund for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust 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 the 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 the
Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on account
of unsatisfied liability of another Fund of the Trust is also
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 Fund was unable to meet its obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about this Fund.
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE TOTAL RETURN FUND
The Fund seeks to obtain current income and capital appreciation
in order to achieve maximum total return consistent with
reasonable investment risk through investment in a combination of
equity, convertible, and fixed income securities.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated February 1, 1996,
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 the most recent financial
statements may be obtained without charge by writing to the
Secretary at P.O. Box 804058, Chicago, IL 60680 or by calling 800-
322-1130. The Statement of Additional Information contains
information relating to other series of the Stein Roe Investment
Trust that may not be available as investment vehicles for your
defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
Page
Fee Table ..............................2
Financial Highlights....................2
The Fund................................3
How the Fund Invests....................4
Portfolio Investments and Strategies....4
Restrictions on the Fund's Investments. 6
Risks and Investment Considerations ....6
How to Purchase Shares..................7
How to Redeem Shares ...................7
Net Asset Value ........................8
Distributions and Income Taxes..........8
Investment Return.......................9
Management of the Fund..................9
Organization and Description of Shares.10
For More Information ..................11
__________________________
FEE TABLE
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
ANNUAL FUND OPERATING EXPENSES (as a
percentage of average net assets)
Management and Administrative Fees...............0.70%
12b-1 Fees.......................................None
Other Expenses...................................0.37%
-----
Total Fund Operating Expenses ...................1.07%
-----
-----
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
-------- -------- -------- ---------
$11 $34 $59 $131
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 the Fund. The Fund's transfer agency
fees were changed effective May 1, 1995, and changes in management
and administrative fees became effective on September 1, 1995.
The above table illustrates expenses that would have been borne by
investors in the last fiscal year assuming that the fee changes
had been in effect for the entire year. For purposes of the
Example above, the figures assume that the percentage amounts
listed for the Fund under Annual Fund Operating Expenses remain
the same in each of the periods, that all income dividends and
capital gain distributions are reinvested in additional Fund
shares, and that, for purposes of management fee breakpoints, the
Fund's net assets remain at the same level as in the most recently
completed fiscal year. 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 the Fund's 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. These examples do not reflect any charges or
expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund for
the periods shown on a per-share basis. The information for
periods after December 31, 1987, has been audited by Arthur
Andersen LLP, independent public accountants. All of the
auditors' reports were unqualified. This table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust without charge upon request, contains additional performance
information.
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $21.37 $25.04 $25.07 $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 1.41 1.33 1.32 0.97 1.37 1.28 1.32 1.31 1.26 1.15 1.33
Net realized and
unrealized gains
(losses) on investments 3.87 2.75 (1.06) 0.45 3.10 (2.92) 4.85 1.48 2.37 (1.06) 2.22
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 5.28 4.08 0.26 1.42 4.47 (1.64) 6.17 2.79 3.63 0.09 3.55
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (1.42) (1.35) (1.63) (0.90) (1.34) (1.36) (1.26) (1.34) (1.30) (1.17) (1.23)
Net realized capital
gains (0.19) (2.70) (1.45) (0.11) (0.38) (0.73) (0.51) (0.62) (1.67) (0.71) (0.28)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (1.61) (4.05) (3.08) (1.01) (1.72) (2.09) (1.77) (1.96) (2.97) (1.88) (1.51)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $25.04 $25.07 $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78 $27.82
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.77% 0.79% 0.80% *0.87% 0.90% 0.88% 0.87% 0.85% 0.81% 0.83% 0.87%
Ratio of net investment
income to average net
assets 6.30% 5.21% 5.12% *5.68% 5.83% 5.36% 5.50% 4.94% 4.69% 4.53% 5.14%
Portfolio turnover rate 100% 108% 86% 85% 93% 75% 71% 59% 53% 29% 45%
Total return 25.78% 17.11% 0.74% 6.51% 20.76% (6.86%) 29.67% 11.13% 14.57% 0.36% 14.49%
Net assets, end of
period (000 omitted) $128,676 $149,831 $140,279 134,225 $144,890 $124,592 $150,689 $173,417 $222,292 $229,274 $228,560
</TABLE>
______________________________
*Annualized.
(a) For the year ended December 31, 1986, the average amount of
debt outstanding for the Fund was $2,222, the average number of
shares outstanding was 5,506,763, and the average amount of
debt outstanding was $0.0004 per share. The Fund had no
borrowings outstanding during any other periods.
__________________________
THE FUND
STEIN ROE TOTAL RETURN FUND (the "Fund") is a no-load, diversified
"mutual fund." Mutual funds sell their own shares to investors
and use the money they receive to invest in a portfolio of
securities such as common stocks. A mutual fund allows you to
pool your money with that of other investors in order to obtain
professional investment management. Mutual funds generally make
it possible for you to obtain greater diversification of your
investments and simplify your recordkeeping. The Fund does not
impose commissions or charges when shares are purchased or
redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages several
other no-load mutual funds with different investment objectives,
including equity funds, international funds, taxable and tax-
exempt bond funds, and money market funds. To obtain prospectuses
and other information on opening a regular account in any of these
mutual funds, please call 800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund's investment objective is to obtain current income and
capital appreciation in order to achieve maximum total return
consistent with reasonable investment risk through investment in a
combination of equity, fixed income and convertible securities.
The percentages of Fund assets invested in various types of
securities will vary in accordance with the judgment of the
Adviser. There are no limitations on the amount of the Fund's
assets that may be allocated to the various types of securities.
Generally, the equity portion of the Fund's portfolio will be
invested in common stocks that the Adviser believes to have long-
term growth possibilities. With respect to the fixed income
portion of the portfolio, emphasis is placed on acquiring
investment grade securities. Further information on portfolio
investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
CONVERTIBLE SECURITIES.
By investing in convertible securities, the Fund 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. Although convertible securities purchased by the Fund are
frequently rated investment grade, the Fund 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: (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 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 tends to be more important than other factors in the
purchase of such securities.
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest in debt
securities of corporate and governmental issuers. Investment in
debt securities is limited to those that are rated within the four
highest grades (generally referred to as investment grade).
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 the Fund is lost
or reduced below investment grade, the Fund is not required to
dispose of the security--the Adviser will, however, consider that
fact in determining whether the Fund should continue to hold the
security. When the Adviser deems a temporary defensive position
advisable, the Fund may invest, without limitation, in high-
quality fixed income securities, or hold assets in cash or cash
equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than American
Depositary Receipts (ADRs), foreign debt securities denominated in
U.S. dollars, or securities guaranteed by a U.S. person, the Fund
is limited to investing no more than 25% of its total assets in
foreign securities. (See Risks and Investment Considerations.)
The Fund may invest in sponsored or unsponsored ADRs. In addition
to, or in lieu of, such direct investment, a Fund may construct a
synthetic foreign 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 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, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
Such a contract 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. The Fund
also may enter into foreign currency contracts as a hedging
technique to limit or reduce its exposure to currency
fluctuations. In addition, the Fund may use options and futures
contracts, as described below, to limit or reduce exposure to
currency fluctuations. As of September 30, 1995, the Fund's
holdings of foreign companies, as a percentage of net assets, were
5.2% (1.0% in foreign securities and 4.2% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
The Fund 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 the Fund 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. The Fund 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. The Fund may make loans of its portfolio
securities to broker-dealers and banks subject to certain
restrictions described in the Statement of Additional Information.
DERIVATIVES
Consistent with its objective, the Fund 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. The Fund 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.
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.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, the Fund 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. The Fund may write a
call or put option only if the option is covered. As the writer
of a covered call option, the Fund 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 the Fund 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.
PORTFOLIO TURNOVER.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
portfolio securities must be held. The turnover rate may vary
significantly from year to year. 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 and Management of the Fund.)
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S. Government or repurchase agreements for such securities,
and would not prevent the Fund from investing all of its assets in
shares of another investment company having the identical
investment objective.
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. It may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
The Fund will not borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The Fund may invest in repurchase agreements, /1/ provided that
the Fund will not invest more than 15% of its net assets in
repurchase agreements maturing in more than seven days, and any
other illiquid securities.
- -----------------
/1/ A repurchase agreement involves a sale of securities to the
Fund 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, the Fund could experience both losses
and delays in liquidating its collateral.
- ------------------
The policies summarized in the first three 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 and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" of the Fund as defined in the
Investment Company Act of 1940. The Fund's investment objective
is non-fundamental and, as such, may be changed by the Board of
Trustees without shareholder approval. Any such change may result
in the Fund having an investment objective different from the
objective the shareholder considered appropriate at the time of
investment in the Fund. All of the investment restrictions are
set forth in the Statement of Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
ALL INVESTMENTS, INCLUDING THOSE IN MUTUAL FUNDS, HAVE RISKS. NO
INVESTMENT IS SUITABLE FOR ALL INVESTORS. THE FUND IS DESIGNED
FOR LONG-TERM INVESTORS WHO CAN ACCEPT THE FLUCTUATIONS IN
PORTFOLIO VALUE AND OTHER RISKS ASSOCIATED WITH SEEKING LONG-TERM
CAPITAL APPRECIATION THROUGH INVESTMENTS IN SECURITIES. The Fund
usually allocates its investments among a number of different
industries rather than concentrating in a particular industry or
group of industries; however, under abnormal circumstances, it may
invest up to 25% of net assets in a particular industry or group
of industries. There can be no guarantee that the Fund will
achieve its objective.
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, 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 non-residents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
non-residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by the Adviser
for investment in another investment company having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and to
reduce costs. It is expected that any such investment company
would be managed by the Adviser in substantially the same manner
as the Fund. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be made
only if the Trustees determine it to be in the best interests of
the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until accepted
and entered on the books of the Fund. Once your purchase order
has been accepted, you may not cancel or revoke it; you may,
however, redeem the shares. The Trust reserves the right not to
accept any purchase order that it determines not to be in the best
interest of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed
quarterly. All other purchases and redemptions will be confirmed
as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The 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. (See Net Asset Value.) Because the
redemption price you receive depends upon the 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.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York Stock
Exchange (currently 3:00 p.m., Central time) by dividing the
difference between the values of the Fund's assets and liabilities
by the number of shares outstanding. Net asset value will not be
determined on days when the Exchange is closed unless, in the
judgment of the Board of Trustees, the net asset value of the Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Central 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 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.
Securities convertible into stocks are valued at the latest
valuation from a principal market maker. Other assets and
securities are valued by a method that the Board believes
represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid each calendar
quarter. However, because the Fund is required to distribute at
least 98% of its net investment income by the end of the calendar
year, an additional dividend may be declared near year end. The
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 twelve-month period ended October 31 in that
year. The Fund intends to distribute any undistributed net
investment income and net realized capital gains in the following
year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares of the
Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution 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. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment), plus or minus the
change in the net asset value per share for a given period. 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.
Comparison of the Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. The Fund's total return does not reflect any charges
or expenses related to your employer's plan. Of course, past
performance is not necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and other information
about the trustees and officers. The Fund's Adviser, Stein Roe &
Farnham Incorporated, One South Wacker Drive, Chicago, Illinois
60606, is responsible for managing the Fund's investment portfolio
and the business affairs of the Fund and the Trust, subject to the
direction of the Board of Trustees. The Adviser is registered as
an investment adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had 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.
Robert A. Christensen and Lynn C. Maddox are co-portfolio managers
of the Fund. Mr. Christensen has been portfolio manager since
1981, and Mr. Maddox became co-portfolio manager in 1995. Mr.
Christensen is a vice-president of the Trust and a senior vice
president of the Adviser, and has been associated with the Adviser
since 1962. A chartered investment counselor, he received his
B.A. degree from Vanderbilt University in 1955 and M.B.A. from
Harvard University in 1962. Mr. Cantor is a senior vice president
of the Adviser, which he joined in 1985. A chartered financial
analyst, he received a B.A. degree from the University of
Rochester in 1981 and an M.B.A. from the Wharton School of the
University of Pennsylvania in 1985. Mr. Christensen is
responsible for managing $811 million in mutual fund assets. Mr.
Maddox joined the Adviser in 1971 and is a senior vice president.
He received a B.S. from the Georgia Institute of Technology in
1964 and an M.B.A. from Indiana University in 1971. As of
September 30, 1995, Mr. Maddox was responsible for co-managing
$228 million in mutual fund assets. William Garrison is associate
portfolio manager of the Fund. Mr. Garrison joined the Adviser in
1989. He received his A.B. from Princeton University in 1988.
FEES AND EXPENSES.
The investment advisory agreement relating to the Fund was
replaced on September 1, 1995, with an administrative agreement
and a management agreement. Under the terminated advisory
agreement, the annual fee, based on average net assets, was .625%
of the first $100 million and .50% above that amount. The new
contracts call for a monthly management fee based on an annual
rate of .55% of the first $500 million, .50% of the next $500
million, and .45% thereafter; and a monthly administrative fee
based on an annual rate of .15% of the first $500 million, .125%
of the next $500 million, and .10% thereafter. For the year ended
September 30, 1995, the fees for the Fund amounted to .57% of
average net assets.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset value and calculation of its
net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for the
Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number of
judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago, Illinois
60606, a wholly owned subsidiary of Liberty Financial, is the
agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. 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
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, 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 the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the 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, the Trust or any
particular Fund shall look only to the assets of the Trust or of
the respective Fund for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust 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 the 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 the
Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on account
of unsatisfied liability of another Fund of the Trust is also
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 Fund was unable to meet its obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about this Fund.
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE GROWTH STOCK FUND
The Fund seeks long-term capital appreciation by investing in
common stock and other equity-type securities.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated February 1, 1996,
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 the most recent financial
statements may be obtained without charge by writing to the
Secretary at P.O. Box 804058, Chicago, IL 60680 or by calling 800-
322-1130. The Statement of Additional Information contains
information relating to other series of the Stein Roe Investment
Trust that may not be available as investment vehicles for your
defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
Page
Fee Table ...............................2
Financial Highlights.....................2
The Fund.................................3
How the Fund Invests.....................4
Portfolio Investments and Strategies.....4
Restrictions on the Fund's Investments ..5
Risks and Investment Considerations .....6
How to Purchase Shares...................7
How to Redeem Shares ....................7
Net Asset Value .........................7
Distributions and Income Taxes...........8
Investment Return........................8
Management of the Fund...................9
Organization and Description of Shares..10
For More Information ...................10
__________________________
FEE TABLE
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
ANNUAL FUND OPERATING EXPENSES (as a
percentage of average net assets)
Management and Administrative Fees...........0.75%
12b-1 Fees...................................None
Other Expenses...............................0.33%
Total Fund Operating Expenses ...............1.08%
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------- ------- ------- --------
$11 $34 $60 $132
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 the Fund. The Fund's transfer agency
fees were changed effective May 1, 1995, and changes in management
and administrative fees became effective on September 1, 1995.
The above table illustrates expenses that would have been borne by
investors in the last fiscal year assuming that the fee changes
had been in effect for the entire year. For purposes of the
Example above, the figures assume that the percentage amounts
listed for the Fund under Annual Fund Operating Expenses remain
the same in each of the periods; that all income dividends and
capital gain distributions are reinvested in additional Fund
shares; and that, for purposes of management fee breakpoints, the
Fund's net assets remain at the same level as in the most recently
completed fiscal year. 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 the Fund's 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. These examples do not reflect any charges or
expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund for
the periods shown on a per-share basis and has been audited by
Arthur Andersen LLP, independent public accountants. All of the
auditors' reports were unqualified. This table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust without charge upon request, contains additional performance
information.
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $14.04 $17.43 $16.97 $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.31 0.26 0.24 0.19 0.34 0.39 0.33 0.18 0.15 0.13 0.12
Net realized and
unrealized gains (losses)
on investments 3.38 2.75 0.46 (0.11) 4.51 (1.17) 5.90 3.01 1.14 0.41 5.60
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 3.69 3.01 0.70 0.08 4.85 (0.78) 6.23 3.19 1.29 0.54 5.72
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (0.30) (0.25) (0.29) (0.15) (0.34) (0.37) (0.42) (0.16) (0.10) (0.12) (0.15)
Net realized capital gains -- (3.22) (2.71) -- (0.06) -- (0.92) (1.17) (0.95) (1.73) (3.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.30) (3.47) (3.00) (0.15) (0.40) (0.37) (1.34) (1.33) (1.05) (1.85) (3.17)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $17.43 $16.97 $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58 $26.13
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.67% 0.67% 0.65% *0.76% 0.77% 0.73% 0.79% 0.92% 0.93% 0.94% 0.99%
Ratio of net investment
income to average net
assets 1.89% 1.34% 1.25% *1.62% 2.05% 2.03% 1.63% 0.75% 0.59% 0.50% 0.56%
Portfolio turnover rate 114% 137% 143% 84% 47% 40% 34% 23% 29% 27% 36%
Total return 26.35% 16.91% 5.57% 0.54% 33.86% (4.17%) 36.64% 14.37% 5.09% 2.10% 28.18%
Net assets, end
of period (000 omitted) $224,371 $226,604 $232,658 $195,641 $206,476 $206,031 $291,767 $372,758 $373,921 $321,502 $360,336
</TABLE>
*Annualized
(a) For the periods indicated below, bank borrowing activity was
as follows:
Debt
outstanding Average debt Average shares Average
at end of outstanding outstanding debt per
Period period (in during period during period during
Ended thousands) (in thousands) (in thousands) period
- ------------ ----------- ------------ -------------- --------
12/31/85 -- 5 13,977 0.0004
9/30/89 -- 124 11,745 0.0106
The Fund had no bank borrowings during any other periods.
__________________________
THE FUND
STEIN ROE GROWTH STOCK FUND (the "Fund") is a no-load, diversified
"mutual fund." Mutual funds sell their own shares to investors
and use the money they receive to invest in a portfolio of
securities such as common stocks. A mutual fund allows you to
pool your money with that of other investors in order to obtain
professional investment management. Mutual funds generally make
it possible for you to obtain greater diversification of your
investments and simplify your recordkeeping. The Fund does not
impose commissions or charges when shares are purchased or
redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and accounting and
bookkeeping services to the Fund. The Adviser also manages
several other no-load mutual funds with different investment
objectives, including equity funds, international funds, taxable
and tax-exempt bond funds, and money market funds. To obtain
prospectuses and other information on opening a regular account in
any of these mutual funds, please call 800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund's investment objective is long-term capital appreciation,
which it attempts to achieve by investing, under normal
conditions, at least 65% of its total assets in common stock 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) that, in the opinion of the
Adviser, have long-term appreciation possibilities.
The Fund's investments are selected by the Adviser. Although the
Fund invests primarily in equity securities, it may invest up to
35% of its total assets in debt securities. Further information
on portfolio investments and strategies may be found under
Portfolio Investments and Strategies in this prospectus and in the
Statement of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest in debt
securities of corporate and governmental issuers. Investment in
debt securities is limited to those that are rated within the four
highest grades (generally referred to as investment grade).
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 the Fund is lost
or reduced below investment grade, the Fund is not required to
dispose of the security--the Adviser will, however, consider that
fact in determining whether the Fund should continue to hold the
security. When the Adviser deems a temporary defensive position
advisable, the Fund may invest, without limitation, in high-
quality fixed income securities, or hold assets in cash or cash
equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than American
Depositary Receipts (ADRs), foreign debt securities denominated in
U.S. dollars, or securities guaranteed by a U.S. person, the Fund
is limited to investing no more than 25% of its total assets in
foreign securities. (See Risks and Investment Considerations.)
The Fund may invest in sponsored or unsponsored ADRs. In addition
to, or in lieu of, such direct investment, a Fund may construct a
synthetic foreign 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 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, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
Such a contract 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. The Fund
also may enter into foreign currency contracts as a hedging
technique to limit or reduce exposure to currency fluctuations.
In addition, the Fund may use options and futures contracts, as
described below, to limit or reduce exposure to currency
fluctuations. As of September 30, 1995, the Fund's holdings of
foreign companies, as a percentage of net assets, were 6.3% (1.2%
in foreign securities and 5.1% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund 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 the Fund 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. The Fund 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. The Fund may make loans of its portfolio
securities to broker-dealers and banks subject to certain
restrictions described in the Statement of Additional Information.
DERIVATIVES
Consistent with its objective, the Fund 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. The Fund 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.
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.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, the Fund 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. The Fund may write a
call or put option only if the option is covered. As the writer
of a covered call option, the Fund 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 the Fund 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.
PORTFOLIO TURNOVER.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
portfolio securities must be held. The turnover rate may vary
significantly from year to year. 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 and Management of the Fund.) The Fund is not
intended to be an income-producing investment, although it may
produce varying amounts of income.
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S. Government or repurchase agreements for such securities,
and would not prevent the Fund from investing all of its assets in
shares of another investment company having the identical
investment objective.
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. It may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
The Fund will not borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The Fund may invest in repurchase agreements, /1/ provided that
the Fund will not invest more than 15% of its net assets in
repurchase agreements maturing in more than seven days, and any
other illiquid securities.
- -----------------
/1/ A repurchase agreement involves a sale of securities to the
Fund 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, the Fund could experience both losses
and delays in liquidating its collateral.
- ------------------
The policies summarized in the first three 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 and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" of the Fund as defined in the
Investment Company Act of 1940. The Fund's investment objective
is non-fundamental and, as such, may be changed by the Board of
Trustees without shareholder approval. Any such change may result
in the Fund having an investment objective different from the
objective the shareholder considered appropriate at the time of
investment in the Fund. All of the investment restrictions are
set forth in the Statement of Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. The Fund is designed
for long-term investors who desire to participate in the stock
market with more investment risk and volatility than the stock
market in general, but with less investment risk and volatility
than aggressive capital appreciation funds. The Fund seeks to
reduce risk by investing in a diversified portfolio, but this does
not eliminate all risk. It may, however, under abnormal
circumstances, invest up to 25% of net assets in a particular
industry or group of industries. There can be no guarantee that
the Fund will achieve its objective.
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, 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 non-residents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
non-residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by the Adviser
for investment in another investment company having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and to
reduce costs. It is expected that any such investment company
would be managed by the Adviser in substantially the same manner
as the Fund. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be made
only if the Trustees determine it to be in the best interests of
the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until accepted
and entered on the books of the Fund. Once your purchase order
has been accepted, you may not cancel or revoke it; you may,
however, redeem the shares. The Trust reserves the right not to
accept any purchase order that it determines not to be in the best
interest of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed
quarterly. All other purchases and redemptions will be confirmed
as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The 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. (See Net Asset Value.) Because the
redemption price you receive depends upon the 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.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York Stock
Exchange (currently 3:00 p.m., Central time) by dividing the
difference between the values of the Fund's assets and liabilities
by the number of shares outstanding. Net asset value will not be
determined on days when the Exchange is closed unless, in the
judgment of the Board of Trustees, the net asset value of the Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Central 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.
Other assets and securities are valued by a method that the Board
believes represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually. The
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 twelve-month period ended October 31 in that
year. The Fund intends to distribute any undistributed net
investment income and net realized capital gains in the following
year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares of the
Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution 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. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment), plus or minus the
change in the net asset value per share for a given period. 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.
Comparison of the Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. The Fund's total return does not reflect any charges
or expenses related to your employer's plan. Of course, past
performance is not necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and other information
about the trustees and officers. The Fund's Adviser, Stein Roe &
Farnham Incorporated, One South Wacker Drive, Chicago, Illinois
60606, is responsible for managing the Fund's investment portfolio
and the business affairs of the Fund and the Trust, subject to the
direction of the Board of Trustees. The Adviser is registered as
an investment adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had 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.
The Fund is managed by Erik P. Gustafson and Harvey B. Hirschhorn,
who became co-managers of the Fund in 1994 and 1995, respectively.
Mr. Gustafson is a vice president of the Adviser, having joined it
in 1992. From 1989 to 1992 he was an attorney with Fowler, White,
Burnett, Hurley, Banick & Strickroot. He holds a B.A. from the
University of Virginia (1985) and M.B.A. and J.D. degrees (1989)
from Florida State University. Mr. Hirschhorn is executive vice
president and director of research services of the Adviser, which
he joined in 1973. He received an A.B. degree from Rutgers
College in 1971 and an M.B.A. from the University of Chicago in
1973, and is a chartered financial analyst. Messrs. Gustafson and
Hirschhorn were responsible for managing $523 million and $179
million, respectively, in mutual fund assets.
FEES AND EXPENSES.
The investment advisory agreement relating to the Fund was
replaced on September 1, 1995, with an administrative agreement
and a management agreement. Under the terminated advisory
agreement, the annual fee, based on average net assets, was .75%
of the first $250 million, .70% of the next $250 million, and .60%
thereafter. The new contracts call for a monthly management fee
based on an annual rate of .60% of the first $500 million, .55% of
the next $500 million, and .50% thereafter; and a monthly
administrative fee based on an annual rate of .15% of the first
$500 million, .125% of the next $500 million, and .10% thereafter.
For the year ended September 30, 1995, the fees for the Fund
amounted to .74% of average net assets.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset value and calculation of its
net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for the
Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number of
judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago, Illinois
60606, a wholly owned subsidiary of Liberty Financial, is the
agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. 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
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, 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 the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the 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, the Trust or any
particular Fund shall look only to the assets of the Trust or of
the respective Fund for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust 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 the 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 the
Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on account
of unsatisfied liability of another Fund of the Trust is also
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 Fund was unable to meet its obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about this Fund.
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE CAPITAL OPPORTUNITIES FUND
The Fund seeks long-term capital appreciation by investing in
aggressive growth companies.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated February 1, 1996,
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 the most recent financial
statements may be obtained without charge by writing to the
Secretary at P.O. Box 804058, Chicago, IL 60680 or by calling 800-
322-1130. The Statement of Additional Information contains
information relating to other series of the Stein Roe Investment
Trust that may not be available as investment vehicles for your
defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
Page
Fee Table................................2
Financial Highlights.....................2
The Fund.................................3
How the Fund Invests.....................4
Portfolio Investments and Strategies.....4
Restrictions on the Fund's Investments ..6
Risks and Investment Considerations .....6
How to Purchase Shares ..................7
How to Redeem Shares ....................7
Net Asset Value .........................8
Distributions and Income Taxes...........8
Investment Return........................8
Management of the Fund...................9
Organization and Description of Shares..10
For More Information....................10
__________________________
FEE TABLE
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
ANNUAL FUND OPERATING EXPENSES (as a
percentage of average net assets)
Management and Administrative Fees..........0.90%
12b-1 Fees..................................None
Other Expenses..............................0.35%
Total Fund Operating Expenses ..............1.25%
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- ---------
$13 $40 $69 $151
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 the Fund. The Fund's transfer agency
fees were changed effective May 1, 1995, and changes in management
and administrative fees became effective on September 1, 1995.
The above table illustrates expenses that would have been borne by
investors in the last fiscal year assuming that the fee changes
had been in effect for the entire year. (Also see Management of
the Fund--Fees and Expenses.) For purposes of the Example above,
the figures assume that the percentage amounts listed for the Fund
under Annual Fund Operating Expenses remain the same in each of
the periods; that all income dividends and capital gain
distributions are reinvested in additional Fund shares; and that,
for purposes of management fee breakpoints, the Fund's net assets
remain at the same level as in the most recently completed fiscal
year. 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 the Fund's
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. These examples do
not reflect any charges or expenses related to your employer's
plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund for
the periods shown on a per-share basis and has been audited by
Arthur Andersen LLP, independent public accountants. All of the
auditors' reports were unqualified. This table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust without charge upon request, contains additional performance
information.
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.69 $11.91 $13.38 $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 15.79
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.10 0.03 0.03 0.03 0.05 0.06 0.11 0.06 0.01 0.02 0.01
Net realized and
unrealized gains
(losses) on investments 2.27 1.97 0.62 0.13 3.86 (4.72) 3.73 0.60 3.91 0.34 5.91
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 2.37 2.00 0.65 0.16 3.91 (4.66) 3.84 0.66 3.92 0.36 5.92
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (0.15) (0.10) (0.05) -- (0.05) (0.06) (0.08) (0.10) (0.04) (0.01) (0.02)
Net realized capital
gains -- (0.43) (3.36) -- (0.06) (2.54) (0.08) -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.15) (0.53) (3.41) -- (0.11) (2.60) (0.16) (0.10) (0.04) (0.01) (0.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $11.91 $13.38 $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 $15.79 $21.69
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.95% 0.95% 0.95% *1.01% 1.09% 1.14% 1.18% 1.06% 1.06% 0.97% 1.05%
Ratio of net investment
income to average
net assets 0.94% 0.19% 0.18% *0.34% 0.42% 0.43% 1.19% 0.42% 0.09% 0.04% 0.08%
Portfolio turnover rate 90% 116% 133% 164% 245% 171% 69% 46% 55% 46% 60%
Total return 24.58% 16.77% 9.38% 1.51% 36.68% (37.51%) 53.51% 5.99% 34.01% 2.31% 37.46%
Net assets, end of
period (000 omitted) $176,099 $191,415 $171,973 $194,160 $272,805 $86,342 $129,711 $118,726 $153,101 $175,687 $242,381
</TABLE>
*Annualized
(a) All per share amounts and Average Shares Outstanding During
Period on the debt table reflect a two-for-one stock split
effective August 25, 1995.
(b) For the periods indicated below, bank borrowing activity was
as follows:
Debt
outstanding Average debt Average shares Average
at end of outstanding outstanding debt per
Period period (in during period during period during
Ended thousands) (in thousands) (in thousands) period
- ------------ ----------- ------------ -------------- --------
12/31/85 -- 43 17,050 0.0026
12/31/86 -- 55 13,906 0.0039
12/31/87 -- 292 16,008 0.0183
9/30/88 -- 56 17,206 0.0033
9/30/89 -- 422 16,066 0.0263
9/30/90 200 1,042 15,944 0.0654
The Fund had no bank borrowings during any other periods.
__________________________
THE FUND
STEIN ROE CAPITAL OPPORTUNITIES FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own shares to
investors and use the money they receive to invest in a portfolio
of securities such as common stocks. A mutual fund allows you to
pool your money with that of other investors in order to obtain
professional investment management. Mutual funds generally make
it possible for you to obtain greater diversification of your
investments and simplify your recordkeeping. The Fund does not
impose commissions or charges when shares are purchased or
redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages several
other no-load mutual funds with different investment objectives,
including equity funds, international funds, taxable and tax-
exempt bond funds, and money market funds. To obtain prospectuses
and other information on opening a regular account in any of these
mutual funds, please call 800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund's investment objective is long-term capital appreciation,
which it attempts to achieve by investing in selected companies
that, in the opinion of the Adviser, offer opportunities for
capital appreciation.
The Fund pursues its objective by investing in aggressive growth
companies. An aggressive growth company, in general, is one that
appears to have the ability to increase its earnings at an above-
average rate. These may include securities of smaller emerging
companies as well as securities of well-seasoned companies of any
size that offer strong earnings growth potential. Such companies
may benefit from new products or services, technological
developments, or changes in management. Securities of smaller
companies may be subject to greater price volatility than
securities of larger companies. In addition, many smaller
companies are less well known to the investing public and may not
be as widely followed by the investment community.
Although it invests primarily in common stocks, the Fund may
invest in all types of equity securities, including preferred
stocks and securities convertible into common stocks. The Fund
may also invest up to 35% of its total assets in debt securities,
but does not currently intend to invest, nor in the past fiscal
year has it invested, more than 5% of its net assets in debt
securities rated below investment grade. Further information on
portfolio investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest in debt
securities of corporate and governmental issuers. The Fund may
invest up to 35% of its net assets in debt securities that are
rated below investment grade and that, on balance, 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. When
the Adviser deems a temporary defensive position advisable, the
Fund may invest, without limitation, in high-quality fixed income
securities, or hold assets in cash or cash equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than American
Depositary Receipts (ADRs), foreign debt securities denominated in
U.S. dollars, or securities guaranteed by a U.S. person, the Fund
is limited to investing no more than 25% of its total assets in
foreign securities. (See Risks and Investment Considerations.)
The Fund may invest in sponsored and unsponsored ADRs. In
addition to, or in lieu of, such direct investment, a Fund may
construct a synthetic foreign 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 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, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
Such a contract 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. The Fund
also may enter into foreign currency contracts as a hedging
technique to limit or reduce exposure to currency fluctuations.
In addition, the Fund may use options and futures contracts, as
described below, to limit or reduce exposure to currency
fluctuations. As of September 30, 1995, the Fund's holdings of
foreign companies, as a percentage of net assets, were 2.5% (none
in foreign securities and 2.5% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund 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 the Fund 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. The Fund 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. The Fund may make loans of its portfolio
securities to broker-dealers and banks subject to certain
restrictions described in the Statement of Additional Information.
DERIVATIVES.
Consistent with its objective, the Fund 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. The Fund 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.
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.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, the Fund 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. The Fund may write a
call or put option only if the option is covered. As the writer
of a covered call option, the Fund 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 the Fund 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.
PORTFOLIO TURNOVER.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
portfolio securities must be held. The turnover rate may vary
significantly from year to year. At times, the Fund may invest
for short-term capital appreciation. Flexibility of investment
and emphasis on capital appreciation may involve greater portfolio
turnover than that of mutual funds that have the objectives of
income or maintenance of a balanced investment position. A high
rate of portfolio turnover may result in increased transaction
expenses and the realization of capital gains and losses. (See
Financial Highlights and Distributions and Income Taxes.) The
Fund is not intended to be an income-producing investment,
although it may produce varying amounts of income.
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S. Government or repurchase agreements for such securities,
and would not prevent the Fund from investing all of its assets in
shares of another investment company having the identical
investment objective.
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. It may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
The Fund will not borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The Fund may invest in repurchase agreements,/1/ provided that the
Fund will not invest more than 15% of its net assets in repurchase
agreements maturing in more than seven days, and any other
illiquid securities.
- -----------------
/1/ A repurchase agreement involves a sale of securities to the
Fund 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, the Fund could experience both losses
and delays in liquidating its collateral.
- ------------------
The policies summarized in the first three 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 and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" of the Fund as defined in the
Investment Company Act of 1940. The Fund's investment objective
is non-fundamental and, as such, may be changed by the Board of
Trustees without shareholder approval. Any such change may result
in the Fund having an investment objective different from the
objective the shareholder considered appropriate at the time of
investment in the Fund. All of the investment restrictions are
set forth in the Statement of Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. The Fund is designed
for long-term investors who can accept the fluctuations in
portfolio value and other risks associated with seeking long-term
capital appreciation through investments in common stocks. The
Fund usually allocates its investments among a number of different
industries rather than concentrating in a particular industry or
group of industries. It may, however, under abnormal
circumstances, invest up to 25% of net assets in a particular
industry or group of industries. There can be no guarantee that
the Fund will achieve its objective.
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, 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 non-residents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
non-residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by the Adviser
for investment in another investment company having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and to
reduce costs. It is expected that any such investment company
would be managed by the Adviser in substantially the same manner
as the Fund. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be made
only if the Trustees determine it to be in the best interests of
the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until accepted
and entered on the books of the Fund. Once your purchase order
has been accepted, you may not cancel or revoke it; you may,
however, redeem the shares. The Trust reserves the right not to
accept any purchase order that it determines not to be in the best
interest of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed
quarterly. All other purchases and redemptions will be confirmed
as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The 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. (See Net Asset Value.) Because the
redemption price you receive depends upon the 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.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York Stock
Exchange (currently 3:00 p.m., Central time) by dividing the
difference between the values of the Fund's assets and liabilities
by the number of shares outstanding. Net asset value will not be
determined on days when the Exchange is closed unless, in the
judgment of the Board of Trustees, the net asset value of the Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Central 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.
Other assets and securities are valued by a method that the Board
believes represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually. The
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 twelve-month period ended October 31 in that
year. The Fund intends to distribute any undistributed net
investment income and net realized capital gains in the following
year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares of the
Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution 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. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment), plus or minus the
change in the net asset value per share for a given period. 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.
Comparison of the Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. The Fund's total return does not reflect any charges
or expenses related to your employer's plan. Of course, past
performance is not necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and other information
about the trustees and officers. The Fund's Adviser, Stein Roe &
Farnham Incorporated, One South Wacker Drive, Chicago, Illinois
60606, is responsible for managing the Fund's investment portfolio
and the business affairs of the Fund and the Trust, subject to the
direction of the Board of Trustees. The Adviser is registered as
an investment adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had 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.
Gloria J. Santella has been portfolio manager of the Fund since
October, 1994; she had been co-portfolio manager of the Fund since
March, 1991. Ms. Santella is a vice-president of the Trust and of
the Adviser, having been associated with the Adviser since 1979.
She received her B.B.A. from Loyola University in 1979 and M.B.A.
from the University of Chicago in 1983. As of September 30, 1995,
she managed $242 million in mutual fund assets. Eric S. Maddix is
associate portfolio manager of the Fund. Mr. Maddix joined the
Adviser in 1987. He received his B.B.A. degree from Iowa State
University in 1986 and his M.B.A. from the University of Chicago
in 1992.
FEES AND EXPENSES.
The investment advisory agreement relating to the Fund was
replaced on September 1, 1995, with an administrative agreement
and a management agreement. Under the terminated advisory
agreement, the annual fee was .75% of average net assets. The new
contracts call for a monthly management fee based on an annual
rate of .75% of the first $500 million, .70% of the next $500
million, .65 of the next $500 million, and .60% thereafter; and a
monthly administrative fee based on an annual rate of .15% of the
first $500 million, .125% of the next $500 million, .10% of the
next $500 million, and .075% thereafter. The fees paid by the
Fund are higher than those paid by most mutual funds. For the
year ended September 30, 1995, the fees for the Fund amounted to
.75% of average net assets.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset value and calculation of its
net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for the
Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number of
judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago, Illinois
60606, a wholly owned subsidiary of Liberty Financial, is the
agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. 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
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, 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 the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the 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, the Trust or any
particular Fund shall look only to the assets of the Trust or of
the respective Fund for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust 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 the 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 the
Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on account
of unsatisfied liability of another Fund of the Trust is also
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 Fund was unable to meet its obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about this Fund.
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE SPECIAL FUND
The Fund seeks capital appreciation by investing in securities
that are considered to have limited downside risk relative to
their potential for above-average growth, including securities of
undervalued, underfollowed, or out-of-favor companies.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated February 1, 1996,
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 the most recent financial
statements may be obtained without charge by writing to the
Secretary at P.O. Box 804058, Chicago, IL 60680 or by calling 800-
322-1130. The Statement of Additional Information contains
information relating to other series of the Stein Roe Investment
Trust that may not be available as investment vehicles for your
defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
Page
Fee Table ...............................2
Financial Highlights.....................2
The Fund.................................3
How the Fund Invests.....................4
Portfolio Investments and Strategies.....4
Restrictions on the Fund's Investments ..6
Risks and Investment Considerations .....6
How to Purchase Shares...................7
How to Redeem Shares ....................7
Net Asset Value .........................8
Distributions and Income Taxes...........8
Investment Return........................8
Management of the Fund...................9
Organization and Description of Shares..10
For More Information ...................10
__________________________
FEE TABLE
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
ANNUAL FUND OPERATING EXPENSES (as a
percentage of average net assets)
Management and Administrative Fees..........0.84%
12b-1 Fees..................................None
Other Expenses..............................0.32%
-----
Total Fund Operating Expenses ..............1.16%
-----
-----
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- ---------
$12 $37 $64 $142
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 the Fund. The Fund's transfer agency
fees were changed effective May 1, 1995, and changes in management
and administrative fees became effective on September 1, 1995.
The above table illustrates expenses that would have been borne by
investors in the last fiscal year assuming that the fee changes
had been in effect for the entire year. (Also see Management of
the Fund--Fees and Expenses.) For purposes of the Example above,
the figures assume that the percentage amounts listed for the Fund
under Annual Fund Operating Expenses remain the same in each of
the periods; that all income dividends and capital gain
distributions are reinvested in additional Fund shares; and that,
for purposes of management fee breakpoints, the Fund's net assets
remain at the same level as in the most recently completed fiscal
year. 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 the Fund's
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. These examples do
not reflect any charges or expenses related to your employer's
plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund for
the periods shown on a per-share basis and has been audited by
Arthur Andersen LLP, independent public accountants. All of the
auditors' reports were unqualified. This table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust without charge upon request, contains additional performance
information.
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $14.88 $18.41 $16.95 $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.25 0.35 0.23 0.14 0.36 0.42 0.34 0.21 0.17 0.15 0.13
Net realized and
unrealized gains
(losses) on investments 4.01 2.33 0.12 2.16 5.58 (2.10) 4.55 1.50 5.31 0.33 3.05
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 4.26 2.68 0.35 2.30 5.94 (1.68) 4.89 1.71 5.48 0.48 3.18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investmentincome (0.19) (0.34) (0.57) (0.01) (0.21) (0.39) (0.34) (0.37) (0.18) (0.21) (0.15)
Net realized capital
gains (0.54) (3.80) (3.90) -- (0.06) (2.08) (1.32) (0.31) (1.16) (1.77) (1.31)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.73) (4.14) (4.47) (0.01) (0.27) (2.47) (1.66) (0.68) (1.34) (1.98) (1.46)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $18.41 $16.95 $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54 $25.26
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.92% 0.92% 0.96% *0.99% 0.96% 1.02% 1.04% 0.99% 0.97% 0.96% 1.02%
Ratio of net
investment income to
average net assets 2.07% 1.75% 1.32% *1.31% 2.12% 2.33% 2.11% 0.99% 0.92% 0.91% 0.56%
Portfolio turnoverrate 96% 116% 103% 42% 85% 70% 50% 40% 42% 58% 41%
Total return 29.41% 14.70% 4.27% 17.94% 40.00% (8.78%) 32.18% 8.96% 27.35% 2.02% 14.60%
Net assets, end of
period (000 omitted) $278,082 $253,693 $187,997 $224,628 $322,056 $361,065 $587,259 $626,080 $1,076,818 $1,243,885 $1,201,469
</TABLE>
*Annualized
(a) For the period indicated below, bank borrowing activity was
as follows:
Debt
outstanding Average debt Average shares Average
at end of outstanding outstanding debt per
Period period (in during period during period during
Ended thousands) (in thousands) (in thousands) period
- ------------ ----------- ------------ -------------- --------
12/31/86 -- 203 15,251 0.0133
__________________________
THE FUND
STEIN ROE SPECIAL FUND (the "Fund") is a no-load, diversified
"mutual fund." Mutual funds sell their own shares to investors
and use the money they receive to invest in a portfolio of
securities such as common stocks. A mutual fund allows you to
pool your money with that of other investors in order to obtain
professional investment management. Mutual funds generally make
it possible for you to obtain greater diversification of your
investments and simplify your recordkeeping. The Fund does not
impose commissions or charges when shares are purchased or
redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages several
other no-load mutual funds with different investment objectives,
including equity funds, international funds, taxable and tax-
exempt bond funds, and money market funds. To obtain prospectuses
and other information on opening a regular account in any of these
mutual funds, please call 800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund's investment objective is to invest in securities
selected for capital appreciation. Particular emphasis is placed
on securities that are considered to have limited downside risk
relative to their potential for above-average growth--including
securities of undervalued, underfollowed or out-of-favor
companies, and companies that are low-cost producers of goods or
services, financially strong, or run by well-respected managers.
The Fund may invest in securities of seasoned, established
companies that appear to have appreciation potential, as well as
securities of relatively small, new companies. In addition, it
may invest in securities with limited marketability; new issues of
securities; securities of companies that, in the Adviser's
opinion, will benefit from management change, new technology, new
product or service development, or change in demand; and other
securities that the Adviser believes have capital appreciation
possibilities. However, the Fund does not currently intend to
invest, nor has it invested in the past fiscal year, more than 5%
of its net assets in any of these types of securities. Securities
of smaller, newer companies may be subject to greater price
volatility than securities of larger, well-established companies.
In addition, many smaller companies are less well known to the
investing public and may not be as widely followed by the
investment community.
The Fund invests primarily in common stocks and other equity-type
securities, including preferred stocks and securities convertible
into equity securities. The Fund may also invest up to 35% of its
total assets in debt securities, but it does not currently intend
to invest, nor in its past fiscal year has it invested, more than
5% of its net assets in debt securities rated below investment
grade. Further information on portfolio investments and
strategies may be found under Portfolio Investments and Strategies
in this prospectus and in the Statement of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest in debt
securities of corporate and governmental issuers. The Fund may
invest up to 35% of its net assets in debt securities that are
rated below investment grade and that, on balance, 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. When
the Adviser deems a temporary defensive position advisable, the
Fund may invest, without limitation, in high-quality fixed income
securities, or hold assets in cash or cash equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than American
Depositary Receipts (ADRs), foreign debt securities denominated in
U.S. dollars, or securities guaranteed by a U.S. person, the Fund
is limited to investing no more than 25% of its total assets in
foreign securities. (See Risks and Investment Considerations.)
The Fund may invest in sponsored and unsponsored ADRs. In
addition to, or in lieu of, such direct investment, a Fund may
construct a synthetic foreign 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 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, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
Such a contract 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. The Fund
also may enter into foreign currency contracts as a hedging
technique to limit or reduce exposure to currency fluctuations.
In addition, the Fund may use options and futures contracts, as
described below, to limit or reduce exposure to currency
fluctuations. As of September 30, 1995, the Fund's holdings of
foreign companies, as a percentage of net assets, were 7.5% (6.0%
in foreign securities and 1.5% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund 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 the Fund 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. The Fund 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. The Fund may make loans of its portfolio
securities to broker-dealers and banks subject to certain
restrictions described in the Statement of Additional Information.
DERIVATIVES.
Consistent with its objective, the Fund 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. The Fund 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.
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.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, the Fund 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. The Fund may write a
call or put option only if the option is covered. As the writer
of a covered call option, the Fund 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 the Fund 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.
PORTFOLIO TURNOVER.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
portfolio securities must be held. The turnover rate may vary
significantly from year to year. At times, the Fund may invest
for short-term capital appreciation. Flexibility of investment
and emphasis on capital appreciation may involve greater portfolio
turnover than that of mutual funds that have the objectives of
income or maintenance of a balanced investment position. A high
rate of portfolio turnover may result in increased transaction
expenses and the realization of capital gains and losses. (See
Financial Highlights and Distributions and Income Taxes.) The
Fund is not intended to be an income-producing investment,
although it may produce varying amounts of income.
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S. Government or repurchase agreements for such securities,
and would not prevent the Fund from investing all of its assets in
shares of another investment company having the identical
investment objective.
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. It may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
The Fund will not borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The Fund may invest in repurchase agreements,/1/ provided that the
Fund will not invest more than 15% of its net assets in repurchase
agreements maturing in more than seven days, and any other
illiquid securities.
- -----------------
/1/ A repurchase agreement involves a sale of securities to the
Fund 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, the Fund could experience both losses
and delays in liquidating its collateral.
- ------------------
The policy described in the third paragraph of this section and
the policy with respect to concentration of investments in any one
industry described under Risks and Investment Considerations are
fundamental policies and, as such, can be changed only with the
approval of a "majority of the outstanding voting securities" of
the Fund as defined in the Investment Company Act of 1940. The
Fund's investment objective is non-fundamental and, as such, may
be changed by the Board of Trustees without shareholder approval.
Any such change may result in the Fund having an investment
objective different from the objective the shareholder considered
appropriate at the time of investment in the Fund. All of the
investment restrictions are set forth in the Statement of
Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. The Fund is designed
for long-term investors who desire to participate in the stock
market with more investment risk and volatility than the stock
market in general, but with less investment risk and volatility
than aggressive capital appreciation funds. The Fund usually
allocates its investments among a number of different industries
rather than concentrating in a particular industry or group of
industries. It may, however, under abnormal circumstances, invest
up to 25% of net assets in a particular industry or group of
industries. (See How the Fund Invests.) There can be no
guarantee that the Fund will achieve its objective.
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, 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 non-residents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
non-residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by the Adviser
for investment in another investment company having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and to
reduce costs. It is expected that any such investment company
would be managed by the Adviser in substantially the same manner
as the Fund. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be made
only if the Trustees determine it to be in the best interests of
the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of payment by the Fund.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until accepted
and entered on the books of the Fund. Once your purchase order
has been accepted, you may not cancel or revoke it; you may,
however, redeem the shares. The Trust reserves the right not to
accept any purchase order that it determines not to be in the best
interest of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed
quarterly. All other purchases and redemptions will be confirmed
as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The 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. (See Net Asset Value.) Because the
redemption price you receive depends upon the 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.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York Stock
Exchange (currently 3:00 p.m., Central time) by dividing the
difference between the values of the Fund's assets and liabilities
by the number of shares outstanding. Net asset value will not be
determined on days when the Exchange is closed unless, in the
judgment of the Board of Trustees, the net asset value of the Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Central 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.
Other assets and securities are valued by a method that the Board
believes represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually. The
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 twelve-month period ended October 31 in that
year. The Fund intends to distribute any undistributed net
investment income and net realized capital gains in the following
year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares of the
Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution 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. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment), plus or minus the
change in the net asset value per share for a given period. 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.
Comparison of the Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. The Fund's total return does not reflect any charges
or expenses related to your employer's plan. Of course, past
performance is not necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and other information
about the trustees and officers. The Fund's Adviser, Stein Roe &
Farnham Incorporated, One South Wacker Drive, Chicago, Illinois
60606, is responsible for managing the Fund's investment portfolio
and the business affairs of the Fund and the Trust, subject to the
direction of the Board of Trustees. The Adviser is registered as
an investment adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had 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.
E. Bruce Dunn and Richard B. Peterson have been co-portfolio
managers of the Fund since 1991. Each is a vice-president of the
Trust and a senior vice president of the Adviser. Mr. Dunn has
been associated with the Adviser since 1964. He received his A.B.
degree from Yale University in 1956 and his M.B.A. from Harvard
University in 1958 and is a chartered investment counselor. Mr.
Peterson, who began his investment career at Stein Roe & Farnham
in 1965 after graduating with a B.A. from Carleton College in 1962
and the Woodrow Wilson School at Princeton University in 1964 with
a Masters in Public Administration, rejoined the Adviser in 1991
after 15 years of equity research and portfolio management
experience with State Farm Investment Management Corporation. As
of September 30, 1995, Messrs. Dunn and Peterson were responsible
for co-managing $1.4 billion in mutual fund assets.
FEES AND EXPENSES.
The investment advisory agreement relating to the Fund was
replaced on September 1, 1995, with an administrative agreement
and a management agreement. Under the terminated advisory
agreement, the annual fee was .75% of average net assets. The new
contracts call for a monthly management fee based on an annual
rate of .75% of the first $500 million, .70% of the next $500
million, .65 of the next $500 million, and .60% thereafter; and a
monthly administrative fee based on an annual rate of .15% of the
first $500 million, .125% of the next $500 million, .10% of the
next $500 million, and .075% thereafter. The fees paid by the
Fund are higher than those paid by most mutual funds. For the
year ended September 30, 1995, the fees for the Fund amounted to
.76% of average net assets.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset value and calculation of its
net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for the
Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number of
judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago, Illinois
60606, a wholly owned subsidiary of Liberty Financial, is the
agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. 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
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, 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 the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the 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, the Trust or any
particular Fund shall look only to the assets of the Trust or of
the respective Fund for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust 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 the 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 the
Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on account
of unsatisfied liability of another Fund of the Trust is also
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 Fund was unable to meet its obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about this Fund.
<PAGE> 1
Statement of Additional Information Dated February 1, 1996
STEIN ROE INVESTMENT TRUST
P.O. Box 804058, Chicago, Illinois 60680
800-338-2550
GROWTH AND INCOME FUNDS
Stein Roe Growth & Income Fund
Stein Roe Total Return Fund
GROWTH FUNDS
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
The Funds listed above are series of the Stein Roe
Investment Trust (the "Trust"). Each series of the Trust
represents shares of beneficial interest in a separate portfolio
of securities and other assets, with its own objectives and
policies. This Statement of Additional Information is not a
prospectus, but provides additional information that should be
read in conjunction with the Funds' prospectus dated February 1,
1996, and any supplements thereto ("Prospectus"). The Prospectus
may be obtained at no charge by telephoning 800-338-2550.
TABLE OF CONTENTS
General Information and History...............2
Investment Policies...........................3
Growth & Income Fund......................3
Total Return Fund.........................4
Growth Stock Fund.........................4
Special Fund..............................4
Special Venture Fund......................5
Capital Opportunities Fund................5
Portfolio Investments and Strategies..........6
Investment Restrictions......................21
Additional Investment Considerations.........24
Purchases and Redemptions....................25
Management...................................26
Financial Statements.........................29
Principal Shareholders.......................29
Investment Advisory Services.................30
Distributor..................................33
Transfer Agent...............................33
Custodian....................................34
Independent Public Accountants...............35
Portfolio Transactions.......................35
Additional Income Tax Considerations.........37
Investment Performance.......................38
Appendix--Ratings............................43
<PAGE> 2
GENERAL INFORMATION AND HISTORY
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory services and administrative services to the
Funds. Currently eight series of the Trust are authorized and
outstanding.
As used herein, "Growth & Income Fund," "Total Return Fund,"
"Growth Stock Fund," "Special Fund," "Special Venture Fund," and
"Capital Opportunities Fund" refer to the series of the Trust
designated Stein Roe Growth & Income Fund, Stein Roe Total Return
Fund, Stein Roe Growth Stock Fund, Stein Roe Special Fund, Stein
Roe Special Venture Fund, and Stein Roe Capital Opportunities
Fund, respectively, and are referred to collectively as the
"Funds." Prior to February 1, 1996, Stein Roe Growth & Income
Fund was named SteinRoe Prime Equities, Stein Roe Total Return
Fund was named SteinRoe Total Return Fund, Stein Roe Growth Stock
Fund was named SteinRoe Growth Stock Fund, Stein Roe Special Fund
was named SteinRoe Special Fund, Stein Roe Special Venture Fund
was named SteinRoe Special Venture Fund, and Stein Roe Capital
Opportunities Fund was named SteinRoe Capital Opportunities Fund.
Growth Stock Fund was named SteinRoe Stock Fund prior to February
1, 1995. The name of the Trust was changed on February 1, 1996
from SteinRoe Investment Trust to Stein Roe Investment Trust.
Each share of a series 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, the 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 the Trust's outstanding shares, the 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 the Trust were subject to Section 16(c)
of the Investment Company Act of 1940. All shares of all series
of the 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.
<PAGE> 3
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND
STRUCTURE
Each Fund may in the future seek to achieve its objective by
pooling its assets with assets of other mutual funds managed by
the Adviser for investment in another mutual fund having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. The Adviser is expected to manage any such mutual
fund in which a Fund would invest. Such investment would be
subject to determination by the Trustees that it was in the best
interests of the Fund and its shareholders, and shareholders
would receive advance notice of any such change.
INVESTMENT POLICIES
In pursuing its respective objective, each Fund will invest
as described below and may employ the investment techniques
described in its Prospectus and elsewhere in this Statement of
Additional Information. Investments and strategies that are
common to two or more Funds are described under Portfolio
Investments and Strategies. Each Fund's 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/ of that Fund.
GROWTH & INCOME FUND
This Fund's investment objective is to provide both growth
of capital and current income. It is designed for investors
seeking a diversified portfolio of securities that offers the
opportunity for long-term growth of capital while also providing
a steady stream of income.
In seeking to meet this objective, the Fund invests
primarily in well-established companies whose common stocks are
believed to have both the potential to appreciate in value and to
pay dividends to shareholders.
Although it may invest in a broad range of securities
(including common stocks, preferred stocks, securities
convertible into or exchangeable for common stocks, and warrants
or rights to purchase common stocks), normally the Fund will
emphasize investments in equity securities of companies having
market capitalizations in excess of $1 billion. Securities of
these well-established companies are believed to be generally
less volatile than those of companies with smaller
capitalizations because companies with larger capitalizations
tend to have experienced management; broad, highly diversified
product lines; deep resources; and easy access to credit.
- -----------------
/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
of the Fund are present or represented by proxy or (ii) more than
50% of the outstanding shares of the Fund.
- -----------------
<PAGE> 4
TOTAL RETURN FUND
This Fund's investment objective is to obtain current income
and capital appreciation in order to achieve maximum total return
consistent with reasonable investment risk, in the opinion of the
Adviser, through investment in a combination of equity, fixed
income and convertible securities. The percentages of Fund
assets invested in various types of securities will vary in
accordance with the judgment of the Adviser. There are no
limitations on the amount of the Fund's assets which may be
allocated to the various types of securities. Generally, the
equity portion of the Fund's portfolio will be invested in common
stocks that the Adviser believes have long-term growth
possibilities. With respect to the fixed income portion of the
portfolio, emphasis is placed on acquiring investment grade
securities.
GROWTH STOCK FUND
This Fund's investment objective is long-term capital
appreciation, which it attempts to achieve by investing, under
normal conditions, at least 65% of its total assets 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) that,
in the opinion of the Adviser, have long-term appreciation
possibilities.
The Fund's investments are selected by the Adviser.
Although the Fund invests primarily in equity securities, it may
invest up to 35% of its total assets in investment grade debt
securities.
SPECIAL FUND
This Fund's investment objective is to invest in securities
selected for possible capital appreciation. Particular emphasis
is placed on securities that are considered to have limited
downside risk relative to their potential for above-average
growth, including securities of undervalued, underfollowed or
out-of-favor companies, and companies that are low-cost producers
of goods or services, financially strong or run by well-respected
managers. The Fund may invest more than 5% of its net assets in
securities of seasoned, established companies that appear to have
appreciation potential, as well as securities of relatively
small, new companies. In addition, it may invest in securities
with limited marketability, new issues of securities, securities
of companies that, in the Adviser's opinion, will benefit from
management change, new technology, new product or service
development or change in demand, and other securities that the
Adviser believes have capital appreciation possibilities;
however, the Fund does not currently intend to invest, nor has it
invested in the past fiscal year, more than 5% of its net assets
in any of these types of securities. Securities of smaller,
newer companies may be subject to greater price volatility than
securities of larger more well-established companies. In
addition, many smaller companies are less well known to the
investing public and may not be as widely followed by the
investment community.
<PAGE> 5
The Fund will invest primarily in common stocks and other
equity-type securities, including preferred stocks and securities
convertible into equity securities. The Fund may also invest up
to 35% of its total assets in debt securities, but it does not
currently intend to invest, nor in its past fiscal year has it
invested, more than 5% of its net assets in debt securities rated
below investment grade.
SPECIAL VENTURE FUND
The Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of common stocks and other
equity-type securities (such as preferred stocks, securities
convertible or exchangeable for common stocks, and warrants or
rights to purchase common stocks) of entrepreneurially managed
companies that the Adviser believes represent special
opportunities. The Fund emphasizes investments in financially
strong small and medium-sized companies based principally on
management appraisal and stock valuation. The Adviser considers
"small" and "medium-sized" companies to be those with market
capitalizations of less than $1 billion and $1 to $3 billion,
respectively.
In both its initial and ongoing appraisals of a company's
management, the Adviser seeks to know both the principal owners
and senior management and to assess their business judgment and
strategies through personal visits. The Adviser favors companies
whose management has an owner/operator, risk-averse orientation
and a demonstrated ability to create wealth for investors.
Attractive company characteristics include unit growth, favorable
cost structures or competitive positions, and financial strength
that enables management to execute business strategies under
difficult conditions. A company is attractively valued when its
stock can be purchased at a meaningful discount to the value of
the underlying business.
CAPITAL OPPORTUNITIES FUND
This Fund's investment objective is long-term capital
appreciation, which it attempts to achieve by investing in
selected companies that, in the opinion of the Adviser, offer
opportunities for capital appreciation.
The Fund pursues its objective by investing in aggressive
growth companies. An aggressive growth company, in general, is
one that appears to have the ability to increase its earnings at
an above-average rate. These may include securities of smaller
emerging companies as well as securities of well-seasoned
companies of any size that offer strong earnings growth
potential. Such companies may benefit from new products or
services, technological developments, or changes in management.
Securities of smaller companies may be subject to greater price
volatility than securities of larger companies. In addition,
many smaller companies are less well known to the investing
public and may not be as widely followed by the investment
community.
Although it invests primarily in common stocks, the Fund may
invest in all types of equity securities, including preferred
stocks and securities convertible into common stocks. The Fund
may also invest up to 35% of its total assets in debt
<PAGE> 6
securities, but it does not currently intend to invest, nor in
its past fiscal year has it invested, more than 5% of its net
assets in debt securities rated below investment grade.
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES
In pursuing its investment objective, each Fund 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 a Fund's 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.
Investments in debt securities by Growth & Income Fund,
Total Return Fund, and Growth Stock Fund are limited to those
that are within the four highest grades (generally referred to as
"investment grade") assigned by a nationally recognized
statistical rating organization or, if unrated, deemed to be of
comparable quality by the Adviser. Special Venture Fund does not
expect to invest more than 5% of net assets in debt securities
rated with any credit rating below investment grade. Capital
Opportunities Fund and Special Fund may invest up to 35% of their
net assets in debt securities that are rated below investment
grade.
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 a Fund
is lost or reduced below investment grade, the Fund is not
required to dispose of the security, but the Adviser will
consider that fact in determining whether that Fund should
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.
When the Adviser determines that adverse market or economic
conditions exist and considers a temporary defensive position
advisable, the Funds may invest without limitation in high-
quality fixed income securities or hold assets in cash or cash
equivalents.
DERIVATIVES
Consistent with its objective, each Fund 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,
<PAGE> 7
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.
No Fund currently intends to invest, nor has any Fund during
its past fiscal year invested, more than 5% of its net assets in
any type of Derivative, except for options, futures contracts,
and futures options. (See Options and Futures in this Statement
of Additional Information.)
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
the Fund 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 Fund 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.
<PAGE> 8
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, a Fund 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 a
Fund are frequently rated investment grade, the Funds 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
(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.
DEFENSIVE INVESTMENTS
When the Adviser considers a temporary defensive position
advisable, each Fund may invest, without limitation, in high-
quality fixed income securities or hold assets in cash or cash
equivalents.
FOREIGN SECURITIES
Each Fund 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 does 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. The Funds may
invest in sponsored or unsponsored ADRs. In the case of an
unsponsored ADR, a Fund is likely to bear its proportionate share
of the expenses of the depository and it may have greater
difficulty in
<PAGE> 9
receiving shareholder communications than it would have with a
sponsored ADR. No Fund intends to invest, nor during the past
fiscal year has any Fund invested, more than 5% of its net assets
in unsponsored ADRs.
As of September 30, 1995, the Funds' holdings of foreign
companies, as a percentage of net assets, were as follows:
Growth & Income Fund, 4.4% (1.5% in foreign securities and 1.9%
in ADRs), Total Return Fund, 5.2% (1.0% in foreign securities and
4.2% in ADRs), Growth Stock Fund, 6.3% (1.2% in foreign
securities and 5.1% in ADRs), Special Fund, 7.5% (6.0% in foreign
securities and 1.5% in ADRs); Special Venture Fund, 4.9% (4.9% in
foreign securities and none in ADRs); and Capital Opportunities
Fund, 2.5% (none in foreign securities and 2.5% in ADRs).
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, a Fund'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 the 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 in 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 the Funds 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
<PAGE> 10
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.
Forward currency transactions may involve currencies of the
different countries in which the Funds may invest, and serve as
hedges against possible variations in the exchange rate between
these currencies. Currency transactions are limited to
transaction hedging 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 a Fund accruing 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 currency. Portfolio hedging allows the
Adviser to limit or reduce exposure in a foreign currency by
entering into a forward contract to sell or buy such foreign
currency (or another foreign currency that acts as a proxy for
that currency) so that the U.S. dollar value of certain
underlying foreign portfolio securities can be approximately
matched by an equivalent U.S. dollar liability. A Fund 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 a Fund 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, a Fund 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 in a Fund. A Fund may not
engage in "speculative" currency exchange transactions.
At the maturity of a forward contract to deliver a
particular currency, a Fund 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 a Fund 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 the Fund 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 a Fund is obligated to deliver.
<PAGE> 11
If a Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to
the extent that there has been movement in forward contract
prices. If a Fund 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 a Fund'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, the Fund 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, a Fund 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 the Fund of unrealized profits or force
the Fund 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 a Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it
anticipates. The cost to a Fund 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, each Fund 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 the Fund.
The Fund 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. The Fund 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. The
Fund 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, the Fund 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 the Fund 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. No Fund loaned portfolio securities during
the fiscal year ended September 30, 1995 nor does it currently
intend to loan more than 5% of its net assets.
<PAGE> 12
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE
AGREEMENTS
Each Fund 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 a Fund 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. The Funds make 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. No Fund had during its last
fiscal year, nor does any Fund currently intend to have,
commitments to purchase when-issued securities in excess of 5% of
its net assets.
Each Fund may enter into reverse repurchase agreements with
banks and securities dealers. A reverse repurchase agreement is
a repurchase agreement in which a Fund 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. No Fund entered into reverse repurchase
agreements during the fiscal year ended September 30, 1995.
At the time a Fund 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) of
the Fund having a value at least as great as the purchase price
of the securities to be purchased will be segregated on the books
of the Fund 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
Each Fund may make short sales "against the box." In a
short sale, the Fund sells a borrowed security and is required to
return the identical security to the lender. A short sale
"against the box" involves the sale of a security with respect to
which the Fund already owns an equivalent security in kind and
amount. A short sale "against the box" enables a Fund to obtain
the current market price of a security which it desires to sell
but is unavailable for settlement.
RULE 144A SECURITIES
Each Fund 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 the Fund, 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 Fund's restriction of
investing no more than 15% of its net assets in illiquid
securities. A determination of whether a
<PAGE> 13
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, the
Fund's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that the
Fund 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 a Fund's assets invested in
illiquid securities if qualified institutional buyers are
unwilling to purchase such securities. No Fund expects 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. (See
restriction (n) under Investment Restrictions.)
LINE OF CREDIT
Subject to restriction (6) under Investment Restrictions in
this Statement of Additional Information, each Fund 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.
PORTFOLIO TURNOVER
Although the Funds do 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 Fund
and Capital Opportunities Fund 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
a portfolio investment. Because of the Funds' 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 in a Fund,
if it should occur, would result in increased transaction
expenses, which must be borne by that Fund. 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.)
<PAGE> 14
OPTIONS ON SECURITIES AND INDEXES
Each Fund 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. Each Fund 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.)
A Fund will write call options and put options only if they
are "covered." For example, in the case of a call option on a
security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (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 a Fund expires, the Fund realizes a
capital gain equal to the premium received at the time the option
was written. If an option purchased by a Fund expires, the Fund
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option
may be closed out by an offsetting purchase or sale of an option
of the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when a Fund desires.
A Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to
purchase the option, the Fund will realize a capital gain or, if
it is less, the Fund will realize a capital loss. The principal
factors affecting the market value of a put or a call option
include supply and demand, interest rates, the current market
price of the underlying security or index in relation
<PAGE> 15
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 a Fund is an asset of the
Fund, valued initially at the premium paid for the option. The
premium received for an option written by a Fund is recorded as a
deferred credit. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange
or no closing price is available, at the mean between the last
bid and asked prices.
Risks Associated with Options 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 a Fund seeks to close out an option position. If a Fund
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 a Fund 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, a Fund foregoes,
during the option's life, the opportunity to profit from
increases in the market value of the security covering the call
option above the sum of the premium and the exercise price of the
call.
If trading were suspended in an option purchased or written
by a Fund, the Fund would not be able to close out the option.
If restrictions on exercise were imposed, the Fund might be
unable to exercise an option it has purchased.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each Fund 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
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/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.
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<PAGE> 16
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.
The Funds 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. A Fund 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 Fund's securities or the price of
the securities that the Fund intends to purchase. Although other
techniques could be used to reduce or increase that Fund's
exposure to stock price, interest rate and currency fluctuations,
the Fund may be able to achieve its exposure more effectively and
perhaps at a lower cost by using futures contracts and futures
options.
Each Fund will only enter into futures contracts and futures
options that are standardized and traded on an exchange, board of
trade, or similar entity, or quoted on an automated quotation
system.
The success of any futures transaction depends on 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, a Fund's
return might have been better had the transaction not been
attempted; however, in the absence of the ability to use futures
contracts, 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 a
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the
broker ("initial margin"). The margin required for a futures
contract is set by the exchange on which the 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 the Fund
upon termination of the contract, assuming all contractual
obligations have been satisfied. A Fund expects to earn interest
income on its initial margin deposits. A futures contract held
by a Fund is valued daily at the official settlement price of the
exchange on which it is traded. Each day the Fund pays or
receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known
as "marking-to-market." Variation margin paid or received by a
Fund does not represent a borrowing or loan by the Fund but is
instead settlement between the Fund and the broker of the
<PAGE> 17
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, each Fund will mark-to-market its open futures
positions.
Each Fund is also required to deposit and maintain margin
with respect to put and call options on futures contracts written
by it. Such margin deposits will vary depending on the nature of
the underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying 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, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund
realizes a capital loss. Conversely, if an offsetting sale price
is more than the original purchase price, the Fund engaging in
the transaction realizes a capital gain, or if it is less, the
Fund realizes a capital loss. The transaction costs must also be
included in these calculations.
RISKS ASSOCIATED WITH FUTURES
There are several risks associated with the use of futures
contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in
the futures contract. 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 the 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
Fund's portfolio, and, in the case of interest rate futures
contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures contract
may differ from the financial instruments held in the Fund's
portfolio. A decision as to whether, when and how to use futures
contracts involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree
because of market behavior or unexpected 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.
<PAGE> 18
Once the daily limit has been reached in a futures contract
subject to the limit, no more trades may be made on that day at a
price beyond that limit. The daily limit governs only price
movements during a particular trading day and therefore does not
limit potential losses because the limit may work to prevent the
liquidation of unfavorable positions. For example, futures
prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby
preventing prompt liquidation of positions and subjecting some
holders of futures contracts to substantial losses. Stock index
futures contracts are not normally subject to such daily price
change limitations.
There can be no assurance that a liquid market will exist at
a time when a Fund seeks to close out a futures or futures option
position. The Fund would be exposed to possible loss on the
position during the interval of inability to close, and would
continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed
above are relatively new instruments without a significant
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,
each Fund may also use those investment vehicles, provided the
Board of Trustees determines that their use is consistent with
the Fund's investment objective.
A Fund will not enter into a futures contract or purchase an
option thereon if, immediately thereafter, the initial margin
deposits for futures contracts held by that Fund plus premiums
paid by it for open futures option positions, less the amount by
which any such positions are "in-the-money," /3/ would exceed 5%
of the Fund's total assets.
When purchasing a futures contract or writing a put option
on a futures contract, a Fund must maintain with its custodian
(or broker, if legally permitted) cash or cash equivalents
(including any margin) equal to the market value of such
contract. When writing a call option on a futures contract, the
Fund similarly will maintain with its custodian cash or cash
equivalents (including any margin) equal to the amount by which
such option is in-the-money until the option expires or is closed
out by the Fund.
A Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical
relative volatility of the relationship between the portfolio and
the
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/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.
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<PAGE> 19
positions. For this purpose, to the extent the Fund has written
call options on specific securities in its portfolio, the value
of those securities will be deducted from the current market
value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," each Fund will use commodity futures or commodity
options contracts solely for bona fide hedging purposes within
the meaning and intent of 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 of a Fund, after taking into account unrealized profits
and unrealized losses on any such contracts it has entered into
[in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount (as defined in Section
190.01(x) of the Commission Regulations) may be excluded in
computing such 5%].
As long as a Fund continues to sell its shares in certain
states, the Fund's options and futures transactions will also be
subject to certain non-fundamental investment restrictions set
forth under Investment Restrictions in this Statement of
Additional Information.
TAXATION OF OPTIONS AND FUTURES
If a Fund 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 a Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
If a call or put option written by a Fund is exercised, the
premium is included in the proceeds of the sale of the underlying
security (call) or reduces the cost basis of the security
purchased (put). For cash settlement options and futures options
written by a Fund, the difference between the cash paid at
exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by a Fund was in-the-
money at the time it was written and the security covering the
option was held for more than the long-term holding period prior
to the writing of the option, any loss realized as a result of a
closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
If a Fund writes an equity call option /4/ other than a
"qualified covered call option," as defined in the Internal
Revenue Code, any loss on such option transaction, to
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/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).
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<PAGE> 20
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.
A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If a
Fund delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities.
For federal income tax purposes, a Fund generally is
required to recognize as income for each taxable year its net
unrealized gains and losses as of the end of the year on futures,
futures options and non-equity options positions ("year-end mark-
to-market"). Generally, any gain or loss recognized with respect
to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and
40% short-term, without regard to the holding periods of the
contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options
positions, the related securities and certain successor positions
thereto) may be deferred to a later taxable year. Sale of
futures contracts or writing of call options (or futures call
options) or buying put options (or futures put options) that are
intended to hedge against a change in the value of securities
held by a Fund: (1) will affect the holding period of the hedged
securities; and (2) may cause unrealized gain or loss on such
securities to be recognized upon entry into the hedge.
If a Fund were to enter into a short index future, short
index futures option or short index option position and the
Fund's portfolio were deemed to "mimic" the performance of the
index underlying such contract, the option or futures contract
position and the Fund's stock positions would be deemed to be
positions in a mixed straddle, subject to the above-mentioned
loss deferral rules.
In order for a Fund to continue to qualify for federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). In addition,
gains realized on the sale or other disposition of securities
held for less than three months must be limited to less than 30%
of the Fund's annual gross income. Any net gain realized from
futures (or futures options) contracts will be considered gain
from the sale of securities and therefore be qualifying income
for purposes of the 90% requirement. In order to avoid realizing
excessive gains on securities held less than three months, the
Fund may be required to defer the closing out of certain
positions beyond the time when it would otherwise be advantageous
to do so.
Each Fund distributes to shareholders annually any net
capital gains that have been recognized for federal income tax
purposes (including year-end mark-to-market
<PAGE> 21
gains) on options and futures transactions. Such distributions
are combined with distributions of capital gains realized on the
Fund's other investments, and shareholders are advised of the
nature of the payments.
INVESTMENT RESTRICTIONS
Each Fund operates under the following investment
restrictions. A Fund 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 Government of
the U.S. or any of its agencies or instrumentalities or
repurchase agreements for such securities, and 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,
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, 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, but this restriction shall not prevent the
Fund from (a) buying a part of an issue of bonds, debentures, or
other obligations which are publicly distributed, or from
investing up to an aggregate of 15% of its total assets (taken at
market value at the time of each purchase) in parts of issues of
bonds, debentures or other obligations of a type privately placed
with financial institutions, (b) investing in repurchase
agreements, /5/ or (c) lending portfolio securities, provided
that it may not lend
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/5/ A repurchase agreement involves the sale of securities to the
Fund, with the concurrent agreement of the seller to repurchase
the securities at the same price plus an amount representing
interest at an agreed-upon interest rate, within a specified
time, usually less than one week, but, on occasion, at a later
time. Repurchase agreements entered into by the Fund will be
fully collateralized and will be marked-to-market daily. In the
event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in
liquidating the underlying securities and losses, including: (a)
possible decline in the value of the collateral during the period
while the Fund 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.
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<PAGE> 22
securities if, as a result, the aggregate value of all securities
loaned would exceed 33% of its total assets (taken at market
value at the time of such loan) [the Funds have not lent
portfolio securities during the past year];
(6) borrow, except that it may (a) borrow up to 33 1/3% of
its total assets, taken at market value at the time of such
borrowing, as a temporary measure for extraordinary or emergency
purposes, but not to increase portfolio income (the total of
reverse repurchase agreements and such borrowings will not exceed
33 1/3% of its total assets, and the Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of its
total assets) and (b) enter into transactions in options,
futures, and options on futures;
(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 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 and, in the case of Special Fund, other than 1 and 2) are
fundamental policies and may not be changed without the approval
of a "majority of the outstanding voting securities" as defined
above. Each Fund and, in the case of Special Fund, together with
restrictions 1 and 2 above, is 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 a 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 as the
Fund. A Fund 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 the
Fund 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;
<PAGE> 23
(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 Fund's total assets (valued at time of
purchase) in the case of any one other investment company and 10%
of such assets (valued at 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) purchase or hold securities of an issuer if 5% of the
securities of such issuer are owned by those officers, trustees,
or directors of the Trust or of its investment adviser, who each
own beneficially more than 1/2 of 1% of the securities of that
issuer;
(e) mortgage, pledge, or hypothecate its assets, except as
may be necessary in connection with permitted borrowings or in
connection with options, futures, and options on futures;
(f) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in
warrants that are not listed on the New York or American stock
exchange;
(g) write an option on a security unless the option is
issued by the Options Clearing Corporation, an exchange, or
similar entity;
(h) 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);
(i) buy or sell an option on a security, a futures contract,
or an option on a futures contract unless the option, the futures
contract, or the option on the futures contract is offered
through the facilities of a recognized securities association or
listed on a recognized exchange or similar entity;
(j) 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;
(k) 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) the Fund 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 the Fund expects
to receive in a recapitalization, reorganization, or other
exchange for securities the Fund 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;
(l) invest more than 5% of its total assets (taken at
market value at the time of a particular investment) in
securities of issuers (other than issuers of federal agency
<PAGE> 24
obligations or securities issued or guaranteed by any foreign
country or asset-backed securities) that, together with any
predecessors or unconditional guarantors, have been in continuous
operation for less than three years ("unseasoned issuers");
(m) 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;
(n) invest more than 15% of its total assets (taken at
market value at the time of a particular investment) in
restricted securities /6/ and securities of unseasoned issuers;
or
(o) 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. It has worked
to build wealth for generations by being 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. 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 goal.
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.
- ----------------------------
/6/ As long as it is required to do so by the Ohio Division of
Securities, the Trust will consider a security eligible for
resale pursuant to Rule 144A under the Securities Act of 1933 to
be a restricted security.
- ----------------------------
<PAGE> 25
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.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus
under the headings How to Purchase Shares, How to Redeem Shares,
Net Asset Value, and Shareholder Services, and that information
is incorporated herein by reference. The Prospectus discloses
that you may purchase (or redeem) shares through investment
dealers, banks, or other institutions. It is the responsibility
of any such institution to establish procedures insuring the
prompt transmission to the Trust of any such purchase order. The
state of Texas has asked that the Trust disclose in its Statement
of Additional Information, as a reminder to any such bank or
institution, that it must be registered as a securities dealer in
Texas.
Each Fund's net asset value is determined 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 February, Good Friday, the last
Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or
Sunday, the NYSE will be closed on the preceding Friday or the
following Monday, respectively. Net asset value will not be
determined on days when the NYSE is closed unless, in the
judgment of the Board of Trustees, net asset value of a Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time.
The 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 the 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, the Trust reserves the right to redeem shares in any
account for their then-current value (which will be promptly paid
to the investor) if at any time the shares in the account do not
have a value of at least $1,000. An investor will be notified
that the value of his account is less than that minimum and
allowed at least 30 days to bring the value of the account up to
at least $1,000 before the redemption is processed. The
Agreement and Declaration of Trust also authorizes the Trust to
redeem shares under certain other circumstances as may be
specified by the Board of Trustees.
<PAGE> 26
The Trust reserves the right to suspend or postpone
redemptions of shares of any Fund during any period when: (a)
trading on the NYSE is restricted, as determined by the
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 such Fund not reasonably
practicable.
MANAGEMENT
The following table sets forth certain information with
respect to the trustees and officers of the Trust:
<TABLE>
<CAPTION>
Position(s) held
Name Age with the Trust Principal occupation(s) during past five years
- -------------------- -- ------------------------ -----------------------------------------------
<S> <C> <C> <C>
Gary A. Anetsberger 40 Senior Vice-President Vice-President of Stein Roe & Farnham Incorporated (the
"Adviser")
Timothy K. Armour 47 President; Trustee President of the Mutual Funds division of the Adviser and
(1)(2) Director of the Adviser since June, 1992; senior vice
president and director of marketing of Citibank Illinois
prior thereto
Jilaine Hummel Bauer 40 Executive Vice-President; Senior Vice President (since April, 1992) and Assistant
Secretary Secretary of the Adviser; vice president of the Adviser,
prior thereto
Bruno Bertocci 41 Vice-President Employee of Colonial Management Associates, Inc. since
January, 1996; senior vice president of the Adviser since
May, 1995; global equity portfolio manager with Rockefeller
& Co. prior thereto
Kenneth L. Block (3) 75 Trustee Chairman Emeritus of A. T. Kearney, Inc. (international
management consultants)
William W. Boyd (3) 70 Trustee Chairman and Director of Sterling Plumbing Group, Inc.
(manufacturer of plumbing products) since 1992; chairman,
president, and chief executive officer of Sterling Plumbing
Corporation prior thereto
N. Bruce Callow 50 Executive Vice-President President of the Investment Counsel division of the Adviser
since June, 1994; senior vice president of trust and
financial services for The Northern Trust prior thereto
Daniel K. Cantor 36 Vice-President Senior Vice President of the Adviser
<PAGE> 27
Robert A. Christensen 62 Vice-President Senior Vice President of the Adviser
Lindsay Cook (1) 43 Trustee Senior Vice President of Liberty Financial Companies, Inc.
(the indirect parent of the Adviser)
E. Bruce Dunn 61 Vice-President Senior Vice President of the Adviser
Erik P. Gustafson 32 Vice-President Vice President of the Adviser since May, 1994; associate of
the Adviser from April, 1992 to May, 1994; associate
attorney with Fowler White Burnett Hurley Banick &
Strickroot prior thereto
David P. Harris 31 Vice-President Employee of Colonial Management Associates, Inc. since
January, 1996;vice president of the Adviser since May, 1995;
global equity portfolio manager with Rockefeller & Co. prior
thereto
Philip D. Hausken 37 Vice-President Corporate Counsel for the Adviser since July, 1994;
assistant regional director, midwest regional office of the
Securities and Exchange Commission prior thereto
Harvey B. Hirschhorn 46 Vice-President Executive Vice President, Chief Economist & Investment
Strategist, and Director of Research Services of the Adviser
Stephen P. Lautz 38 Vice-President Vice President of the Adviser since May, 1994; associate of
the Adviser prior thereto
Eric S. Maddix 32 Vice-President Portfolio Manager for the Adviser
Lynn C. Maddox 55 Vice-President Senior Vice President of the Adviser
Anne E. Marcel 38 Vice-President Manager, Mutual Fund Sales & Services of the Adviser since
October, 1994; supervisor of the Counselor Department of the
Adviser from October, 1992 to October, 1994; vice president
of Selected Financial Services from May, 1990 to March, 1992
Francis W. Morley (3) 75 Trustee Chairman of Employer Plan Administrators and Consultants Co.
(designer, administrator, and communicator of employee
benefit plans)
Charles R. Nelson (3) 53 Trustee Professor, Department of Economics of the University of
Washington
Nicolette D. Parrish 46 Vice-President; Senior Compliance Administrator for the Adviser since
Assistant Secretary November, 1995; senior legal assistant for the Adviser prior
thereto
Richard B. Peterson 55 Vice-President Senior Vice President of the Adviser since June, 1991;
officer of State Farm Investment Management Corporation prior
thereto
Sharon R. Robertson 34 Controller Accounting Manager for the Adviser's Mutual Funds division
Janet B. Rysz 40 Assistant Secretary Assistant Secretary of the Adviser
Gloria J. Santella 38 Vice-President Vice President of the Adviser since January, 1992; associate
of the Adviser prior thereto
<PAGE> 28
Thomas P. Sorbo 35 Vice-President Senior Vice President of the Adviser since January, 1994;
vice president of the Adviser from September, 1992 to
December, 1993; associate of Travelers Insurance Company
prior thereto
Gordon R. Worley 76 Trustee Private investor
(2) (3)
Hans P. Ziegler 54 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 29 Treasurer Compliance Manager for the Adviser's Mutual Funds division
since August 1995; Compliance Accountant, January 1995 to
July 1995; Section Manager, January 1994 to January 1995;
Supervisor, February 1990 to December 1993
</TABLE>
_________________________
(1) Trustee who is an "interested person" of the 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.
Certain of the trustees and officers of the Trust are
trustees or officers of other investment companies managed by the
Adviser. Ms. Bauer and Mr. Cook are vice presidents of the
Fund's distributor, Liberty Securities Corporation. The address
of Mr. Block is 11 Woodley Road, Winnetka, Illinois 60093; that
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. Morley is 20 North Wacker Drive, Suite 2275,
Chicago, Illinois 60606; that of Mr. Nelson is Department of
Economics, University of Washington, Seattle, Washington 98195;
that of Mr. Worley is 1407 Clinton Place, River Forest, Illinois
60305; 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 the Trust. In compensation for
their services to the Trust, trustees who are not "interested
persons" of the Trust or the Adviser are paid an annual retainer
of $8,000 (divided equally among the Funds of the Trust) plus an
attendance fee from each Fund for each meeting of the Board or
committee thereof attended at which business for that Fund is
conducted. The attendance fees (other than for a Nominating
Committee meeting) are based on each Fund's net assets as of the
preceding December 31. For a Fund with net assets of less than
$251 million, the fee is $200 per meeting; with $251 million to
$500 million, $350; with $501 million to $750 million, $500; with
$750 million to $1 billion, $650; and with over $1 billion in net
assets, $800. Each non-interested trustee also receives an
aggregate of $500 for attending each meeting of the Nominating
Committee. The Trust has no retirement or pension plans. The
<PAGE> 29
following table sets forth compensation paid by the Trust during
the fiscal year ended September 30, 1995 to each of the trustees:
Aggregate Total Compensation Paid
Compensation to Trustees from the Trust
Name of from the and the Stein Roe Fund
Trustee* Trust Complex**
------------ ------------ ---------------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Alfred F. Kugel -0- -0-
Kenneth L. Block $26,800 $66,400
William W. Boyd 22,050 58,650
Francis W. Morley 26,200 66,000
Charles R. Nelson 28,550 68,350
Gordon R. Worley 26,200 66,000
_______________
* Messrs. Armour, Boyd, and Cook were not elected trustees of
the Trust until January 17, 1995. Mr. Kugel was an
affiliated trustee through January 17, 1995.
** During this period, the Stein Roe Fund Complex consisted of
the six series of Stein Roe Income Trust, four series of
Stein Roe Municipal Trust, eight series of Stein Roe
Investment Trust, and one series of SR&F Base Trust.
FINANCIAL STATEMENTS
Please refer to the Funds' September 30, 1995 Financial
Statements (balance sheets and schedules of investments as of
September 30, 1995 and the statements of operations, changes in
net assets, and notes thereto) and the report of independent
public accountants contained in the September 30, 1995 Annual
Report of the Funds. 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 800-338-2550.
PRINCIPAL SHAREHOLDERS
As of October 31, 1995, the only persons known by the Trust
to own of record or "beneficially" 5% or more of the outstanding
shares of a Fund within the definition of that term as contained
in Rule 13d-3 under the Securities Exchange Act of 1934 were as
follows:
APPROXIMATE
PERCENTAGE OF
OUTSTANDING
NAME AND ADDRESS FUND SHARES HELD
- ----------------- ------------- ------------
First Bank National Growth & Income Fund 17.0%
Association* Total Return Fund 20.1
410 N. Michigan Avenue Growth Stock Fund 18.2
Chicago, IL 60611 Special Fund 17.3
Capital Opportunities Fund 18.9
Charles Schwab & Co., Inc.* Growth & Income Fund 19.7
Attn: Mutual Fund Dept. Total Return Fund 11.6
101 Montgomery Street Special Fund 17.7
San Francisco, CA 94104 Capital Opportunities Fund 18.3
___________________
<PAGE> 30
*Shares held of record, but not beneficially.
The following table shows shares of the Funds held by the
categories of persons indicated, and in each case the approximate
percentage of outstanding shares represented:
CLIENTS OF THE
ADVISER IN THEIR TRUSTEES AND
CLIENT ACCOUNTS OFFICERS
AS OF 10/31/95 AS OF 10/31/95
--------------- ----------------
SHARES SHARES
HELD PERCENT HELD PERCENT
------ ------- ------- --------
Growth & Income Fund 1,630,338 19.5% 30,603 **
Total Return Fund 607,786 7.5 13,657 **
Growth Stock Fund 1,057,067 7.7 50,587 **
Special Fund 5,774,609 12.4 169,317 **
Special Venture Fund 3,617,364 73.6 38,143 **
Capital Opportunities
Fund 1,312,559 11.6 97,609 **
______________
*The Adviser may have discretionary authority over such shares
and, accordingly, they could be deemed to be owned
"beneficially" by the Adviser under Rule 13d-3. However, the
Adviser disclaims actual beneficial ownership of such shares.
**Represents less than 1% of the outstanding shares.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated, investment adviser to the
Funds, is a wholly owned subsidiary of SteinRoe Services Inc.
("SSI"), the Funds' transfer agent, which is a wholly owned
subsidiary of Liberty Financial Companies, Inc., which is a
majority owned subsidiary of Liberty Mutual Equity Corporation,
which is a wholly owned subsidiary of Liberty Mutual Insurance
Company ("Liberty Mutual"). Liberty Mutual 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 Gary L. Countryman, Kenneth
R. Leibler, Timothy K. Armour, N. Bruce Callow, and Hans P.
Ziegler. Mr. Countryman is Chairman and Chief Executive Officer
of Liberty Mutual Insurance Company; Mr. Leibler is President and
Chief Executive Officer of Liberty Financial Companies; Mr.
Armour is President of the Adviser's Mutual Funds division; Mr.
Callow is President of the Adviser's Investment Counsel division;
and Mr. Ziegler is Chief Executive Officer of the Adviser. The
business address of Mr. Countryman is 175 Berkeley Street,
Boston, Massachusetts 02117; that of Mr. Leibler is Federal
Reserve Plaza, Boston, Massachusetts 02210; and that of Messrs.
Armour, Callow, 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 September 30, 1995, the Adviser
managed over $22.9 billion in assets: over $5.5 billion in
equities and over $17.4 billion in fixed income securities
(including $2.3 billion in municipal securities). The $22.9
billion in managed assets included over $5.7 billion held by
open-end mutual funds managed by the Adviser
<PAGE> 31
(approximately 21% of the mutual fund assets were held by clients
of the Adviser). These mutual funds were owned by over 148,000
shareholders. The $5.7 billion in mutual fund assets included
over $570 million in over 33,000 IRA accounts. In managing those
assets, the Adviser utilizes a proprietary computer-based
information system that maintains and regularly updates
information for approximately 6,500 companies. The Adviser also
monitors over 1,400 issues via a proprietary credit analysis
system. At September 30, 1995, the Adviser employed 17 research
analysts and 36 account managers. The average investment-related
experience of these individuals was 20 years.
Stein Roe Counselor [SERVICE MARK] and Stein Roe Counselor
Preferred [SERVICE MARK] are professional investment advisory
services offered to Fund shareholders. Each is designed to help
shareholders construct Fund investment portfolios to suit their
individual needs. Based on information shareholders provide
about their financial circumstances, goals, and objectives in
response to a questionnaire, the Adviser's investment
professionals create customized portfolio recommendations for
investments in the Funds and other mutual funds managed by the
Adviser. Shareholders participating in Stein Roe Counselor
[SERVICE MARK] are free to self direct their investments while
considering the Adviser's recommendations; shareholders
participating in Stein Roe Counselor Preferred [SERVICE MARK]
enjoy the added benefit of having the Adviser implement portfolio
recommendations automatically for a fee of 1% or less, depending
on the size of their portfolios. In addition to reviewing
shareholders' circumstances, goals, and objectives periodically
and updating portfolio recommendations to reflect any changes,
the shareholders who participate in these programs are assigned a
dedicated Counselor [SERVICE MARK] representative. Other
distinctive services include specially designed account
statements with portfolio performance and transaction data,
newsletters, and regular investment, economic, and market
updates. A $50,000 minimum investment is required to participate
in either program.
Please refer to the description of the Adviser, advisory
agreements, management agreement, administrative agreement, fees,
expense limitations, and transfer agency services under Fee Table
and Management of the Funds in the Prospectus, which is
incorporated herein by reference. Except for Special Venture
Fund, each Fund's shareholders voted to replace its investment
advisory agreement with a management agreement and an
administrative agreement effective September 1, 1995. The table
below shows gross fees paid by the Funds for the three most
recent fiscal years and any expense reimbursements to them by the
Adviser:
<PAGE> 32
YEAR YEAR YEAR
TYPE OF ENDED ENDED ENDED
FUND PAYMENT 9/30/95 9/30/94 9/30/93
- ------------------- ------------- --------- ---------- ----------
Growth & Income Fund Advisory fee $ 680,210 $ 688,242 $ 498,157
Administrative
and management
fee 84,030 N/A N/A
Total Return Fund Advisory fee 1,131,735 1,262,296 1,097,007
Administrative
and management
fee 131,565 N/A N/A
Growth Stock Fund Advisory fee 2,177,363 2,544,530 2,850,075
Administrative
and management
fee 219,495 N/A N/A
Special Fund Advisory fee 8,268,281 8,804,952 6,238,784
Administrative
and management
fee 841,041 N/A N/A
Special Venture Fund Advisory fee 295,409 N/A N/A
Reimbursement 127,482 N/A N/A
Capital Opportuni- Advisory fee 1,303,175 1,240,569 949,563
ties Fund Administrative
and management
fee 175,449 N/A N/A
The Adviser provides office space and executive and other
personnel to the Funds, and bears any sales or promotional
expenses. Each 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 investment advisory agreement relating to Special
Venture Fund and the administrative agreement relating to the
other Funds provide that the Adviser shall reimburse the Fund to
the extent that total annual expenses of the Fund (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 shares of the Fund are
being offered for sale to the public; provided, however, the
Adviser is not required to reimburse a Fund an amount in excess
of the management fee from the Fund for such year. The Trust
believes that currently the most restrictive state limit on
mutual fund expenses is that of California, which limit currently
is 2 1/2% of the first $30 million of average net assets, 2% of
the next $70 million, and 1 1/2% thereafter. In addition, in the
interest of further limiting expenses of a Fund, the Adviser may
voluntarily waive its management fee and/or absorb certain
expenses for a Fund, as described under Fee Table in the
Prospectus. Any such reimbursement will enhance the yield of
such Fund.
The advisory agreement and management agreement provide that
neither the Adviser, nor any of its directors, officers,
stockholders (or partners of stockholders), agents, or employees
shall have any liability to the Trust or any shareholder of the
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
<PAGE> 33
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 Fund shall be paid
solely out of that Fund's assets. Any expenses incurred by the
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 a separate agreement with the Trust, the Adviser
receives a fee for performing certain bookkeeping and accounting
services for each Fund. For these services, 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 September
30, 1995, the Adviser received aggregate fees of $162,677 from
the Trust for services performed under this Agreement.
DISTRIBUTOR
Shares of each Fund are distributed by Liberty Securities
Corporation ("LSC") under a Distribution Agreement as described
under Management of the Funds in the Prospectus, which is
incorporated herein by reference. 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 the Trust, and
(ii) by a majority of the trustees who are not parties to the
Agreement or interested persons of any such party. The 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. The Adviser
bears all sales and promotional expenses, including payments to
LSC for the sales of Fund shares. The Adviser also makes
payments to other broker-dealers, banks, and other institutions
for the sales of Fund shares of 0.20% of the annual average value
of accounts of such shares.
As agent, LSC offers shares of each Fund to investors in
states where the shares are qualified for sale, at net asset
value, without sales commissions or other sales load to the
investor. In addition, no sales commission or "12b-1" payment is
paid by any Fund. LSC offers the Funds' shares only on a best-
efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for the Trust,
as described under Management of the Funds in the Prospectus.
For performing these services, SSI receives from each Fund a fee
based on an annual rate of .22 of 1% of the Fund's average net
assets. Prior to May 1, 1995, SSI received the following
payments from each Fund: (1) a fee of $4.00 for each new account
opened; (2) monthly payments of $1.063 per open
<PAGE> 34
shareholder account; (3) payments of $0.367 per closed
shareholder account for each month through June of the calendar
year following the year in which the account is closed; (4)
$0.3025 per shareholder account for each dividend paid; and (5)
$1.415 for each shareholder-initiated transaction. The Trust
believes the charges by SSI to the Funds are comparable to those
of other companies performing similar services. (See Investment
Advisory Services.)
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian
for the Trust. It is responsible for holding all securities and
cash of the Funds, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering
expenses of the Funds, and performing other administrative
duties, all as directed by authorized persons. The custodian
does not exercise any supervisory function in such matters as
purchase and sale of portfolio securities, payment of dividends,
or payment of expenses of the Funds.
Portfolio securities purchased in the U.S. are maintained in
the custody of the Bank or 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 reviews, at least annually, whether it
is in the best interest of each Fund and its shareholders to
maintain Fund assets in each of the countries in which the Fund
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 Fund 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. The Board of Trustees is aided in its review by the
Bank, which has assembled the network of foreign sub-custodians
utilized by the Funds, as well as by the Adviser and counsel.
However, with respect to foreign sub-custodians, there can be no
assurance that a Fund, and the value of its shares, will not be
adversely affected by acts of foreign governments, financial or
operational difficulties of the foreign sub-custodians,
difficulties and costs of obtaining jurisdiction over, or
enforcing judgments against, the foreign sub-custodians, or
application of foreign law to a Fund's foreign 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.
The Funds may invest in obligations of the custodian and may
purchase or sell securities from or to the custodian.
<PAGE> 35
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Trust are Arthur
Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603.
The accountants audit and report on the Funds' annual financial
statements, review certain regulatory reports and the Funds'
federal income tax returns, and perform other professional
accounting, auditing, tax and advisory services when engaged to
do so by the Trust.
PORTFOLIO TRANSACTIONS
The Adviser places the orders for the purchase and sale of
each Fund's 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, a Fund 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
a Fund, 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 the Funds, 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
<PAGE> 36
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
proportions 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 the Funds), while
the portions 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 a Fund 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. 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 the Funds.
With respect to a Fund's 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 the Fund.
The table below shows information on brokerage commissions
paid by the Funds:
<TABLE>
<CAPTION>
GROWTH & TOTAL GROWTH SPECIAL CAPITAL
INCOME RETURN STOCK SPECIAL VENTURE OPPORTUNITIES
FUND FUND FUND FUND FUND FUND
--------- -------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total amount of
brokerage commissions
paid during fiscal
year ended 9/30/95 $ 249,668 $ 123,109 $ 311,583 $ ,728,795 $ 137,260 $ 226,682
Amount of commissions
paid to brokers or
dealers who supplied
research services to
the Adviser 228,248 123,109 301,411 1,581,227 109,997 213,242
Total dollar amount
involved in such
transactions 119,706,805 65,285,929 201,679,220 734,581,006 40,345,000 97,106,560
Amount of commissions
paid to brokers or
dealers that were
allocated to such
brokers or dealers
by the Fund's portfolio
manager because of
research services
provided to the Fund 34,338 27,050 97,685 373,980 15,421 65,281
Total dollar amount
involved in such
transactions 17,360,000 18,050,000 55,816,000 216,728,000 6,414,000 34,322,000
Total amount of
brokerage commissions
paid during fiscal
year ended 9/30/94 260,263 85,902 275,659 1,915,383 N/A 176,246
Total amount of
brokerage commissions
paid during fiscal year
ended 9/30/93 132,301 169,445 264,423 1,091,659 N/A 145,280
</TABLE>
<PAGE> 37
The Trust has arranged for its 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
Fund 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 Fair Practice of the National
Association of Securities Dealers.
ADDITIONAL INCOME TAX CONSIDERATIONS
Each Fund intends 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.
Each Fund expects that less than 100% of its dividends will
qualify for the deduction for dividends received by corporate
shareholders.
To the extent a Fund invests in foreign securities, it may
be subject to withholding and other taxes imposed by foreign
countries. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Investors may be
entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in
the Code. Specifically, if more than 50% of the Fund's total
assets at the close of any fiscal year consist of stock or
securities of foreign corporations, the Fund may file an election
with the Internal Revenue Service pursuant to which shareholders
of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their
pro rata shares of foreign income taxes paid by the Fund even
though not actually received, (ii) treat such respective pro rata
shares as foreign income taxes paid by them, and (iii) deduct
such pro rata shares in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to
applicable limitations, against their United States income taxes.
Shareholders who do not itemize deductions for federal income tax
purposes will not, however, be able to deduct their pro rata
portion of foreign taxes paid by the Fund, although such
shareholders will be required to include their share of such
taxes in gross income. Shareholders who claim a foreign tax
credit may be required to treat a portion of dividends received
from the Fund as separate category income for purposes of
computing the limitations on the foreign tax credit available to
such shareholders. Tax-exempt shareholders will not ordinarily
benefit from this election
<PAGE> 38
relating to foreign taxes. Each year, the Fund will notify
shareholders of the amount of (i) each shareholder's pro rata
share of foreign income taxes paid by the Fund and (ii) the
portion of Fund dividends which represents income from each
foreign country, if the Fund qualifies to pass along such credit.
INVESTMENT PERFORMANCE
A Fund may quote certain total return figures from time to
time. A "Total Return" on a per share basis is the amount of
dividends distributed per share plus or minus the change in the
net asset value per share for a period. A "Total Return
Percentage" may be calculated by dividing the value of a share 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.
Average Annual Total Return is computed as follows:
n
ERV = P(1+T)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the end
of the period (or fractional portion thereof).
For example, for a $1,000 investment in a Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at September 30, 1995 were:
TOTAL TOTAL RETURN AVERAGE ANNUAL
RETURN RETURN PERCENTAGE TOTAL RETURN
------- ----------------- -------------
Growth & Income Fund
1 year $1,211 21.12% 21.12%
5 years 2,104 110.36 16.04
Life of Fund* 2,358 135.83 10.60
Total Return Fund
1 year 1,145 14.49 14.49
5 years 1,897 89.70 13.66
10 years 2,993 199.26 11.58
Growth Stock Fund
1 year 1,282 28.18 28.18
5 years 2,149 114.94 16.54
10 years 3,946 294.61 14.71
Special Fund
1 year 1,146 14.60 14.60
5 years 2,145 114.46 16.48
10 years 4,507 350.72 16.25
Special Venture Fund
Life of Fund* 1,270 26.96 N/A
<PAGE> 39
Capital Opportunities Fund
1 year 1,375 37.46 37.46
5 years 3,066 206.63 25.12
10 years 3,984 298.42 14.82
______________________________________
*Life of Fund is from its date of public offering: 3/23/87 for
Growth & Income Fund and 10/17/94 for Special Venture Fund.
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. They are not necessarily indicative of
future results. The performance of a Fund is a result of
conditions in the securities markets, portfolio management, and
operating expenses. Although investment performance information
is useful in reviewing a Fund's performance and in providing some
basis for comparison with other investment alternatives, it
should not be used for comparison with other investments using
different reinvestment assumptions or time periods.
In advertising and sales literature, a Fund may compare its
performance with that of other mutual funds, indexes or averages
of other mutual funds, indexes of related financial assets or
data, and other competing investment and deposit products
available from or through other financial institutions. The
composition of these indexes or averages differs from that of the
Funds. Comparison of a 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 the Funds
believe to be generally accurate. A Fund may also note its
mention or recognition in newspapers, magazines, or other media
from time to time. However, the Funds assume no responsibility
for the accuracy of such data. Newspapers and magazines which
might mention the Funds include, but are not limited to, the
following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Barron's
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
Crain's Chicago Business
Consumer Reports
Consumer Digest
Financial World
Forbes
Fortune
Fund Action
Gourmet
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Los Angeles Times
Money
Mutual Fund Letter
Mutual Fund News Service
Mutual Fund Values (Morningstar)
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
<PAGE> 40
The San Francisco Chronicle
Smart Money
Smithsonian
Stanger's Investment Adviser
Time
Travel & Leisure
United Mutual Fund Selector
USA Today
U.S. News and World Report
The Wall Street Journal
Working Women
Worth
Your Money
All of the Funds may compare their performance to the
Consumer Price Index (All Urban), a widely recognized measure of
inflation.
Each Fund's performance 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 the
recognized indicators of general performance of stocks traded in the
U.S. stock market results.) indicated markets.)
In addition, the Funds may compare performance as indicated
below:
<TABLE>
<CAPTION>
BENCHMARK FUND(S)
<S> <C>
Value Line Index Capital Opportunities Fund,
(Widely recognized indicator of the Special Fund, Special Venture Fund
performance of small- and medium-sized
company stocks)
Lipper Capital Appreciation Fund Average Capital Opportunities Fund
Lipper Equity Funds Average All
Lipper Equity Income Funds Average Growth & Income Fund, Total Return Fund
Lipper General Equity Funds Average All
Lipper Growth & Income Funds Average Growth & Income Fund, Total Return Fund
Lipper Growth & Income Fund Index Growth & Income Fund, Total Return Fund
Lipper Growth Fund Index Growth & Income Fund, Growth Stock Fund, Special Fund,
Special Venture Fund, Capital Opportunities Fund,
Lipper Growth Funds Average Special Fund, Special Venture Fund, Growth Stock Fund
ICD Aggressive Growth and Long-Term
Growth Funds Average Growth & Income Fund, Growth Stock Fund, Special Fund,
Special Venture Fund, Capital Opportunities Fund
ICD Aggressive Growth Fund Large Index Capital Opportunities Fund, Special Fund, Special Venture
Fund
ICD Aggressive Growth Fund Small Index Capital Opportunities Fund, Special Fund, Special Venture
Fund
<PAGE> 41
ICD Aggressive Growth Funds Average Special Fund, Special Venture Fund, Capital Opportunities
Fund
ICD All Equity Funds Average Growth Stock Fund, Special Fund, Special Venture Fund,
Capital Opportunities Fund
ICD Balanced Funds Average Growth & Income Fund, Total Return Fund
ICD Balance Funds Index Total Return Fund
ICD Both Equity Funds Average Growth & Income Fund, Total Return Fund
ICD General Equity Average* All
ICD Growth & Income Funds Average Growth & Income Fund, Total Return Fund
ICD Growth & Income Funds Index Growth & Income Fund, Total Return Fund
ICD Long-Term Growth Funds Average Growth & Income Fund, Capital Opportunities Fund, Growth
Stock Fund, Special Fund, Special Venture Fund
ICD Long-Term Growth Funds Index Growth & Income Fund, Capital Opportunities Fund, Growth
Stock Fund, Special Fund, Special Venture Fund
ICD Total Return Funds Average Growth & Income Fund, Total Return Fund
ICD Total Return Funds Index Total Return Fund
Morningstar Aggressive Growth Average Capital Opportunities Fund
Morningstar All Equity Funds Average Growth Stock Fund, Special Fund, Special Venture Fund,
Capital Opportunities Fund
Morningstar Equity Fund Average All
Morningstar Equity Income Average Total Return Fund
Morningstar Balanced Average Total Return Fund
Morningstar Both Equity Funds Average Growth & Income Fund, Total Return Fund
Morningstar General Equity Average** All
Morningstar Growth and Income Average Growth & Income Fund, Total Return Fund
Morningstar Growth Average Growth & Income Fund, Special Fund, Special Venture Fund,
Growth Stock Fund
Morningstar Hybrid Fund Average All
Morningstar U.S. Diversified Average All
*Includes ICD Aggressive Growth,
Growth & Income, Long-Term Growth,
and Total Return averages.
**Includes Morningstar Aggressive Growth,
Growth, Balanced, Equity Income, and
Growth & Income averages.
</TABLE>
<PAGE> 42
The ICD Indexes reflect the unweighted average total return
of the largest twenty funds within their respective category as
calculated and published by ICD.
The Lipper averages are unweighted averages of total return
performance as classified, calculated, and published by Lipper.
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, ICD, 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. The Funds
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
a Fund to a different category or develop (and place a Fund into)
a new category, that Fund may compare its performance or ranking
with those of other funds in the newly assigned category, as
published by the service.
A 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 the Fund's 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, the Funds 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
_____________________
A Fund may also use hypothetical returns to be used as an
example in a mix of asset allocation strategies. One such
example is reflected in the chart below, which shows the effect
of tax deferral on a hypothetical investment. This chart assumes
that an investor invested $2,000 a year on January 1, for any
specified period, in both a
<PAGE> 43
Tax-Deferred Investment and a Taxable Investment, that both
investments earn either 6%, 8% or 10% compounded annually, and
that the investor withdrew the entire amount at the end of the
period. (A tax rate of 39.6% is applied annually to the Taxable
Investment and on the withdrawal of earnings on the Tax-Deferred
Investment.)
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
INTEREST RATE 6% 8% 10% 6% 8% 10%
Compounding
Years Tax-Deferred Investment Taxable Investment
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 150,484 82,067 97,780 117,014
20 62,943 75,543 91,947 59,362 68,109 78,351
15 41,684 47,304 54,099 40,358 44,675 49,514
10 24,797 26,820 29,098 24,453 26,165 28,006
5 11,178 11,613 12,072 11,141 11,546 11,965
1 2,072 2,096 2,121 2,072 2,096 2,121
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.
From time to time, a Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe Counselor
[SERVICE MARK] and the Stein Roe Counselor Preferred [SERVICE
MARK] programs and asset allocation and other investment
strategies.
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 a 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
<PAGE> 44
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.
<PAGE> 45
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.
<PAGE> 46
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.
<PAGE> 1
Statement of Additional Information Dated February 1, 1996
STEIN ROE INVESTMENT TRUST
P.O. Box 804058, Chicago, Illinois 60680
800-338-2550
STEIN ROE INTERNATIONAL FUND
The Stein Roe International Fund is a series of the Stein
Roe Investment Trust (the "Trust"). Each series of the Trust
represents shares of beneficial interest in a separate portfolio
of securities and other assets, with its own objectives and
policies. This Statement of Additional Information is not a
prospectus, but provides additional information that should be
read in conjunction with the Fund's prospectus dated February 1,
1996, and any supplements thereto ("Prospectus"). The Prospectus
may be obtained at no charge by telephoning 800-338-2550.
TABLE OF CONTENTS
Page
General Information and History................2
Investment Policies............................3
Portfolio Investments and Strategies...........4
Investment Restrictions.......................18
Additional Investment Considerations..........22
Purchases and Redemptions.....................22
Management....................................23
Financial Statements..........................26
Principal Shareholders........................27
Investment Advisory Services..................27
Distributor...................................30
Transfer Agent................................30
Custodian.....................................30
Independent Public Accountants................31
Portfolio Transactions........................31
Additional Income Tax Considerations..........33
Investment Performance........................34
Appendix--Ratings.............................39
<PAGE> 2
GENERAL INFORMATION AND HISTORY
As used herein, "the Fund" refers to the series of the Trust
designated Stein Roe International Fund. Currently eight series
are authorized and outstanding. On February 1, 1996, the name of
the Trust was changed from SteinRoe Investment Trust to Stein Roe
Investment Trust and the name of the Fund was changed from
SteinRoe International Fund to Stein Roe International Fund.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory and administrative services to the Fund
through its Global Capital Management Division.
Each share of a series 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, the 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 the Trust's outstanding shares, the 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 the Trust were subject to Section 16(c)
of the Investment Company Act of 1940. All shares of all series
of the 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
The Fund may in the future seek to achieve its objective by
pooling its assets with assets of other mutual funds managed by
the Adviser for investment in another mutual fund having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. The Adviser is expected to manage any such mutual
fund in which a Fund would invest. Such investment would be
subject to determination by the Trustees that it was in the best
interests of the Fund and its shareholders, and shareholders
would receive advance notice of any such change.
<PAGE> 3
INVESTMENT POLICIES
In pursuing its objective, the Fund will invest as described
below and may employ the investment techniques described in the
Prospectus and under Portfolio Investments and Strategies in this
Statement of Additional Information. The Fund's investment
objective is non-fundamental and may be changed by the Board of
Trustees without the approval of a "majority of the outstanding
voting securities" /1/ of the Fund. In pursuing its investment
objective, the Fund may invest in debt securities. Investments
in debt securities are limited to those 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 (referred to as "investment grade"). If
the rating of a security held by the Fund is lost or reduced, the
Fund is not required to sell the security, but the Adviser will
consider such fact in determining whether the Fund should
continue to hold the security.
The Fund's investment objective is to seek long-term growth
of capital by investing primarily in a diversified portfolio of
foreign securities. Current income is not a primary factor in
the selection of portfolio securities. The Fund invests
primarily in common stocks and other equity-type securities (such
as preferred stocks, securities convertible or exchangeable for
common stocks, and warrants or rights to purchase common stocks).
The Fund 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.
The Fund diversifies its investments among several countries
and does not concentrate investments in any particular industry.
In pursuing its objective, the Fund varies the geographic
allocation and types of securities in which it invests based on
the Adviser's continuing evaluation of economic, market, and
political trends throughout the world. While the Fund has not
established limits on geographic asset distribution, it
ordinarily invests in the securities markets of at least three
countries outside the United States, including but not limited to
Western European countries (such as Belgium, France, Germany,
Ireland, Italy, The Netherlands, the countries of Scandinavia,
Spain, Switzerland, and the United Kingdom); countries in the
Pacific Basin (such as Australia, Hong Kong, Japan, Malaysia, the
Philippines, Singapore, and Thailand); and countries in the
Americas (such as Argentina, Brazil, Chile, and Mexico).
Under normal market conditions, the Fund will invest at
least 65% of its total assets (taken at market value) in foreign
securities. If, however, investments in foreign
- --------------------
/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
of the Fund are present or represented by proxy or (ii) more than
50% of the outstanding shares of the Fund.
- --------------------
<PAGE> 4
securities appear to be relatively unattractive in the judgment
of the Adviser because of current or anticipated adverse
political or economic conditions, the Fund may hold cash or
invest any portion of its assets in securities of the U.S.
Government and equity and debt securities of U.S. companies, as a
temporary defensive strategy. To meet liquidity needs, the Fund
may also hold cash in domestic and foreign currencies and invest
in domestic and foreign money market securities (including
repurchase agreements and "synthetic" foreign money market
positions).
In the past, the U.S. Government has from time to time
imposed restrictions, through taxation and otherwise, on foreign
investments by U.S. investors such as the Fund. If such
restrictions should be reinstated, it might become necessary for
the Fund to invest all or substantially all of its assets in U.S.
securities. In such an event, the Fund would review its
investment objective and policies to determine whether changes
are appropriate.
PORTFOLIO INVESTMENTS AND STRATEGIES
DERIVATIVES
Consistent with its objective, the Fund may invest in a
broad array of financial instruments and securities, including
conventional exchange-traded and non-exchange traded options,
futures contracts, futures options, forward contracts, 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 currency exchange rates, 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.
The Fund does not currently intend to invest more than 5% of
its net assets in any type of Derivative, except for options,
futures contracts, futures options, and forward contracts. (See
Options and Futures in this Statement of Additional Information.)
<PAGE> 5
DEFENSIVE INVESTMENTS
When the Adviser considers a temporary defensive position
advisable, the Fund may invest, without limitation, in high-
quality fixed income securities or hold assets in cash or cash
equivalents.
FOREIGN SECURITIES
The Fund invests primarily 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 does investment in securities of domestic issuers.
The Fund may also purchase foreign securities in the form of
American Depositary Receipts (ADRs), European Depositary Receipts
(EDRs), or other securities representing underlying shares of
foreign issuers. Positions in these securities are not
necessarily denominated in the same currency as the common stocks
into which they may be converted. ADRs are receipts typically
issued by an American bank or trust company evidencing ownership
of the underlying securities. EDRs are European receipts
evidencing a similar arrangement. Generally, ADRs, in registered
form, are designed for the U.S. securities markets and EDRs, in
bearer form, are designed for use in European securities markets.
The Fund may invest in sponsored or unsponsored ADRs. In the
case of an unsponsored ADR, the Fund is likely to bear its
proportionate share of the expenses of the depository and it may
have greater difficulty in receiving shareholder communications
than it would have with a sponsored ADR.
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, the Fund'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 the 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 in 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
<PAGE> 6
developing as well as developed countries; and sometimes less
advantageous legal, operational, and financial protections
applicable to foreign sub-custodial arrangements.
Although the Fund 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.
Forward currency transactions may involve currencies of the
different countries in which the Fund may invest, and serve as
hedges against possible variations in the exchange rate between
these currencies. The Fund's currency transactions are limited
to transaction hedging and portfolio hedging involving either
specific transactions or portfolio positions, except to the
extent described below under "Synthetic Foreign Money Market
Positions." Transaction hedging is the purchase or sale of
forward contracts with respect to specific receivables or
payables of the Fund accruing 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 currency. Portfolio
hedging allows the Adviser to limit or reduce exposure in a
foreign currency by entering into a forward contract to sell or
buy such foreign currency (or another foreign currency that acts
as a proxy for that currency) so that the U.S. dollar value of
certain underlying foreign portfolio securities can be
approximately matched by an equivalent U.S. dollar liability.
The Fund 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 the Fund 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,
the Fund 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
in the Fund. The Fund may not engage in "speculative" currency
exchange transactions.
At the maturity of a forward contract to deliver a
particular currency, the Fund may either sell the portfolio
security related to such contract and make delivery of the
<PAGE> 7
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 the Fund
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 the Fund 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 the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to
the extent that there has been movement in forward contract
prices. If the Fund 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 the Fund'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, the Fund 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, the Fund 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 the Fund of unrealized
profits or force the Fund 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 the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it
anticipates. The cost to the Fund 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.
Synthetic Foreign Money Market Positions. The Fund may
invest in money market instruments denominated in foreign
currencies. In addition to, or in lieu of, such direct
investment, the Fund may construct a synthetic foreign money
market position by (a) purchasing a money market 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.
For example, a synthetic money market position in Japanese yen
could be constructed by purchasing a U.S. dollar money market
<PAGE> 8
instrument, and entering concurrently into a forward contract to
deliver a corresponding amount of U.S. dollars in exchange for
Japanese yen on a specified date and at a specified rate of
exchange. Because of the availability of a variety of highly
liquid short-term U.S. dollar money market instruments, a
synthetic money market position utilizing such U.S. dollar
instruments may offer greater liquidity than direct investment in
foreign currency money market instruments. The result of a
direct investment in a foreign currency and a concurrent
construction of a synthetic position in such foreign currency, in
terms of both income yield and gain or loss from changes in
currency exchange rates, in general should be similar, but would
not be identical because the components of the alternative
investments would not be identical. Except to the extent a
synthetic foreign money market position consists of a money
market instrument denominated in a foreign currency, the
synthetic foreign money market position shall not be deemed a
"foreign security" for purposes of the policy that, under normal
conditions, the Fund will invest at least 65% of its total assets
in foreign securities.
LENDING OF PORTFOLIO SECURITIES
Subject to restriction (5) under Investment Restrictions in
this Statement of Additional Information, the Fund 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 the Fund.
The Fund 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. The Fund 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. The
Fund 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, the Fund 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 the Fund 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
The Fund 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 the Fund 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, the Fund could
experience both losses and delays in liquidating its collateral.
<PAGE> 9
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE
AGREEMENTS
The Fund 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 the Fund 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. The Fund 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. The Fund may utilize spot and
forward foreign currency exchange transactions to reduce the risk
inherent in fluctuations in the exchange rate between one
currency and another when securities are purchased or sold on a
when-issued or delayed-delivery basis.
The Fund may enter into reverse repurchase agreements with
banks and securities dealers. A reverse repurchase agreement is
a repurchase agreement in which the Fund 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 the Fund 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) of
the Fund having a value at least as great as the purchase price
of the securities to be purchased will be segregated on the books
of the Fund 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.
CONVERTIBLE SECURITIES
By investing in convertible securities, the Fund 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 the
Fund are frequently rated investment grade, the Fund 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
(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.
<PAGE> 10
SHORT SALES
The Fund may make short sales "against the box." In a short
sale, the Fund sells a borrowed security and is required to
return the identical security to the lender. A short sale
"against the box" involves the sale of a security with respect to
which the Fund already owns an equivalent security in kind and
amount. A short sale "against the box" enables the Fund to
obtain the current market price of a security which it desires to
sell but is unavailable for settlement.
RULE 144A SECURITIES
The Fund 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 the Fund, 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 Fund's restriction of
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, the Fund's holdings of illiquid
securities would be reviewed to determine what, if any, steps are
required to assure that the Fund 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 the
Fund's assets invested in illiquid securities if qualified
institutional buyers are unwilling to purchase such securities.
The Fund 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. (See restriction (m) under Investment
Restrictions.)
LINE OF CREDIT
Subject to restriction (6) under Investment Restrictions in
this Statement of Additional Information, the Fund 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.
PORTFOLIO TURNOVER
Although the Fund 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.
<PAGE> 11
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 a portfolio
investment. Because of the Fund's flexibility of investment and
emphasis on growth of capital, it 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 in the Fund, if it should occur, would
result in increased transaction expense, which must be borne by
the Fund. 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
The Fund 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. The Fund 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.)
The Fund will write call options and put options only if
they are "covered." For example, in the case of a call option on
a security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (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.
<PAGE> 12
If an option written by the Fund expires, the Fund realizes
a capital gain equal to the premium received at the time the
option was written. If an option purchased by the Fund expires,
the Fund realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option
may be closed out by an offsetting purchase or sale of an option
of the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to
purchase the option, the Fund will realize a capital gain or, if
it is less, the Fund will realize a capital loss. The principal
factors affecting the market value of a put or a call option
include supply and demand, interest rates, the current market
price of the underlying security 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 the Fund is an asset of
the Fund, valued initially at the premium paid for the option.
The premium received for an option written by the Fund is
recorded as a deferred credit. The value of an option purchased
or written is marked-to-market daily and is valued at the closing
price on the exchange on which it is traded or, if not traded on
an exchange or no closing price is available, at the mean between
the last bid and asked prices.
Risks Associated with Options. There are several risks
associated with transactions in options. For example, there are
significant differences between the securities 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 the Fund seeks to close out an option position. If the Fund
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 the Fund 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, the Fund foregoes,
during the option's life, the opportunity to profit from
increases in the market value of the security covering the call
option above the sum of the premium and the exercise price of the
call.
If trading were suspended in an option purchased or written
by the Fund, the Fund would not be able to close out the option.
If restrictions on exercise were imposed, the Fund might be
unable to exercise an option it has purchased.
<PAGE> 13
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Fund 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.
The Fund may purchase and write call and put futures
options. Futures options possess many of the same
characteristics as options on securities, indexes and foreign
currencies (discussed above). A futures option gives the holder
the right, in return for the premium paid, to assume a long
position (call) or 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. The Fund 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 Fund's securities or the price of
the securities that the Fund intends to purchase. Although other
techniques could be used to reduce or increase the Fund's
exposure to stock price, interest rate and currency fluctuations,
the Fund may be able to achieve its exposure more effectively and
perhaps at a lower cost by using futures contracts and futures
options.
The Fund will only enter into futures contracts and futures
options that are standardized and traded on an exchange, board of
trade, or similar entity, or quoted on an automated quotation
system.
The success of any futures transaction depends on 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, the Fund'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.
- --------------------
/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.
- --------------------
<PAGE> 14
When a purchase or sale of a futures contract is made by the
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the
broker ("initial margin"). The margin required for a futures
contract is set by the exchange on which the 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 the Fund
upon termination of the contract, assuming all contractual
obligations have been satisfied. The Fund expects to earn
interest income on its initial margin deposits. A futures
contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day
the Fund pays or receives cash, called "variation margin," equal
to the daily change in value of the futures contract. This
process is known as "marking-to-market." Variation margin paid
or received by the Fund does not represent a borrowing or loan by
the Fund but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures
contract had expired at the close of the previous day. In
computing daily net asset value, the Fund will mark-to-market its
open futures positions.
The Fund is also required to deposit and maintain margin
with respect to put and call options on futures contracts written
by it. Such margin deposits will vary depending on the nature of
the underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying 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, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund
realizes a capital loss. Conversely, if an offsetting sale price
is more than the original purchase price, the Fund engaging in
the transaction realizes a capital gain, or if it is less, the
Fund realizes a capital loss. The transaction costs must also be
included in these calculations.
RISKS ASSOCIATED WITH FUTURES
There are several risks associated with the use of futures
contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in
the futures contract. 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 the 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
<PAGE> 15
trading and differences between the securities markets 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
Fund's portfolio, and, in the case of interest rate futures
contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures contract
may differ from the financial instruments held in the Fund's
portfolio. A decision as to whether, when and how to use futures
contracts involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree
because of market behavior or unexpected 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 the Fund seeks to close out a futures or futures
option position. The Fund would be exposed to possible loss on
the position during the interval of inability to close, and would
continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed
above are relatively new instruments without a significant
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,
the Fund may also use those investment vehicles, provided the
Board of Trustees determines that their use is consistent with
the Fund's investment objective.
The Fund will not enter into a futures contract or purchase
an option thereon if, immediately thereafter, the initial margin
deposits for futures contracts held by the Fund plus premiums
paid by it for open futures option positions, less the amount by
<PAGE> 16
which any such positions are "in-the-money," /3/ would exceed 5%
of the Fund's total assets.
When purchasing a futures contract or writing a put option
on a futures contract, the Fund must maintain with its custodian
(or broker, if legally permitted) cash or cash equivalents
(including any margin) equal to the market value of such
contract. When writing a call option on a futures contract, the
Fund similarly will maintain with its custodian cash or cash
equivalents (including any margin) equal to the amount by which
such option is in-the-money until the option expires or is closed
out by the Fund.
The Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical
relative volatility of the relationship between the portfolio and
the positions. For this purpose, to the extent the Fund has
written call options on specific securities in its portfolio, the
value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," the Fund 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 of the Fund, after taking into account unrealized profits
and unrealized losses on any such contracts it has entered into
[in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount (as defined in Section
190.01(x) of the Commission Regulations) may be excluded in
computing such 5%].
As long as the Fund continues to sell its shares in certain
states, the Fund's options and futures transactions will also be
subject to certain non-fundamental investment restrictions set
forth under Investment Restrictions in this Statement of
Additional Information.
TAXATION OF OPTIONS AND FUTURES
If the Fund 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 the Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
- ----------------------
/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.
- ----------------------
<PAGE> 17
If a call or put option written by the Fund is exercised,
the premium is included in the proceeds of the sale of the
underlying security (call) or reduces the cost basis of the
security purchased (put). For cash settlement options and
futures options written by the Fund, the difference between the
cash paid at exercise and the premium received is a capital gain
or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by the Fund was in-
the-money at the time it was written and the security covering
the option was held for more than the long-term holding period
prior to the writing of the option, any loss realized as a result
of a closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
If the Fund writes an equity call option other /4/ 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.
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 the
Fund delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities.
For federal income tax purposes, the Fund generally is
required to recognize as income for each taxable year its net
unrealized gains and losses as of the end of the year on futures,
futures options and non-equity options positions ("year-end mark-
to-market"). Generally, any gain or loss recognized with respect
to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and
40% short-term, without regard to the holding periods of the
contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options
positions, the related securities and certain successor positions
thereto) may be deferred to a later taxable year. Sale of
futures contracts or writing of call options (or futures call
options) or buying put options (or futures put options) that are
intended to hedge against a change in the value of securities
held by the Fund: (1) will affect the holding period of the
hedged securities; and (2) may cause unrealized gain or loss on
such securities to be recognized upon entry into the hedge.
If the Fund were to enter into a short index future, short
index futures option or short index option position and the
Fund's portfolio were deemed to "mimic" the
- ------------------
/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).
- ------------------
<PAGE> 18
performance of the index underlying such contract, the option or
futures contract position and the Fund's stock positions would be
deemed to be positions in a mixed straddle, subject to the above-
mentioned loss deferral rules.
In order for the Fund to continue to qualify for federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). In addition,
gains realized on the sale or other disposition of securities
held for less than three months must be limited to less than 30%
of the Fund's annual gross income. Any net gain realized from
futures (or futures options) contracts will be considered gain
from the sale of securities and therefore be qualifying income
for purposes of the 90% requirement. In order to avoid realizing
excessive gains on securities held less than three months, the
Fund may be required to defer the closing out of certain
positions beyond the time when it would otherwise be advantageous
to do so.
The 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 Fund's other
investments, and shareholders are advised of the nature of the
payments.
INVESTMENT RESTRICTIONS
The Fund operates under the following investment
restrictions. The Fund 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 government of
the U.S., or any of its agencies or instrumentalities or
repurchase agreements for such securities and 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,
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, 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;
<PAGE> 19
(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, but this restriction shall not prevent the
Fund from (a) buying a part of an issue of bonds, debentures, or
other obligations which are publicly distributed, or from
investing up to an aggregate of 15% of its total assets (taken at
market value at the time of each purchase) in parts of issues of
bonds, debentures or other obligations of a type privately placed
with financial institutions, (b) investing in repurchase
agreements,/5/ or (c) lending portfolio securities, provided that
it may not lend securities if, as a result, the aggregate value
of all securities loaned would exceed 33% of its total assets
(taken at market value at the time of such loan);
(6) borrow, except that it may (a) borrow up to 33 1/3% of
its total assets, taken at market value at the time of such
borrowing, as a temporary measure for extraordinary or emergency
purposes, but not to increase portfolio income (the total of
reverse repurchase agreements and such borrowings will not exceed
33 1/3% of its total assets, and the Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of its
total assets) and (b) enter into transactions in options,
futures, and options on futures;
(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,/6/ except that this restriction does not
apply to securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities and 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 are fundamental policies and may not
be changed without the approval of a "majority of the outstanding
voting securities," as defined above. The Fund is also subject
to the following non-fundamental restrictions and
- ------------------------
/5/A repurchase agreement involves the sale of securities to the
Fund, with the concurrent agreement of the seller to repurchase
the securities at the same price plus an amount representing
interest at an agreed-upon interest rate, within a specified
time, usually less than one week, but, on occasion, at a later
time. Repurchase agreements entered into by the Fund will be
fully collateralized and will be marked-to-market daily. In the
event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in
liquidating the underlying securities and losses, including: (a)
possible decline in the value of the collateral during the period
while the Fund 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.
/6/ For purposes of this investment restriction, the Fund uses
industry classifications contained in Morgan Stanley Capital
International Perspective, which is published by Morgan Stanley,
an international investment banking and brokerage firm.
- ------------------------
<PAGE> 20
policies, which may be changed by the Board of Trustees. None of
the following restrictions shall prevent the 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 as the Fund. The Fund 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 the
Fund 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 Fund's total assets (valued at time of
purchase) in the case of any one other investment company and 10%
of such assets (valued at 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) purchase or hold securities of an issuer if 5% of the
securities of such issuer are owned by those officers, trustees,
or directors of the Trust or of its investment adviser, who each
own beneficially more than 1/2 of 1% of the securities of that
issuer;
(e) mortgage, pledge, or hypothecate its assets, except as
may be necessary in connection with permitted borrowings or in
connection with options, futures, and options on futures;
(f) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in
warrants that are not listed on the New York or American stock
exchange or a recognized foreign exchange;
(g) write an option on a security unless the option is
issued by the Options Clearing Corporation, an exchange, or
similar entity;
(h) buy or sell an option on a security, a futures contract,
or an option on a futures contract unless the option, the futures
contract, or the option on the futures contract is offered
through the facilities of a recognized securities association or
listed on a recognized exchange or similar entity;
(i) purchase a put or call option if the aggregate premiums
paid for all put and call options exceed 20% of its net assets
(less the amount by which any such positions are in-the-money),
excluding put and call options purchased as closing transactions;
<PAGE> 21
(j) 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) the Fund 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 the Fund expects
to receive in a recapitalization, reorganization, or other
exchange for securities the Fund 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;
(k) invest more than 5% of its total assets (taken at
market value at the time of a particular investment) in
securities of issuers (other than issuers of federal agency
obligations or securities issued or guaranteed by any foreign
country or asset-backed securities) that, together with any
predecessors or unconditional guarantors, have been in continuous
operation for less than three years ("unseasoned issuers");
(l) invest more than 10% 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;
(m) invest more than 15% of its total assets (taken at
market value at the time of a particular investment) in
restricted securities /7/ and securities of unseasoned issuers;
(n) 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.
Notwithstanding the foregoing investment restrictions, the
Fund may purchase securities pursuant to the exercise of
subscription rights, subject to the condition that such purchase
will not result in the Fund's ceasing to be a diversified
investment company. Far Eastern and European corporations
frequently issue additional capital stock by means of
subscription rights offerings to existing shareholders at a price
substantially below the market price of the shares. The failure
to exercise such rights would result in the Fund's interest in
the issuing company being diluted. The market for such rights is
not well developed in all cases and, accordingly, the Fund may
not always realize full value on the sale of rights. The
exception applies in cases where the limits set forth in the
investment restrictions would otherwise be exceeded by exercising
rights or would have already been exceeded as a result of
fluctuations in the market value of the Fund's portfolio
securities with the result that the Fund would be forced either
to sell securities at a time when it might not otherwise have
done so, to forego exercising the rights.
- ----------------------
/7/As long as it is required to do so by the Ohio Division of
Securities, the Trust will consider a security eligible for
resale pursuant to Rule 144A under the Securities Act of 1933 to
be a restricted security.
- ----------------------
<PAGE> 22
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. It has worked
to build wealth for generations by being 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. 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 goal.
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.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus
under the headings How to Purchase Shares, How to Redeem Shares,
Net Asset Value, and Shareholder Services, and that information
is incorporated herein by reference. The Prospectus discloses
that you may purchase (or redeem) shares through investment
dealers, banks, or other institutions. It is the responsibility
of any such institution to establish procedures insuring the
prompt transmission to the Trust of any such purchase order. The
state of Texas has asked that the Trust disclose in its Statement
of Additional Information, as a reminder to any such bank or
institution, that it must be registered as a securities dealer in
Texas.
<PAGE> 23
The Fund's net asset value is determined 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 February, Good Friday, the last
Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or
Sunday, the NYSE will be closed on the preceding Friday or the
following Monday, respectively. Net asset value will not be
determined on days when the NYSE is closed unless, in the
judgment of the Board of Trustees, net asset value of the Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time.
The 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 the 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, the Trust reserves the right to redeem shares in any
account for their then-current value (which will be promptly paid
to the investor) if at any time the shares in the account do not
have a value of at least $1,000. An investor will be notified
that the value of his account is less than that minimum and
allowed at least 30 days to bring the value of the account up to
at least $1,000 before the redemption is processed. The
Agreement and Declaration of Trust also authorizes the Trust to
redeem shares under certain other circumstances as may be
specified by the Board of Trustees.
The Trust reserves the right to suspend or postpone
redemptions of shares of the 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 the Fund not reasonably
practicable.
MANAGEMENT
The following table sets forth certain information with
respect to the trustees and officers of the Trust:
<TABLE>
<CAPTION>
Position(s) held
Name Age with the Trust Principal occupation(s) during past five years
- -------------------- -- ------------------------ -----------------------------------------------
<S> <C> <C> <C>
Gary A. Anetsberger 40 Senior Vice-President Vice-President of Stein Roe & Farnham Incorporated (the
"Adviser")
Timothy K. Armour 47 President; Trustee President of the Mutual Funds division of the Adviser and
(1)(2) Director of the Adviser since June, 1992; senior vice
president and director of marketing of Citibank Illinois
prior thereto
<PAGE> 24
Jilaine Hummel Bauer 40 Executive Vice-President; Senior Vice President (since April, 1992) and Assistant
Secretary Secretary of the Adviser; vice president of the Adviser,
prior thereto
Bruno Bertocci 41 Vice-President Employee of Colonial Management Associates, Inc. since
January, 1996; senior vice president of the Adviser since
May, 1995; global equity portfolio manager with Rockefeller
& Co. prior thereto
Kenneth L. Block (3) 75 Trustee Chairman Emeritus of A. T. Kearney, Inc. (international
management consultants)
William W. Boyd (3) 70 Trustee Chairman and Director of Sterling Plumbing Group, Inc.
(manufacturer of plumbing products) since 1992; chairman,
president, and chief executive officer of Sterling Plumbing
Corporation prior thereto
N. Bruce Callow 50 Executive Vice-President President of the Investment Counsel division of the Adviser
since June, 1994; senior vice president of trust and
financial services for The Northern Trust prior thereto
Daniel K. Cantor 36 Vice-President Senior Vice President of the Adviser
Robert A. Christensen 62 Vice-President Senior Vice President of the Adviser
Lindsay Cook (1) 43 Trustee Senior Vice President of Liberty Financial Companies, Inc.
(the indirect parent of the Adviser)
E. Bruce Dunn 61 Vice-President Senior Vice President of the Adviser
Erik P. Gustafson 32 Vice-President Vice President of the Adviser since May, 1994; associate of
the Adviser from April, 1992 to May, 1994; associate
attorney with Fowler White Burnett Hurley Banick &
Strickroot prior thereto
David P. Harris 31 Vice-President Employee of Colonial Management Associates, Inc. since
January, 1996;vice president of the Adviser since May, 1995;
global equity portfolio manager with Rockefeller & Co. prior
thereto
Philip D. Hausken 37 Vice-President Corporate Counsel for the Adviser since July, 1994;
assistant regional director, midwest regional office of the
Securities and Exchange Commission prior thereto
Harvey B. Hirschhorn 46 Vice-President Executive Vice President, Chief Economist & Investment
Strategist, and Director of Research Services of the Adviser
<PAGE> 25
Stephen P. Lautz 38 Vice-President Vice President of the Adviser since May, 1994; associate of
the Adviser prior thereto
Eric S. Maddix 32 Vice-President Portfolio Manager for the Adviser
Lynn C. Maddox 55 Vice-President Senior Vice President of the Adviser
Anne E. Marcel 38 Vice-President Manager, Mutual Fund Sales & Services of the Adviser since
October, 1994; supervisor of the Counselor Department of the
Adviser from October, 1992 to October, 1994; vice president
of Selected Financial Services from May, 1990 to March, 1992
Francis W. Morley (3) 75 Trustee Chairman of Employer Plan Administrators and Consultants Co.
(designer, administrator, and communicator of employee
benefit plans)
Charles R. Nelson (3) 53 Trustee Professor, Department of Economics of the University of
Washington
Nicolette D. Parrish 46 Vice-President; Senior Compliance Administrator for the Adviser since
Assistant Secretary November, 1995; senior legal assistant for the Adviser prior
thereto
Richard B. Peterson 55 Vice-President Senior Vice President of the Adviser since June, 1991;
officer of State Farm Investment Management Corporation prior
thereto
Sharon R. Robertson 34 Controller Accounting Manager for the Adviser's Mutual Funds division
Janet B. Rysz 40 Assistant Secretary Assistant Secretary of the Adviser
Gloria J. Santella 38 Vice-President Vice President of the Adviser since January, 1992; associate
of the Adviser prior thereto
Thomas P. Sorbo 35 Vice-President Senior Vice President of the Adviser since January, 1994;
vice president of the Adviser from September, 1992 to
December, 1993; associate of Travelers Insurance Company
prior thereto
Gordon R. Worley 76 Trustee Private investor
(2) (3)
Hans P. Ziegler 54 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 29 Treasurer Compliance Manager for the Adviser's Mutual Funds division
since August 1995; Compliance Accountant, January 1995 to
July 1995; Section Manager, January 1994 to January 1995;
Supervisor, February 1990 to December 1993
</TABLE>
______________________________
(1) Trustee who is an "interested person" of the 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.
<PAGE> 26
Certain of the trustees and officers of the Trust are
trustees or officers of other investment companies managed by the
Adviser. Ms. Bauer and Mr. Cook are vice presidents of the
Fund's distributor, Liberty Securities Corporation. The address
of Mr. Block is 11 Woodley Road, Winnetka, Illinois 60093; that
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. Morley is 20 North Wacker Drive, Suite 2275,
Chicago, Illinois 60606; that of Mr. Nelson is Department of
Economics, University of Washington, Seattle, Washington 98195;
that of Mr. Worley is 1407 Clinton Place, River Forest, Illinois
60305; 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 the Trust. In compensation for
their services to the Trust, trustees who are not "interested
persons" of the Trust or the Adviser are paid an annual retainer
of $8,000 (divided equally among the Funds of the Trust) plus an
attendance fee from each Fund for each meeting of the Board or
committee thereof attended at which business for that Fund is
conducted. The attendance fees (other than for a Nominating
Committee meeting) are based on each Fund's net assets as of the
preceding December 31. For a Fund with net assets of less than
$251 million, the fee is $200 per meeting; with $251 million to
$500 million, $350; with $501 million to $750 million, $500; with
$750 million to $1 billion, $650; and with over $1 billion in net
assets, $800. Each non-interested trustee also receives an
aggregate of $500 for attending each meeting of the Nominating
Committee. The Trust has no retirement or pension plans. The
following table sets forth compensation paid by the Trust during
the fiscal year ended September 30, 1995 to each of the trustees:
Aggregate Total Compensation Paid
Compensation to Trustees from the Trust
Name of from the and the Stein Roe Fund
Trustee* Trust Complex**
------------ ------------ ---------------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Alfred F. Kugel -0- -0-
Kenneth L. Block $26,800 $66,400
William W. Boyd 22,050 58,650
Francis W. Morley 26,200 66,000
Charles R. Nelson 28,550 68,350
Gordon R. Worley 26,200 66,000
_______________
* Messrs. Armour, Boyd, and Cook were not elected trustees of
the Trust until January 17, 1995. Mr. Kugel was an
affiliated trustee through January 17, 1995.
** During this period, the Stein Roe Fund Complex consisted of
the six series of Stein Roe Income Trust, four series of
Stein Roe Municipal Trust, eight series of Stein Roe
Investment Trust, and one series of SR&F Base Trust.
FINANCIAL STATEMENTS
Please refer to the Fund's September 30, 1995 Financial
Statements (balance sheets and schedules of investments as of
September 30, 1995 and the statements of operations, changes in
net assets, and notes thereto) and the report of independent
<PAGE> 27
public accountants contained in the September 30, 1995 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 800-338-2550.
PRINCIPAL SHAREHOLDERS
As of October 31, 1995 the only person known by the Trust to
own of record or "beneficially" 5% or more of the outstanding
shares of the Fund within the definition of that term as
contained in Rule 13d-3 under the Securities Exchange Act of 1934
was as follows:
Approximate Percentage of
Name and Address Outstanding Shares Held
- -------------------------------- -------------------------
First Bank National Association* 6.7%
410 N. Michigan Avenue
Chicago, IL 60611
___________________
*Shares held of record, but not beneficially.
The following table shows shares of the Fund held by the
categories of persons indicated, and in each case the approximate
percentage of outstanding shares represented:
CLIENTS OF THE
ADVISER IN THEIR TRUSTEES AND
CLIENT ACCOUNTS OFFICERS
AS OF 10/31/95 AS OF 10/31/95
--------------- ----------------
SHARES SHARES
HELD PERCENT HELD PERCENT
------ ------- ------- --------
5,978,569 71.9% 66,299 **
______________
*The Adviser may have discretionary authority over such shares
and, accordingly, they could be deemed to be owned
"beneficially" by the Adviser under Rule 13d-3. However, the
Adviser disclaims actual beneficial ownership of such shares.
**Represents less than 1% of the outstanding shares.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated, the Fund's investment
adviser, is a wholly owned subsidiary of SteinRoe Services Inc.
("SSI"), the Fund's transfer agent, which is a wholly owned
subsidiary of Liberty Financial Companies, Inc., which is a
majority-owned subsidiary of Liberty Mutual Equity Corporation,
which is a wholly owned subsidiary of Liberty Mutual Insurance
Company ("Liberty Mutual"). Liberty Mutual 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 Gary L. Countryman, Kenneth
R. Leibler, Timothy K. Armour, N. Bruce Callow, and Hans P.
Ziegler. Mr. Countryman is Chairman and Chief Executive Officer
of Liberty Mutual Insurance Company; Mr. Leibler is President and
Chief Executive Officer of Liberty Financial Companies; Mr.
Armour is President of the Adviser's Mutual Funds division; Mr.
Callow is President of the Adviser's Investment Counsel division;
and Mr. Ziegler is Chief Executive Officer of the Adviser. The
business address of Mr. Countryman is 175 Berkeley Street,
Boston,
<PAGE> 28
Massachusetts 02117; that of Mr. Leibler is Federal Reserve
Plaza, Boston, Massachusetts 02210; and that of Messrs. Armour,
Callow, 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 September 30, 1995, the Adviser
managed over $22.9 billion in assets: over $5.5 billion in
equities and over $17.4 billion in fixed income securities
(including $2.3 billion in municipal securities). The $22.9
billion in managed assets included over $5.7 billion held by
open-end mutual funds managed by the Adviser (approximately 21%
of the mutual fund assets were held by clients of the Adviser).
These mutual funds were owned by over 148,000 shareholders. The
$5.7 billion in mutual fund assets included over $570 million in
over 33,000 IRA accounts. In managing those assets, the Adviser
utilizes a proprietary computer-based information system that
maintains and regularly updates information for approximately
6,500 companies. The Adviser also monitors over 1,400 issues via
a proprietary credit analysis system. At September 30, 1995, the
Adviser employed 17 research analysts and 36 account managers.
The average investment-related experience of these individuals
was 20 years.
Stein Roe Counselor [SERVICE MARK] and Stein Roe Counselor
Preferred [SERVICE MARK] are professional investment advisory
services offered to Fund shareholders. Each is designed to help
shareholders construct Fund investment portfolios to suit their
individual needs. Based on information shareholders provide
about their financial circumstances, goals, and objectives in
response to a questionnaire, the Adviser's investment
professionals create customized portfolio recommendations for
investments in the Fund and other mutual funds managed by the
Adviser. Shareholders participating in Stein Roe Counselor
[SERVICE MARK] are free to self direct their investments while
considering the Adviser's recommendations; shareholders
participating in Stein Roe Counselor Preferred [SERVICE MARK]
enjoy the added benefit of having the Adviser implement portfolio
recommendations automatically for a fee of 1% or less, depending
on the size of their portfolios. In addition to reviewing
shareholders' circumstances, goals, and objectives periodically
and updating portfolio recommendations to reflect any changes,
the shareholders who participate in these programs are assigned a
dedicated Counselor [SERVICE MARK] representative. Other
distinctive services include specially designed account
statements with portfolio performance and transaction data,
newsletters, and regular investment, economic, and market
updates. A $50,000 minimum investment is required to participate
in either program.
Please refer to the description of the Adviser, advisory
agreement, advisory fee, expense limitation, and transfer agency
services under Fee Table and Management of the Fund in the
Prospectus, which is incorporated herein by reference. The
Adviser received payments in advisory fees from the Fund of
$343,107 for the period from the Fund's inception on March 1,
1994 through September 30, 1994, and $736,882 for the fiscal year
ended September 30, 1995.
<PAGE> 29
The Adviser provides office space and executive and other
personnel to the Fund and bears any sales or promotional
expenses. The 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 investment advisory agreement provides that the Adviser
shall reimburse the Fund to the extent that total annual expenses
of the Fund (including fees paid to the Adviser, but excluding
taxes, interest, brokers' 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 shares of the Fund are being offered for sale to the
public; provided, however, that the Adviser shall not be required
to reimburse the Fund an amount in excess of the management fee
from the Fund for such year. The Trust believes that currently
the most restrictive state limit on mutual fund expenses is that
of California, which limit currently is 2 1/2% of the first $30
million of average net assets, 2% of the next $70 million, and 1
1/2% thereafter. In addition, in the interest of further
limiting expenses of the Fund, the Adviser may voluntarily waive
its management fee and/or absorb certain expenses for the Fund,
as described under Fee Table in the Prospectus. Any such
reimbursement will enhance the yield of the Fund.
The advisory agreement also provides that neither the
Adviser nor any of its directors, officers, stockholders (or
partners of stockholders), agents, or employees shall have any
liability to the Trust or any shareholder of the 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 their 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 the Fund shall be paid
solely out of the Fund's assets. Any expenses incurred by the
Trust that are not solely attributable to a particular series 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 a separate agreement with the Trust, the Adviser
receives a fee for performing certain bookkeeping and accounting
services for the Fund. For these services, 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 September
30, 1995, the Adviser received aggregate fees of $162,677 from
the Trust for services performed under this Agreement.
<PAGE> 30
DISTRIBUTOR
Shares of the Fund are distributed by Liberty Securities
Corporation ("LSC") under a Distribution Agreement as described
under Management of the Fund in the Prospectus, which is
incorporated herein by reference. 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 the Trust, and
(ii) by a majority of the trustees who are not parties to the
Agreement or interested persons of any such party. The 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. The Adviser
bears all sales and promotional expenses, including payments to
LSC for the sales of Fund shares. The Adviser also makes
payments to other broker-dealers, banks, and other institutions
for the sales of Fund shares of 0.20% of the annual average value
of accounts of such shares.
As agent, LSC offers shares of the Fund to investors in
states where the shares are qualified for sale, at net asset
value, without sales commissions or other sales load to the
investor. In addition, no sales commission or "12b-1" payment is
paid by the Fund. LSC offers the Fund's shares only on a best-
efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for the Trust,
as described under Management of the Fund in the Prospectus. For
performing these services, SSI receives from the Fund a fee based
on an annual rate of .22 of 1% of average net assets. Prior to
May 1, 1995, SSI received the following payments from the Fund:
(1) a fee of $4.00 for each new account opened; (2) monthly
payments of $1.063 per open shareholder account; (3) payments of
$0.367 per closed shareholder account for each month through June
of the calendar year following the year in which the account is
closed; (4) $0.3025 per shareholder account for each dividend
paid; and (5) $1.415 for each shareholder-initiated transaction.
The Trust believes the charges by SSI to the Fund are comparable
to those of other companies performing similar services. (See
Investment Advisory Services.)
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian
for the Trust. It is responsible for holding all securities and
cash of the Fund, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering
expenses of the Fund, and performing other administrative duties,
all as directed by authorized persons. The custodian does not
exercise any supervisory function in such matters as purchase and
sale of portfolio securities, payment of dividends, or payment of
expenses of the Fund.
<PAGE> 31
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 reviews, at least annually, whether it
is in the best interest of the Fund and its shareholders to
maintain Fund assets in each of the countries in which the Fund
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 Fund 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. The Board of Trustees is aided in its review by the
Bank, which has assembled the network of foreign sub-custodians
utilized by the Fund, as well as by the Adviser and counsel.
However, with respect to foreign sub-custodians, there can be no
assurance that the 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 the Fund's 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.
The Fund may invest in obligations of the custodian and may
purchase or sell securities from or to the custodian.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Trust are Arthur
Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603.
The accountants audit and report on the Fund's annual financial
statements, review certain regulatory reports and the Fund's
federal income tax returns, and perform other professional
accounting, auditing, tax and advisory services when engaged to
do so by the Trust.
PORTFOLIO TRANSACTIONS
The Adviser places the orders for the purchase and sale of
the Fund's 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;
<PAGE> 32
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, the Fund 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
the Fund, 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 the Fund, 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 may receive
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 will
make a good faith effort to determine the relative proportions 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 the Fund), while the portions 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
the Fund 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. 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 the Fund.
With respect to the Fund's 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
<PAGE> 33
attention, including investment research related to the security
and provided to the Fund.
The table below shows information on brokerage commissions
paid by the Fund:
Total amount of brokerage commissions paid
during fiscal year ended 9/30/95 $280,432
Amount of commissions paid to brokers or dealers
who supplied research services to the Adviser 225,164
Total dollar amount involved in such transactions 62,481,766
Amount of commissions paid to brokers or dealers
that were allocated to such brokers or dealers by
the Fund's portfolio manager because of research
services provided to the Fund N/A
Total dollar amount involved in such transactions N/A
Total amount of brokerage commissions paid during
period ended 9/30/94 $ 145,832
The Trust has arranged for its 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
Fund 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. The Board of Trustees has
been advised by counsel that recapture in foreign securities
underwritings is permitted and has directed the Adviser to
attempt to recapture to the extent consistent with best price and
execution.
ADDITIONAL INCOME TAX CONSIDERATIONS
The Fund intends 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.
The Fund expects that less than 100% of its dividends will
qualify for the deduction for dividends received by corporate
shareholders.
To the extent the Fund invests in foreign securities, it may
be subject to withholding and other taxes imposed by foreign
countries. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Investors may be
entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in
the Code. Specifically, if more than 50% of the Fund's total
assets at the close of any fiscal year consist of stock or
securities of foreign
<PAGE> 34
corporations, the Fund may file an election with the Internal
Revenue Service pursuant to which shareholders of the Fund will
be required to (i) include in ordinary gross income (in addition
to taxable dividends actually received) their pro rata shares of
foreign income taxes paid by the Fund even though not actually
received, (ii) treat such respective pro rata shares as foreign
income taxes paid by them, and (iii) deduct such pro rata shares
in computing their taxable incomes, or, alternatively, use them
as foreign tax credits, subject to applicable limitations,
against their United States income taxes. Shareholders who do
not itemize deductions for federal income tax purposes will not,
however, be able to deduct their pro rata portion of foreign
taxes paid by the Fund, although such shareholders will be
required to include their share of such taxes in gross income.
Shareholders who claim a foreign tax credit may be required to
treat a portion of dividends received from the Fund as separate
category income for purposes of computing the limitations on the
foreign tax credit available to such shareholders. Tax-exempt
shareholders will not ordinarily benefit from this election
relating to foreign taxes. Each year, the Fund will notify
shareholders of the amount of (i) each shareholder's pro rata
share of foreign income taxes paid by the Fund and (ii) the
portion of Fund dividends which represents income from each
foreign country, if the Fund qualifies to pass along such credit.
PASSIVE FOREIGN INVESTMENT COMPANIES. The Fund 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 Fund holds its investment. In
addition, the Fund 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, the Fund intends to
treat PFICs as sold on the last day of the Fund's 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 the Fund will be required to distribute even though it has
not sold the security and received cash to pay such
distributions.
INVESTMENT PERFORMANCE
The Fund may quote certain total return figures from time to
time. A "Total Return" on a per share basis is the amount of
dividends distributed per share plus or minus the change in the
net asset value per share for a period. A "Total Return
Percentage" may be calculated by dividing the value of a share 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.
Average Annual Total Return is computed as follows:
n
ERV = P(1+T)
<PAGE> 35
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the end
of the period (or fractional portion thereof).
For example, for a $1,000 investment in the Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at September 30, 1995 were:
TOTAL TOTAL RETURN AVERAGE ANNUAL
RETURN RETURN PERCENTAGE TOTAL RETURN
------- ----------------- -------------
1 year $ 987 (1.28%) (1.28%)
*Life of Fund 1,048 4.75 2.98
________________________
*Life of Fund is from its date of public offering,
3/1/94.
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. They are not necessarily indicative of
future results. The performance of the Fund is a result of
conditions in the securities markets, portfolio management, and
operating expenses. Although investment performance information
is useful in reviewing the 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, the Fund may compare
its performance with that of other mutual funds, indexes or
averages of other mutual funds, indexes of related financial
assets or data, and other competing investment and deposit
products available from or through other financial institutions.
The composition of these indexes or averages differs from that of
the Fund. Comparison of the 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 the Fund
believes to be generally accurate. The Fund may also note its
mention or recognition in newspapers, magazines, or other media
from time to time. However, the Fund assumes no responsibility
for the accuracy of such data. Newspapers and magazines which
might mention the Fund include, but are not limited to, the
following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Barron's
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
Crain's Chicago Business
Consumer Reports
Consumer Digest
Financial World
<PAGE> 36
Forbes
Fortune
Fund Action
Gourmet
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Los Angeles Times
Money
Mutual Fund Letter
Mutual Fund News Service
Mutual Fund Values (Morningstar)
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
Smart Money
Smithsonian
Stanger's Investment Adviser
Time
Travel & Leisure
United Mutual Fund Selector
USA Today
U.S. News and World Report
The Wall Street Journal
Working Women
Worth
Your Money
The Fund may compare its performance to the Consumer Price
Index (All Urban), a widely recognized measure of inflation.
The Fund's performance 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 the
recognized indicators of general performance of stocks traded in the
U.S. stock market results.) indicated markets.)
EAFE Index
Financial Times Actuaries World Index (Ex-U.S.)
Morgan Stanley Capital International World Index
(These indexes are widely recognized indicators of the
international markets)
In addition, the Fund may compare performance to the indices
indicated below:
Lipper International & Global Funds Average
Lipper General Equity Funds Average
Lipper Equity Funds Average
Lipper International Fund Index
(The Lipper averages are unweighted averages of total return
performance as classified, calculated, and published by
Lipper.)
ICD International Equity Funds Average
ICD All Equity Funds Average
ICD General Equity Average*
ICD Global Equity Funds Average
<PAGE> 37
ICD International Equity and Global Equity Funds Average
ICD Foreign Securities Index
Morningstar International Stock Average
Morningstar U.S. Diversified Average
Morningstar Equity Fund Average
Morningstar Hybrid Fund Average
Morningstar All Equity Funds Average
Morningstar General Equity Average**
*Includes ICD Aggressive Growth, Growth & Income, Long-Term
Growth, and Total Return Averages.
**Includes Morningstar Aggressive Growth, Growth, Balanced,
Equity Income, and Growth & Income Averages.
The ICD Indexes reflect the unweighted average total return
of the largest twenty funds within their respective category as
calculated and published by ICD.
The Lipper International Fund index reflects the net asset
value weighted return of the ten largest international funds.
The Lipper, ICD, 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. The 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
the Fund to a different category or develop (and place the Fund
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.
The 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 the Fund's risk score (which is a
function of the Fund's monthly returns less the 3-month T-bill
return) from the Fund's 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, the 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:
<PAGE> 38
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
The Fund may also use hypothetical returns to be used as an
example in a mix of asset allocation strategies. One such
example is reflected in the chart below, which shows the effect
of tax deferral on a hypothetical investment. This chart assumes
that an investor invested $2,000 a year on January 1, for any
specified period, in both a Tax-Deferred Investment and a Taxable
Investment, that both investments earn either 6%, 8% or 10%
compounded annually, and that the investor withdrew the entire
amount at the end of the period. (A tax rate of 39.6% is applied
annually to the Taxable Investment and on the withdrawal of
earnings on the Tax-Deferred Investment.)
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
INTEREST RATE 6% 8% 10% 6% 8% 10%
Compounding
Years Tax-Deferred Investment Taxable Investment
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 150,484 82,067 97,780 117,014
20 62,943 75,543 91,947 59,362 68,109 78,351
15 41,684 47,304 54,099 40,358 44,675 49,514
10 24,797 26,820 29,098 24,453 26,165 28,006
5 11,178 11,613 12,072 11,141 11,546 11,965
1 2,072 2,096 2,121 2,072 2,096 2,121
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.
From time to time, the Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe Counselor
[SERVICE MARK] and the Stein Roe Counselor Preferred [SERVICE
MARK] programs and asset allocation and other investment
strategies.
<PAGE> 39
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 the 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
<PAGE> 40
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
<PAGE> 41
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.
_________________
<PAGE> 1
Statement of Additional Information Dated February 1, 1996
STEIN ROE INVESTMENT TRUST
P.O. Box 804058, Chicago, Illinois 60680
800-338-2550
STEIN ROE YOUNG INVESTOR FUND
Stein Roe Young Investor Fund is a series of the Stein Roe
Investment Trust (the "Trust"). Each series of the Trust
represents shares of beneficial interest in a separate portfolio
of securities and other assets, with its own objectives and
policies. This Statement of Additional Information is not a
prospectus, but provides additional information that should be
read in conjunction with the Fund's prospectus dated February 1,
1996, and any supplements thereto ("Prospectus"). The Prospectus
may be obtained at no charge by telephoning 800-403-KIDS (800-
403-5437).
TABLE OF CONTENTS
Page
General Information and History.................2
Investment Policies.............................3
Portfolio Investments and Strategies............3
Investment Restrictions........................17
Additional Investment Considerations...........21
Purchases and Redemptions......................21
Management.....................................22
Financial Statements...........................25
Principal Shareholders.........................26
Investment Advisory Services...................26
Distributor....................................29
Transfer Agent.................................29
Custodian......................................29
Independent Public Accountants.................30
Portfolio Transactions.........................30
Additional Income Tax Considerations...........32
Investment Performance.........................33
Appendix--Ratings..............................37
<PAGE> 2
GENERAL INFORMATION AND HISTORY
As used herein, the "Fund" refers to the series of the Stein
Roe Investment Trust (the "Trust") designated Stein Roe Young
Investor Fund. On February 1, 1996, the name of the Trust was
changed from SteinRoe Investment Trust to Stein Roe Investment
Trust and the name of the Fund was changed from SteinRoe Young
Investor Fund to Stein Roe Young Investor Fund.
Stein Roe & Farnham Incorporated ("Stein Roe") is investment
adviser and provides administrative services to the Fund.
Currently, eight series of the Trust are authorized and
outstanding. Each share of a series 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, the 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 the Trust's outstanding shares, the 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 the Trust were subject to Section 16(c)
of the Investment Company Act of 1940. All shares of all series
of the 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
The Fund may in the future seek to achieve its objective by
pooling its assets with assets of other mutual funds managed by
Stein Roe for investment in another mutual fund having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. Stein Roe is expected to manage any such mutual
fund in which the Fund would invest. Such investment would be
subject to determination by the Trustees that it was in the best
interests of the Fund and its shareholders, and shareholders
would receive advance notice of any such change.
<PAGE> 3
INVESTMENT POLICIES
In pursuing its objective, the Fund will invest as described
below and may employ the investment techniques described in the
Prospectus and under Portfolio Investments and Strategies in this
Statement of Additional Information. The Fund's 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/ of the Fund.
The Fund's investment objective is long-term capital
appreciation. It seeks to achieve its objective by investing
primarily in common stocks and other equity-type securities that,
in the opinion of Stein Roe, have long-term appreciation
potential.
Under normal circumstances, at least 65% of the Fund's total
assets will be invested in securities of companies that, in the
opinion of Stein Roe, directly or through one or more
subsidiaries, affect the lives of children or teenagers. Such
companies may include companies that produce products or services
that children or teenagers use, are aware of, or could
potentially have an interest in.
Although the Fund 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. The Fund may
also employ investment techniques described elsewhere in this
Statement of Additional Information. (See Portfolio Investments
and Strategies.)
In addition to the Fund's investment objective and policies,
the Fund also has an educational objective. The Fund will seek
to educate its shareholders by providing educational materials
regarding investing as well as materials on the Fund and its
portfolio holdings.
PORTFOLIO INVESTMENTS AND STRATEGIES
DEFENSIVE INVESTMENTS
When Stein Roe considers a temporary defensive position
advisable, the Fund may invest, without limitation, in high-
quality fixed income securities or hold assets in cash or cash
equivalents.
- -----------------
/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
of the Fund are present or represented by proxy or (ii) more than
50% of the outstanding shares of the Fund.
- -----------------
<PAGE> 4
DERIVATIVES
Consistent with its objective, the Fund 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 Stein Roe'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.
The Fund currently does not intend to invest, nor has it
during its past fiscal year invested, more than 5% of its net
assets in any type of Derivative, except for options, futures
contracts, and futures options. (See Options and Futures in this
Statement of Additional Information.)
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
the Fund 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
<PAGE> 5
the Fund 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%.
FOREIGN SECURITIES
The Fund 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 does 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. The Fund may invest in
sponsored or unsponsored ADRs. In the case of an unsponsored
ADR, the Fund is likely to bear its proportionate share of the
expenses of the depository and it may have greater difficulty in
receiving shareholder communications than it would have with a
sponsored ADR. As of September 30, 1995, the Fund held 1.75% of
its net assets in foreign companies (none in foreign securities
and 1.75% in ADRs).
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, the Fund'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 the 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 in which are generally denominated in foreign
currencies, and utilization of forward foreign currency exchange
contracts involve certain considerations comprising both risks
and opportunities not
<PAGE> 6
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 the Fund 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.
Forward currency transactions may involve currencies of the
different countries in which the Fund may invest, and serve as
hedges against possible variations in the exchange rate between
these currencies. Currency transactions are limited to
transaction hedging. Transaction hedging is the purchase or sale
of forward contracts with respect to specific receivables or
payables of the Fund accruing in connection with the purchase and
sale of its portfolio securities. The Fund 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 the Fund 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, the Fund
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 in the Fund.
The Fund may not engage in "speculative" currency exchange
transactions.
<PAGE> 7
At the maturity of a forward contract to deliver a
particular currency, the Fund 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 the Fund
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 the Fund 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 the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to
the extent that there has been movement in forward contract
prices. If the Fund 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 the Fund'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, the Fund 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, the Fund 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 the Fund of unrealized
profits or force the Fund 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 the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it
anticipates. The cost to the Fund 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 FUND SECURITIES
Subject to restriction (5) under Investment Restrictions in
this Statement of Additional Information, the Fund 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
<PAGE> 8
value of the securities loaned by the Fund. Cash collateral for
securities loaned will be invested in liquid high-grade debt
securities. The Fund 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.
The Fund 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. The Fund 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 Stein Roe'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, the Fund 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 the Fund 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. The Fund did not lend any of
its securities during the fiscal year ended September 30, 1995.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE
AGREEMENTS
The Fund 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 the Fund 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. The Fund makes such commitments only with the
intention of actually acquiring the securities, but may sell the
securities before settlement date if Stein Roe deems it advisable
for investment reasons. During the fiscal year ended September
30, 1995, the Fund did not make any commitments to purchase when-
issued securities in excess of 5% of its assets.
The Fund may enter into reverse repurchase agreements with
banks and securities dealers. A reverse repurchase agreement is
a repurchase agreement in which the Fund 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. The Fund did not enter into any reverse
repurchase agreements during the fiscal year ended September 30,
1995.
At the time the Fund 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) of
the Fund having a value at least as great as the purchase price
of the securities to be purchased will be segregated on the books
of the Fund 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.
<PAGE> 9
SHORT SALES
The Fund may make short sales "against the box." In a short
sale, the Fund sells a borrowed security and is required to
return the identical security to the lender. A short sale
"against the box" involves the sale of a security with respect to
which the Fund already owns an equivalent security in kind and
amount. A short sale "against the box" enables the Fund to
obtain the current market price of a security which it desires to
sell but is unavailable for settlement.
RULE 144A SECURITIES
The Fund 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 the Fund, to trade in privately
placed securities that have not been registered for sale under
the 1933 Act. Stein Roe, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the Fund's restriction of
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, Stein Roe will consider the trading markets for
the specific security, taking into account the unregistered
nature of a Rule 144A security. In addition, Stein Roe 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, the Fund's holdings of illiquid
securities would be reviewed to determine what, if any, steps are
required to assure that the Fund does not invest more than 5% of
its assets in illiquid securities. Investing in Rule 144A
securities could have the effect of increasing the amount of the
Fund's assets invested in illiquid securities if qualified
institutional buyers are unwilling to purchase such securities.
The Fund does not expect to invest as much as 5% of its total
assets in Rule 144A securities that have not been deemed liquid
by Stein Roe. (See restriction (m) under Investment
Restrictions.)
LINE OF CREDIT
Subject to restriction (6) under Investment Restrictions in
this Statement of Additional Information, the Fund 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.
FUND TURNOVER
Although the Fund 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.
<PAGE> 10
Fund 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 a portfolio investment.
Because of the Fund'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 in the Fund, if it should occur, would result
in increased transaction expense, which must be borne by the
Fund. 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.)
Consistent with its objective, the Fund may purchase and
write both call options and put options on securities and on
indexes, and enter into interest rate and index futures
contracts, and may purchase or sell options on such futures
contracts ("futures options") in order to achieve its desired
investment objective, to provide additional revenue, or to hedge
against changes in security prices or interest rates. The Fund
may purchase and write both call options and put options on
foreign currencies and enter into foreign currency futures
contracts and futures options in order to provide additional
revenue or to hedge against changes in currency fluctuations.
The Fund may also use other types of options, futures contracts,
and futures options currently traded or subsequently developed
and traded, provided the Board of Trustees determines that their
use is consistent with the Fund's investment objective.
OPTIONS ON SECURITIES AND INDEXES
The Fund 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. The Fund 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
<PAGE> 11
financial or securities market, a specific group of financial
instruments or securities, or certain economic indicators.)
The Fund will write call options and put options only if
they are "covered." For example, in the case of a call option on
a security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (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 the Fund expires, the Fund realizes
a capital gain equal to the premium received at the time the
option was written. If an option purchased by the Fund expires,
the Fund realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option
may be closed out by an offsetting purchase or sale of an option
of the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to
purchase the option, the Fund will realize a capital gain or, if
it is less, the Fund will realize a capital loss. The principal
factors affecting the market value of a put or a call option
include supply and demand, interest rates, the current market
price of the underlying security 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 the Fund is an asset of
the Fund, valued initially at the premium paid for the option.
The premium received for an option written by the Fund is
recorded as a deferred credit. The value of an option purchased
or written is marked-to-market daily and is valued at the closing
price on the exchange on which it is traded or, if not traded on
an exchange or no closing price is available, at the mean between
the last bid and asked prices.
Risks Associated with Options. There are several risks
associated with transactions in options. For example, there are
significant differences between the securities 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 the Fund seeks to close out an option position. If the Fund
were unable to close out an option that it
<PAGE> 12
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 the Fund 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, the Fund
foregoes, during the option's life, the opportunity to profit
from increases in the market value of the security covering the
call option above the sum of the premium and the exercise price
of the call.
If trading were suspended in an option purchased or written
by the Fund, the Fund would not be able to close out the option.
If restrictions on exercise were imposed, the Fund might be
unable to exercise an option it has purchased.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Fund 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.
The Fund may purchase and write call and put futures
options. Futures options possess many of the same
characteristics as options on securities, indexes and foreign
currencies (discussed above). A futures option gives the holder
the right, in return for the premium paid, to assume a long
position (call) or 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. The Fund 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 Fund's securities or the price of
the securities that the Fund intends to purchase. Although other
techniques could be used to reduce or increase the Fund's
exposure to stock price, interest rate, and currency
fluctuations, the Fund may be able to achieve its exposure more
effectively and perhaps at a lower cost by using futures
contracts and futures options.
- ---------------
/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.
- --------------
<PAGE> 13
The Fund will only enter into futures contracts and futures
options that are standardized and traded on an exchange, board of
trade, or similar entity, or quoted on an automated quotation
system.
The success of any futures transaction depends on Stein Roe
correctly predicting changes in the level and direction of stock
prices, interest rates, currency exchange rates and other
factors. Should those predictions be incorrect, the Fund's
return might have been better had the transaction not been
attempted; however, in the absence of the ability to use futures
contracts, Stein Roe might have taken portfolio actions in
anticipation of the same market movements with similar investment
results but, presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by the
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the
broker ("initial margin"). The margin required for a futures
contract is set by the exchange on which the 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 the Fund
upon termination of the contract, assuming all contractual
obligations have been satisfied. The Fund expects to earn
interest income on its initial margin deposits. A futures
contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day
the Fund pays or receives cash, called "variation margin," equal
to the daily change in value of the futures contract. This
process is known as "marking-to-market." Variation margin paid
or received by the Fund does not represent a borrowing or loan by
the Fund but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures
contract had expired at the close of the previous day. In
computing daily net asset value, the Fund will mark-to-market its
open futures positions.
The Fund is also required to deposit and maintain margin
with respect to put and call options on futures contracts written
by it. Such margin deposits will vary depending on the nature of
the underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying 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, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund
realizes a capital loss. Conversely, if an offsetting sale price
is more than the original purchase price, the Fund engaging in
the transaction realizes a capital gain, or if it is less, the
Fund realizes a capital loss. The transaction costs must also be
included in these calculations.
<PAGE> 14
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 the 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
Fund's portfolio, and, in the case of interest rate futures
contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures contract
may differ from the financial instruments held in the Fund's
portfolio. A decision as to whether, when and how to use futures
contracts involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree
because of market behavior or unexpected 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 the Fund seeks to close out a futures or futures
option position. The Fund would be exposed to possible loss on
the position during the interval of inability to close, and would
continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed
above are relatively new instruments without a significant
trading history. As a result, there can be no assurance that an
active secondary market will develop or continue to exist.
<PAGE> 15
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,
the Fund may also use those investment vehicles, provided the
Board of Trustees determines that their use is consistent with
the Fund's investment objective.
The Fund will not enter into a futures contract or purchase
an option thereon if, immediately thereafter, the initial margin
deposits for futures contracts held by the Fund 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 the Fund's total assets.
When purchasing a futures contract or writing a put option
on a futures contract, the Fund must maintain with its custodian
(or broker, if legally permitted) cash or cash equivalents
(including any margin) equal to the market value of such
contract. When writing a call option on a futures contract, the
Fund similarly will maintain with its custodian cash or cash
equivalents (including any margin) equal to the amount by which
such option is in-the-money until the option expires or is closed
out by the Fund.
The Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical
relative volatility of the relationship between the portfolio and
the positions. For this purpose, to the extent the Fund has
written call options on specific securities in its portfolio, the
value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," the Fund 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 of the Fund, after taking into account unrealized profits
and unrealized losses on any such contracts it has entered into
[in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount (as defined in Section
190.01(x) of the Commission Regulations) may be excluded in
computing such 5%].
As long as the Fund continues to sell its shares in certain
states, the Fund's options and futures transactions will also be
subject to certain non-fundamental
- ------------------
/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.
- ------------------
<PAGE> 16
investment restrictions set forth under Investment Restrictions
in this Statement of Additional Information.
TAXATION OF OPTIONS AND FUTURES
If the Fund 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 the Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
If a call or put option written by the Fund is exercised,
the premium is included in the proceeds of the sale of the
underlying security (call) or reduces the cost basis of the
security purchased (put). For cash settlement options and
futures options written by the Fund, the difference between the
cash paid at exercise and the premium received is a capital gain
or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by the Fund was in-
the-money at the time it was written and the security covering
the option was held for more than the long-term holding period
prior to the writing of the option, any loss realized as a result
of a closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
If the Fund 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.
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 the
Fund delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities.
For federal income tax purposes, the Fund generally is
required to recognize as income for each taxable year its net
unrealized gains and losses as of the end of the year on futures,
futures options and non-equity options positions ("year-end mark-
to-market"). Generally, any gain or loss recognized with respect
to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and
40% short-term, without regard to the holding periods of the
contracts. However, in the case of positions classified as part
of a "mixed straddle," the
- ---------------
/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).
- ----------------
<PAGE> 17
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 the Fund: (1) will affect the
holding period of the hedged securities; and (2) may cause
unrealized gain or loss on such securities to be recognized upon
entry into the hedge.
If the Fund were to enter into a short index future, short
index futures option or short index option position and the
Fund's portfolio were deemed to "mimic" the performance of the
index underlying such contract, the option or futures contract
position and the Fund's stock positions would be deemed to be
positions in a mixed straddle, subject to the above-mentioned
loss deferral rules.
In order for the Fund to continue to qualify for federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). In addition,
gains realized on the sale or other disposition of securities
held for less than three months must be limited to less than 30%
of the Fund's annual gross income. Any net gain realized from
futures (or futures options) contracts will be considered gain
from the sale of securities and therefore be qualifying income
for purposes of the 90% requirement. In order to avoid realizing
excessive gains on securities held less than three months, the
Fund may be required to defer the closing out of certain
positions beyond the time when it would otherwise be advantageous
to do so.
The 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 other investments, and
shareholders are advised of the nature of the payments.
INVESTMENT RESTRICTIONS
The Fund operates under the following investment
restrictions. The Fund 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 Government of
the U.S. or any of its agencies or instrumentalities or
repurchase agreements for such securities and 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,
except that all or substantially all of
<PAGE> 18
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, 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 for the purpose of facilitating payment for a
foreign security;
(5) make loans, but this restriction shall not prevent it
from (a) buying a part of an issue of bonds, debentures, or other
obligations which are publicly distributed, or from investing up
to an aggregate of 15% of its total assets (taken at market value
at the time of each purchase) in parts of issues of bonds,
debentures or other obligations of a type privately placed with
financial institutions, (b) investing in repurchase agreements,
/5/ or (c) lending portfolio securities, provided that it may not
lend securities if, as a result, the aggregate value of all
securities loaned would exceed 33% of its total assets (taken at
market value at the time of such loan);
(6) borrow, except that it may (a) borrow up to 33 1/3% of
its total assets, taken at market value at the time of such
borrowing, as a temporary measure for extraordinary or emergency
purposes, but not to increase portfolio income (the total of
reverse repurchase agreements and such borrowings will not exceed
33 1/3% of its total assets, and it will not purchase additional
securities when its borrowings, less proceeds receivable from
sales of portfolio securities, exceed 5% of its total assets) and
(b) enter into transactions in options, futures, and options on
futures;
(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 that all or substantially all
of the assets of the Fund may be invested in another registered
- ----------------------
/5/ A repurchase agreement involves the sale of securities to the
Fund, with the concurrent agreement of the seller to repurchase
the securities at the same price plus an amount representing
interest at an agreed-upon interest rate, within a specified
time, usually less than one week, but, on occasion, at a later
time. Repurchase agreements entered into by the Fund will be
fully collateralized and will be marked-to-market daily. In the
event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in
liquidating the underlying securities and losses, including: (a)
possible decline in the value of the collateral during the period
while the Fund 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.
- ---------------------
<PAGE> 19
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 are fundamental policies and may not
be changed without the approval of a "majority of the outstanding
voting securities," as defined above. The Fund is 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 the 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 as the Fund. The Fund 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 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) purchase or hold securities of an issuer if 5% of the
securities of such issuer are owned by those officers, trustees,
or directors of the Trust or of its investment adviser, who each
own beneficially more than 1/2 of 1% of the securities of that
issuer;
(e) mortgage, pledge, or hypothecate its assets, except as
may be necessary in connection with permitted borrowings or in
connection with options, futures, and options on futures;
(f) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in
warrants that are not listed on the New York or American stock
exchange;
<PAGE> 20
(g) write an option on a security unless the option is
issued by the Options Clearing Corporation, an exchange, or
similar entity;
(h) 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);
(i) buy or sell an option on a security, a futures contract,
or an option on a futures contract unless the option, the futures
contract, or the option on the futures contract is offered
through the facilities of a recognized securities association or
listed on a recognized exchange or similar entity;
(j) 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;
(k) 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) the Fund 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 the Fund expects
to receive in a recapitalization, reorganization, or other
exchange for securities the Fund 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;
(l) invest more than 5% of its total assets (taken at
market value at the time of a particular investment) in
securities of issuers (other than issuers of federal agency
obligations or securities issued or guaranteed by any foreign
country or asset-backed securities) that, together with any
predecessors or unconditional guarantors, have been in continuous
operation for less than three years ("unseasoned issuers");
(m) 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;
(n) invest more than 15% of its total assets (taken at
market value at the time of a particular investment) in
restricted securities /6/ and securities of unseasoned issuers;
(o) invest more than 5% 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.
- -------------------
/6/ As long as it is required to do so by the Ohio Division of
Securities, the Trust will consider a security eligible for
resale pursuant to Rule 144A under the Securities Act of 1933 to
be a restricted security.
- -------------------
<PAGE> 21
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. It has worked
to build wealth for generations by being 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. 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 goal.
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.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus
under the headings How to Purchase Shares, How to Redeem Shares,
Net Asset Value, and Shareholder Services, and that information
is incorporated herein by reference. The Prospectus discloses
that you may purchase (or redeem) shares through investment
dealers, banks, or other institutions. It is the responsibility
of any such institution to establish procedures insuring the
prompt transmission to the Trust of any such purchase order. The
state of Texas has asked that the Trust disclose in its Statement
of Additional Information, as a reminder to any such bank or
institution, that it must be registered as a securities dealer in
Texas.
<PAGE> 22
The Fund's net asset value is determined 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 February, Good Friday, the last
Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or
Sunday, the NYSE will be closed on the preceding Friday or the
following Monday, respectively. Net asset value will not be
determined on days when the NYSE is closed unless, in the
judgment of the Board of Trustees, net asset value of the Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time.
The 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 the 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, the Trust reserves the right to redeem shares in any
account for their then-current value (which will be promptly paid
to the investor) if at any time the shares in the account do not
have a value of at least $1,000. An investor will be notified
that the value of his account is less than that minimum and
allowed at least 30 days to bring the value of the account up to
at least $1,000 before the redemption is processed. The
Agreement and Declaration of Trust also authorizes the Trust to
redeem shares under certain other circumstances as may be
specified by the Board of Trustees.
The Trust reserves the right to suspend or postpone
redemptions of shares of the 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 the Fund not reasonably
practicable.
MANAGEMENT
The following table sets forth certain information with
respect to the trustees and officers:
<TABLE>
<CAPTION>
Position(s) held
Name Age with the Trust Principal occupation(s) during past five years
- -------------------- -- ------------------------ -----------------------------------------------
<S> <C> <C> <C>
Gary A. Anetsberger 40 Senior Vice-President Vice-President of Stein Roe & Farnham Incorporated ("Stein
Roe")
Timothy K. Armour 47 President; Trustee President of the Mutual Funds division of Stein Roe and
(1)(2) Director of Stein Roe since June, 1992; senior vice
president and director of marketing of Citibank Illinois
prior thereto
<PAGE> 23
Jilaine Hummel Bauer 40 Executive Vice-President; Senior Vice President (since April, 1992) and Assistant
Secretary Secretary of Stein Roe; vice president of Stein Roe,
prior thereto
Bruno Bertocci 41 Vice-President Employee of Colonial Management Associates, Inc. since
January, 1996; senior vice president of Stein Roe since
May, 1995; global equity portfolio manager with Rockefeller
& Co. prior thereto
Kenneth L. Block (3) 75 Trustee Chairman Emeritus of A. T. Kearney, Inc. (international
management consultants)
William W. Boyd (3) 70 Trustee Chairman and Director of Sterling Plumbing Group, Inc.
(manufacturer of plumbing products) since 1992; chairman,
president, and chief executive officer of Sterling Plumbing
Corporation prior thereto
N. Bruce Callow 50 Executive Vice-President President of the Investment Counsel division of Stein Roe
since June, 1994; senior vice president of trust and
financial services for The Northern Trust prior thereto
Daniel K. Cantor 36 Vice-President Senior Vice President of Stein Roe
Robert A. Christensen 62 Vice-President Senior Vice President of Stein Roe
Lindsay Cook (1) 43 Trustee Senior Vice President of Liberty Financial Companies, Inc.
(the indirect parent of Stein Roe)
E. Bruce Dunn 61 Vice-President Senior Vice President of Stein Roe
Erik P. Gustafson 32 Vice-President Vice President of Stein Roe since May, 1994; associate of
Stein Roe from April, 1992 to May, 1994; associate
attorney with Fowler White Burnett Hurley Banick &
Strickroot prior thereto
David P. Harris 31 Vice-President Employee of Colonial Management Associates, Inc. since
January, 1996;vice president of Stein Roe since May, 1995;
global equity portfolio manager with Rockefeller & Co. prior
thereto
Philip D. Hausken 37 Vice-President Corporate Counsel for Stein Roe since July, 1994;
assistant regional director, midwest regional office of the
Securities and Exchange Commission prior thereto
Harvey B. Hirschhorn 46 Vice-President Executive Vice President, Chief Economist & Investment
Strategist, and Director of Research Services of Stein Roe
Stephen P. Lautz 38 Vice-President Vice President of Stein Roe since May, 1994; associate of
Stein Roe prior thereto
<PAGE> 24
Eric S. Maddix 32 Vice-President Portfolio Manager for Stein Roe
Lynn C. Maddox 55 Vice-President Senior Vice President of Stein Roe
Anne E. Marcel 38 Vice-President Manager, Mutual Fund Sales & Services of Stein Roe since
October, 1994; supervisor of the Counselor Department of the
Adviser from October, 1992 to October, 1994; vice president
of Selected Financial Services from May, 1990 to March, 1992
Francis W. Morley (3) 75 Trustee Chairman of Employer Plan Administrators and Consultants Co.
(designer, administrator, and communicator of employee
benefit plans)
Charles R. Nelson (3) 53 Trustee Professor, Department of Economics of the University of
Washington
Nicolette D. Parrish 46 Vice-President; Senior Compliance Administrator for Stein Roe since
Assistant Secretary November, 1995; senior legal assistant for Stein Roe prior
thereto
Richard B. Peterson 55 Vice-President Senior Vice President of Stein Roe since June, 1991;
officer of State Farm Investment Management Corporation prior
thereto
Sharon R. Robertson 34 Controller Accounting Manager for Stein Roe's Mutual Funds division
Janet B. Rysz 40 Assistant Secretary Assistant Secretary of Stein Roe
Gloria J. Santella 38 Vice-President Vice President of Stein Roe since January, 1992; associate
of Stein Roe prior thereto
Thomas P. Sorbo 35 Vice-President Senior Vice President of Stein Roe since January, 1994;
vice president of Stein Roe from September, 1992 to
December, 1993; associate of Travelers Insurance Company
prior thereto
Gordon R. Worley 76 Trustee Private investor
(2) (3)
Hans P. Ziegler 54 Executive Vice-President Chief Executive Officer of Stein Roe since May, 1994;
president of the Investment Counsel division of Stein Roe
from July, 1993 to June, 1994; president and chief executive
officer, Pitcairn Financial Management Group prior thereto
Margaret O. Zwick 29 Treasurer Compliance Manager for Stein Roe's Mutual Funds division
since August 1995; Compliance Accountant, January 1995 to
July 1995; Section Manager, January 1994 to January 1995;
Supervisor, February 1990 to December 1993
</TABLE>
____________________
(1) Trustee who is an "interested person" of the Trust and of
Stein Roe, as defined in the Investment Company Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3 Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope
and results of the audit.
<PAGE> 25
Certain of the trustees and officers of the Trust are
trustees or officers of other investment companies managed by
Stein Roe. Ms. Bauer and Mr. Cook are vice presidents of the
Fund's distributor, Liberty Securities Corporation. The address
of Mr. Block is 11 Woodley Road, Winnetka, Illinois 60093; that
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. Morley is 20 North Wacker Drive, Suite 2275,
Chicago, Illinois 60606; that of Mr. Nelson is Department of
Economics, University of Washington, Seattle, Washington 98195;
that of Mr. Worley is 1407 Clinton Place, River Forest, Illinois
60305; 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 Stein Roe serve
without any compensation from the Trust. In compensation for
their services to the Trust, trustees who are not "interested
persons" of the Trust or Stein Roe are paid an annual retainer of
$8,000 (divided equally among the Funds of the Trust) plus an
attendance fee from each Fund for each meeting of the Board or
committee thereof attended at which business for that Fund is
conducted. The attendance fees (other than for a Nominating
Committee meeting) are based on each Fund's net assets as of the
preceding December 31. For a Fund with net assets of less than
$251 million, the fee is $200 per meeting; with $251 million to
$500 million, $350; with $501 million to $750 million, $500; with
$750 million to $1 billion, $650; and with over $1 billion in net
assets, $800. Each non-interested trustee also receives an
aggregate of $500 for attending each meeting of the Nominating
Committee. The Trust has no retirement or pension plans. The
following table sets forth compensation paid by the Trust during
the fiscal year ended September 30, 1995 to each of the trustees:
Aggregate Total Compensation Paid
Compensation to Trustees from the Trust
Name of from the and the Stein Roe Fund
Trustee* Trust Complex**
------------ ------------ ---------------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Alfred F. Kugel -0- -0-
Kenneth L. Block $26,800 $66,400
William W. Boyd 22,050 58,650
Francis W. Morley 26,200 66,000
Charles R. Nelson 28,550 68,350
Gordon R. Worley 26,200 66,000
_______________
* Messrs. Armour, Boyd, and Cook were not elected trustees of
the Trust until January 17, 1995. Mr. Kugel was an
affiliated trustee through January 17, 1995.
** During this period, the Stein Roe Fund Complex consisted of
the six series of Stein Roe Income Trust, four series of
Stein Roe Municipal Trust, eight series of Stein Roe
Investment Trust, and one series of SR&F Base Trust.
FINANCIAL STATEMENTS
Please refer to the Fund's September 30, 1995 Financial
Statements (balance sheets and schedules of investments as of
September 30, 1995 and the statements of operations, changes in
net assets, and notes thereto) and the report of independent
<PAGE> 26
public accountants contained in the September 30, 1995 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 800-338-2550.
PRINCIPAL SHAREHOLDERS
As of October 31, 1995, the only person known by the Trust
to own of record or "beneficially" 5% or more of the outstanding
shares of the Fund within the definition of that term as
contained in Rule 13d-3 under the Securities Exchange Act of 1934
was as follows:
Approximate Percentage of
Name and Address Outstanding Shares Held
- ------------------------------ ---------------------------
Keyport Life Insurance Company 16.98%
125 High Street
Boston, MA 02110
The following table shows shares of the Fund held by the
categories of persons indicated, and in each case the approximate
percentage of outstanding shares represented:
CLIENTS OF THE
ADVISER IN THEIR TRUSTEES AND
CLIENT ACCOUNTS OFFICERS
AS OF 10/31/95 AS OF 10/31/95
--------------- ----------------
SHARES SHARES
HELD PERCENT HELD PERCENT
------ ------- ------- --------
3,836 ** 614 **
______________
*Stein Roe may have discretionary authority over such shares
and, accordingly, they could be deemed to be owned
"beneficially" by Stein Roe under Rule 13d-3. However, Stein
Roe disclaims actual beneficial ownership of such shares.
**Represents less than 1% of the outstanding shares.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated, the Fund's investment
adviser, is a wholly owned subsidiary of SteinRoe Services Inc.
("SSI"), the Funds' transfer agent, which is a wholly owned
subsidiary of Liberty Financial Companies, Inc., which is a
majority-owned subsidiary of Liberty Mutual Equity Corporation,
which is a wholly owned subsidiary of Liberty Mutual Insurance
Company ("Liberty Mutual"). Liberty Mutual is a mutual insurance
company, principally in the property/casualty insurance field,
organized under the laws of Massachusetts in 1912.
The directors of Stein Roe are Gary L. Countryman, Kenneth
R. Leibler, Timothy K. Armour, N. Bruce Callow, and Hans P.
Ziegler. Mr. Countryman is Chairman and Chief Executive Officer
of Liberty Mutual Insurance Company; Mr. Leibler is President and
Chief Executive Officer of Liberty Financial Companies; Mr.
Armour is President of Stein Roe's Mutual Funds division; Mr.
Callow is President of Stein Roe's Investment Counsel division;
and Mr. Ziegler is Chief Executive Officer of Stein Roe. The
business address of Mr. Countryman is 175 Berkeley Street,
Boston, Massachusetts 02117; that of Mr. Leibler is Federal
Reserve Plaza, Boston, Massachusetts
<PAGE> 27
02210; and that of Messrs. Armour, Callow, and Ziegler is One
South Wacker Drive, Chicago, Illinois 60606.
Stein Roe and its predecessor have been providing investment
advisory services since 1932. Stein Roe acts as investment
adviser to wealthy individuals, trustees, pension and profit
sharing plans, charitable organizations, and other institutional
investors. As of September 30, 1995, Stein Roe managed over
$22.9 billion in assets: over $5.5 billion in equities and over
$17.4 billion in fixed income securities (including $2.3 billion
in municipal securities). The $22.9 billion in managed assets
included over $5.7 billion held by open-end mutual funds managed
by Stein Roe (approximately 21% of the mutual fund assets were
held by clients of Stein Roe). These mutual funds were owned by
over 148,000 shareholders. The $5.7 billion in mutual fund
assets included over $570 million in over 33,000 IRA accounts.
In managing those assets, Stein Roe utilizes a proprietary
computer-based information system that maintains and regularly
updates information for approximately 6,500 companies. Stein Roe
also monitors over 1,400 issues via a proprietary credit analysis
system. At September 30, 1995, Stein Roe employed 17 research
analysts and 36 account managers. The average investment-related
experience of these individuals was 20 years.
Stein Roe Counselor [SERVICE MARK] and Stein Roe Counselor
Preferred [SERVICE MARK] are professional investment advisory
services offered to Fund shareholders. Each is designed to help
shareholders construct Fund investment portfolios to suit their
individual needs. Based on information shareholders provide
about their financial circumstances, goals, and objectives in
response to a questionnaire, Stein Roe's investment professionals
create customized portfolio recommendations for investments in
the Fund and other mutual funds managed by Stein Roe.
Shareholders participating in Stein Roe Counselor [SERVICE MARK]
are free to self direct their investments while considering Stein
Roe's recommendations; shareholders participating in Stein Roe
Counselor Preferred [SERVICE MARK] enjoy the added benefit of
having Stein Roe implement portfolio recommendations
automatically for a fee of 1% or less, depending on the size of
their portfolios. In addition to reviewing shareholders'
circumstances, goals, and objectives periodically and updating
portfolio recommendations to reflect any changes, the
shareholders who participate in these programs are assigned a
dedicated Counselor [SERVICE MARK] representative. Other
distinctive services include specially designed account
statements with portfolio performance and transaction data,
newsletters, and regular investment, economic, and market
updates. A $50,000 minimum investment is required to participate
in either program. Other similar programs with different fee
structures may be offered through affiliates of Stein Roe.
Please refer to the description of Stein Roe, the advisory
agreement, management agreement, administrative agreement, fees,
expense limitations, and transfer agency services under
Management of the Fund in the Prospectus, which is incorporated
herein by reference. From the Fund's inception on April 29, 1994
through September 30, 1994, pursuant to the expense undertaking,
Stein Roe reimbursed the Fund $82,109, resulting in a net payment
by Stein Roe of $64,954. For the fiscal year ended September 30,
1995, Stein Roe reimbursed the Fund $322,803, resulting in a net
payment by Stein Roe of $191,821.
<PAGE> 28
Stein Roe provides office space and executive and other
personnel to the Fund and bears any sales or promotional
expenses. The Fund pays all expenses other than those paid by
Stein Roe, 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 Stein Roe shall
reimburse the Fund to the extent that total annual expenses of
the Fund (including fees paid to Stein Roe, but excluding taxes,
interest, brokers' 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
shares of the Fund are being offered for sale to the public;
provided, however, that Stein Roe is not required to reimburse
the Fund an amount in excess of the management fee from the Fund
for such year. The Trust believes that currently the most
restrictive state limit on mutual fund expenses is that of
California, which limit currently is 2 1/2% of the first $30
million of average net assets, 2% of the next $70 million, and 1
1/2% thereafter. In addition, in the interest of further
limiting expenses of the Fund, the Adviser may voluntarily waive
its management fee and/or absorb certain expenses for the Fund,
as described under Fee Table in the Prospectus. Any such
reimbursement will enhance the yield of the Fund.
The management agreement provides that neither Stein Roe,
nor any of its directors, officers, stockholders (or partners of
stockholders), agents, or employees shall have any liability to
the Trust or any shareholder of the 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 Stein Roe 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 the Fund shall be paid
solely out of the Fund's assets. Any expenses incurred by the
Trust that are not solely attributable to a particular series are
apportioned in such manner as Stein Roe determines is fair and
appropriate, unless otherwise specified by the Board of Trustees.
BOOKKEEPING AND ACCOUNTING AGREEMENT
Pursuant to a separate agreement with the Trust, Stein Roe
receives a fee for performing certain bookkeeping and accounting
services for the Fund. For these services, Stein Roe 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 September
30, 1995, the Adviser received aggregate fees of $162,677 from
the Trust for services performed under this Agreement.
<PAGE> 29
DISTRIBUTOR
Shares of the Fund are distributed by Liberty Securities
Corporation ("LSC") under a Distribution Agreement as described
under Management of the Fund in the Prospectus, which is
incorporated herein by reference. 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 the Trust, and
(ii) by a majority of the trustees who are not parties to the
Agreement or interested persons of any such party. The 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. Stein Roe bears
all sales and promotional expenses, including payments to LSC for
the sales of Fund shares. Stein Roe also makes payments to other
broker-dealers, banks, and other institutions for the sales of
Fund shares of 0.20% of the annual average value of accounts of
such shares.
As agent, LSC offers shares of the Fund to investors in
states where the shares are qualified for sale, at net asset
value, without sales commissions or other sales load to the
investor. In addition, no sales commission or "12b-1" payment is
paid by the Fund. LSC offers the Fund's shares only on a best-
efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for the Trust,
as described under Management of the Fund in the Prospectus. For
performing these services, SSI receives from the Fund a fee based
on an annual rate of .22 of 1% of average net assets. Prior to
May 1, 1995, SSI received the following payments from the Fund:
(1) a fee of $4.00 for each new account opened; (2) monthly
payments of $1.063 per open shareholder account; (3) payments of
$0.367 per closed shareholder account for each month through June
of the calendar year following the year in which the account is
closed; (4) $0.3025 per shareholder account for each dividend
paid; and (5) $1.415 for each shareholder-initiated transaction.
The Trust believes the charges by SSI to the Fund are comparable
to those of other companies performing similar services. (See
Investment Advisory Services.)
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian
for the Trust. It is responsible for holding all securities and
cash of the Fund, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering
expenses of the Fund, and performing other administrative duties,
all as directed by authorized persons. The custodian does not
exercise any supervisory function in such matters as purchase and
sale of portfolio securities, payment of dividends, or payment of
expenses of the Fund .
<PAGE> 30
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 reviews, at least annually, whether it
is in the best interest of the Fund and its shareholders for the
Fund 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. The 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 Stein Roe and counsel. However, with
respect to foreign sub-custodians, there can be no assurance that
the 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 the Fund's 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.
The Fund may invest in obligations of the custodian and may
purchase or sell securities from or to the custodian.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Trust are Arthur
Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603.
The accountants audit and report on the Fund's annual financial
statements, review certain regulatory reports and the Fund's
federal income tax returns, and perform other professional
accounting, auditing, tax and advisory services when engaged to
do so by the Trust.
PORTFOLIO TRANSACTIONS
Stein Roe places the orders for the purchase and sale of the
Fund's portfolio securities and options and futures contracts.
Stein Roe'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: Stein Roe'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;
<PAGE> 31
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; Stein Roe's knowledge of the financial stability
of the broker or dealer selected and such other brokers or
dealers; and Stein Roe's knowledge of actual or apparent
operational problems of any broker or dealer. Recognizing the
value of these factors, the Fund 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 Stein Roe's staff while
effecting portfolio transactions. The general level of brokerage
commissions paid is reviewed by Stein Roe, and reports are made
annually to the Board of Trustees.
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
the Fund, Stein Roe 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, Stein Roe 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 the Fund, to such brokers or dealers to ensure the
continued receipt of research products or services Stein Roe
feels are useful. In certain instances, Stein Roe 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, Stein Roe makes a good
faith effort to determine the relative proportions 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 Stein Roe
(without prior agreement or understanding, as noted above)
through brokerage commissions generated by transactions by
clients (including the Fund), while the portions of the costs
attributable to non-research usage of such products or services
is paid by Stein Roe in cash. No person acting on behalf of the
Fund 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. Research products or services furnished by
brokers and dealers may be used in servicing any or all of the
clients of Stein Roe and not all such research products or
services are used in connection with the management of the Fund.
With respect to the Fund's purchases and sales of portfolio
securities transacted with a broker or dealer on a net basis,
Stein Roe may also consider the part, if any,
<PAGE> 32
played by the broker or dealer in bringing the security involved
to Stein Roe's attention, including investment research related
to the security and provided to the Fund.
The table below shows information on brokerage commissions
paid by the Fund:
Total amount of brokerage commissions paid during
fiscal year ended 9/30/95 $ 38,043
Amount of commissions paid to brokers or dealers
who supplied research services to Stein Roe 24,428
Total dollar amount involved in such transactions 11,129,502
Amount of commissions paid to brokers or dealers
that were allocated to such brokers or dealers
by the Fund's portfolio manager because of
research services provided to the Fund 6,379
Total dollar amount involved in such transactions 2,973,000
Total amount of brokerage commissions paid during
period ended 9/30/94 13,680
The Trust has arranged for its 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 Fair Practice of the National
Association of Securities Dealers.
ADDITIONAL INCOME TAX CONSIDERATIONS
The Fund intends to comply with the special provisions of
Subchapter M 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.
The Fund expects that less than 100% of its dividends will
qualify for the deduction for dividends received by corporate
shareholders.
To the extent the Fund invests in foreign securities, it may
be subject to withholding and other taxes imposed by foreign
countries. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Investors may be
entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in
the Code. Specifically, if more than 50% of the Fund's total
assets at the close of any fiscal year consist of stock or
securities of foreign
<PAGE> 33
corporations, the Fund may file an election with the Internal
Revenue Service pursuant to which shareholders of the Fund will
be required to (i) include in ordinary gross income (in addition
to taxable dividends actually received) their pro rata shares of
foreign income taxes paid by the Fund even though not actually
received, (ii) treat such respective pro rata shares as foreign
income taxes paid by them, and (iii) deduct such pro rata shares
in computing their taxable incomes, or, alternatively, use them
as foreign tax credits, subject to applicable limitations,
against their United States income taxes. Shareholders who do
not itemize deductions for federal income tax purposes will not,
however, be able to deduct their pro rata portion of foreign
taxes paid by the Fund, although such shareholders will be
required to include their share of such taxes in gross income.
Shareholders who claim a foreign tax credit may be required to
treat a portion of dividends received from the Fund as separate
category income for purposes of computing the limitations on the
foreign tax credit available to such shareholders. Tax-exempt
shareholders will not ordinarily benefit from this election
relating to foreign taxes. Each year, the Fund will notify
shareholders of the amount of (i) each shareholder's pro rata
share of foreign income taxes paid by the Fund and (ii) the
portion of Fund dividends which represents income from each
foreign country, if the Fund qualifies to pass along such credit.
INVESTMENT PERFORMANCE
The Fund may quote certain total return figures from time to
time. A "Total Return" on a per share basis is the amount of
dividends distributed per share plus or minus the change in the
net asset value per share for a period. A "Total Return
Percentage" may be calculated by dividing the value of a share 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.
Average Annual Total Return is computed as follows:
n
ERV = P(1+T)
<PAGE> 35
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the end
of the period (or fractional portion thereof).
For example, for a $1,000 investment in the Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at September 30, 1995 were:
TOTAL TOTAL RETURN AVERAGE ANNUAL
RETURN RETURN PERCENTAGE TOTAL RETURN
------- ----------------- -------------
1 year $1,406 40.58% 40.58%
*Life of Fund 1,440 43.96 29.33
________________________
*Life of Fund is from its date of public offering, 4/29/94.
<PAGE> 34
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. They are not necessarily indicative of
future results. The performance of the Fund is a result of
conditions in the securities markets, portfolio management, and
operating expenses. Although investment performance information
is useful in reviewing the 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, the Fund may compare
its performance with that of other mutual funds, indexes or
averages of other mutual funds, indexes of related financial
assets or data, and other competing investment and deposit
products available from or through other financial institutions.
The composition of these indexes or averages differs from that of
the Fund. Comparison of the 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 the Fund
believes to be generally accurate. The Fund may also note its
mention or recognition in newspapers, magazines, or other media
from time to time. However, the Fund assumes no responsibility
for the accuracy of such data. Newspapers and magazines which
might mention the Fund include, but are not limited to, the
following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Barron's
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
Crain's Chicago Business
Consumer Reports
Consumer Digest
Financial World
Forbes
Fortune
Fund Action
Gourmet
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Los Angeles Times
Money
Mutual Fund Letter
Mutual Fund News Service
Mutual Fund Values (Morningstar)
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
Smart Money
Smithsonian
Stanger's Investment Adviser
Time
Travel & Leisure
United Mutual Fund Selector
USA Today
U.S. News and World Report
The Wall Street Journal
Working Women
Worth
Your Money
<PAGE> 35
The Fund may compare its performance to the Consumer Price
Index (All Urban), a widely recognized measure of inflation.
The Fund's performance 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 the
recognized indicators of general performance of stocks traded in the
U.S. stock market results.) indicated markets.)
In addition, the Fund may compare performance with the
following indexes:
Lipper Equity Funds Average
Lipper General Equity Funds Average
Lipper Growth Fund Index
Lipper Growth Funds Average
ICD Aggressive Growth and Long-Term Growth Funds Average
ICD All Equity Funds Average
ICD General Equity Average*
ICD Long-Term Growth Funds Average
ICD Long-Term Growth Funds Index
Morningstar All Equity Funds Average
Morningstar Equity Fund Average
Morningstar General Equity Average**
Morningstar Growth Average
Morningstar Hybrid Fund Average
Morningstar U.S. Diversified Average
*Includes ICD Aggressive Growth, Growth & Income, Long-Term
Growth, and Total Return averages
**Includes Morningstar Aggressive Growth, Growth, Balanced,
Equity Income, and Growth & Income averages
The ICD Indexes reflect the unweighted average total return
of the largest twenty funds within their respective category as
calculated and published by ICD.
The Lipper averages are unweighted averages of total return
performance as classified, calculated, and published by Lipper.
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, ICD, 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. The 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
<PAGE> 36
another service reclassify the Fund to a different category or
develop (and place the Fund 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.
The 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 the Fund's risk score (which is a
function of the Fund's monthly returns less the 3-month T-bill
return) from the Fund's 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, the 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
________________
The Fund may also use hypothetical returns to be used as an
example in a mix of asset allocation strategies. One such
example is reflected in the chart below, which shows the effect
of tax deferral on a hypothetical investment. This chart assumes
that an investor invested $2,000 a year on January 1, for any
specified period, in both a Tax-Deferred Investment and a Taxable
Investment, that both investments earn either 6%, 8% or 10%
compounded annually, and that the investor withdrew the entire
amount at the end of the period. (A tax rate of 39.6% is applied
annually to the Taxable Investment and on the withdrawal of
earnings on the Tax-Deferred Investment.)
<PAGE> 37
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
INTEREST RATE 6% 8% 10% 6% 8% 10%
Compounding
Years Tax-Deferred Investment Taxable Investment
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 150,484 82,067 97,780 117,014
20 62,943 75,543 91,947 59,362 68,109 78,351
15 41,684 47,304 54,099 40,358 44,675 49,514
10 24,797 26,820 29,098 24,453 26,165 28,006
5 11,178 11,613 12,072 11,141 11,546 11,965
1 2,072 2,096 2,121 2,072 2,096 2,121
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.
From time to time, the Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe Counselor
[SERVICE MARK] and the Stein Roe Counselor Preferred [SERVICE
MARK] programs and asset allocation and other investment
strategies.
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, Stein Roe believes that the quality of debt
securities in which the 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.
<PAGE> 38
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.
<PAGE> 39
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.
<PAGE> 40
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.
_________________
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) 1. Financial Statements included in Part A of this Amendment
to the Registration Statement: Financial Highlights.
2. Financial statements included in Part B of this Amendment:
Financial statements (investments as of 9/30/95, balance
sheets as of 9/30/95, statements of operations for the
year ended 9/30/95, statements of changes in net assets,
notes to financial statements, and report of independent
auditors) are incorporated by reference to Registrant's
9/30/95 semiannual reports..
(b) Exhibits: [Note: As used herein, the term "Registration
Statement" refers to the Registration Statement of the
Registrant on Form N-1A under the Securities Act of 1933, No.
33-11351. The terms "Pre-Effective Amendment" and "PEA"
refer, respectively, to a pre-effective amendment and a post-
effective amendment to the Registration Statement.]
1. (a) Agreement and Declaration of Trust. (Exhibit 1 to
Registration Statement.)*
(b) Amendment to Agreement and Declaration of Trust
dated December 31, 1987. (Exhibit 1(b) to PEA #6.)*
(c) Amendment to Agreement and Declaration of Trust
dated June 30, 1989. (Exhibit 1(c) to PEA #13.)*
(d) Amendment to Agreement and Declaration of Trust dated
January 17, 1995. (Exhibit 1(d) to PEA #29).*
2. (a) By-Laws of Registrant as amended through October 24,
1990. (Exhibit 2 to PEA #16.)*
(b) Amendment to By-Laws dated February 3, 1993. (Exhibit
2(b) to PEA #19.)*
3. None.
4. Inapplicable.
5. (a) Form of investment advisory agreement between
Registrant and Stein Roe & Farnham Incorporated (the
"Adviser") relating to the series Stein Roe
International Fund. (Exhibit 5(d)(1) to PEA #20).*
(b) Form of investment advisory agreement between
Registrant and the Adviser relating to the series
Stein Roe Young Investor Fund. (Exhibit 5(e) to PEA
#21.)*
(c) Management agreement dated August 15, 1995, relating
to the series Stein Roe Prime Equities, Stein Roe
Special Venture Fund, Stein Roe Total Return Fund,
Stein Roe Growth Stock Fund, Stein Roe Capital
Opportunities Fund, and Stein Roe Special Fund.
(d) Expense undertakings relating to Stein Roe
International Fund, Stein Roe Young Investor Fund and
Stein Roe Special Venture Fund dated May 1, 1995,
April 22, 1994, and October 14, 1994, respectively.
6. (a) Form of underwriting agreement between Registrant and
Liberty Securities Corporation dated June 22, 1987.
(Exhibit 6 to PEA #1.)*
(b) First amendment to underwriting agreement dated
October 28, 1992. (Exhibit 6(b) to PEA #18).*
7. None.
8. Custodian contract between Registrant and State Street
Bank and Trust Company as amended through May 8, 1995.
9. (a) Restated Transfer Agency Agreement between Registrant
and SteinRoe Services Inc. dated August 1, 1995.
(b) Accounting and Bookkeeping Agreement dated August 1,
1994. (Exhibit 9(f) to PEA #25.)*
(c) Administrative Agreement between Registrant and the
Adviser dated August 15, 1995.
10. (a) Stein Roe Prime Equities:
(1) Opinion and consent of Bell, Boyd & Lloyd.
(Exhibit 10(a) to Pre-Effective Amendment #1.)*
(2) Opinion and consent of Ropes & Gray. (Exhibit
10(b) to Pre-Effective Amendment #1.)*
(b) Stein Roe Total Return Fund, Stein Roe Growth Stock,
Stein Roe Capital Opportunities Fund, and Stein Roe
Special Fund:
(1) Opinion and consent of Bell, Boyd & Lloyd.
(Exhibit 10(d)(1) to PEA #7.)*
(2) Opinion and consent of Ropes & Gray. (Exhibit
10(d) (2) to PEA #7.)*
(c) Opinion and consent of Bell, Boyd & Lloyd with
respect to Stein Roe International Fund. (Exhibit
10(c) to PEA #20).*
(d) Opinion and consent of Bell, Boyd & Lloyd with
respect to Stein Roe Young Investor Fund. (Exhibit
10(d) to PEA #21.)*
(e) Opinion and consent of Bell, Boyd & Lloyd with
respect to Stein Roe Special Venture Fund. (Exhibit
10(e) to PEA #26.)*
11. (a) Consent to Arthur Andersen LLP, independent public
accountants.
(b) Consent of Morningstar, Inc. (Exhibit 11(b) to PEA
#17.)*
12. None.
13. Form of subscription agreement. (Exhibit 13 to Pre-
Effective Amendment #1.)*
14. (a) Stein Roe & Farnham Funds Individual Retirement
Account Plan.
(b) Stein Roe & Farnham Prototype Paired Defined
Contribution Plan.**
15. None.
16. (a) Schedule for computation of each performance
quotation provided in the Registration Statement in
response to Item 22 for Stein Roe Prime Equities,
Stein Roe Total Return Fund, Stein Roe Growth Stock
Fund, Stein Roe Capital Opportunities Fund, and
Stein Roe Special Fund. (Exhibit 16 to PEA #9.)*
(b) Schedule for computation of each performance
quotation provided in the Registration Statement in
response to Item 22 for Stein Roe International Fund
and Stein Roe Young Investor Fund. Exhibit 16(b) to
PEA #28.)*
(c) Schedule for computation of each performance
quotation provided in the Registration Statement in
response to Item 22 for Stein Roe Special Venture
Fund. Exhibit 16(b) to PEA #28.)*
17. (a) Financial Data Schedule relating to the series
Stein Roe Prime Equities.
(b) Financial Data Schedule relating to the series
Stein Roe International Fund.
(c) Financial Data Schedule relating to the series
Stein Roe Young Investor Fund.
(d) Financial Data Schedule relating to the series
Stein Roe Special Venture Fund.
(e) Financial Data Schedule relating to the series
Stein Roe Total Return Fund
(f) Financial Data Schedule relating to the series
Stein Roe Growth Stock Fund
(g) Financial Data Schedule relating to the series
Stein Roe Capital Opportunities Fund
(h) Financial Data Schedule relating to the series
Stein Roe Special Fund.
18. (Miscellaneous.)
(a) Fund Application.
(b) Stein Roe Young Investor Fund application.
(c) Funds-on-Call Application. (Exhibit 17(b) to PEA
#28.)*
(d) Automatic Redemption Services Application. (Exhibit
17(c) to PEA #28.)*
_______________________
*Incorporated by reference.
**Incorporated by reference to Exhibit 14(b) to Post-Effective
Amendment #13 to the Registration Statement on Form N-1A of
Stein Roe Income Trust, #33-02633.
Item 25. Persons Controlled By or Under Common Control with
Registrant.
The Registrant does not consider that it is directly or indirectly
controlling, controlled by, or under common control with other
persons within the meaning of this Item. See "Investment Advisory
Services," "Management," and "Transfer Agent" in the Statement of
Additional Information, each of which is incorporated herein by
reference.
Item 26. Number of Holders of Securities.
Number of Record Holders
Title of Series as of November 24, 1995
--------------------------------- -------------------------
Stein Roe Prime Equities 5,088
Stein Roe International Fund 2,561
Stein Roe Young Investor Fund 12,396
Stein Roe Special Venture Fund 1,704
Stein Roe Total Return Fund 7,609
Stein Roe Growth Stock Fund 11,782
Stein Roe Capital Opportunities Fund 8,219
Stein Roe Special Fund 41,540
Item 27. Indemnification.
Article Tenth of the Agreement and Declaration of Trust of
Registrant (Exhibit 1), which Article is incorporated herein by
reference, provides that Registrant shall provide indemnification
of its trustees and officers (including each person who serves or
has served at Registrant's request as a director, officer, or
trustee of another organization in which Registrant has any
interest as a shareholder, creditor or otherwise) ("Covered
Persons") under specified circumstances.
Section 17(h) of the Investment Company Act of 1940 ("1940 Act")
provides that neither the Agreement and Declaration of Trust nor
the By-Laws of Registrant, nor any other instrument pursuant to
which Registrant is organized or administered, shall contain any
provision which protects or purports to protect any trustee or
officer of Registrant against any liability to Registrant or its
shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. In
accordance with Section 17(h) of the 1940 Act, Article Tenth shall
not protect any person against any liability to Registrant or its
shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Unless otherwise permitted under the 1940 Act,
(i) Article Tenth does not protect any person against any
liability to Registrant or to its shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in
the conduct of his office;
(ii) in the absence of a final decision on the merits by a
court or other body before whom a proceeding was brought that a
Covered Person was not liable by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office, no indemnification is
permitted under Article Tenth unless a determination that such
person was not so liable is made on behalf of Registrant by (a)
the vote of a majority of the trustees who are neither "interested
persons" of Registrant, as defined in Section 2(a)(19) of the 1940
Act, nor parties to the proceeding ("disinterested, non-party
trustees"), or (b) an independent legal counsel as expressed in a
written opinion; and
(iii) Registrant will not advance attorneys' fees or other
expenses incurred by a Covered Person in connection with a civil
or criminal action, suit or proceeding unless Registrant receives
an undertaking by or on behalf of the Covered Person to repay the
advance (unless it is ultimately determined that he is entitled to
indemnification) and (a) the Covered Person provides security for
his undertaking, or (b) Registrant is insured against losses
arising by reason of any lawful advances, or (c) a majority of the
disinterested, non-party trustees of Registrant or an independent
legal counsel as expressed in a written opinion, determine, based
on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the
Covered Person ultimately will be found entitled to
indemnification.
Any approval of indemnification pursuant to Article Tenth does not
prevent the recovery from any Covered Person of any amount paid to
such Covered Person in accordance with Article Tenth as
indemnification if such Covered Person is subsequently adjudicated
by a court of competent jurisdiction not to have acted in good
faith in the reasonable belief that such Covered Person's action
was in, or not opposed to, the best interests of Registrant or to
have been liable to Registrant or its shareholders by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of such Covered
Person's office.
Article Tenth also provides that its indemnification provisions
are not exclusive.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers, and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by Registrant of expenses incurred or paid by a trustee, officer,
or controlling person of Registrant in the successful defense of
any action, suit, or proceeding) is asserted by such trustee,
officer, or controlling person in connection with the securities
being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Registrant, its trustees and officers, its investment adviser, the
other investment companies advised by the adviser, and persons
affiliated with them are insured against certain expenses in
connection with the defense of actions, suits, or proceedings, and
certain liabilities that might be imposed as a result of such
actions, suits, or proceedings. Registrant will not pay any
portion of the premiums for coverage under such insurance that
would (1) protect any trustee or officer against any liability to
Registrant or its shareholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his office or (2) protect its investment adviser or
principal underwriter, if any, against any liability to Registrant
or its shareholders to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, or gross
negligence, in the performance of its duties, or by reason of its
reckless disregard of its duties and obligations under its
contract or agreement with the Registrant; for this purpose the
Registrant will rely on an allocation of premiums determined by
the insurance company.
Pursuant to the indemnification agreement among the Registrant,
its transfer agent and its investment adviser dated July 1, 1995,
the Registrant, its trustees, officers and employees, its transfer
agent and the transfer agent's directors, officers and employees
are indemnified by Registrant's investment adviser against any and
all losses, liabilities, damages, claims and expenses arising out
of any act or omission of the Registrant or its transfer agent
performed in conformity with a request of the investment adviser
that the transfer agent and the Registrant deviate from their
normal procedures in connection with the issue, redemption or
transfer of shares for a client of the investment adviser.
Registrant, its trustees, officers, employees and representatives
and each person, if any, who controls the Registrant within the
meaning of Section 15 of the Securities Act of 1933 are
indemnified by the distributor of Registrant's shares (the
"distributor"), pursuant to the terms of the distribution
agreement, which governs the distribution of Registrant's shares,
against any and all losses, liabilities, damages, claims and
expenses arising out of the acquisition of any shares of the
Registrant by any person which (i) may be based upon any wrongful
act by the distributor or any of the distributor's directors,
officers, employees or representatives or (ii) may be based upon
any untrue or alleged untrue statement of a material fact
contained in a registration statement, prospectus, statement of
additional information, shareholder report or other information
covering shares of the Registrant filed or made public by the
Registrant or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
therein not misleading if such statement or omission was made in
reliance upon information furnished to the Registrant by the
distributor in writing. In no case does the distributor's
indemnity indemnify an indemnified party against any liability to
which such indemnified party would otherwise be subject by reason
of willful misfeasance, bad faith, or negligence in the
performance of its or his duties or by reason of its or his
reckless disregard of its or his obligations and duties under the
distribution agreement.
Item 28. Business and Other Connections of Investment Adviser.
The Adviser, Stein Roe & Farnham Incorporated, is a wholly-owned
subsidiary of SteinRoe Services Inc. ("SSI"), which in turn is a
wholly-owned subsidiary of Liberty Financial Companies, Inc.,
which in turn is a subsidiary of Liberty Mutual Equity
Corporation, which in turn is a subsidiary of Liberty Mutual
Insurance Company. The Adviser acts as investment adviser to
individuals, trustees, pension and profit-sharing plans,
charitable organizations, and other investors. In addition to
Registrant, it also acts as investment adviser to other no-load
investment companies having different investment policies.
During the past two years, neither the Adviser nor any of its directors
or officers, except for Gary L. Countryman, Kenneth R. Leibler, N. Bruce
Callow, Bruno Bertocci, and David P. Harris has been engaged in any
business, profession, vocation, or employment of a substantial nature
either on their own account or in the capacity of director, officer,
partner, or trustee, other than as an officer or associate of the
Adviser. Mr. Countryman is President and Chief Executive Officer of
Liberty Mutual Insurance Company and Liberty Mutual Fire Insurance
Company; Mr. Leibler is President and Chief Executive Officer of Liberty
Financial Companies, Inc.; Mr. Callow was senior vice president of trust
and financial services for The Northern Trust prior to June, 1994.
Messrs. Bertocci and Harris were global equity portfolio managers with
Rockefeller & Co. prior to May, 1995 and, commencing January 1, 1996, are
dually employed by Colonial Management Associates, Inc.
Certain directors and officers of the Adviser also serve and have
during the past two years served in various capacities as
officers, directors, or trustees of SSI and of the Registrant,
Stein Roe Income Trust, Stein Roe Municipal Trust, SR&F Base
Trust, SteinRoe Variable Investment Trust and LFC Utilities Trust,
investment companies managed by the Adviser. (The listed entities
are located at One South Wacker Drive, Chicago, Illinois 60606,
except for SteinRoe Variable Investment Trust and LFC Utilities
Trust, which are located at Federal Reserve Plaza, Boston, MA
02210.) A list of such capacities is given below.
POSITION FORMERLY
HELD WITHIN
CURRENT POSITION PAST TWO YEARS
------------------- --------------
STEINROE SERVICES INC.
Gary A. Anetsberger Vice President
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President; Secretary
Gary L. Countryman Director; Chairman
Kenneth J. Kozanda Vice President; Treasurer
Kenneth R. Leibler Director
Hans P. Ziegler Director, President,
Vice Chairman
SR&F BASE TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Ann H. Benjamin Vice-President
N. Bruce Callow Executive Vice-President
Michael T. Kennedy Vice-President
Stephen P. Lautz Vice-President
Lynn C. Maddox Vice-President
Jane M. Naeseth Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
Anthony G. Zulfer, Jr. Trustee
STEIN ROE INCOME TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Ann H. Benjamin Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Michael T. Kennedy Vice-President
Stephen P. Lautz Vice-President
Steven P. Luetger Vice-President
Lynn C. Maddox Vice-President
Jane M. Naeseth Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
Anthony G. Zulfer, Jr. Trustee
STEIN ROE INVESTMENT TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Bruno Bertocci Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Daniel K. Cantor Vice-President
Robert A. Christensen Vice-President
E. Bruce Dunn Vice-President
Erik P. Gustafson Vice-President
David P. Harris Vice-President
Harvey B. Hirschhorn Vice-President
Alfred F. Kugel Trustee
Stephen P. Lautz Vice-President
Lynn C. Maddox Vice-President
Richard B. Peterson Vice-President
Gloria J. Santella Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEIN ROE MUNICIPAL TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Joanne T. Costopoulos Vice-President
Stephen P. Lautz Vice-President
Lynn C. Maddox Vice-President
M. Jane McCart Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
Anthony G. Zulfer, Jr. Trustee
STEINROE VARIABLE INVESTMENT TRUST
Gary A. Anetsberger Treasurer
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President
Ann H. Benjamin Vice President
Robert A. Christensen Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Jane M. Naeseth Vice President
Richard B. Peterson Vice President
LFC UTILITIES TRUST
Gary A. Anetsberger Vice President
Ophelia L. Barsketis Vice President
Robert A. Christensen Vice President
Item 29. Principal Underwriters.
Registrant's principal underwriter, Liberty Securities
Corporation, is a wholly-owned subsidiary of Liberty Investment
Services, Inc., which in turn is a wholly-owned subsidiary of
Liberty Financial Companies, Inc., which in turn is a subsidiary
of Liberty Mutual Equity Corporation, which in turn is a
subsidiary of Liberty Mutual Insurance Company. Liberty
Securities Corporation is principal underwriter for the following
investment companies:
Stein Roe Income Trust
Stein Roe Municipal Trust
Stein Roe Investment Trust
Liberty Growth Properties Limited Partnership
Liberty Income Properties Limited Partnership
Liberty/Heritage Limited Partnership II
Liberty/Kuester Limited Partnership III
Liberty/Manhattan Beach Limited Partnership
Liberty/High Income Plus Limited Partnership
Liberty/Overland Park Limited Partnership
Set forth below is information concerning the directors and
officers of Liberty Securities Corporation:
Positions
Positions and Offices and Offices
Name with Underwriter with Registrant
- ------------------ -------------------- ---------------
Porter P. Morgan Chairman of the Board; Director None
Frank L. Tarantino President; Chief Operating
Officer; Director None
Robert L. Spadafora Executive Vice President -
Sales and Marketing None
John T. Treece, Jr. Senior Vice President - Operations None
John W. Reading Senior Vice President, General
Counsel, and Assistant Secretary None
Robert M. Young Senior Vice President - Sales
Development None
Valerie Arendell Senior Vice President - Sales None
Philip J. Iudice Treasurer None
Joanne K. Novak Vice President - Human Resources None
Helene L. Young Vice President - Sales Support None
Gerald H. Stanney, Vice President and Compliance
Jr. Officer (Boston) None
Jilaine Hummel Bauer Vice President and Compliance Exec. V-P &
Officer (Chicago) Secretary
Lindsay Cook Vice President Trustee
Ralph E. Nixon Vice President None
Diane L. Basler Vice President None
Glenn E. Williams Assistant Vice President None
John A. Benning Secretary None
C. Allen Merritt, Jr. Assistant Treasurer; Assistant
Secretary; Director None
The principal business address of Ms. Bauer is One South Wacker
Drive, Chicago, IL 60606; that of Mr. Williams is Two Righter
Parkway, Wilmington, DE 19803; and that of the other officers is
600 Atlantic Avenue, Boston, MA 02210.
Item 30. Location of Accounts and Records.
Registrant maintains the records required to be maintained by it
under Rules 31a-1(a), 31a-1(b), and 31a-2(a) under the Investment
Company Act of 1940 at its principal executive offices at One
South Wacker Drive, Chicago, Illinois 60606. Certain records,
including records relating to Registrant's shareholders and the
physical possession of its securities, may be maintained pursuant
to Rule 31a-3 at the main office of Registrant's transfer agent or
custodian.
Item 31. Management Services.
None.
Item 32. Undertakings.
If requested to do so by the holders of at least 10% of the
Trust's outstanding shares, the 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 the Trust were subject to Section 16(c)
of the Investment Company Act of 1940.
Since the information called for by Item 5A is contained in the
latest annual reports to shareholders, Registrant undertakes with
respect to each series to furnish each person to whom a prospectus
is delivered with a copy of the latest annual report to
shareholders upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused
this amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of Chicago and State of Illinois on the 1st day of December,
1995.
STEIN ROE INVESTMENT TRUST
By TIMOTHY K. ARMOUR
Timothy K. Armour, President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates
indicated:
Signature Title Date
- ------------------------ --------------------- ----------------
TIMOTHY K. ARMOUR President and Trustee December 1, 1995
Timothy K. Armour
Principal Executive Officer
GARY A. ANETSBERGER Senior Vice-President December 1, 1995
Gary A. Anetsberger
Principal Financial Officer
SHARON R. ROBERTSON Controller December 1, 1995
Sharon R. Robertson
Principal Accounting Officer
KENNETH L. BLOCK Trustee December 1, 1995
Kenneth L. Block
WILLIAM W. BOYD Trustee December 1, 1995
William W. Boyd
_____________________ Trustee
Lindsay Cook
FRANCIS W. MORLEY Trustee December 1, 1995
Francis W. Morley
CHARLES R. NELSON Trustee December 1, 1995
Charles R. Nelson
GORDON R. WORLEY Trustee December 1, 1995
Gordon R. Worley
<PAGE>
STEIN ROE INVESTMENT TRUST
INDEX TO EXHIBITS FILED WITH THIS AMENDMENT
Exhibit
Number Description
- ------- ------------
5(c) Management Agreement
5(d) Expense undertakings
8 Custodian Agreement
9(a) Restated Transfer Agency Agreement
9(c) Administrative Agreement
11(a) Consent of Arthur Andersen, LLP
14(a) Individual Retirement Account Plan
16(c) Schedule for computation of performance quotations
17(a) Financial Data Schedule for Stein Roe Prime Equities
17(b) Financial Data Schedule for Stein Roe International Fund
17(c) Financial Data Schedule for Stein Roe Young Investor
Fund
17(d) Financial Data Schedule for Stein Roe Special Venture Fund
17(e) Financial Data Schedule for Stein Roe Total Return Fund
17(f) Financial Data Schedule for Stein Roe Growth Stock Fund
17(g) Financial Data Schedule for Stein Roe Capital
Opportunities Fund
17(h) Financial Data Schedule for Stein Roe Special Fund
18(a) Fund Application
18(b) Young Investor Fund Application
<PAGE> 1
MANAGEMENT AGREEMENT
BETWEEN
STEINROE INVESTMENT TRUST
AND
STEIN ROE & FARNHAM INCORPORATED
STEINROE INVESTMENT TRUST, a Massachusetts business trust
registered under the Investment Company Act of 1940 ("1940 Act")
as an open-end diversified management investment company
("Trust"), hereby appoints STEIN ROE & FARNHAM INCORPORATED, a
Delaware corporation registered under the Investment Advisers
Act of 1940 as an investment adviser, of Chicago, Illinois
("Manager"), to furnish investment advisory and portfolio
management services with respect to the portion of its assets
represented by the shares of beneficial interest issued in each
series listed in Schedule A hereto, as such schedule may be
amended from time to time (each such series hereinafter referred
to as "Fund"). Trust and Manager hereby agree that:
1. INVESTMENT MANAGEMENT SERVICES. Manager shall manage
the investment operations of Trust and each Fund, subject to the
terms of this Agreement and to the supervision and control of
Trust's Board of Trustees ("Trustees"). Manager agrees to
perform, or arrange for the performance of, the following
services with respect to each Fund:
(a) to obtain and evaluate such information relating to
economies, industries, businesses, securities and
commodities markets, and individual securities, commodities
and indices as it may deem necessary or useful in
discharging its responsibilities hereunder;
(b) to formulate and maintain a continuing investment program in
a manner consistent with and subject to (i) Trust's
agreement and declaration of trust and by-laws; (ii) the
Fund's investment objectives, policies, and restrictions as
set forth in written documents furnished by the Trust to
Manager; (iii) all securities, commodities, and tax laws and
regulations applicable to the Fund and Trust; and (iv) any
other written limits or directions furnished by the Trustees
to Manager;
(c) unless otherwise directed by the Trustees, to determine from
time to time securities, commodities, interests or other
investments to be purchased, sold, retained or lent by the
Fund, and to implement those decisions, including the
selection of entities with or through which such purchases,
sales or loans are to be effected;
(d) to use reasonable efforts to manage the Fund so that it will
qualify as a regulated investment company under subchapter M
of the Internal Revenue Code of 1986, as amended;
(e) to make recommendations as to the manner in which voting
rights, rights to consent to Trust or Fund action, and any
other rights pertaining to Trust or the Fund shall be
exercised;
(f) to make available to Trust promptly upon request all of the
Fund's records and ledgers and any reports or information
reasonably requested by the Trust; and
(g) to the extent required by law, to furnish to regulatory
authorities any information or reports relating to the
services provided pursuant to this Agreement.
<PAGE> 2
Except as otherwise instructed from time to time by the
Trustees, with respect to execution of transactions for Trust on
behalf of a Fund, Manager shall place, or arrange for the
placement of, all orders for purchases, sales, or loans with
issuers, brokers, dealers or other counterparties or agents
selected by Manager. In connection with the selection of all
such parties for the placement of all such orders, Manager shall
attempt to obtain most favorable execution and price, but may
nevertheless in its sole discretion as a secondary factor,
purchase and sell portfolio securities from and to brokers and
dealers who provide Manager with statistical, research and other
information, analysis, advice, and similar services. In
recognition of such services or brokerage services provided by a
broker or dealer, Manager is hereby authorized to pay such
broker or dealer a commission or spread in excess of that which
might be charged by another broker or dealer for the same
transaction if the Manager determines in good faith that the
commission or spread is reasonable in relation to the value of
the services so provided.
Trust hereby authorizes any entity or person associated
with Manager that is a member of a national securities exchange
to effect any transaction on the exchange for the account of a
Fund to the extent permitted by and in accordance with Section
11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T)
thereunder. Trust hereby consents to the retention by such
entity or person of compensation for such transactions in
accordance with Rule 11a-2-2(T)(a)(iv).
Manager may, where it deems to be advisable, aggregate
orders for its other customers together with any securities of
the same type to be sold or purchased for Trust or one or more
Funds in order to obtain best execution or lower brokerage
commissions. In such event, Manager shall allocate the shares
so purchased or sold, as well as the expenses incurred in the
transaction, in a manner it considers to be equitable and fair
and consistent with its fiduciary obligations to Trust, the
Funds, and Manager's other customers.
Manager shall for all purposes be deemed to be an
independent contractor and not an agent of Trust and shall,
unless otherwise expressly provided or authorized, have no
authority to act for or represent Trust in any way.
2. ADMINISTRATIVE SERVICES. Manager shall supervise the
business and affairs of Trust and each Fund and shall provide
such services and facilities as may be required for effective
administration of Trust and Funds as are not provided by
employees or other agents engaged by Trust; provided that
Manager shall not have any obligation to provide under this
Agreement any such services which are the subject of a separate
agreement or arrangement between Trust and Manager, any
affiliate of Manager, or any third party administrator
("Administrative Agreements").
3. USE OF AFFILIATED COMPANIES AND SUBCONTRACTORS. In
connection with the services to be provided by Manager under
this Agreement, Manager may, to the extent it deems appropriate,
and subject to compliance with the requirements of applicable
laws and regulations and upon receipt of written approval of the
Trustees, make use of (i) its affiliated companies and their
directors, trustees, officers, and employees and (ii)
subcontractors selected by Manager, provided that Manager shall
supervise and remain fully responsible for the services of all
such third parties in
<PAGE> 3
accordance with and to the extent provided by this Agreement.
All costs and expenses associated with services provided by any
such third parties shall be borne by Manager or such parties.
4. EXPENSES BORNE BY TRUST. Except to the extent
expressly assumed by Manager herein or under a separate
agreement between Trust and Manager and except to the extent
required by law to be paid by Manager, Manager shall not be
obligated to pay any costs or expenses incidental to the
organization, operations or business of the Trust. Without
limitation, such costs and expenses shall include but not be
limited to:
(a) all charges of depositories, custodians and other agencies
for the safekeeping and servicing of its cash, securities,
and other property;
(b) all charges for equipment or services used for obtaining
price quotations or for communication between Manager or
Trust and the custodian, transfer agent or any other agent
selected by Trust;
(c) all charges for administrative and accounting services
provided to Trust by Manager, or any other provider of such
services;
(d) all charges for services of Trust's independent auditors and
for services to Trust by legal counsel;
(e) all compensation of Trustees, other than those affiliated
with Manager, all expenses incurred in connection with their
services to Trust, and all expenses of meetings of the
Trustees or committees thereof;
(f) all expenses incidental to holding meetings of holders of
units of interest in the Trust ("Unitholders"), including
printing and of supplying each record-date Unitholder with
notice and proxy solicitation material, and all other proxy
solicitation expense;
(g) all expenses of printing of annual or more frequent
revisions of Trust prospectus(es) and of supplying each
then-existing Unitholder with a copy of a revised
prospectus;
(h) all expenses related to preparing and transmitting
certificates representing Trust shares;
(i) all expenses of bond and insurance coverage required by law
or deemed advisable by the Board of Trustees;
(j) all brokers' commissions and other normal charges incident
to the purchase, sale, or lending of portfolio securities;
(k) all taxes and governmental fees payable to Federal, state or
other governmental agencies, domestic or foreign, including
all stamp or other transfer taxes;
(l) all expenses of registering and maintaining the registration
of Trust under the 1940 Act and, to the extent no exemption
is available, expenses of registering Trust's shares under
the 1933 Act, of qualifying and maintaining qualification of
Trust and of Trust's shares for sale under securities laws
of various states or other jurisdictions and of registration
and qualification of Trust under all other laws applicable
to Trust or its business activities;
(m) all interest on indebtedness, if any, incurred by Trust or a
Fund; and
(n) all fees, dues and other expenses incurred by Trust in
connection with membership of Trust in any trade association
or other investment company organization.
<PAGE> 4
5. ALLOCATION OF EXPENSES BORNE BY TRUST. Any expenses
borne by Trust that are attributable solely to the organization,
operation or business of a Fund shall be paid solely out of Fund
assets. Any expense borne by Trust which is not solely
attributable to a Fund, nor solely to any other series of shares
of Trust, shall be apportioned in such manner as Manager
determines is fair and appropriate, or as otherwise specified by
the Board of Trustees.
6. EXPENSES BORNE BY MANAGER. Manager at its own expense
shall furnish all executive and other personnel, office space,
and office facilities required to render the investment
management and administrative services set forth in this
Agreement. Manager shall pay all expenses of establishing,
maintaining, and servicing the accounts of Unitholders in each
Fund listed in Exhibit A. However, Manager shall not be
required to pay or provide any credit for services provided by
Trust's custodian or other agents without additional cost to
Trust.
In the event that Manager pays or assumes any expenses of
Trust or a Fund not required to be paid or assumed by Manager
under this Agreement, Manager shall not be obligated hereby to
pay or assume the same or similar expense in the future;
provided that nothing contained herein shall be deemed to
relieve Manager of any obligation to Trust or a Fund under any
separate agreement or arrangement between the parties.
7. MANAGEMENT FEE. For the services rendered, facilities
provided, and charges assumed and paid by Manager hereunder,
Trust shall pay to Manager out of the assets of each Fund fees
at the annual rate for such Fund as set forth in Schedule B to
this Agreement. For each Fund, the management fee shall accrue
on each calendar day, and shall be payable monthly on the first
business day of the next succeeding calendar month. The daily
fee accrual shall be computed by multiplying the fraction of one
divided by the number of days in the calendar year by the
applicable annual rate of fee, and multiplying this product by
the net assets of the Fund, determined in the manner established
by the Board of Trustees, as of the close of business on the
last preceding business day on which the Fund's net asset value
was determined.
8. RETENTION OF SUB-ADVISER. Subject to obtaining the
initial and periodic approvals required under Section 15 of the
1940 Act, Manager may retain one or more sub-advisers at
Manager's own cost and expense for the purpose of furnishing one
or more of the services described in Section 1 hereof with
respect to Trust or one or more Funds. Retention of a sub-
adviser shall in no way reduce the responsibilities or
obligations of Manager under this Agreement, and Manager shall
be responsible to Trust and its Funds for all acts or omissions
of any sub-adviser in connection with the performance of
Manager's duties hereunder.
9. NON-EXCLUSIVITY. The services of Manager to Trust
hereunder are not to be deemed exclusive and Manager shall be
free to render similar services to others.
10. STANDARD OF CARE. Neither Manager, nor any of its
directors, officers, stockholders, agents or employees shall be
liable to Trust or its Unitholders for any error of judgment,
mistake of law, loss arising out of any investment, or any other
act or omission in the performance by Manager of its duties
under this Agreement,
<PAGE> 5
except for loss or liability resulting from willful misfeasance,
bad faith or gross negligence on Manager's part or from reckless
disregard by Manager of its obligations and duties under this
Agreement.
11. AMENDMENT. This Agreement may not be amended as to
Trust or any Fund without the affirmative votes (a) of a
majority of the Board of Trustees, including a majority of those
Trustees who are not "interested persons" of Trust or of
Manager, voting in person at a meeting called for the purpose of
voting on such approval, and (b) of a "majority of the
outstanding shares" of Trust or, with respect to an amendment
affecting an individual Fund, a "majority of the outstanding
shares" of that Fund. The terms "interested persons" and "vote
of a majority of the outstanding shares" shall be construed in
accordance with their respective definitions in the 1940 Act
and, with respect to the latter term, in accordance with Rule
18f-2 under the 1940 Act.
12. EFFECTIVE DATE AND TERMINATION. This Agreement shall
become effective as to any Fund as of the effective date for
that Fund specified in Schedule A hereto. This Agreement may be
terminated at any time, without payment of any penalty, as to
any Fund by the Board of Trustees of Trust, or by a vote of a
majority of the outstanding shares of that Fund, upon at least
sixty (60) days' written notice to Manager. This Agreement may
be terminated by Manager at any time upon at least sixty (60)
days' written notice to Trust. This Agreement shall terminate
automatically in the event of its "assignment" (as defined in
the 1940 Act). Unless terminated as hereinbefore provided, this
Agreement shall continue in effect with respect to any Fund
until the end of the initial term applicable to that Fund
specified in Schedule A and thereafter from year to year only so
long as such continuance is specifically approved with respect
to that Fund at least annually (a) by a majority of those
Trustees who are not interested persons of Trust or of Manager,
voting in person at a meeting called for the purpose of voting
on such approval, and (b) by either the Board of Trustees of
Trust or by a "vote of a majority of the outstanding shares" of
the Fund.
13. OWNERSHIP OF RECORDS; INTERPARTY REPORTING. All
records required to be maintained and preserved by Trust
pursuant to the provisions of rules or regulations of the
Securities and Exchange Commission under Section 31(a) of the
1940 Act or other applicable laws or regulations which are
maintained and preserved by Manager on behalf of Trust and any
other records the parties mutually agree shall be maintained by
Manager on behalf of Trust are the property of Trust and shall
be surrendered by Manager promptly on request by Trust; provided
that Manager may at its own expense make and retain copies of
any such records.
Trust shall furnish or otherwise make available to Manager
such copies of the financial statements, proxy statements,
reports, and other information relating to the business and
affairs of each Unitholder in a Fund as Manager may, at any time
or from time to time, reasonably require in order to discharge
its obligations under this Agreement.
Manager shall prepare and furnish to Trust as to each Fund
statistical data and other information in such form and at such
intervals as Trust may reasonably request.
<PAGE> 6
14. NON-LIABILITY OF TRUSTEES AND UNITHOLDERS. Any
obligation of Trust hereunder shall be binding only upon the
assets of Trust (or the applicable Fund thereof) and shall not
be binding upon any Trustee, officer, employee, agent or
Unitholder of Trust. Neither the authorization of any action by
the Trustees or Unitholders of Trust nor the execution of this
Agreement on behalf of Trust shall impose any liability upon any
Trustee or any Unitholder.
15. USE OF MANAGER'S NAME. Trust may use the name
"SteinRoe Investment Trust" and the Fund names listed in
Schedule A or any other name derived from the name "Stein Roe &
Farnham" only for so long as this Agreement or any extension,
renewal, or amendment hereof remains in effect, including any
similar agreement with any organization which shall have
succeeded to the business of Manager as investment adviser. At
such time as this Agreement or any extension, renewal or
amendment hereof, or such other similar agreement shall no
longer be in effect, Trust will cease to use any name derived
from the name "Stein Roe & Farnham" or otherwise connected with
Manager, or with any organization which shall have succeeded to
Manager's business as investment adviser.
16. REFERENCES AND HEADINGS. In this Agreement and in any
such amendment, references to this Agreement and all expressions
such as "herein," "hereof," and "hereunder" shall be deemed to
refer to this Agreement as amended or affected by any such
amendments. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or
control or affect the meaning, construction or effect of this
Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
Dated: August 15, 1995
STEINROE INVESTMENT TRUST
Attest: By: TIMOTHY K. ARMOUR
Timothy K. Armour
JILAINE HUMMEL BAUER President
Jilaine Hummel Bauer
Secretary
STEIN ROE & FARNHAM INCORPORATED
Attest: By: HANS P. ZIEGLER
Hans P. Ziegler
KEITH J. RUDOLF Chief Executive Officer
Keith J. Rudolf
Secretary
<PAGE> 7
STEINROE INVESTMENT TRUST
MANAGEMENT AGREEMENT
SCHEDULE A
The Funds of the Trust currently subject to this Agreement are
as follows:
Effective End of
Date Initial Term
--------- ------------
SteinRoe Special Fund 9/1/95 6/30/97
SteinRoe Capital Opportunities Fund 9/1/95 6/30/97
SteinRoe Young Investor Fund 9/1/95 6/30/97
SteinRoe Growth Stock Fund 9/1/95 6/30/97
SteinRoe Prime Equities 9/1/95 6/30/97
SteinRoe Total Return Fund 9/1/95 6/30/97
Dated: August 15, 1995
<PAGE> 8
STEINROE INVESTMENT TRUST
MANAGEMENT AGREEMENT
SCHEDULE B
Compensation pursuant to Section 7 of this Agreement shall be
calculated in accordance with the following schedules applicable
to average daily net assets of the Funds:
Schedule B1 (SteinRoe Capital Opportunities Fund, SteinRoe
Special Fund)
0.750% on first $500 million
0.700% on next $500 million
0.650% on next $500 million
0.600% thereafter
Schedule B2 (SteinRoe Growth Stock Fund, SteinRoe Young Investor
Fund, SteinRoe Prime Equities)
0.600% on first $500 million
0.550% on next $500 million
0.500% thereafter
Schedule B3 (SteinRoe Total Return Fund)
0.550% on first $500 million of average daily net assets
0.500% on next $500 million of average daily net assets
0.450% on average daily net assets in excess of $1 billion
Dated: August 15, 1995
Exhibit 5(d)
<PAGE>
May 1, 1995
SteinRoe Investment Trust
One South Wacker Drive
Chicago, Illinois 60606
Re: SteinRoe International Fund
Gentlemen:
The firm of Stein Roe & Farnham Incorporated hereby undertakes
as follows:
In the interest of limiting the expenses of the series of
SteinRoe Investment Trust designated SteinRoe International
Fund (the "Fund"), Stein Roe & Farnham Incorporated ("SR&F"),
the investment adviser to the Fund, undertakes to voluntarily
waive its management fee and/or absorb certain expenses for
the Fund to the extent, but only to the extent, that
annualized fees and expenses (excluding taxes, interest, all
commissions and other normal charges incident to the purchase
and sale of portfolio securities, and extraordinary charges
such as litigation costs) during the period that this
undertaking is in effect exceed 1.65% of average net assets
of the Fund. Unless extended in writing by SR&F, this
undertaking shall terminate on January 31, 1996, subject to
the right of SR&F on 30 days' written notice to terminate
this undertaking. The amount of the fee waiver and/or
expense absorption (or any offsetting reimbursement by the
Fund to SR&F) shall be computed on an annual basis, but
accrued and paid monthly.
Sincerely,
STEIN ROE & FARNHAM INCORPORATED
By: KENNETH J. KOZANDA
Vice President and Treasurer
Attest:
By: JILAINE HUMMEL BAUER
Assistant Secretary
Stein Roe & Farnham Incorporated
One South Wacker Drive
Chicago, IL
60606-4585
312.368.7700
A Liberty Financial Company
<PAGE>
April 22, 1994
SteinRoe Investment Trust
300 West Adams Street
Chicago, Illinois 60606
Re: SteinRoe Young Investor Fund
Gentlemen:
The firm of Stein Roe & Farnham Incorporated hereby undertakes
as follows:
In the interest of limiting the expenses of the series of
SteinRoe Investment Trust designated SteinRoe Young Investor
Fund (the "Fund"), Stein Roe & Farnham Incorporated ("SR&F"),
the investment adviser to the Fund, undertakes to reimburse
the Fund to the extent, but only to the extent, that
annualized expenses (excluding taxes, interest, all
commissions and other normal charges incident to the purchase
and sale of portfolio securities, and extraordinary charges
such as litigation costs, but including fees paid to SR&F)
exceed 0.99% of average net assets of the Fund through
January 31, 1996, subject to the right of SR&F on 30 days'
notice to terminate this undertaking. The amount of the
expense reimbursement (or any offsetting reimbursement by the
Fund to SR&F) shall be computed on an annual basis, but
accrued and paid monthly.
Sincerely,
STEIN ROE & FARNHAM INCORPORATED
By: TIMOTHY K. ARMOUR
President, Mutual Funds Division
Attest:
By: JILAINE HUMMEL BAUER
Assistant Secretary
Stein Roe & Farnham Incorporated
P.O. Box 1143
Chicago, IL
60690-1143
1.800.338.2550
Liberty Securities Corporation, Distributor
<PAGE>
October 14, 1994
SteinRoe Investment Trust
P.O. Box 804058
Chicago, Illinois 60690
Re: SteinRoe Special Venture Fund
Gentlemen:
The firm of Stein Roe & Farnham Incorporated hereby undertakes
as follows:
In the interest of limiting the expenses of the series of
SteinRoe Investment Trust designated SteinRoe Special Venture
Fund (the "Fund"), Stein Roe & Farnham Incorporated ("SR&F"),
the investment adviser to the Fund, undertakes to reimburse
the Fund to the extent, but only to the extent, that
annualized expenses (excluding taxes, interest, all
commissions and other normal charges incident to the purchase
and sale of portfolio securities, and extraordinary charges
such as litigation costs, but including fees paid to SR&F)
exceed 1.25% of average net assets of the Fund through
January 31, 1996, subject to the right of SR&F on 30 days'
notice to terminate this undertaking. The amount of the
expense reimbursement (or any offsetting reimbursement by the
Fund to SR&F) shall be computed on an annual basis, but
accrued and paid monthly.
Sincerely,
STEIN ROE & FARNHAM INCORPORATED
By: TIMOTHY K. ARMOUR
President, Mutual Funds Division
Attest:
By: JILAINE HUMMEL BAUER
Assistant Secretary
Stein Roe & Farnham Incorporated
300 West Adams Street
Chicago, IL
60606-4685
1.800.338.2550
312.368.7830
<PAGE>
Exhibit 8
CUSTODIAN CONTRACT
Between
STEINROE EQUITY PORTFOLIO
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
1. Employment Of Custodian and Property to be
Held By It ...........................................1
2. Duties of the Custodian with Respect to Property
of the Trust Held by the Custodian....................1
2.1 Holding Securities................................1
2.2 Delivery of Securities ...........................2
2.3 Registration of Securities .......................4
2.4 Bank Accounts ....................................4
2.5 Payment for Shares ...............................5
2.6 Investments and Availability of Federal Funds ....5
2.7 Collection of Income .............................5
2.8 Payment of Trust Moneys ......................... 6
2.9 Liability for Payment in Advance of
Receipt of Securities Purchased ................. 7
2.10 Payments for Repurchases or Redemptions
of Shares of a Fund ............................ 7
2.11 Appointment of Agents .......................... 7
2.12 Deposit of Trust Assets in Securities System ... 8
2.13 Segregated Account ............................. 9
2.14 Ownership Certificates for Tax Purposes ........10
2.15 Proxies ........................................10
2.16 Communications Relating to Trust
Portfolio Securities ...........................10
2.17 Proper Instructions ............................10
2.18 Actions Permitted Without Express Authority ....10
2.19 Evidence of Authority ..........................11
3. Duties of Custodian With Respect to the Books of
Account and Calculation of Net Asset Value and
Net Income ........................................11
4. Records .............................................11
5. Opinion of Trust's Independent Accountant ...........12
6. Reports to Trust by Independent Public Accountants ..12
7. Compensation of Custodian ...........................12
8. Responsibility of Custodian ........................ 12
9. Effective Period, Termination and Amendment .........13
10. Successor Custodian .................................14
11. Interpretive and Additional Provisions ..............14
12. Massachusetts Law to Apply ..........................15
13. Prior Contracts .....................................15
14. Notices .............................................15
15. Successors ..........................................15
16 Duties of the Custodian with Respect to Property
of the Trust Held Outside of the United States ......15
16.1 Appointment of Foreign Sub-Custodians..........15
16.2 Assets to be Held .............................15
16.3 Foreign Securities Depositories................16
16.4 Segregation of Securities .....................16
16.5 Agreements with Foreign Banking Institutions ..16
16.6 Access of Independent Accountant of the Trust..17
16.7 Reports by Custodian ..........................17
16.8 Transactions in Foreign Custody Account .......17
16.9 Liability of Foreign Sub-Custodians............17
16.10 Liability of Custodian ........................18
16.11 Monitoring Responsibilities ...................18
16.12 Branches of U.S. Banks.........................18
17. Non-Liability of Trustees and Shareholders ..........18
18. Additional Funds ....................................19
<PAGE> 1
CUSTODIAN CONTRACT
This Contract between SteinRoe Equity Portfolio, a voluntary
association organized under the laws of the Commonwealth of
Massachusetts in the form commonly known as a business trust, having
its principal place of business at 300 West Adams Street, Chicago,
Illinois 60606, hereinafter called the "Trust," and State Street
Bank and Trust Company, a Massachusetts trust company, having its
principal place of business at 225 Franklin Street, Boston,
Massachusetts 02110, hereinafter called the "Custodian."
WHEREAS, the Trust is authorized to issue shares of beneficial
interest ("Shares") in separate series, with each such series
representing interests in a separate portfolio of securities and other
assets (any such series being referred to as a "Fund"); and
WHEREAS, the Trust intends to initially offer Shares in one series
only designated SteinRoe Prime Equities;
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Trust hereby employs the Custodian as the custodian of its
assets, including securities it desires to be held in places within
the United States and securities it desires to be held outside the
United States, pursuant to the provisions of its Agreement and
Declaration of Trust. The Trust agrees to deliver to the Custodian
all securities and cash owned by it, and all payments of income,
payments of principal or capital distributions received by it with
respect to all securities owned by the Trust from time to time, and
the cash consideration received by it for such new or treasury Shares,
of any series, with or without par value, of the Trust as may be
issued or sold from time to time. The Custodian shall not be responsible
for any property of the Trust held or received by the Trust and not
delivered to the Custodian or any sub-custodian appointed as prescribed
herein.
Upon receipt of "Proper Instructions" (within the meaning of
Section 2.17), the Custodian shall from time to time employ one or
more sub-custodians, but only in accordance with an applicable vote by
the Board of Trustees of the Trust, and provided that the Custodian
shall have no more or less responsibility or liability to the Trust on
account of any actions or omissions of any sub-custodian so employed
than any such sub-custodian has to the Custodian.
The Custodian may employ as sub-custodians for the Trust's
securities and other assets the foreign banking institutions and foreign
securities depositories designated in Schedule "A" hereto, but only in
accordance with the provisions of Article 16.
2. Duties of the Custodian with Respect to Property of the Trust
Held by the Custodian
2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of each Fund all non-cash property,
including
<PAGE> 2
all securities, owned by the Trust and allocated to
that Fund, other than securities that are maintained pursuant to
Section 2.12 in a clearing agency which acts as a securities
depository or in a book-entry system authorized by the U.S.
Department of the Treasury, collectively referred to herein as
"Securities System."
2.2 Delivery of Securities. The Custodian shall release and
deliver securities owned by the Trust, held for the account of a
Fund, held either by the Custodian or in a Securities System
account of the Custodian only upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by the
parties, and only in the following cases:
(1) Upon sale of such securities for the account of the Fund and
receipt of payment therefor;
(2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into for the account
of the Fund;
(3) In the case of a sale effected through a Securities System,
in accordance with the provisions of Section 2.12 hereof;
(4) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
(5) To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
(6) To the issuer thereof, or its agent, for transfer into the
name of the Trust or into the name of any nominee or
nominees of the Custodian or into the name or nominee name
of any agent appointed pursuant to Section 2.11 or into the
name or nominee name of any sub-custodian appointed pursuant
to Article 1; or for exchange for a different number of
bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in
any such case, the new securities are to be delivered to the
Custodian and will be held by the Custodian for the account
of the Fund;
(7) Upon the sale of such securities for the account of the Fund,
to the broker or its clearing agent, against a receipt, in
accordance with "street delivery" custom; provided that in any
such case, the Custodian shall have no responsibility or
liability for any loss arising from the delivery of such securities
prior to receiving payment for such securities except as may arise
from the Custodian's own negligence or willful misconduct;
(8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization, or
<PAGE> 3
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian and will be held by the Custodian for the account
of the Fund;
(9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts
or temporary securities for definitive securities; provided
that, in any such case, the new securities and cash, if any,
are to be delivered to the Custodian and will be held by the
Custodian for the account of the Fund;
(10) For delivery in connection with any loans of securities made
by the Trust from the Fund's portfolio, but only against
receipt of adequate collateral as agreed upon from time to
time by the Custodian and the Trust, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that
in connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Trust prior to the
receipt of such collateral;
(11) For delivery as security in connection with any borrowings
by the Trust requiring a pledge of assets in the Fund's
portfolio, but only against receipt of amounts borrowed;
(12) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-
dealer, relating to compliance with the rules of The Options
Clearing Corporation and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with options transactions by the Trust;
(13) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account
deposits in connection with futures transactions by the
Trust for the account of the Fund;
(14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Trust, for delivery to such
Transfer Agent or to the holders of Shares of the Fund in
connection with distributions in kind, as may be described
from time to time in the Fund's currently effective
prospectus and statement of
<PAGE> 4
additional information ("prospectus"), in satisfaction of
requests by holders of Shares of the Fund for repurchase or
redemption;
(15) For delivery in connection with any reverse repurchase
agreement entered into by the Trust with respect to the
Fund, but only against receipt for the account of the Fund
of the amount payable by the other party to the agreement;
and
(16) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees of the Trust ("Board of
Trustees) or of the Executive Committee thereof ("Executive
Committee") signed by an officer of the Trust and certified by
the Secretary or an Assistant Secretary, specifying the securities
to be delivered, setting forth the purpose for which such delivery
is to be made, declaring such purposes to be proper purposes, and
naming the person or persons to whom delivery of such securities
shall be made.
2.3 Registration of Securities. Securities held by the
Custodian (other than bearer securities) shall be registered in
the name of the Trust or in the name of any nominee of the Trust
for the account of the particular Fund or of any nominee of the
Custodian which nominee shall be assigned exclusively to the Trust
for the account of such Fund unless the Trust has authorized in
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Trust, or in the name or nominee name of any agent appointed
pursuant to Section 2.11 or in the name or nominee name of any sub-
custodian appointed pursuant to Article 1. All securities accepted by
the Custodian on behalf of the Trust under the terms of this Contract
shall be in "street name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts for each Fund in the name of the Trust,
subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account or
accounts, subject to the provisions hereof, all cash received by
it from or for the account of that Fund, other than cash
maintained by the Trust in a bank account established and used in
accordance with Rule 17f-3 under the Investment Company Act of
1940. Funds held by the Custodian for the Trust may be deposited
by it to its credit as Custodian in the Banking Department of the
Custodian or in such other banks or trust companies as it may in
its discretion deem necessary or desirable; provided, however,
that every such bank or trust company shall be qualified to act
as a custodian under the Investment Company Act of 1940 and that
each such bank or trust company and the funds to be deposited
with each such bank or trust company shall be approved by vote of
a majority of the Board of Trustees of the Trust. Such funds
shall be deposited by the Custodian in its capacity as Custodian
and shall be withdrawable by the Custodian only in that capacity.
If and when authorized by Proper Instructions in accordance with
a resolution adopted by the Board of Trustees, the Custodian may
open and maintain an additional account
<PAGE> 5
or accounts in such other bank or trust company as may be designated
by such instructions, such account or accounts, however, to be in
the name of the Custodian in its capacity as the Custodian and subject
only to its draft or credit in accordance with the terms of this
Contract. The Custodian shall furnish the Trust, not later than twenty
(20) calendar days after the last business day of each month, a
statement reflecting the current status of its internal reconciliation
of the closing balance as of that day in all accounts described in
this Paragraph to the balance shown on the daily cash report for the
day rendered to the Trust.
2.5 Payments for Shares. The Custodian shall receive from the Trust
or from the Transfer Agent of the Trust and deposit into a Fund's
account such payments as are received for Shares of that Fund
issued or sold from time to time by the Trust. The Custodian
will provide timely notification to the Trust and the Transfer
Agent of any receipt by it of payments for Shares of each Fund.
2.6 Investment and Availability of Federal Funds. Upon mutual
agreement between the Trust and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions,
(1) invest in such instruments as may be set forth in such
instructions on the same day as received all federal funds
received after a time agreed upon between the Custodian and
the Trust; and
(2) make federal funds available to the Trust as of specified
times agreed upon from time to time by the Trust and the
Custodian in the amount of checks received in payment for
Shares of a Fund which are deposited into that Fund's
account.
2.7 Collection of Income. The Custodian shall collect on a timely
basis all income and other payments with respect to registered
securities held hereunder to which the Trust shall be entitled
either by law or pursuant to custom in the securities business,
and shall collect on a timely basis all income and other payments
with respect to bearer securities if, on the date of payment by
the issuer, such securities are held by the Custodian or agent
thereof and shall credit such income, as collected, to the
appropriate Fund account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all
coupons and other income items requiring presentation as and when
they become due and shall collect interest when due on securities
held hereunder. Income due the Trust on securities loaned
pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Trust. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the
Trust with such information or data as may be necessary to assist
the Trust in arranging for the timely delivery to the Custodian
of the income to which the Trust is properly entitled. The
Custodian shall notify the Trust of any income or such other
payments that are not collected in due course within a reasonable
time after they become payable.
<PAGE> 6
2.8 Payment of Trust Moneys. Upon receipt of Proper Instructions,
which may be continuing instructions when deemed appropriate by
the parties, the Custodian shall pay out Trust moneys held in a
Fund's account in the following cases only:
(1) Upon the purchase of securities, options, futures contracts
or options on futures contracts for the account of
the Fund but only (a) against the delivery of such
securities, or evidence of title to futures contracts or
options on futures contracts, to the Custodian (or any bank,
banking firm or trust company doing business in the United
States or abroad which is qualified under the Investment Company
Act of 1940, as amended, to act as a custodian and has been
designated by the Custodian as its agent for this purpose)
registered in the name of the Trust or in the name of a
nominee of the Custodian referred to in Section 2.3 hereof
or in proper form for transfer; (b) in the case of a
purchase for the Fund effected through a Securities System,
in accordance with the conditions set forth in Section 2.12
hereof; or (c) in the case of a repurchase agreement
entered into between the Trust (on behalf of the Fund) and
the Custodian, or another bank, or a broker-dealer, (i)
against delivery of the securities either in certificate
form or through an entry crediting the Custodian's
segregated non-proprietary account at the Federal Reserve
Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Trust of securities owned
by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from
the Trust;
(2) In connection with conversion, exchange or surrender of
securities owned by the Trust in the Fund's portfolio as set
forth in Section 2.2 hereof;
(3) For the redemption or repurchase of Fund Shares issued by the
Trust as set forth in Section 2.10 hereof;
(4) For the payment of any expense or liability incurred by the
Trust for the account of the Fund, including but not limited
to the following payments: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be
in whole or part capitalized or treated as deferred
expenses;
(5) For the payment of any dividends on Shares of the Fund
declared pursuant to the governing documents of the Trust;
(6) For payment of the amount of dividends received in respect of
securities sold short from the Fund's portfolio;
<PAGE> 7
(7) For any other proper purposes, but only upon receipt of, in
addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees or of the Executive
Committee signed by an officer of the Trust and
certified by its Secretary or an Assistant Secretary, specifying
the amount of such payment, setting forth the purpose for which
such payment is to be made, declaring such purpose to be a
proper purpose, and naming the person or persons to whom
such payment is to be made.
2.9 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for purchase of
securities for the account of a Fund is made by the Custodian in
advance of receipt of the securities purchased, in the absence of
specific written Proper Instructions from the Trust to so pay in
advance, the Custodian shall be absolutely liable to the Trust
for such securities to the same extent as if the securities had
been received by the Custodian, except that in the case of a
repurchase agreement entered into by the Trust with a bank, or
with a broker-dealer clearing through a bank, which is a member
of the Federal Reserve System, the Custodian may transfer funds
to the account of such bank prior to the receipt of (i) written
evidence that the securities subject to such repurchase agreement
have been transferred by book-entry into a segregated non-
proprietary account of the Custodian maintained with the Federal
Reserve Bank of Boston or (ii) of the safe-keeping receipt,
provided that such securities have in fact been so transferred by
book-entry.
2.10 Payments for Repurchases or Redemptions of Shares of a Fund.
From such funds as may be available for the purpose, but subject
to the limitations of the Agreement and Declaration of Trust and
any applicable votes of the Board of Trustees of the Trust pursuant
thereto, the Custodian shall, upon receipt of instructions from the
Transfer Agent, make funds in the account of a Fund available for
payment to holders of Shares of that Fund who have delivered to
the Transfer Agent a request for redemption or repurchase of
their Shares. In connection with the redemption or repurchase of
Shares of the Fund, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a
commercial bank designated by the redeeming shareholders. In
connection with the redemption or repurchase of Shares of the Fund,
the Custodian shall honor checks drawn on the Custodian by a holder
of Shares, which checks have been furnished by the Trust to holders
of Shares of the Fund, when presented to the Custodian in accordance
with such procedures and controls as are mutually agreed upon from
time to time between the Fund and the Custodian.
2.11 Appointment of Agents. The Custodian may at any time or times in
its discretion appoint (and may at any time remove) any other
bank or trust company which is itself qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian, as its agent to carry out such of the provisions of
this Article 2 as the
<PAGE> 8
Custodian may from time to time direct; provided, however, that the
appointment of any agent shall not relieve the Custodian of its
responsibilities or liabilities hereunder.
2.12 Deposit of Trust Assets in Securities System. The Custodian may
deposit and/or maintain securities owned by the Trust in a
clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of
1934, which acts as a securities depository, or in the book-entry
system authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to herein as
"Securities System", in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and regulations,
if any, and subject to the following provisions:
(1) The Custodian may keep securities of the Trust in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in
the Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
(2) The records of the Custodian with respect to securities of
the Trust which are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Trust and further identify the Fund in whose portfolio the
securities are held;
(3) The Custodian shall pay for securities purchased for the
account of a Fund upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the
records of the Custodian to reflect such payment and
transfer for the account of that Fund. The Custodian shall
transfer securities sold for the account of a Fund upon (i)
receipt of advice from the Securities System that payment
for such securities has been transferred to the Account, and
(ii) the making of an entry on the records of the Custodian
to reflect such transfer and payment for the account of that
Fund. Copies of all advices from the Securities System of
transfers of securities for the account of a Fund shall
identify the Fund, be maintained for that Fund by the
Custodian and be provided to the Trust at its request. Upon
request, the Custodian shall furnish the Trust confirmation of
each transfer to or from the account of that Fund in the form of
a written advice or notice and shall furnish to the Trust copies of
daily transaction sheets reflecting each day's transactions in the
Securities System for the account of that Fund.
(4) The Custodian shall provide the Trust with any report
obtained by the Custodian on the Securities System's
<PAGE> 9
accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
(5) The Custodian shall have received the initial or annual
certificate, as the case may be, required by Article 9
hereof;
(6) Anything to the contrary in this Contract notwithstanding,
the Custodian shall be liable to the Trust for any loss or
damage to the Trust resulting from the use of the Securities
System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any
of its or their employees or from failure of the Custodian
or any such agent to enforce effectively such rights as it
may have against the Securities System; at the election of
the Trust, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claim against
the Securities System or any other person which the
Custodian may have as a consequence of any such loss or
damage if and to the extent that the Trust has not been
made whole for any such loss or damage.
2.13 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or
accounts for and on behalf of each Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.12 hereof, (i) in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-dealer
registered under the Exchange Act (or any futures commission
merchant registered under the Commodity Exchange Act), relating
to compliance with the rules of The Options Clearing Corporation
and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Trust, (ii) for purposes of segregating cash
or government securities in connection with options purchased,
sold or written by the Trust for the account of such Fund or
commodity futures contracts or options thereon purchased or sold
by the Trust for the account of such Fund, (iii) for the purposes
of compliance by the Trust with the procedures required by
Investment Company Act Release No. 10666, or any subsequent
release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by registered
investment companies and (iv) for other proper purposes, but
only, in the case of clause (iv), upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an
officer of the Trust and certified by the Secretary or an
Assistant Secretary, setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper purposes.
<PAGE> 10
2.14 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of
income or other payments with respect to securities of the Trust
held by it and in connection with transfers of securities.
2.15 Proxies. The Custodian shall, with respect to the securities
held hereunder, cause to be promptly executed by the registered
holder of such securities, if the securities are registered
otherwise than in the name of the Trust or a nominee of the
Trust, all proxies, without indication of the manner in which
such proxies are to be voted, and shall promptly deliver to the
Trust such proxies, all proxy soliciting materials and all
notices relating to such securities.
2.16 Communications Relating to Trust Portfolio Securities. The
Custodian shall transmit promptly to the Trust all written
information (including, without limitation, pendency of calls and
maturities of securities and expirations of rights in connection
therewith and notices of exercise of call and put options written
by the Trust and the maturity of futures contracts purchased or
sold by the Trust) received by the Custodian from issuers of the
securities being held for the Trust. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the
Trust all written information received by the Custodian from
issuers of the securities whose tender or exchange is sought and
from the party (or his agents) making the tender or exchange
offer. If the Trust desires to take action with respect to any
tender offer, exchange offer or any other similar transaction, the
Trust shall notify the Custodian at least one business day prior
to the date on which the Custodian is to take such action.
2.17 Proper Instructions. Proper Instructions as used throughout
this Article 2 means a writing signed or initialed by one or more
persons as the Board of Trustees shall have from time to time
authorized. Each such writing shall set forth the specific
transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested.
Oral instructions will be considered Proper Instructions if the
Custodian reasonably believes them to have been given by a person
authorized to give such instructions with respect to the
transaction involved. The Trust shall cause all oral
instructions to be confirmed in writing. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Trustees of the Trust accompanied
by a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected
directly between electromechanical or electronic devices provided
that the Board of Trustees and the Custodian are satisfied that
such procedures afford adequate safeguards for the Trust's
assets.
2.18 Actions Permitted Without Express Authority. The Custodian may
in its discretion, without express authority from the Trust:
<PAGE> 11
(1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Trust;
(2) surrender securities in temporary form for securities in
definitive form;
(3) endorse for collection, in the name of the Trust, checks,
drafts and other negotiable instruments; and
(4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Trust except as otherwise directed by the Board of
Trustees of the Trust.
2.19 Evidence of Authority. The Custodian shall be protected in
acting upon any instructions, notice, request, consent,
certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the
Trust. The Custodian may receive and accept a certified copy of
a vote of the Board of Trustees of the Trust as conclusive
evidence (a) of the authority of any person to act in accordance
with such vote or (b) of any determination or of any action by
the Board of Trustees pursuant to its Agreement and Declaration
of Trust as described in such vote, and such vote may be
considered as in full force and effect until receipt by the
Custodian of written notice to the contrary.
3. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Board of
Trustees to keep the books of account of each Fund and/or compute the
net asset value per share of the outstanding shares of each Fund or,
if directed in writing to do so by the Trust, shall itself keep such
books of account and/or compute such net asset value per share. If so
directed, the Custodian shall also calculate daily the net income of each
Fund as described in that Fund's currently effective prospectus and shall
advise the Trust and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer for the Trust
to do so, shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of the
net asset value per share and the daily income of a Fund shall be made at
the time or times described from time to time in that Fund's currently
effective prospectus.
4. Records.
The Custodian shall create and maintain all records relating to
its activities and obligations under this Contract in such manner as
will meet the obligations of the Trust under the Investment Company
Act of 1940, with
<PAGE> 12
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2
thereunder, applicable federal and state tax laws and any other law or
administrative rules and procedures which may be applicable to the Trust.
All such records shall be the property of the Trust and shall at times
during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the
Trust and employees and agents of the Securities and Exchange Commission.
The Custodian shall, at the Trust's request, supply the Trust with a list
of securities held by the Custodian for the account of each Fund and
shall, when requested to do so by the Trust and for such compensation as
shall be agreed upon between the Trust and the Custodian, include
certificate numbers in such lists.
5. Opinion of Trust's Independent Accountant.
The Custodian shall take all reasonable action, as the Trust may
from time to time request, to obtain from year to year favorable
opinions from the Trust's independent accountants with respect to its
activities hereunder in connection with the preparation of the Trust's
Form N-1A, and the Form N-SAR or other annual reports to the SEC and with
respect to any other requirements of the SEC.
6. Reports to Trust by Independent Public Accountants.
The Custodian shall provide the Trust, at such times as the Trust
may reasonably require, with reports by independent public accountants
on the accounting system, internal accounting control and procedures
for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a
Securities System, relating to the services provided by the Custodian
under this Contract; such reports, which shall be of sufficient scope and
in sufficient detail, as may reasonably be required by the Trust, to
provide reasonable assurance that any material inadequacies would be
disclosed by such examination, and, if there are no such inadequacies,
shall so state.
7. Compensation of Custodian.
The Custodian shall be entitled to reasonable compensation for
its services and expenses as Custodian, as agreed upon from time to
time between the Trust and the Custodian.
8. Responsibility of Custodian.
So long as and to the extent that it is in the exercise of
reasonable care, the Custodian shall not be responsible for the title,
validity or genuineness of any property or evidence of title thereto
received by it or delivered by it pursuant to this Contract and shall
be held harmless in acting upon any notice, request, consent,
certificate or other instrument reasonably believed by it to be
genuine and to be signed by the proper party or parties. The Custodian
shall be held to the exercise of reasonable care in carrying out the
provisions of this Contract, but shall be kept indemnified by and
shall be without liability to the Trust for any action taken or
omitted by it in good faith without negligence. It shall be entitled
to rely on and may act upon
<PAGE> 13
advice of counsel (who may be counsel for the Trust) on all matters,
and shall be without liability for any action reasonably taken or
omitted pursuant to such advice. Notwithstanding the foregoing, the
responsibility of the Custodian with respect to redemptions effected by
check shall be in accordance with a separate Agreement entered into
between the Custodian and the Trust.
If the Trust requires the Custodian to take any action with
respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Trust being liable for the
payment of money or incurring liability of some other form, the Trust,
as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Trust requires the Custodian to advance on behalf of the
account of the Fund cash or securities for any purpose or in the event
that the Custodian or its nominee shall incur on behalf of, or be
assessed with respect to, the account of the Fund any taxes, charges,
expenses, assessments, claims or liabilities in connection with the
performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the Fund
shall be security therefor and should the Trust fail to repay the
Custodian promptly after receipt of notice of such amount owing, the
Custodian shall be entitled to utilize available cash of such Fund and
to dispose of the assets held for such Fund to the extent necessary to
obtain reimbursement.
9. Effective Period, Termination and Amendment.
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the
parties hereto and may be terminated by either party by an instrument
in writing delivered or mailed, postage prepaid to the other party,
such termination to take effect not sooner than thirty (30) days after
the date of such delivery or mailing; provided, however that the
Custodian shall not act under Section 2.12 hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant
Secretary that the Board of Trustees of the Trust has approved the
initial use of a particular Securities System and the receipt of an
annual certificate of the Secretary or an Assistant Secretary that the
Board of Trustees have reviewed the use by the Trust of such Securities
System, as required in each case by Rule 17f-4 under the Investment
Company Act of 1940, as amended; provided further, however, that the
Trust shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of its
Agreement and Declaration of Trust, and further provided, that the Trust
may at any time by action of its Board of Trustees (i) substitute another
bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in
the event of the appointment of a conservator or receiver for the
Custodian by the Comptroller of the Currency or upon the happening of a
like event at the direction of an appropriate regulatory agency or court
of competent jurisdiction.
<PAGE> 14
Upon termination of the Contract, the Trust shall pay to the
Custodian such compensation as may be due as of the date of such
termination and shall likewise reimburse the Custodian for its costs,
expenses and disbursements.
10. Successor Custodian.
If a successor custodian shall be appointed by the Board of
Trustees of the Trust, the Custodian shall, upon termination, deliver
to such successor custodian at the office of the Custodian, duly
endorsed and in the form for transfer, all securities and all funds
and other assets then held by it hereunder and shall transfer to an
account of the successor custodian all of the Trust's securities held
in a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of
the Board of Trustees of the Trust, deliver at the office of the
Custodian and transfer such securities, funds and other properties in
accordance with such vote.
In the event that no written order designating a successor
custodian or certified copy of a vote of the Board of Trustees shall
have been delivered to the Custodian on or before the date when such
termination shall become effective, then the Custodian shall have the
right to deliver to a bank or trust company, which is a "bank" as
defined in the Investment Company Act of 1940, doing business in Boston,
Massachusetts, of its own selection, having an aggregate capital,
surplus, and undivided profits, as shown by its last published report,
of not less than $25,000,000, all securities, funds and other
properties held by the Custodian and all instruments held by the
Custodian relative thereto and all other property held by it under this
Contract and to transfer to an account of such successor custodian all
of the Trust's securities held in any Securities System. Thereafter,
such bank or trust company shall be the successor of the Custodian under
this Contract.
In the event that securities, funds and other properties remain
in the possession of the Custodian after the date of termination
hereof owing to failure of the Trust to procure the certified copy of
vote referred to or of the Board of Trustees to appoint a successor
custodian, the Custodian shall be entitled to fair compensation for
its services during such period as the Custodian retains possession of
such securities, funds and other properties and the provisions of this
Contract relating to the duties and obligations of the Custodian shall
remain in full force and effect.
11. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian
and the Trust may from time to time agree on such provisions
interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall
be in a writing signed by both parties and shall be annexed hereto,
provided that no such interpretive or additional provisions shall
contravene any applicable federal or state regulations or any
provisions of the Agreement and Declaration of Trust of the Trust. No
interpretive or
<PAGE> 15
additional provisions made as provided in the preceding sentence shall
be deemed to be an amendment of this Contract.
12. Massachusetts Law to Apply.
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
13. Prior Contracts.
This Contract supersedes and terminates, as of the date hereof,
all prior contracts between the Trust and the Custodian relating to
the custody of the Trust's assets.
14. Notices.
Notices and other writings delivered or mailed by registered mail
postage prepaid to the Trust, Attention: Secretary, Eleventh Floor,
300 West Adams, Chicago, Illinois 60606, or to the Custodian,
Attention: Custody and Shareholder Services--Stein Roe & Farnham
Incorporated, 225 Franklin Street, Boston, Massachusetts 02101, or to
such other address as the Trust or State Street may hereafter specify,
shall be deemed to have been properly delivered or given hereunder to the
respective addresses.
15. Successors.
This Agreement shall be binding on and shall inure to the benefit
of the Trust and the Custodian and their respective successors.
16. Duties of the Custodian with Respect to Property of the Trust Held
Outside of the United States.
16.1 Appointment of Foreign Sub-Custodians.
The Custodian is authorized and instructed to employ as sub-
custodians for the Trust's securities and other assets maintained
outside of the United States the foreign banking institutions and
foreign securities depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions," as defined in
Section 2.17, together with a certified resolution of the Trust's Board
of Trustees, Schedule A hereto may be amended from time to time to
designate additional foreign banking institutions and foreign securities
depositories to act as sub-custodians. Upon receipt of Proper
Instructions from the Trust, the Custodian shall cease the employment
of any one or more of such sub-custodians for maintaining custody of
the Trust's assets.
16.2 Assets to be Held.
The Custodian shall limit the securities and other assets
maintained in the custody of the foreign sub-custodians to: (a) "foreign
<PAGE> 16
securities," as defined in paragraph (c)(1) of Rule 17f-5 under the
Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Trust may determine to be
reasonably necessary to effect the Trust's foreign securities
transactions.
16.3 Foreign Securities Depositories.
Except as may otherwise be agreed upon in writing by the Custodian
and the Trust, assets of the Trust shall be maintained in foreign
securities depositories designated on Schedule A hereto only through
arrangements implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof.
16.4 Segregation of Securities.
The Custodian shall identify on its books as belonging to a Fund
the foreign securities held for the Fund by each foreign sub-custodian.
Each agreement pursuant to which the Custodian employs a foreign
banking institution shall require that such institution establish a
custody account (as defined in Exhibit 1 and hereinafter referred to as
"Account") for the Custodian on behalf of the Trust and physically
segregate in that Account, securities and other assets held for the Fund
and, in the event that such institution deposits the Trust's securities
in a foreign securities depository, that it shall identify on its books
as belonging to the Custodian, as agent for the Trust, the securities so
deposited.
16.5 Agreements with Foreign Banking Institutions.
Each agreement with a foreign banking institution shall be
substantially in the form set forth in Exhibit 1 hereto and shall
provide in substance that: (a) the foreign banking institution assumes
full responsibility for the acts and obligations of any of its nominees;
(b) the Trust's assets will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the foreign
banking institution or its creditors, except a claim of payment for
their safe custody or administration; (c) beneficial ownership for the
Trust's assets will be freely transferable without the payment of money
or value other than for custody or administration; (d) adequate records
within the meaning of Rule 17f-5(a)(l)(iii)(D) under the Investment
Company Act of 1940 will be maintained identifying the assets as
belonging to the Trust; (e) officers of, or auditors employed by, or
other representatives of, the Custodian, including to the extent
permitted under applicable law the independent public accountants for
the Trust will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with the
Custodian; and (f) assets of the Trust held by the foreign sub-custodian
will be subject only to the instructions of the Custodian or its agents.
<PAGE> 17
16.6 Access of Independent Accountant of the Trust.
Upon request of the Trust, the Custodian will use its best efforts
to arrange for the independent accountants of the Trust to be afforded
access to the books and records of any foreign banking institution
employed as a foreign sub-custodian insofar as such books and records
relate to the performance of such foreign banking institution under its
agreement with the Custodian.
16.7 Reports by Custodian.
The Custodian will supply to the Trust from time to time such
statements in respect of the securities and other assets of the Trust
held by foreign sub-custodians as the Trust may reasonably request,
including, but not limited to an identification of entities having
possession of the Trust's securities and other assets and advices or
notifications of any transfers of securities to or from each custodial
account maintained by a foreign banking institution for the Custodian on
behalf of the Trust indicating, as to securities acquired for the Trust,
the identify of the entity having physical possession of such
securities.
16.8 Transactions in Foreign Custody Account.
(a) Notwithstanding any provision of the Custodian Contract to the
contrary, settlement and payment for securities received for the account
of any Fund and delivery of securities maintained for the account of any
Fund may be effected in accordance with the customary or established
securities trading or securities processing practices and procedures in
the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or to
a dealer therefor (or an agent for such purchaser or dealer) against a
receipt with the expectation of receiving later payment for such
securities from such purchaser or dealer.
(b) Securities maintained in the custody of a foreign sub-custodian
may be maintained in the name of such entity's nominee to the same
extent as set forth in Section 2.3 of this Contract and the Trust agrees
to hold any such nominee harmless from any liability as a holder of
record of such securities.
16.9 Liability of Foreign Sub-Custodians.
Each agreement pursuant to which the Custodian employs a foreign
banking institution as a foreign sub-custodian shall require the
institution to exercise reasonable care in the performance of its duties
and to indemnify, and hold harmless, the Custodian and each Account from
and against any loss, damage, cost, expense, liability or claim arising
out of or in connection with the institution's performance of such
obligations. At the election of the Trust, it
<PAGE> 18
shall be entitled to be subrogated to the rights of the Custodian with
respect to any claims against a foreign sub-custodian as a consequence
of any such loss, damage, cost, expense, liability or claim if and to
the extent that the Trust has not been made whole for any such loss,
damage, cost, expense liability or claim.
16.10 Liability of Custodian.
The Custodian shall be liable for the acts or omissions of a
foreign sub-custodian to the same extent as set forth in this contract
with respect to sub-custodians generally and, regardless of whether
assets are maintained in the custody of a foreign banking institution, a
foreign securities depository or a branch of a U.S. bank as contemplated
by Section 16.12 hereof, the Custodian shall not be liable for any loss,
damage, cost, expense, liability or claim resulting from, or caused by,
nationalization, expropriation, currency restrictions, or acts of war or
terrorism or other causes beyond the control of the Custodian or such
foreign sub-custodian.
16.11 Monitoring Responsibilities.
The Custodian shall furnish annually to the Trust, information
concerning the foreign sub-custodians employed by the Custodian. Such
information shall be of a kind and scope needed to assist the Board of
Trustees in its compliance with Rule 17f-5 under the Investment Company
Act of 1940.
In addition, the Custodian will promptly inform the Trust in the event
that the Custodian learns of a material adverse change in the financial
condition of a foreign sub-custodian or is notified by a foreign banking
institution employed as a foreign sub-custodian that there appears to be
a substantial likelihood that its shareholders' equity will decline
below $200 million (U.S. dollars or the equivalent thereof) or that its
shareholders' equity has declined below $200 million (in each case
computed in accordance with generally accepted U.S. accounting
principles).
16.12 Branches of U.S. Banks.
Except as otherwise set forth in this Article 16, the provisions
hereof shall not apply where the custody of the Trust assets maintained
in a foreign branch of a banking institution that is a "bank" defined
by Section 2(a)(5) of the Investment Company Act of 1940 that meets the
qualification set forth in Section 26(a) of said Act. The appointment
of any such branch as a sub-custodian and the use of a foreign branch of
the custodian shall be governed by Article 1 of this Contract.
17. Non-Liability of Trustees and Shareholders.
Any obligation of the Trust hereunder shall be binding only upon
the assets of the Trust (or the applicable Fund), as provided in the
Agreement and Declaration of Trust of the Trust, and shall not be
binding upon any Trustee,
< > 19
officer, employee, agent or shareholder of the Trust nor upon the assets
held in the account of any other Fund. Neither the authorization of any
action by the Trustees or the shareholders of a Fund, nor the execution
of this Contract on behalf of the Trust shall impose any liability upon
any Trustee or any shareholder. Nothing in this Contract shall protect
any Trustee against any liability to which such Trustee would otherwise
be subject by willful misfeasance, bad faith or gross negligence in the
performance of his duties, or reckless disregard of his obligations and
duties under this Contract.
18. Additional Funds.
In the event that the Trust establishes one or more series of
Shares in addition to the series designated SteinRoe Prime Equities
with respect to which it desires to have Custodian render services as
Custodian under the terms hereof, it shall so notify Custodian in
writing, and if Custodian agrees in writing to provide such services,
such series of Shares shall become a Fund hereunder.
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its duly
authorized representative and its seal to be hereunder affixed as of
the 3rd day of March, 1987.
STEINROE EQUITY PORTFOLIO
BY: LAWRENCE R. MAFFIA
Attest: Senior Vice-President
NICOLETTE D. PARRISH
Assistant Secretary
STATE STREET BANK AND TRUST COMPANY
BY:
Attest: Vice President
Assistant Secretary
<PAGE>
REVISED
SCHEDULE A TO
CUSTODIAN AGREEMENT
BETWEEN STEINROE EQUITY TRUST
AND
STATE STREET BANK AND TRUST COMPANY
A) Equity Trust:
United Depository: Euroclear (for Eurobonds and Euro dollar
Kingdom CD's only)
Custodian: State Street London Limited
B) International Growth Fund series only:
Austria Depository: Oesterreichischen Kontrollbank
Custodian: Girozentrale und Bank
Belgium Depository: Caisse Interprofessionnelle de Depots et de
Virements de Titres (CIK)
Custodian: Banque Bruxelles Lambert
Denmark Depository: VP - Centralen
Custodian: Den Danske Bank
France Depository: Societe Interprofessionnelle Pour la
Conservation des Valeurs Mobilieres
Custodian: Credit Commercial de France
Germany Depository: Frankfurter Kassenverein AG
Custodian: Berliner Handels und Frankfurter
Italy Depository: Monte Titoli, S.P.A.
Custodian: Credito Italiano
Switzerland Depository: SEGA
Custodian: Union Bank of Switzerland
Netherlands Depository: Netherlands Clearning Institute for Giro
Securities Deliveries
Custodian: Bank Mees & Hope
C) Special Fund series only:
Australia Custodian: Anz, Ltd.
Acknowledged by State Street Bank: Myrna F. Giberson
Date: 5/17/88
<PAGE>
Exhibit 1
CUSTODIAN AGREEMENT
To:
Gentlemen:
The undersigned ("State Street") hereby requests that you (the Bank)
establish a custody account and a cash account for each
custodian/employee benefit plan identified in the Schedule attached to
this Agreement and each additional account which is identified to this
Agreement. Each such custody or cash account as applicable will be
referred to herein as the "Account" and will be subject to the
following terms and conditions:
1. The Bank shall hold as agent for State Street and shall physically
segregate in the Account such cash, bullion, coin, stocks, shares,
bonds, debentures, notes and other securities and other property
which is delivered to the Bank for that State Street Account (the
"Property").
2. a. Without the prior approval of State Street it will not deposit
securities in any securities depository or utilize a clearing
agency, incorporated or organized under the laws of a country
other than the United States, unless such depository or
clearing house operates the central system for handling of
securities or equivalent book-entries in that country or
operates a transnational system for the central handling of
securities or equivalent book-entries;
b. When securities held for an Account are deposited in a
securities depository or clearing agency by the Bank, the Bank
shall identify on its books as belonging to State Street as
agent for such Account, the securities so deposited.
3. The Bank represents that either:
a. It currently has stockholders' equity in excess of $200
million (U.S. dollars or the equivalent of U.S. dollars
computed in accordance with generally accepted U.S. accounting
principles) and will promptly inform State Street in the event
that there appears to be a substantial likelihood that its
stockholders' equity will decline below $200 million, or in
any event, at such time as its stockholders' equity in fact
declines below $200 million; or
b. It is the subject of an exemptive order issued by the United
States Securities and Exchange Commission, which such order
permits State Street to employ the Bank as a subcustodian,
notwithstanding the fact that the Bank's stockholders' equity
is currently below $200 million or may in the future decline
below $200 million due to currency fluctuation.
4. Upon the written instructions of State Street, as permitted by
Paragraph 8, the Bank is authorized to pay cash from the Account
and to sell, assign, transfer, deliver or exchange, or to purchase
for the Account, any and all stocks, shares, bonds, debentures,
notes and other securities ("Securities"), bullion, coin and any
other property, but only as provided in such written instructions.
The bank shall not be held liable for any act or omission to act
on instructions given or purported to be given should there be any
error in such instructions.
5. Unless the Bank receives written instructions of State Street to
the contrary, the Bank is authorized:
a. To promptly receive and collect all income and principal with
respect to the Property and to credit cash receipts to the
Account;
b. To promptly exchange securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the
exchange of warrants, or other documents of entitlement to
securities, for the securities themselves);
c. To promptly surrender securities at maturity or when called
for redemption upon receiving payment therefor;
d. Whenever notification of a rights entitlement or a fractional
interest resulting from a rights issue, stock dividend or
stock split is received for the Account and such rights
entitlement or fractional interest bears an expiration date,
the Bank will endeavor to obtain State Street Bank's
instructions, but should these not be received in time for the
Bank to take timely action, the Bank is authorized to sell
such rights entitlement or fractional interest and to credit
the Account;
e. To hold registered in the name of the nominee of the Bank or
its agent such Securities as are ordinarily held in registered
form;
f. To execute in State Street's name for the account, whenever
the Bank deems it appropriate, such ownership and other
certifies as may be required to obtain the payment of income
from the Property; and
g. To pay or cause to be paid, from the Account any and all taxes
and levies in the nature of taxes imposed on such assets by
any governmental authority and shall use reasonable efforts,
to promptly reclaim any foreign withholding tax relating to
the Account.
6. If the Bank shall receive any proxies, notices, reports or other
communications relative to any of the Securities of the Account in
connection with tender offers, reorganization, mergers,
consolidations, or similar events which may have an impact upon
the issuer thereof, the Bank shall promptly transmit any such
communication to State Street Bank by means as will permit State
Street Bank to take timely action with respect thereto.
7. The Bank is authorized in its discretion to appoint brokers and
agents in connection with the Banks' handling of transactions
relating to the Property provided that any such appointment shall
not relieve the Bank of any of its responsibilities or liabilities
hereunder.
8. Written instructions shall include (i) instructions in writing
signed by such persons as are designated in writing by State
Street; (ii) telex or tested telex instructions of State Street;
(iii) other forms of instruction in computer readable form as
shall be customarily utilized for the transmission of like
information; and (iv) such other forms of communication as from
time to time shall be agreed upon by State Street and the Bank.
9. The Bank shall supply periodic reports with respect to the
safekeeping of assets held by it under this agreement. The
content of such reports shall include but not be limited to any
transfer to or from any account held by the Bank hereunder and
such other information as State Street may reasonably request.
10. In addition to its obligation sunder Section 2B hereof, the Bank
shall maintain such other records a may be necessary to identify
the assets hereunder as belonging to each custodian/employee
benefit plan identified in our Schedule attached to this agreement
and each additional account which is identified to this agreement.
11. The Bank agrees that its books and records relating to its
actions under this Agreement shall be opened to the physical, on-
premises inspection and audit at reasonable times by officers of,
auditors employed by or other representatives of State Street
(including to the extent permitted under _____ law the independent
public accountants for any entity whose Property is being held
hereunder) and shall be retained for such period as shall be
agreed by State Street and the Bank.
12. The Bank shall be entitled to reasonable compensation for its
services and expenses as custodian under this Agreement, as agreed
upon from time to time by the Bank and State Street.
13. The Bank shall exercise reasonable care in the performance of its
duties, as are set forth or contemplated herein or contained in
instructions given to the Bank which are not contrary to this
Agreement, shall maintain adequate insurance and agrees to
indemnify and hold harmless, State Street and each Account from
and against any loss, damage, cost, expense, liability or claim
arising out of or in connection with the Bank's performance of its
obligations hereunder.
14. The bank agrees (i) the property held hereunder is not subject to
any right, charge, security interest, lien or claim of any kind in
favor of the Bank or any of its agents or its creditors except a
claim of payment for their safe custody and administration and
(ii) the beneficial ownership of the property shall be freely
transferable without the payment of money or other value other
than for safe custody or administration.
15. This Agreement may be terminated by the Bank or State Street by
60 days' written notice to the other, sent by registered mail or
express courier. The Bank, upon the date this Agreement
terminates pursuant to notice which has been given in a timely
fashion, shall deliver the Property to the beneficial owner unless
the Bank has received from the beneficial owner 60 days' prior to
the date on which this Agreement is to be terminated written
instructions of State Street specifying the name(s) of the
person(s) to whom the Property shall be delivered.
16. The Bank and State Street shall each use its best efforts to
maintain the confidentially of the property in each Account,
subject, however, to the provisions of any laws requiring the
disclosure of the Property.
17. Unless otherwise specified in this Agreement, all notices with
respect to matters contemplated by this Agreement shall be deemed
duly given when received in writing or by confirmed telex by the
Bank or State Street at their respective addresses set forth
below, or at such other address as to be specified in each case in
a notice similarly given:
To State Street Master Trust Division, Global Custody
STATE STREET BANK AND TRUST COMPANY
P.O. Box 1713
Boston, Massachusetts 02105
U.S.A.
To the Bank
18. This Agreement shall be governed by and construed in accordance
with the laws of _______ except to the extent that such laws are
preempted by the laws of the United States of America.
Please acknowledge your agreement to the foregoing by executing a copy
of this letter.
Very truly yours,
STATE STREET BANK AND TRUST COMPANY
By:_________________________
Vice President
Date: _________________________
Agreed to by:
By: _______________
Date: _____________
0043k/4
ADDENDUM TO CUSTODIAN CONTRACT
AGREEMENT made by and between State Street Bank and Trust
Company (the "Custodian") and SteinRoe Equity Portfolio (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a
Custodian Contract dated March 3, 1987 ( the "Custodian
Contract") governing the terms and conditions under which the
Custodian maintains custody of the securities and other assets of
the Fund; and
WHEREAS, the terms of the Custodian Contract provide for the
maintenance of the Fund's foreign securities and cash incidental
to transactions in such securities, in the custody of certain
foreign banking institutions and foreign securities depositories;
and
WHEREAS, the parties hereto desire to provide for the maintenance
of certain of the Fund's foreign securities and other assets in the
custody of State Street London Limited (the "Trust Company"), a company
incorporated under the laws of the United Kingdom with the power to act
as a trustee and as a custodian of securities;
NOW, THEREFORE, in consideration of the premises and covenant
contained herein, the Custodian and the Fund hereby agree to the
following terms and conditions:
1. The Fund hereby authorizes and instructs the Custodian to
employ the services of Trust Company, as the sub-custodian in the
United Kingdom, to hold securities and other assets of the Fund,
subject to the terms of the Custodian Contract and to the terms and
conditions hereof.
2. The securities to be held by Trust Company shall be limited
to "foreign securities" as defined by paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940 (the "1940 Act").
3. Cash held for the Fund in the United Kingdom shall be
maintained in an interest bearing account established for the Fund
with the Custodian's London branch, which account shall be subject to
the direction of the Custodian, Trust Company or both.
4. The Custodian represents that it has obtained an order from
the Securities and Exchange Commission, pursuant to Section 6(c) of
the 1940 Act, exempting the Custodian and the Fund from the provisions
of Section 17(f) of said Act, to the extent necessary to permit the
securities and other assets of the Fund to be maintained in the custody
of Trust Company pursuant hereto.
5. In delegating custody duties and obligations to Trust Company
as permitted hereunder, the Custodian agrees that it shall not be
relieved of any responsibility to the Fund for any loss due to such
delegation to Trust Company, except such loss as may result from: (a)
political risk (including but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization,
insurrection, civil strike or armed hostilities) or (b) other risk of
loss (excluding bankruptcy or insolvency of Trust Company not caused by
a political risk) for which neither the Custodian nor Trust Company
could be liable (including, but not limited to, losses due to acts of
God, nuclear incident and other losses under circumstances where the
Custodian and the Trust Company have exercised reasonable care).
6. Except as specifically superseded or modified herein, the terms
and conditions of the Custodian Contract shall continue to apply with
full force and effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument
to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed as of the 23rd day
of March, 1987.
STEINROE EQUITY PORTFOLIO
By: LAWRENCE R. MAFFIA
ATTEST: Senior Vice-President
NICOLETTE D. PARRISH
Assistant Secretary
STATE STREET BANK AND TRUST COMPANY
BY:
Vice President
ATTEST:
Assistant Secretary
AMENDMENT TO CUSTODIAN CONTRACT
BETWEEN STATE STREET BANK AND TRUST COMPANY AND
STEINROE EQUITY PORTFOLIO
Amendment made this 8th day of September, 1987 by and between
State Street Bank (the "Custodian") and SteinRoe Equity Portfolio (the
"Trust").
WHEREAS, the Custodian and the Trust are parties to a Custodian
Contract dated March 3, 1987 (the "Custodian Contract") governing the
terms and conditions under which the Custodian maintains custody of the
securities and other assets of the Trust;
WHEREAS, the Custodian Contract provides that the Trust is
authorized to issue shares of beneficial interest ("Shares") in separate
series, with each such series representing interests in a separate
portfolio of securities and other assets (any such series being referred
to as a "Fund");
WHEREAS, the Custodian Contract further provides that the Trust
intended to initially offer Shares in one series only designated
SteinRoe Prime Equities;
WHEREAS, the Custodian Contract further provides that in the event
that the Trust establishes one or more series of Shares in addition to
the series designated SteinRoe Prime Equities with respect to which it
desires to have the Custodian render services as Custodian under the
Custodian Contract, it shall so notify the Custodian in writing, and if
the Custodian agrees in writing to provide such services, such series of
Shares shall become a Fund thereunder;
WHEREAS, the Trust has established a series of Shares designated
SteinRoe Growth & Income Fund for which it desires to have the Custodian
render services under the Custodian Contract;
NOW THEREFORE, in consideration of the premises and covenants
contained herein, the Custodian and the Trust hereby agree that the
Custodian shall render services under the terms of the Custodian Contact
for the series of Shares designated SteinRoe Growth & Income Fund and
such series of Shares shall be a Fund thereunder; and
FURTHERMORE, the third paragraph of Article 8 is restated as
follows:
If the Trust requires the Custodian to advance on behalf of the
account of a Fund cash or securities for any purpose or in the
event that the Custodian or its nominee shall incur on behalf
of, or be assessed with respect to, the account of a Fund any
taxes, charges, expenses, assessments, claims or liabilities
in connection with the performance of this Contract, except
such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property
at any time held for the account of such Fund shall be security
therefor and should the Trust fail to repay the Custodian
promptly after receipt of notice of such amount owing, the
Custodian shall be entitled to utilize available cash of such
Fund and to dispose of the assets held for such Fund to the
extent necessary to obtain reimbursement.
IN WITNESS WHEREOF, each of the parties has caused this Amendment
to be executed in its name and behalf by its duly authorized
representative this 8th day of September, 1987.
ATTEST: STEINROE EQUITY PORTFOLIO
NICOLETTE D. PARRISH By: LAWRENCE R. MAFFIA
Assistant Secretary Senior Vice-President
ATTEST: STATE STREET BANK AND TRUST COMPANY
DEBORAH J. GRIFFIN By: CHARLES R. WITTEMORE, JR.
Assistant Secretary Vice President
<PAGE>
SteinRoe Mutual Funds
P.O. Box 1162, Chicago, Illinois 60690
December 31, 1987
Ms. Myrna Giberson
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, Massachusetts 02171
Re: SteinRoe Equity Trust
Dear Myrna:
This letter serves to confirm that we have authorized State Street
Bank & Trust Company to serve as custodian for SteinRoe Equity Trust
(formerly named SteinRoe Equity Portfolio) assets represented by the
series designated SteinRoe Discovery Food, SteinRoe Universe Fund,
SteinRoe Special Fund, SteinRoe Capital Opportunities, SteinRoe Stock
Fund and SteinRoe Total Return Fund, the fee schedules for which will
be the same as fee schedules for each series' corporate predecessor.
Pursuant to the Custodian Agreement dated March 3, 1987, please
acknowledge authorization by signing and returning the enclosed copy
of this letter to my attention.
Very truly yours,
JILAINE HUMMEL BAUER
Jilaine Hummel Bauer
Vice-President and Secretary
Acknowledged By: State Street Bank & Trust Company
E.D. HAWKINS, Jr.
Vice President
<PAGE> 1
STATE STREET BANK AND TRUST COMPANY
ORIGINATING BANK AGREEMENT
FOR AUTOMATED CLEARING HOUSE SERVICES
In consideration of their mutual promises contained herein,
SteinRoe Equity Trust ("Company") and State Street Bank and
Trust Company ("SSB") agree as follows:
1. TERMS. Terms used herein which are defined in the Operating
Rules of the New England Automated Clearing House Association ("the
Association") shall have the same meaning herein as they have under
those Operating Rules.
2. PURPOSE. For the purpose of effecting payment through the
Association, the Company may from time to time initiate electronic
credit and debit entries to and from deposit accounts maintained by
its Receiver at a Receiving Depositor Financial Institution
("Receiving Bank"). Under such a plan, SSB will act as an Originating
Depository Financial Institution ("Originating Bank") for the
electronic debit and credit entries originated by the Company in
accordance with the Operating Rules of the Association.
3. RULES. The company shall comply with and be bound by the
Operating Rules of the Association and the Operating Rules of the
National Automated Clearing House Association as in effect from time
to time. The Company represents and warrants to SSB that it is an
Organization and its Receivers are Organizations as defined in the
Operating Rules of the Association.
4. COMPANY ACCOUNT. The Company shall establish or designate in
writing to SSB the Company Account or Accounts (collectively referred
to as the Company Account) at SSB for the purpose of this Agreement.
The Company shall notify SSB in writing of any change in the
designation of the Company Account. Any electronic debit or credit
entry to the Company Account shall be made on the banking day at SSB
on which the entry to or from the account is made at the Receiving
Bank. SSB may debit the Company Account for any amount payable by the
Company to SSB.
5. AUTHORIZATION BY RECEIVERS. Each of the Company's Receivers
participating in this plan will authorize the Company to initiate
electronic debit entries payable at the Receiving Bank where its
checking account is maintained and will authorize such Bank as the
case may be to honor and pay such debit entries. Each of the
Company's Receivers participating in this plan will also authorize the
Company to initiate electronic credit entries for sums due and payable
to it for deposit at the Receiving Bank where its deposit account is
maintained and will authorize such Bank as the case may be to accept
such credit entries.
6. PREPARATION OF ENTRIES. SSB shall prepare Prenotifications
and Entries (referred to herein collectively as "entries") on the
basis of data provided by the Company. Such data (referred to herein
as "entry data") shall be in the form, have the content, and be
transmitted to SSB as set forth by SSB standards. SSB shall have no
obligation to act on entry data received which does not comply with
SSB standards and SSB shall have no obligation to reverse, adjust, or
stop payment or posting of any such entry data received or any entry
prepared therefrom; provided, however, if requested by Company, SSB
shall not unreasonably refuse to reverse, adjust, or stop payment or
posting of any such entry data received on any entry prepared
therefrom.
<PAGE> 2
7. COMPANY AUTHORIZATIONS.
(a) The Company shall provide, on forms supplied by SSB,
certification of signatures of one or more persons authorized by the
Company (an "Authorized Person") to deliver entry data via electronic
tape or disk to SSB on behalf of the Company under this Agreement.
The signature of each Authorized Person shall be certified by the
Secretary of the Company. All such tape or disk entry data shall be
accompanied by a transmittal letter executed by an Authorized Person.
SSB shall be entitled to act (or refrain from acting, if appropriate)
under this Agreement on any signature reasonably believed by SSB to be
that of an Authorized Person. Any writing bearing such a signature
shall be deemed to have been executed by an Authorized Person on
behalf of the Company.
(b) For transmittal of entry data via telephone or terminal
authorization, SSB will provide passwords to the Company. It is the
responsibility of the Company to control password usage and to guard
against unauthorized use of the password. SSB may act upon all entry
data successfully transmitted via usage of the Company's password and
SSB shall have no obligation, responsibility, or liability for entry
data transmitted via unauthorized use of the Company's password.
8. TRANSMITTAL OF ENTRIES AND SETTLEMENT. Except in the case of
entries initiated to accounts maintained with SSB (referred to herein
as "on us entries"), SSB shall transmit entries which comply with the
requirements provided for herein to the Association and settle for
such entries in accordance with the Association's Rules. Where entry
data is received by SSB prior to a deadline set by SSB, SSB shall
transmit the entries prepared from such entry data (other than on us
entries) to the Association prior to the applicable Association
deadline. In the event SSB receives entry data after 5:00 p.m.,
Chicago time, SSB shall have no obligation to transmit the entries
derived therefrom to the Association prior to the Association
deadline. Any SSB deadline may be changed by SSB from time to time on
30 days' prior written notice to the Company.
9. DEBIT ENTRIES
(a) SSB shall credit the Company Account with the amount of each
debit entry transmitted by SSB to the Association. Thereafter, the
Company shall be entitled to withdraw the amount of such credit. In
the event such a debit entry is returned by a Receiving Bank in
accordance with the Operating Rules after SSB has provided such
credit, the Company shall, upon demand, repay SSB the amount of such
entry.
(b) Upon receipt of debit entries at a Receiving Bank, the
payment amounts will be debited to the Receiver's account, provided,
however, that should such Bank be unable or unwilling to make such
charge, it may return the debit entry in accordance with the Operating
Rules of the Association or SSB Operating Procedures, whichever is
applicable.
10. CREDIT ENTRIES.
(a) SSB shall debit the Company Account with the amount of each
credit entry transmitted by SSB to the Association. The Company shall
maintain in the Company Account sufficient immediately-available funds
to pay each credit entry sent to the Association.
<PAGE> 3
(b) In the event that there are not sufficient collected funds to
perform the debit, SSB has no obligation to perform the requested
transfer.
(c) SSB shall promptly recredit the Company Account with the
amount of each credit entry (which was a debit to the Company Account)
which is rejected by SSB, and each other credit entry which is
returned by the Receiving Bank, provided that SSB has obtained payment
for the returned entry from such Receiving Bank.
(d) Upon receipt of credit entries at a Receiving Bank, the
payment amounts will be credited to the Receiver's account, provided,
however, that should such Bank be unable or unwilling to make such
credit, it may return the credit entry in accordance with the
Operating Rules of the Association or SSB Operating Procedures,
whichever is applicable. Upon receipt by SSB of the returned credit
entry, the Company account shall be credited with the amount of the
entry.
11. ON US ENTRIES. In the case of on us entries, SSB shall
credit or debit the amount of each such entry to the appropriate
Receiver's account maintained with SSB.
12. REVERSING ENTRIES. SSB shall initiate reversing entries, at
the Company's request, in accordance with the Operating Rules of the
Association; however, SSB does not guarantee that such reversing
entries will be accepted by the Receiving Bank. If a Receiving Bank
does not or cannot accept the reversing entry, SSB shall have no
further obligations to the Company with respect to such reversing
entries, except to notify the Company by telephone followed by written
confirmation.
13. ACCURACY OF ENTRIES. SSB shall not have any responsibility
for the accuracy of any entry furnished by the Company nor shall SSB
be under any duty to furnish advices of entries, or any other
statements to the Receivers concerned, except as otherwise provided by
applicable law or rules. By the act of transmitting entries to SSB,
the Company shall warrant to SSB that the Company has full right to
use and deal with the funds represented by those entries. SSB may act
upon an entry provided by the Company regardless of the medium by
which the entry is transmitted to SSB, including the Company's entries
that will be communicated by the Company to SSB as a result of
telephone authorization. SSB may rely upon the authenticity and
accuracy of communications made to SSB on behalf of the Company. SSB
shall not be responsible nor liable for acting upon, in good faith,
any communication for debit or credit or other entries believed by it
to be genuine, but that were not authorized by the Company; provided
that SSB has acted in accordance with its own procedures and all
applicable rules.
14. BANK LIABILITY. Notwithstanding any provision to the
contrary contained herein, SSB shall only be liable to the Company
under this Agreement for its failure to exercise ordinary care in
performing the services provided for herein. SSB shall have no
liability or responsibility to the Company with regard to any other
matter, including without limitation, any act or omission by the
Association, any other financial institution, the Federal Reserve Bank
of Boston, or any other person or entity. SSB shall have no liability
to the Company for any damages or losses due to strikes, breakdowns or
other nonfunctioning of equipment, impossibility of performance, or
other causes or circumstances beyond SSB's control. In the event that
SSB or its employees shall
<PAGE> 4
become liable to the Company for failure to exercise ordinary care,
such liability will be limited to actual damages proved, or the amount
of the entry reduced by the amount which could not have been realized
by the exercise of ordinary care, whichever is less. SSB shall have
no liability to the Company for any consequential or special damages.
15. COMPANY LIABLITY. The Company shall be deemed to make the
same warranties to SSB with respect to both on us entries and other
entries subject to this Agreement as SSB is deemed to make under the
Rules, and SSB shall have no responsibility with respect to the
matters so warranted by Company. In the case of on us entries, such
warranties shall apply as of the time such entries are processed by
SSB. The Company shall indemnify and hold SSB harmless from and
against any and all claims, demands, loss, liability, or expenses
(including attorneys' fees and costs) resulting directly or indirectly
from (a) a breach of any such warranty, (b) the debiting or crediting
of the amount of an entry to the account of any person, as requested
by the Company, (c) the delay of any financial institution other than
SSB in debiting or crediting, or the failure of such institution to
debit or credit the amount of any entry, as requested by the Company,
(d) delay of the Company in initiating or the failure of the Company
to initiate any entry, (e) claims by the Company's receivers with
respect to acts or omissions or claimed acts or omissions of the
Company, (f) claims by any Receiving Bank with respect to acts or
omissions or claimed acts or omissions of the Company, (g) claims by
the Association with respect to acts or omissions or claimed acts or
omissions of the Company, and (h) acts of, or claims by, any person or
entity which receives entry data from the Company and transmits such
data to SSB.
16. COOPERATION. The Company and SSB agree to cooperate
promptly and fully in the investigation of any claim asserted by any
person arising out of this Agreement or the transactions contemplated
thereby.
17. SERVICE FEE. The Company shall pay SSB a service fee which
may be changed from time to time by SSB upon 30 days' prior written
notice to the Company. Such service fee shall be paid in cash or by
any other means agreed upon by the Company and SSB from time to time.
18. HEADINGS. Headings are used for reference only and shall
not be deemed a part of this Agreement.
19. TERMINATION. This Agreement may be terminated either by SSB
or the Company upon 30 days' prior notice in writing. Notwithstanding
such termination, this Agreement shall remain in full force and effect
as to all transactions taking place prior to the termination date.
20. APPLICABLE LAW. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Massachusetts. In the
event of any conflict between provisions of this Agreement and any
applicable law or regulation, these provisions shall be deemed
modified to the extent, and only to the extent, required to comply
with such law or regulation.
21. ENTIRE AGREEMENT. This Agreement supplements the Custodian
Contract dated February 24, 1986 and its amendments, and together they
embody the entire agreement of the parties with regard to the subject
matter hereof and supersedes all previous negotiations,
representations, and agreements with respect thereof. This Agreement
shall be binding upon the parties hereto and
<PAGE> 5
their respective successors and assignees. This Agreement may be
amended only in writing signed by both parties.
22. NON-LIABILITY OF COMPANY AND ITS SHAREHOLDERS. Any
obligation of the Company hereunder shall be binding only upon the
assets of the Company (or the applicable series there) and shall not
be binding upon any trustee, officer, employee, agent, or shareholder
of the Company. Neither the authorization of any action by the
trustees or shareholders of Company nor the execution of this
Agreement on behalf of Company shall impose any liability upon any
trustee or shareholder.
The Company has executed two counterpart originals of this
Agreement. The Company requests that SSB assent to each one, insert
an effective date on each one, and return one to the Company.
This Agreement is effective as of the 4th day of May, 1989.
STEINROE EQUITY TRUST
By: JAMES D. WINSHIP Date: May 4, 1989
Title: Chief Executive Officer
STATE STREET BANK AND TRUST COMPANY
By: PATRICIA T. MAHONEY Date: May 30, 1989
Title: Vice President
<PAGE>
AMENDMENT TO
CUSTODIAN CONTRACT
Amendment to the Custodian Contract between SteinRoe Invest-
ment Trust, a business trust organized and existing under the laws
of Massachusetts, having a principal place of business at 300 W.
Adams, Chicago, Illinois 60606 (hereinafter called the "Fund"), and
State Street Bank and Trust Company, a Massachusetts trust company,
having its principal place of business at 225 Franklin Street, Boston
Massachusetts 02110 (hereafter called the "Custodian").
WHEREAS: The Fund and the Custodian are parties to a Custodian
Contract dated March 3, 1987 (the "Custodian Contract");
WHEREAS: The Fund desires that the Custodian issue a letter of
credit (the "Letter of Credit") on behalf of the Fund for the benefit
of ICI Mutual Insurance Company (the "Company") in accordance with the
Continuing Letter of Credit and Security Agreement and that the Fund's
obligations to the Custodian with respect to the Letter of Credit
shall be fully collateralized at all times while the Letter of Credit
is outstanding by, among other things, segregated assets of the Fund
equal to 125% of the face amount to the amount of the Letter of
Credit;
WEREAS: the Custodian Contract provides for the establishment of
segregated accounts for proper Fund purposes upon Proper Instructions
(as defined in the Custodian Contract); and
<PAGE> 2
WHEREAS: The Fund and the Custodian desire to establish a
segregated account to hold the collateral for the Fund's obligations
to the Custodian with respect to the Letter of Credit and to amend the
Custodian Contract to provide for the establishment and maintenance
thereof;
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto hereby amend the
Custodian Contract as follows:
1. Capitalized terms used herein without definition shall have
the meanings ascribed to them in the Custodian Contract.
2. The Fund hereby instructs the Custodian to establish and
maintain a segregated account (the "Letter of Credit Custody Account")
for and in behalf of the Fund as contemplated by Section 2.13(iv) for
the purpose of collateralizing the Fund's obligations under this
Amendment to the Custodian Contract.
3. The Fund shall deposit with the Custodian and the Custodian
shall hold in the Letter of Credit Custody Account cash, U.S.
government securities and other high-grade debt securities owned by
the Fund acceptable to the Custodian (collectively "Collateral
Securities") equal to 125% of the face amount to the amount which the
Company may draw under the Letter of Credit. Upon receipt of such
Collateral Securities in the Letter of Credit Custody Account, the
Custodian shall issue the Letter of Credit to the Company.
<PAGE> 3
4. The Fund hereby grants to the Custodian a security interest
in the Collateral Securities from time to time in the Letter of Credit
Custody Account (the "Collateral") to secure the performance of the
Fund's obligations to the Custodian with respect to the Letter of
Credit, including, without limitation, under Section 5-114(3) of the
Uniform Commercial Code. The Fund shall register the pledge of
Collateral and execute and deliver to the Custodian such powers and
instruments of assignment as may be requested by the Custodian to
evidence and perfect the limited interest in the Collateral granted
hereby.
5. The Collateral Securities in the Letter of Credit Custody
Account may be substituted or exchanged (including substitutions or
exchanges which increase or decrease the aggregate value of the
Collateral) only pursuant to Proper Instructions from the Fund after
the Fund notifies the Custodian of the contemplated substitution or
exchange and the Custodian agrees that such substitution or exchange
is acceptable to the Custodian.
6. Upon any payment made pursuant to the Letter of Credit by the
Custodian to the Company, the Custodian may withdraw from the Letter
of Credit Custody Account Collateral Securities in an amount equal in
value to the amount actually so paid. The Custodian shall have with
respect to the Collateral so withdrawn all of the
<PAGE> 4
rights of a secured credit under the Uniform Commercial Code as
adopted in the Commonwealth of Massachusetts at the time of such
withdrawal and all other rights granted or permitted to it under law.
7. The Custodian will transfer upon receipt all income earned on
the Collateral to the Fund custody account unless the Custodian
receives Proper Instructions from the Fund to the contrary.
8. Upon the drawing by the Company of all amounts which may
become payable to it under the Letter of Credit and the withdrawal of
all Collateral Securities with respect thereto by the Custodian
pursuant to Section 6 hereof, or upon the termination of the Letter of
Credit by the Fund with the written consent of the Company, the
Custodian shall transfer any Collateral Securities then remaining in
the Letter of Credit Custody Account to another fund custody account.
9. Collateral held in the Letter of Credit Custody Account shall
be released only in accordance with the provisions of this Amendment
to Custodian Contract. The Collateral shall at all times until
withdrawn pursuant to Section 6 hereof remain the property of the
Fund, subject only to the extent of the interest granted herein to the
Custodian.
10. Notwithstanding any other termination of the Custodian
Contract, the Custodian Contract shall remain in full force and effect
with respect to the Letter of Credit
<PAGE> 5
Custody Account until transfer of all Collateral Securities pursuant
to Section 8 hereof.
11. The Custodian shall be entitled to reasonable compensation
for its issuance of the Letter of Credit and for its services in
connection with the Letter of Credit Custody Account as agreed upon
from time to time between the Fund and the Custodian.
12. The Custodian Contract as amended hereby, shall be governed
by, and construed and interpreted under, the laws of the Commonwealth
of Massachusetts.
13. The parties agree to execute and deliver all such further
documents and instruments and to take such further action as may be
required to carry out the purposes of the Custodian Contract, as
amended hereby.
14. Except as provided in this Amendment to the Custody
Contract, the Custodian Contract shall remain in full force and
effect, without amendment or modification, and all applicable
provisions of the Custodian Contract, as amended hereby, including,
without limitation, Section 8 thereof, shall govern the Letter of
Credit Custody Account and the rights and obligations of the Fund and
the Custodian under this Amendment to Custodian Contract. No
provision of this Amendment to Custodian Contract shall be deemed to
constitute a waiver of any rights of the Custodian under the Custodian
Contract or under law.
<PAGE> 6
IN WITNESS WHEREOF, each of the parties has caused this amendment
to the Custodian Contract to be executed in its name and behalf by its
duly authorized representatives and its seal to be hereunder affixed
as of the 31st day of January, 1990.
STEINROE INVESTMENT TRUST
BY: LAWRENCE R. MAFFIA
Attest: Senior Vice-President
By: JILAINE HUMMEL BAUER
Secretary
STATE STREET BANK AND TRUST COMPANY
BY: E.D. HAWKINS, JR.
Attest: Vice President
By: J. FARRELL
Assistant Secretary
<PAGE> 1
AMENDMENT
TO CUSTODIAN CONTRACT
The Custodian Contract dated MARCH 3, 1987 between
SteinRoe Investment Trust (the "Trust") and State Street Bank and
Trust Company (the "Custodian") is hereby amended as follows:
I. Section 2.1 is amended to read as follows:
"Holding Securities. The Custodian shall hold and
physically segregate for the account of each Fund all non-cash
property, including all securities, owned by the Trust and
allocated to that Fund, other than (a) securities which are
maintained pursuant to Section 2.12 in a clearing agency which
acts as a securities depository or in a book- entry system
authorized by the U.S. Department of the Treasury, collectively
referred to herein as "Securities System" and (b) commercial
paper of an issuer for which the Custodian acts as issuing and
paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian pursuant to
Section 2.12.A."
II. Section 2.2 is amended to read, in relevant part, as
follows:
"Delivery of Securities. The Custodian shall release and
deliver securities owned by the Trust, held for the account of a
Fund, held either (i) by the Custodian, (ii) in a Securities
System account of the Custodian, or (iii) in the Custodian's
Direct Paper book entry system account ("Direct Paper System
Account") only upon receipt of Proper Instructions, which may be
continuing instructions when deemed appropriate by the parties,
and only in the following cases:
(1) Upon sale of such securities for the account of the Fund
and receipt of payment therefor;
<PAGE> 2
(2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered
into by the Trust;
(3) In the case of a sale effected through a Securities
System, in accordance with the provisions of Section 2.12
hereof;
(4) To the depository agent in connection with tender or
other similar offers for portfolio securities of the
Fund;
(5) To the issuer thereof or its agent when such securities
are called, redeemed, retired or otherwise become
payable; provided that, in any such case, the cash or
other consideration is to be delivered to the Custodian;
(6) To the issuer thereof, or its agent, for transfer into
the name of the Trust or into the name of any nominee or
nominees of the Custodian or into the name or nominee
name of any agent appointed pursuant to Section 2.11 or
into the name or nominee name of any subcustodian
appointed pursuant to Article 1; or for exchange for a
different number of bonds, certificates or other evidence
presenting the same aggregate face amount or number of
units; provided that, in such case, the new securities
are to be delivered to the Custodian and will be held by
the Custodian for the account of the Fund;
(7) To the broker selling the same for examination in
accordance with the "street delivery" custom;
(8) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization, reorganization,
or readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new
<PAGE> 3
securities and cash, if any, are to be delivered to the
Custodian and will be held by the Custodian for the
account of the Fund;
(9) In the case of warrants, rights or similar securities,
the surrender thereof in the exercise of such warrants,
rights or similar securities or the surrender of interim
receipts or temporary securities for definitive
securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian and will be held by the Custodian for the
account of the Fund;
(10) For delivery in connection with any loans of securities
made by the Trust from the Fund's portfolio, but only
against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Trust, which
may be in the form of cash or obligations issued by the
United States government, its agencies or
instrumentalities, except that in connection with any
loans for which collateral is to be credited to the
Custodian's account in the book-entry system authorized
by the U.S. Department of the Treasury, the Custodian
will not be held liable or responsible for the delivery
of securities owned by the Trust prior to the receipt of
such collateral;
(11) For delivery as security in connection with any
borrowings by the Trust requiring a pledge of assets in
the Fund's portfolio, but only against receipt of amounts
borrowed;
(12) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian and a broker-
dealer, relating to compliance with the rules of The
Options Clearing Corporation and of any registered
national securities exchange, or of any similar
<PAGE> 4
organization or organizations, regarding escrow or other
arrangements in connection with options transactions by
the Trust;
(13) For delivery in accordance with the provisions of any
agreement among the Trust, the Custodian, and a Futures
Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of
the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or
organizations, regarding account deposits in connection
with futures transactions by the Trust for the account of
the Fund;
(14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Trust, for delivery to such
Transfer Agent or to the holders of Shares of the Fund in
connection with distributions in kind, as may be
described from time to time in the Fund's currently
effective prospectus and statement of additional
information ("prospectus"), in satisfaction of requests
by holders of Shares of the Fund for repurchase or
redemption;
(15) For delivery in connection with any reverse repurchase
agreement entered into by the Trust with respect to the
Fund, but only against receipt for the account of the
Fund of the amount payable by the other party to the
agreement;
(16) For any other proper purpose, but only upon receipt of,
in addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees or of the Executive
Committee signed by an officer of the Trust and certified
by the Secretary or an Assistant Secretary, specifying
the securities to be delivered, setting forth the purpose
for which such delivery is to be made, declaring such
purposes to be proper purposes, and naming the person or
persons to whom delivery of such securities shall be
made; and
<PAGE> 5
(17) In the case of a sale effected through the Direct Paper
System of the Custodian, in accordance with the
provisions of Section 2.12.A hereof."
III. Section 2.8(1) is amended to read, in relevant part, as
follows:
"Payment of Trust Moneys. Upon receipt of Proper
Instructions, which may be continuing instructions when deemed
appropriate by the parties, the Custodian shall pay out Trust
moneys held in a Fund's account in the following cases only:
(1) Upon purchase of securities, options, futures contracts
or options on futures contracts for the account of the
Fund but only (a) against the delivery of such
securities, or evidence of title to such options, futures
contracts or options on futures contracts, to the
Custodian (or any bank, banking firm or trust company
doing business in the United States or abroad which is
qualified under the Investment Company Act of 1940, as
amended, to act as a custodian and has been designated by
the Custodian as its agent for this propose) registered
in the name of the Trust or in the name of a nominee of
the Custodian referred to in Section 2.3 hereof or in
proper form for transfer; (b) in the case of a purchase
effected through a Securities System, in accordance with
the conditions set forth Section 2.12 hereof; (c) in the
case of a purchase involving the Direct Paper System, in
accordance with the conditions set forth in Section
2.12.A; or (d) in the case of repurchase agreements
entered into between the Trust (on behalf of the Fund)
and the Custodian, or another bank, or a broker-dealer,
(i) against delivery of the securities either in
certificate form or through an entry crediting the
Custodian's segregated non-proprietary account
<PAGE> 6
at the Federal Reserve Bank with such securities or (ii)
against delivery of the receipt evidencing purchase by
the Trust of securities owned by the Custodian along with
written evidence of the agreement by the Custodian to
repurchase such securities from the Trust."
IV. Following Section 2.12, there is inserted a new Section
2.12.A to read as follows:
"2.12.A. Trust Assets held in the Custodian's Direct Paper
System. The Custodian may deposit and/or maintain securities
owned by the Trust, held for the account of a Fund, in the Direct
Paper System of the Custodian subject to the following provisions:
(1) No transaction relating to securities in the Direct Paper
System will be effected in the absence of Proper
Instructions;
(2) The Custodian may keep securities of the Fund in the
Direct Paper System only if such securities are
represented in an account ("Account") of the Custodian in
the Direct Paper System which shall not include any
assets of the Custodian other than assets held as a
fiduciary, custodian, or otherwise for customers;
(3) The records of the Custodian with respect to securities
of the Fund which are maintained in the Direct Paper
System shall identify by book-entry those securities
belonging to the Fund;
(4) The Custodian shall pay for securities purchased for the
account of the Fund upon the making of an entry on the
records of the Custodian to reflect such payment and
transfer of securities to the account of the Fund. The
Custodian shall transfer securities sold for the account
of the Fund upon the making of an entry on the
<PAGE> 7
records of the Custodian to reflect such transfer and
receipt of payment for the account of the Fund;
(5) The Custodian shall furnish the Trust confirmation of
each transfer to or from the account of the Fund, in the
form of a written advice or notice, of Direct Paper on
the next business day following such transfer and shall
furnish to the Trust copies of daily transaction sheets
reflecting each day's transactions in the Securities
System for the account of the Fund; and
(6) The Custodian shall provide the Trust with any report on
its system of internal accounting controls as the Trust
may reasonably request from time to time."
V. Section 9 is hereby amended to read as follows:
"Effective Period, Termination and Amendment. This Contract
shall become effective as of its execution, shall continue in full
force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and
may be terminated by either party by an instrument in writing
delivered or mailed, postage prepaid to the other party, such
termination to take effect not sooner than thirty (30) days after
the date of such delivery or mailing; provided, however that the
Custodian shall not act under Section 2.12 hereof in the absence
of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees of the Trust has
approved the initial use of a particular Securities System and the
receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Board of Trustees has reviewed the use by the
Trust of such Securities system, as required in each case by Rule
17f-4 under the Investment Company Act of 1940, as amended, and
that the Custodian shall not act under Section 2.12.A hereof in
the absence of receipt of an initial certificate of
<PAGE> 8
the Secretary or an Assistant Secretary that the Board of Trustees
has approved the initial use of the Direct Paper System and the
receipt of an annual certificate of the Secretary or an Assistant
Secretary that the Board of Trustees has reviewed the use by the
Trust of the Direct Paper System; provided further, however, that
the Trust shall not amend or terminate this Contract in
contravention of any applicable federal or state regulations, or
any provision of its Agreement and Declaration of Trust, and
further provided, that the Trust may at any time by action of its
Board of Trustees (i) substitute another bank or trust company for
the Custodian by giving notice as described above to the
Custodian, or (ii) immediately terminate this Contract in the
event of the appointment of a conservator or receiver for the
Custodian by the Comptroller of the Currency or upon the happening
of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Trust shall pay to the
Custodian such compensation as may be due as of the date of such
termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements."
Except as otherwise expressly amended and modified herein,
the provisions of the Custodian Contract shall remain in full
force and effect.
IN WITNESS WHREOF, each of the parties hereto has caused this
amendment to be executed in its name and on its behalf by its duly
authorized representatives and its Seal to be hereto affixed as of
the 29th day of October, 1992.
STEINROE INVESTMENT TRUST
By: LAWRENCE R. MAFFIA
ATTEST: Senior Vice-President
JILAINE HUMMEL BAUER
Secretary
STATE STREET BANK AND TRUST COMPANY
BY: MAUREEN L. CORCORAN
Vice President
ATTEST:
CHRISTINE MARTIN
Assistant Secretary
<PAGE>
[STATE STEET LOGO]
Stein Roe & Farnham Funds
STEINROE INCOME TRUST
SteinRoe Cash Reserves
SteinRoe Government Reserves
SteinRoe Government Income Fund
SteinRoe Intermediate Bond Fund
SteinRoe Income Fund
SteinRoe Limited Maturity Income Fund
STEINROE INVESTMENT TRUST
SteinRoe Prime Equities
SteinRoe Total Return Fund
SteinRoe Stock Fund
SteinRoe Special Fund
SteinRoe Capital Opportunities Fund
SteinRoe International Fund
SteinRoe Young Investors Fund
STEINROE MUNICIPAL TRUST
SteinRoe Municipal Money Market Fund
SteinRoe Intermediate Municipals
SteinRoe Managed Municipals
SteinRoe High-Yield Municipals
A Custody only service has been established between Stein Roe &
Farnham on behalf of the SteinRoe Funds and State Street Bank. This
fee schedule will become effective upon the change from a Full Service
to a Custody only relationship for each individual fund. The
effective dates for each fund are as follows:
March 8, 1994 SteinRoe International Fund (7123) New Fund
April 1, 1994 SteinRoe Stock Fund (7103)
SteinRoe Capital Opportunities Fund (7104)
SteinRoe Total Return Fund(7105)
SteinRoe Special Fund (7106)
SteinRoe Prime Equities (7111)
May 1, 1994 SteinRoe Cash Reserves (7102)
SteinRoe Government Reserves (7109)
SteinRoe Young Investors Fund (7124) New Fund
June 1, 1994 SteinRoe Income Fund (7118)
SteinRoe Limited Maturity Income Fund (7122)
July 1, 1994 SteinRoe Government Income Fund (7116)
The remaining five SteinRoe funds will continue to be billed under the
old fee schedule until their conversion to custody only service.
*Notes* Outgoing wires will continue to be billed at $3.50. This
will remain in effect until November, 1994.
Payments for custody services are due 15 days after receipt of
the invoices and will be charged against the fund's custodian checking
account. In the event SRF has a question on an invoice, payment is
due 5 days after inquiries are responded to.
Stein Roe & Farnham State Street Bank and Trust
GARY A. ANETSBERGER KEVIN J. MORRISSEY
Senior Vice President Vice President
8/15/94 8/4/94
<PAGE>
[STATE STREET LOGO]
STATE STREET BANK AND TRUST COMPANY
CUSTODIAN FEE SCHEDULE
STEINROE INCOME TRUST
STEINROE INVESTMENT TRUST
STEINROE MUNICIPAL TRUST
STEINROE VARIABLE INVESTMENT TRUST
I. ADMINISTRATION
Domestic Custody Service: Maintain custody of fund assets. Settle
portfolio purchases and sales. Report buy and sell fails. Determine
and collect portfolio income. Make cash disbursements and report cash
transactions. Monitor corporate actions. Report portfolio positions.
ANNUAL FEES
Based on the Total Domestic Assets of LFC Utilities Trust, the
SteinRoe No-Load Funds and the SteinRoe Variable Investment Trust
Funds for which State Street Bank and Trust is custodian. Fees to be
pro-rated per portfolio.
First $5 Billion .75 Basis points
Next $5 Billion .65 Basis points
Excess .55 Basis points
Monthly Minimum for New Funds introduced after July 1, 1994
$750.00 per month
II. GLOBAL CUSTODY
Maintain custody of fund assets. Settle portfolio purchases and
sales. Report buy and sell fails. Determine and collect portfolio
income Make cash disbursements and report cash transactions in local
and base currency. Withhold foreign taxes. File foreign tax
reclaims. Monitor corporate actions. Report portfolio positions.
<PAGE>
Group A Group B Group C Group D Group E
- ------- ------- ------- ------- -------
Austria Australia Denmark Indonesia Argentina
Belgium Hong Kong Finland Philippines Bangladesh
Canada Netherlands France Portugal Brazil
Euroclear New Zealand Ireland Korea Chile
Germany Singapore Italy Spain China
Japan South Africa Luxembourg Sri-Lanka Columbia
Switzerland Malaysia Sweden Cypress
Mexico Taiwan Greece
Norway Hungary
Thailand India
U.K. Israel
Pakistan
Peru
Turkey
Uruguary
Venezuela
A. Asset Charge: (basis points) - based on market value in each
country
Group A Group B Group C Group D Group E
------- ------- ------- ------- -------
First $50 Million 5 8 12 25 40
Next $ 50 Million 4.5 6 10 22 30
Over $100 Million 4 5 8 18 25
B. Global Transaction Charges: (in dollars)
$25.00 $40.00 $55.00 $70.00 $150.00
III. PORTFOLIO TRANSACTIONS
State Street Bank Repos No charge
DTC or Fed Book Entry $9.00
New York Physical Settlements $25.00
Physical Maturities - delivery and collection fees $33.00
PTC Purchase, Sale, Deposit or Withdrawal $9.00
All Other Trades $16.00
<PAGE>
IV. OPTIONS
Option charge for each option written or
closing contract, per issue, per broker $25.00
Option expiration for each option written or
closing contract, per issues, per broker $15.00
Option exercised charge for each option written,
per issue, per broker $15.00
V. LENDING OF SECURITIES
Deliver loaned securities versus cash collateral $20.00
Deliver loaned securities versus securities collateral $30.00
Receive/deliver additional cash collateral $ 6.00
Substitutions of securities collateral $30.00
Deliver cash collateral versus receipt of loaned
securities $15.00
Deliver securities collateral versus receipt of
loaned securities $25.00
Loan administration - mark-to-market per day,
per loan $ 3.00
VI. FUTURES AND NON-EQUITY OPTIONS
Collateral Segregation $ 6.00
VII. COUPON BONDS
Monitoring for calls and processing coupons for
each coupon issue held--monthly charge $ 5.00
<PAGE>
VIII. PRINCIPAL REDUCTION PAYMENTS
Per pay down $ 7.00
IX. DIVIDEND CHARGES
For items held at the Request of Traders over
record date in Street Form $50.00
X. FDIC INSURANCE
22 basis points on average gross balances.
XI. BALANCE CREDIT
A balance credit will be applied against the fees outlines in
sections I through X above equal to 75% of the 90 Treasury Bill Rate
in effect on the last Monday of the month, adjusted to a monthly
basis, times the average daily domestic cash balance available to the
fund for investment.
XII. SPECIAL SERVICES
Fees for activities of a non-recurring nature such as fund
consolidations or reorganizations, extraordinary security shipments
and the preparation of special reports will be subject to negotiation.
Fees for automated pricing, yield calculation and other special items
will be negotiated separately.
<PAGE>
XIII. OUT-OF-POCKET EXPENSES
A billing for the recovery of applicable out-of-pocket expenses
will be made as of the end of each month. Out-of-pocket expenses
include, but are not limited to the following:
- Telephone
- Wire Charges ($5.25 in and $5 out)
- Postage and Insurance
- Courier Service
- Duplicating
- Legal Fees
- Supplies Related to Fund Records
- Rush Transfer ($8 each)
- Sub-custodian Charges
- Price Waterhouse Audit Letter
- Federal Reserve Fee for Return
Check items over $2,500 ($4.25 each)
- Securities Transfer - $15.00 Each
XIV. PAYMENT
The above fees will be charged against the fund's custodian
checking account fifteen (15) days after the invoice is mailed to the
fund's offices.
STEINROE INCOME TRUST STATE STREET BANK AND TRUST COMPANY
STEINROE INVESTMENT TRUST
STEINROE MUNICIPAL TRUST
STEINROE VARIABLE INVESTMENT TRUST
By: GARY A. ANETSBERGER BY: KEVIN J. MORRISSEY
Title: Senior Vice-President Title: Vice President
Date: 5/8/95 Date: May 4, 1995
<PAGE> 1
Exhibit 9(a)
RESTATED AGENCY AGREEMENT
This agreement, effective this 1st day of August, 1995,
amends and restates (a) the agreement dated December 31, 1987,
as amended by amendments dated May 1, 1995, July 29, 1992,
February 1, 1991, and August 1, 1988 (the "Agreement") by and
between STEINROE MUNICIPAL TRUST, a Massachusetts business
trust, and STEINROE SERVICES INC. (hereinafter referred to as
"SSI"), a Massachusetts corporation and (b) the agreement
dated February 11, 1986, as amended by amendments dated May 1,
1995, July 29, 1992, February 1, 1991, August 1, 1988, and
March 3, 1987, among STEINROE INCOME TRUST and STEINROE
INVESTMENT TRUST, each a Massachusetts business trust, and
SSI. [SteinRoe Municipal Trust, SteinRoe Income Trust, and
SteinRoe Investment Trust are referred to hereinafter
individually as a "Trust" and collectively as the "Trusts."]
WITNESSETH:
1. APPOINTMENT. Each Trust hereby appoints SSI,
effective as of the date hereof, as its agent in connection
with the issue, redemption, and transfer of shares of
beneficial interest of the Trust, including shares of each
respective series of the Trust (hereinafter called the
"Shares"), and to process investment income and capital gain
distributions with respect to such Shares, to perform certain
duties in connection with the Trust's withdrawal and other
plans, to mail proxy and other materials to the Trust's
shareholders upon the terms and conditions set forth herein,
and to perform such other and further duties as are agreed
upon between the parties from time to time.
2. ACKNOWLEDGMENT. SSI acknowledges that it has
received from each Trust the following documents:
A. A certified copy of the Agreement and Declaration of
Trust and any amendments thereto;
B. A certified copy of the By-Laws of Trust;
C. A certified copy of the resolution of its Board of
Trustees authorizing this Agreement;
D. Specimens of all forms of Share certificates as
approved by its Board of Trustees with a statement
of its Secretary certifying such approval;
E. Samples of all account application forms and other
documents relating to shareholders accounts,
including terms of its Systematic Withdrawal Plan;
F. Certified copies of any resolutions of the Board of
Trustees authorizing the issue of authorized but
unissued Shares;
G. An opinion of counsel for the Trust with respect to
the validity of the Shares, the status of
repurchased Shares and the number of Shares
<PAGE> 2
with respect to which a Registration Statement has
been filed and is in effect;
H. A certificate of incumbency bearing the signatures of
the officers of the Trust who are authorized to sign
Share certificates, to sign checks and to sign
written instructions to SSI.
3. ADDITIONAL DOCUMENTATION. Each Trust will also furnish
SSI from time to time with the following documents:
A. Certified copies of each amendment to its Agreement
and Declaration of Trust and By-Laws;
B. Each Registration Statement filed with the Securities
and Exchange Commission and amendments thereto with
respect to its Shares;
C. Certified copies of each resolution of the Board of
Trustees authorizing officers to give instructions
to SSI;
D. Specimens of all new Share certificates accompanied
by certified copies of Board of Trustees resolutions
approving such forms;
E. Forms and terms with respect to new plans that may be
instituted and such other certificates, documents or
opinions that SSI may from time to time, in its
discretion, deem necessary or appropriate in the
proper performance of its duties.
4. AUTHORIZED SHARES. Each Trust certifies to SSI that,
as of the date of this Agreement, it may issue unlimited
number of Shares of the same class in one or more series as
the Board of Trustees may authorize. The series authorized as
of the date of this Agreement are listed in Schedule B.
5. REGISTRATION OF SHARES. SSI shall record issuances
of Shares based on the information provided by each Trust.
SSI shall have no obligation to a Trust, when countersigning
and issuing Shares, whether evidenced by certificates or in
uncertificated form, to take cognizance of any law relating to
the issuance and sale of Shares, except as specifically agreed
in writing between SSI and the Trusts, and shall have no such
obligation to any shareholder except as specifically provided
in Sections 8-205, 8-208 and 8-406 of the Uniform Commercial
Code. Based on data provided by each Trust of Shares
registered or qualified for sale in various states, SSI will
advise the Trusts when any sale of Shares to a resident of a
state would result in total sales in that state in excess of
the amount registered or qualified in that state.
6. SHARE CERTIFICATES. Each Trust shall supply SSI with
a sufficient supply of serially pre-numbered blank Share
certificates, which shall contain the appropriate series
designation, if applicable. Such blank certificates shall be
properly prepared and signed by authorized officers of Trust
manually or, if authorized by Trust, by facsimile and shall
bear the seal of Trust or a facsimile thereof. Notwithstanding
the death, resignation, or removal of any officer authorized to
sign
<PAGE> 3
certificates, SSI may continue to countersign certificates
which bear the manual or facsimile signature of such officer
as directed by Trust.
7. CHECKS. Each Trust shall supply SSI with a
sufficient supply of serially pre-numbered blank checks for
the dividend bank accounts and for the principal bank accounts
of Trust. SSI shall prepare and sign by facsimile signature
plates, bearing the facsimiles of the signatures of authorized
signatories, dividend account checks for payment of ordinary
income dividends and capital gain distributions and principal
account checks for payment of redemptions of Shares, including
those in connection with the Trusts' Withdrawal Plans, refunds
on subscriptions and other capital payments on Shares, in
accordance with this Agreement. SSI shall hold signature
facsimile plates for this purpose and shall exercise
reasonable care in their transportation, storage or use. SSI
may deliver such signature facsimile plates to an agent or
contractor to perform the services described herein, but shall
not be relieved of its duties hereunder by any such delivery.
8. RECORDKEEPING. SSI shall maintain records showing
for each shareholder's account in the appropriate series of
each Trust, the following information and such other
information as may be mutually agreed to from time to time by
the Trusts and SSI:
A. To the extent such information is provided by
shareholders: name(s), address, alphabetical sort
key, client number, tax identification number,
account number, the existence of any special service
or transaction privilege offered by the Trust and
applicable to the shareholder's account including
but not limited to the telephone exchange privilege,
and other similar information;
B. Number of Shares held;
C. Amount of accrued dividends;
D. Information for the current calendar year regarding
the account of the shareholder, including
transactions to date, date of each transaction,
price per share, amount and type of each purchase
and redemption, transfers, amount of accrued
dividends, the amount and date of all distributions
paid, price per share, and amount of all
distributions reinvested;
E. Any stop order currently in effect against the
shareholder's account;
F. Information with respect to any withholding for the
calendar year as required under applicable Federal
and state laws, rules and regulations;
G. The certificate number and date of issuance of each
Share certificate outstanding, if any, representing
a shareholder's Shares in each account, the number
of Shares so represented, and any stop legend on
each certificate;
<PAGE> 4
H. Information with respect to gross proceeds of all
sales transactions as required under applicable
Federal income tax laws, rules and regulations; and
I. Such other information as may be agreed upon by the
Trusts and SSI from time to time.
SSI shall maintain for any account that is closed
("Closed Account") the aforesaid records through the June of
the calendar year following the year in which the account is
closed or such other period as may be mutually agreed to from
time to time by such Trust and SSI.
9. ADMINISTRATIVE SERVICES. SSI shall furnish the
following administrative services to each Trust:
A. Coordination of the printing and dissemination of
Prospectuses, financial reports, and other
shareholder information as are agreed to by SSI and
the Trust from time to time.
B Maintenance of data and statistics and preparation of
reports for internal use and for distribution to the
Board of Trustees concerning shareholder transaction
and service activity.
C. Handling of requests from third parties involving
shareholder records, including, but not limited to,
record subpoenas, tax levies, and orders issued by
courts or administrative or regulatory agencies.
D. Development and monitoring of shareholder service
programs that may be offered from time to time,
including, but not limited to, individual retirement
account and tax-qualified retirement plan programs,
checkwriting redemption privileges, automatic
purchase, exchange and redemption programs, audio
response services, programs involving electronic
transfer of funds, and lock box facilities.
E. Provision of facilities, hardware and software
systems, and equipment in Chicago (and other
locations mutually agreed to by SSI and the Trusts)
to meet the needs of shareholders and prospective
shareholders, including, but not limited to, walk-in
facilities, toll-free telephone numbers, electronic
audio and other communication, accounting and
recordkeeping systems to handle shareholder
transaction, inquiry and other activity, and to
provide management and other personnel required to
staff such facilities and administer such systems.
10. SHAREHOLDER SERVICES. SSI shall provide the
following services as are requested by a Trust in addition to
the transactional and recordkeeping services provided for
elsewhere herein:
A. Responding to communications from shareholders or
their representatives or agents concerning any
matters pertaining to shares
<PAGE> 5
registered in their names, including, but not
limited to, (i) net asset value and average cost
basis information; (ii) shareholder services, plans,
options, and privileges; and (ii) with respect to
the series of the Trust represented by such shares,
information concerning investment policies,
portfolio holdings, performance, and shareholder
distributions and the classification thereof for tax
purposes.
B. Handling of shareholder complaints and correspondence
directed to or brought to the attention of SSI.
C. Soliciting and tabulating proxies of shareholders and
answering questions concerning the subject matter
thereof.
D. Under the direction of the officers of the Trust,
administering a program whereby shareholders whose
mail from the Trust is returned are identified,
current address information for such shareholders is
solicited, and shares and dividend or redemption
proceeds owned by shareholders who cannot be located
are escheated to the proper authorities in
accordance with applicable laws and regulations.
E. Preparing and disseminating special data, notices,
reports, programs, and literature for certain
categories of shareholders based on account
characteristics, or for shareholders generally in
light of industry, market, product, tax, or legal
developments.
F. Assisting any institutional servicing or
recordkeeping agent engaged by SSI and approved by
the Trust in the development, implementation, and
maintenance of special programs and systems to
enhance overall shareholder servicing capability,
consisting of:
(i) Product and system training for personnel of
the institutional servicing agent.
(ii) Joint programs with the institutional servicing
agent to develop customized shareholder
software systems, account statements, and other
information and reports.
(iii) Electronic and telephonic systems and other
technological means by which shareholder
information, account data, and cost of
securities may be exchanged among SSI, the
institutional servicing agent, and their
respective agents or vendors.
G. Furnishing sub-accounting services for retirement
plan shareholders and other shareholders
representing group relationships with special
recordkeeping needs.
H. Providing and supervising the services of employees
whose principal responsibility and function will be
to preserve and strengthen the Trust's relationships
with its shareholders.
I. Such other shareholder and shareholder-related
services, whether similar to or different from those
described in this section as the parties may from
time to time agree in writing.
<PAGE> 6
11. PURCHASES. Upon receipt of a request for purchase
of Shares containing data required by a Trust for processing
of a purchase transaction, SSI will:
A. Compute the number of Shares of the appropriate
series of the Trust to which the purchaser is
entitled and the dollar value of the transaction
according to the price of such Shares as provided by
the Trust for purchases made at that time and date;
B. In the case of a new shareholder, establish an
account for the shareholder, including the
information specified in Section 8 hereof; in the
case of an Exchange as described in Section 14 below
by telephone or telegraph, the account shall have
exactly the same registration as that of the account
of the other series of the Trust or any other series
of another Trust from which the Exchange was made;
C. Transmit to the shareholder by mail or electronically
a confirmation of the purchase, as directed by the
Trust, in such format as agreed to by SSI and the
Trusts, including all information called for
thereby, and, in the case of a purchase for a new
account, shall also furnish the shareholder a
current Prospectus of the applicable series;
D. If applicable, prepare a refund check in the amount
of any overpayment of the subscription price and
deliver it to the Trust for signing; and
E. If a certificate is requested by the shareholder,
prepare, countersign, issue and mail, not earlier
than 30 days after the date of purchase, to the
shareholder at his address of record a Share
certificate for such full Shares purchased.
12. REDEMPTIONS. Instructions to redeem Shares of any
series of a Trust, including instructions for an Exchange as
described in Section 14 below, may be furnished in written
form, or by other means, including but not limited to
telephonic or electronic transmission or by writing a special
form of check, as may be mutually agreed to from time to time
by each Trust and SSI. Upon receipt by SSI of instructions to
redeem which are in "good order," as defined in the Prospectus
of the applicable series and satisfactory to SSI, SSI will:
A. Compute the amount due for the Shares and the total
number of all the Shares redeemed in accordance with
the price per Share as provided by the Trust for
redemptions of such Shares at that time and date,
and transmit to the shareholder by mail or
electronically a confirmation of the redemption, as
directed by the Trust, in such format as agreed to
by SSI and the Trust, including all information
called for thereby;
B. Confirmations of redemptions that result in the
payment of accrued dividends shall indicate the
amount of such payment and any amounts withheld;
<PAGE> 7
C. In the case of a redemption in written form other
than by Exchange, SSI shall transmit to the
shareholder by check or, as may be mutually agreed
to by the Trust and SSI and requested by the
shareholder, electronic means, an amount equal to
the redemption price and any payment of accrued
dividends occasioned by the redemption, net of any
amounts withheld under applicable Federal and state
laws, rules and regulations on or before the seventh
calendar day following the date on which
instructions to redeem in "good order" as defined in
the Prospectus of the applicable series, which
instructions are satisfactory to SSI as received by
SSI. In the case of an Exchange, SSI shall use the
proceeds of the redemption, net of any amounts
withheld under applicable Federal and state laws,
rules and regulations, to purchase Shares of any
other series of the Trust or any other series of
another Trust selected by the person requesting the
Exchange;
D. In the case of Exchanges by telephone or telegraph,
redemptions by telephone or electronic transmission
and redemptions by writing a special form of check,
SSI shall deliver to the Trust, on the business day
following the effective date of such transaction, a
listing of such transaction data in a format agreed
to by the Trusts and SSI from time to time;
E. If any Share certificate or instruction to redeem
tendered to SSI is not satisfactory to SSI, it shall
promptly notify the Trust of such fact together with
the reason therefor;
F. SSI shall cancel promptly Share certificates received
in proper form for redemption and issue, countersign
and mail new Share certificates for the Shares
represented by certificates so cancelled which are
not redeemed;
G. SSI shall advise the Trust and refuse to process any
redemption by electronic transmission or Exchange by
telephone or telegraph or redemptions by writing a
special form of check, if such transaction would
result in the redemption of Shares represented by
outstanding certificates, unless otherwise
instructed by an officer of the Trust.
13. ADMINISTRATION OF WITHDRAWAL PLANS. A redemption
made pursuant to a Withdrawal Plan offered by the Trusts shall
be effected by SSI at the net asset value per Share of the
appropriate series of the Trust on the twentieth day or the
next business day of the month in which the recipient is
scheduled to receive the withdrawal payment. SSI shall
prepare and mail to the recipient on or before the seventh
calendar day after the date of redemption a check in the
amount of each required payment, net of any amounts withheld
under applicable Federal and state laws, rules and
regulations, and also furnish the shareholder a confirmation
of the redemption as described in Section 12 above.
14. EXCHANGES. Upon receipt by SSI of a request to
exchange Shares of a series of a Trust held in a shareholder's
account for those of any other series of the
<PAGE> 8
Trust or any other series of another Trust or vice versa in
written form, by telephone or telegraph or by other electronic
means, containing data required by the Trust for processing
such a transaction, SSI will:
A. If the request is by telephone, telegraph or other
electronic means, verify that the shareholder has
furnished both the series of a Trust from and to
which the Exchange is to be made authorization, in a
form acceptable to such Trust, to accept Exchange
instructions for his account by such means.
B. Process a redemption of the Shares of the series of
the Trust to be redeemed in connection with the
Exchange and apply the proceeds thereof, net of any
amounts withheld under applicable Federal and state
laws, rules and regulations, to purchase shares of
any other series of the Trust or any other series of
another Trust being acquired in accordance with the
respective Trust's redemption and purchase policies
and Sections 11 and 12 of this Agreement.
Any redemption and purchase pursuant to an Exchange shall
be effected as of the time and prices applicable to an order
for redemption or purchase received at the time the request
for Exchange is received.
15. TRANSFER OF SHARES. Upon receipt by SSI of a
request for a transfer of Shares of any series of a Trust, and
receipt of a Share certificate for transfer or an order for
the transfer of Shares in the case of an uncertificated
account, in either case with such endorsements, instruments of
assignment or evidence of succession as may be required by SSI
and accompanied by payment of such transfer taxes, if any, as
may be applicable, and satisfaction of any other conditions
for registration of transfers contained in the Trust's By-
Laws, Prospectuses, and Statements of Additional Information,
SSI will verify the balance of Shares of such series of the
Trust in the account; record the transfer of ownership of such
Shares in its Share certificate and shareholder records for
such series; cancel Share certificates for Shares surrendered
for transfer; establish an account pursuant to Section 8 for
the transferee if a new shareholder; prepare, countersign and
mail new Share certificates for a like number of Shares in the
case of a certificated account; and transmit to the
shareholder by mail or electronically confirmation of the
transfer for each account affected, in a format agreed to by
SSI and the Trust, including all information called for
thereby. SSI shall be responsible for determining that
certificates, orders for transfer, and supporting documents,
if any, are in proper legal form for the transfer of Shares.
16. CHANGES IN SHAREHOLDER RECORDS. Changes in items of
information specified in Section 8 not relating to change in
ownership of Shares will be made by SSI upon receipt of a
request for such change in a format agreed to by SSI and the
Trusts. In the case of any change that SSI and the Trusts
agree requires confirmation, a confirmation of such change in
a format agreed to by SSI and the Trusts shall be transmitted
to the shareholder by mail or electronically.
<PAGE> 9
17. REFUSAL TO REDEEM OR TRANSFER. SSI reserves the
right to refuse to redeem or transfer Shares until reasonably
satisfied that the endorsement on the Share certificates or
written request presented is valid and genuine, and for such
purpose may require where reasonably necessary or appropriate
a guarantee of signature. SSI also reserves the right to
refuse to redeem or transfer Shares until satisfied that the
requested transfer or redemption is legally authorized, and it
shall incur no liability for the refusal in good faith to make
transfers or redemptions which it, in its judgment, deems
improper or unauthorized. Notwithstanding the foregoing, SSI
shall redeem or transfer Shares even though not satisfied as
to the endorsement or legal authority if it is first
indemnified to its reasonable satisfaction against all
expenses and liabilities to which it might, in its judgment,
be subjected by such action.
18. DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. Each
Trust will promptly inform SSI of the declaration of any
dividend or other distribution with respect to Shares of any
series of the Trust, including the amount of distribution, the
amount of withholding under applicable Federal and state laws,
rules and regulations, if any, dividend number, if any, record
date, ex-dividend date, payable date and price at which
dividends or other distributions are to be reinvested.
In the case of any series of a Trust for which dividends
shall be declared daily and paid monthly or quarterly, SSI
will credit the dividend payable to each shareholder thereof
to a dividend account of the shareholder and will provide the
Trust on each business day with reports of the total amount of
dividends credited and such other data as are agreed upon by
the Trust and SSI. Promptly after the payable date for the
Trust, SSI will provide the Trust with reports showing the
accounts which have been paid a dividend or other
distribution, the amount received by each account, the amount
withheld as required under applicable Federal and state laws,
rules and regulations, if any, the amount of the dividend or
distribution paid in cash or reinvested in Shares, and the
total amount of cash and Shares required for payment of the
dividend or other distribution.
In the case of each other series of the Trust, SSI will
provide the Trust promptly following the record date therefor
with reports of the total amount of dividends payable with
respect thereto and such other data as are agreed to by the
Trusts and SSI. Promptly after the payable date therefor, SSI
will provide the Trust with reports showing the accounts which
are to be paid a dividend or other distribution, the amount to
be received by each account, the amount to be withheld as
required under applicable Federal and state laws, rules and
regulations, if any, whether such dividend or distribution is
to be paid in cash or reinvested in Shares, and the total
amount of cash and Shares required for the payment of such
dividend or distribution.
At times agreed to by the Trusts and SSI, SSI will
transmit by mail or electronically to shareholders the
proceeds of such dividend or other distribution and
confirmation thereof. Where distributions are reinvested, the
price and date of reinvestment will be those supplied by the
Trusts. Confirmations will be prepared by SSI in a format
agreed to by SSI and the Trusts.
<PAGE> 10
19. WITHHOLDING. Under applicable Federal and state
laws, rules and regulations requiring withholding from
dividends and other distributions and payments to
shareholders, SSI shall be responsible for determining the
amount to be withheld and the Trusts shall forward that amount
to SSI, which will deposit said amount with, and report said
amount to, the proper governmental agency as required
thereunder. Liability for any amounts withheld, whether or
not actually withheld, and for any penalties which may be
imposed upon the payor for failure to withhold, report, or
deposit the proper amount, and for any interest due on said
amount, shall be borne by the Trusts and SSI as provided in
Section 37 hereof.
Upon receipt of a certificate from a shareholder
pertaining to withholding (including exemptions therefrom)
containing such information as required by a Trust of the
shareholder under applicable Federal and state laws, rules and
regulations, SSI shall promptly process the certificate, which
shall become effective as soon as reasonably possible after
receipt by SSI, but no later than may be required by
applicable Federal and state laws, rules and regulations.
At the time a shareholder account is established with a
Trust, the Trust shall be responsible for (i) soliciting the
shareholder's tax identification number in the manner and form
required under applicable Federal and state laws, rules and
regulations; (ii) identifying and rejecting an obviously
incorrect number (as defined under applicable Federal and
state laws, rules and regulations) and (iii) furnishing to SSI
the number and any related information provided by or on
behalf of the shareholder. SSI shall be responsible for any
subsequent communications to the shareholder that may be
required in this regard.
In the case of withholding an amount in excess of the
proper amount from a payment made by or on behalf of a Trust
to a shareholder except as otherwise provided by applicable
Federal and state laws, rules and regulations, SSI, at the
direction of the Trust, shall immediately adjust the
shareholder's account, as well as succeeding deposits;
provided, however, that when an adjustment would result in an
adjustment across calendar years, SSI shall not be required to
make such adjustment.
In the case of (i) a failure to withhold the proper
amount from a dividend or other distribution or payment made
by or on behalf of any series of a Trust to a shareholder or
(ii) any penalties attributable to (a) a failure to withhold
the proper amount or (b) the shareholder's failure to provide
the Trust or SSI with correct information requested in order
to comply with withholding requirements under applicable
Federal and state laws, rules and regulations, SSI, at the
direction of the Trust, shall immediately cause the redemption
of Shares from the shareholder's account with such series
having a value not exceeding the sum of such deficit amount
and applicable penalties and apply the proceeds to reimburse
whomever has borne the expense resulting from the
shareholder's failure. If the value of the Shares in the
shareholder's account with the series is less than the sum of
the deficit amount and applicable penalties, SSI may cause the
redemption of Shares having a value not exceeding such
difference from any account, including a joint
<PAGE> 11
account, of the shareholder with any other series of the Trust
or any other series of another Trust, subject to the consent
of the other Trust, and apply the proceeds to reimburse
whoever has borne the expense resulting from the shareholder's
failure.
20. MAILINGS. SSI shall take all steps required,
including the addressing of envelopes, to make the following
additional mailings to shareholders:
A. SSI shall mail financial reports furnished by each
series of a Trust to shareholders as requested and
will mail the current Prospectus for each series of
the Trust to shareholders of such series once each
year;
B. SSI shall mail to shareholders of each series of a
Trust proxy material for each duly scheduled meeting
of shareholders of that series;
C. SSI shall include in any of the above mailings such
other enclosures as are compatible for mailing
purposes as reasonably requested by the Trusts;
D. SSI shall make such other mailings upon such terms
and conditions and for such fees as are agreed to by
SSI and each Trust from time to time.
The Trusts shall deliver all material required to be
furnished to SSI for any scheduled mailing sufficiently in
advance of the date for such mailing, so that SSI may effect
the scheduled mailing.
21. TAX INFORMATION RETURNS AND REPORTS. SSI will
prepare and file with the appropriate governmental agencies,
such information, returns and reports as are required to be so
filed for reporting (i) dividends and other distributions
made, (ii) amounts withheld on dividends and other
distributions and payments under applicable Federal and state
laws, rules and regulations, and (iii) gross proceeds of sales
transactions as required and as the Trusts shall direct SSI.
Further, SSI shall prepare and deliver to the Trusts reports
showing amounts withheld from dividends and other
distributions and payments made for each series of the Trusts.
22. INFORMATION TO BE FURNISHED TO SHAREHOLDERS. SSI
will prepare and transmit to each shareholder of each Trust
annually in such format as is reasonably requested by the
Trust, and as agreed to by SSI, information returns and
reports for reporting dividends and other distribution and
payments, amounts withheld, if any, and gross proceeds of
sales transactions as required under applicable Federal and
state laws, rules and regulations.
23. STOP ORDERS. Upon receipt of a request from a Trust
or a shareholder that a "stop" should be placed on the
shareholder's account, SSI will maintain a record of such
"stop" and notify the Trust if any transaction request is
received from a shareholder which would reduce the number of
Shares in an account on which a "stop" has been placed. SSI
will inform the Trusts of any information SSI receives
relating to a "stop." SSI shall also maintain for the Trusts
the record of share certificates on which a "stop" has been
placed, it being understood that a
<PAGE> 12
certificate "stop" does not mean a "stop" on the shareholder's
entire account to which a certificate may relate.
24. SHARE SPLITS AND SHARE DIVIDENDS. If a Trust elects
to declare a Share dividend or split for any series, the
services and fees with respect thereto will be negotiated by
the Trust and SSI.
25. REPLACEMENT OF SHARE CERTIFICATES. SSI may issue a
new Share certificate in place of a Share certificate
represented as not having been received or as having been
lost, stolen, seized or destroyed, upon receiving instructions
from a Trust and indemnity satisfactory to SSI, and may issue
a new Share certificate in exchange for, and upon surrender
of, an identifiable mutilated Share certificate. Such
instructions from the Trust shall be in such form as has been
approved by its Board of Trustees and shall be in accordance
with the provisions of its By-Laws governing such matters.
26. UNCLAIMED AND UNDELIVERED SHARE CERTIFICATES. Where
a Share certificate is in the possession of SSI for any
reason, and has not been claimed by the record holder or
cannot be delivered to the record holder, SSI shall cancel
said certificate and reflect as uncertificated Shares on the
shareholder's account record the Shares represented by said
cancelled certificate.
27. REPORTS AND FILES. SSI shall maintain the files and
furnish the statistical and other information listed on
Schedule C. However, SSI reserves the right to delete, change
or add to the files maintained and information provided so
long as such deletions, additions or changes do not impair the
receipt of services described elsewhere in this Agreement.
SSI shall also use its best efforts to obtain such additional
statistical and other information as the Trusts may reasonably
request within the capabilities of SSI, for such additional
consideration as may be agreed to by SSI and the Trusts.
28. EXAMINATION OF DAILY TRANSACTIONS. The Trusts will
examine reports reflecting each day's transactions and other
data delivered to it for the accuracy of the transactions
reflected therein and failure to reflect transactions that
should have been reflected therein. If SSI has not received
from a Trust, within five (5) business days after delivery of
such reports to the Trust, written notice, which may be in the
form of an appropriate transaction instruction submitted by
the Trust for the purpose of correcting the error or omission,
as to any errors or omissions which a reasonable inspection
and normal audit and control procedure would reveal, then all
transactions reflected in such reports shall be deemed to be
correct and accepted by the Trust, and SSI shall have no
further responsibility for the omission from or correction,
deletion, or inclusion of any transaction reflected or which
should have been reflected therein, or any liability to the
Trust or any third person on account of such error or
omission.
29. DISPOSITION OF BOOKS, RECORDS, AND CANCELLED SHARE
CERTIFICATES. SSI will periodically send to each Trust all
books, documents, and records of the Trust no longer needed
for current purposes and Share certificates which have been
<PAGE> 13
cancelled in transfer or in redemption; such books, documents,
records, and Share certificates shall be safely stored by the
Trusts for future reference for such period as is required and
by any means permitted by the Investment Company Act of 1940,
or the rules and regulations issued thereunder, or other
relevant statutes. SSI shall have no liability for loss or
destruction of said books, documents, records, or Share
certificates after they are returned to the Trusts.
30. INSPECTION OF SHARE BOOKS. In case of any request
or demand for inspection of the books of a Trust reflecting
ownership of the Shares therein ("Share books"), SSI will make
a reasonable effort to notify the Trust and to secure
instructions as to permitting or refusing such inspection.
SSI reserves the right, however, to exhibit the Share books to
any person in case it is advised by its counsel that it may be
held liable for the failure to exhibit the Share books to such
person.
31. FEES. Each Trust shall pay to SSI for its services
hereunder fees computed as set forth in Schedule A hereto.
32. OUT-OF-POCKET EXPENSES. Each Trust shall reimburse
SSI for any and all out-of-pocket expenses and charges in
performing services under this Agreement (other than charges
for normal data processing services and related software,
equipment and facilities) including, but not limited to,
mailing service, postage, printing of shareholder statements,
the cost of any and all forms of the Trust and other materials
used by SSI in communicating with shareholders of the Trust,
the cost of any equipment or service used for communicating
with the Trust's custodian bank or other agent of the Trust,
and all costs of telephone communication with or on behalf of
shareholders allocated in a manner mutually acceptable to the
Trust and SSI.
33. INSTRUCTIONS, OPINION OF COUNSEL, AND SIGNATURES.
At any time SSI may apply to a duly authorized agent of a
Trust for instructions regarding the Trust, and may consult
counsel for the Trust or its own counsel, in respect of any
matter arising in connection with this Agreement, and it shall
not be liable for any action taken or omitted by it in good
faith in accordance with such instructions or with the advice
or opinion of such counsel. SSI shall be protected in acting
upon any such instruction, advice, or opinion and upon any
other paper or document delivered by the Trust or such counsel
believed by SSI to be genuine and to have been signed by the
proper person or persons and shall not be held to have notice
of any change of authority of any officer or agent of the
Trust, until receipt of written notice thereof from the Trust.
34. TRUSTS' LEGAL RESPONSIBILITY. Each Trust assumes
full responsibility for the preparation, contents, and
distribution of each Prospectus and Statement of Additional
Information of the Trust, and for complying with all
applicable requirements of the Securities Act of 1933, as
amended, the Investment Company Act of 1940, as amended, and
any laws, rules, and regulations of government authorities
having jurisdiction over the Trust except that SSI shall be
responsible for all laws, rules and regulations of government
authorities having jurisdiction over transfer agents and their
activities. SSI assumes full responsibility for complying
<PAGE> 14
with due diligence requirements of payors of reportable
dividends and of brokers under the Internal Revenue Code with
respect to shareholder accounts.
35. REGISTRATION OF SSI AS TRANSFER AGENT. SSI
represents that it is registered with the Securities and
Exchange Commission as a transfer agent under Section 17A of
the Securities Exchange Act of 1934 and will notify the Trusts
promptly if such registration is revoked or if any proceeding
is commenced before the Securities and Exchange Commission
which may lead to such revocation.
36. CONFIDENTIALITY OF RECORDS. SSI agrees not to
disclose any information received from the Trusts to any other
customer of SSI or to any other person except SSI's employees
and agents, and shall use its best efforts to maintain such
information as confidential. Upon termination of this
Agreement, SSI shall return to the Trusts all records in the
possession and control of SSI related to the Trusts'
activities, other than SSI's own business records, it being
also understood that any programs and systems used by SSI to
provide the services rendered hereunder will not be given to
the Trusts.
Notwithstanding the foregoing, it is understood and
agreed that SSI may maintain with the Trusts' records
information and data to be utilized by SSI in providing
services to entities serving as trustees and/or custodians of
prototype Tax-Qualified Retirement Plans, IRA Plans, plans for
employees of public schools or tax-exempt organizations, or
other plans which invest in the Shares. In the event that
this Agreement is terminated, SSI may transfer and retain from
the records maintained for the Trusts such information and
data relating to participants in such aforementioned plans as
may be required for SSI to continue providing its services to
such trustees and/or custodians.
37. LIABILITY AND INDEMNIFICATION. SSI shall not be
liable to the Trusts for any action taken or thing done by it
or its agents or contractors on behalf of a Trust in carrying
out the terms and provisions of this Agreement if done in good
faith and without negligence or misconduct on the part of SSI,
its agents or contractors.
Each Trust shall indemnify and hold SSI, and its
controlling persons, if any, harmless from any and all claims,
actions, suits, losses, costs, damages, and expenses,
including reasonable expenses for counsel, incurred by it in
connection with its acceptance of this Agreement, in
connection with any action or omission by it or its agents or
contractors in the performance of its duties hereunder to the
Trusts, or as a result of acting upon any instruction believed
by it to have been executed by a duly authorized agent of a
Trust or as a result of acting upon information provided by a
Trust in form and under policies agreed to by SSI and the
Trusts provided that: (i) to the extent such claims, actions,
suits, losses, costs, damages, or expenses relate solely to a
particular series or group of series of Shares, such
indemnification shall be only out of the assets of that series
or group of series; (ii) this indemnification shall not apply
to actions or omissions constituting negligence or misconduct
of SSI or its agents or contractors, including but not limited
to willful misfeasance, bad faith, or gross negligence in the
performance of their duties, or reckless disregard of their
obligations and duties under this Agreement;
<PAGE> 15
and (iii) SSI shall give a Trust prompt notice and reasonable
opportunity to defend against any such claim or action in its
own name or in the name of SSI.
SSI shall indemnify and hold harmless each Trust from and
against any and all claims, demands, expenses and liabilities
which the Trust may sustain or incur arising out of, or
incurred because of, the negligence or misconduct of SSI or
its agents or contractors, provided that: (i) this
indemnification shall not apply to actions or omissions
constituting negligence or misconduct of the Trust or its
other agents or contractors and (ii) the Trust shall give SSI
prompt notice and reasonable opportunity to defend against any
such claim or action in its own name or in the name of the
Trust.
38. INSURANCE. SSI represents that it has available to
it the insurance coverage set forth on Schedule D hereto, and
agrees to notify the Trusts in advance of any proposed
deletion or reduction in said insurance.
39. FURTHER ASSURANCES. Each party agrees to perform
such further acts and execute such further documents as are
necessary to effectuate the purposes hereof.
40. DUAL INTERESTS. It is understood that some person
or persons may be trustees, directors, officers, or
shareholders of both the Trusts and SSI, and that the
existence of any such dual interest shall not affect the
validity hereof or of any transactions hereunder except as
otherwise provided by specific provision of applicable law.
41. AMENDMENT AND TERMINATION. This Agreement may be
modified or amended from time to time by mutual agreement
between the parties hereto and may be terminated by at least
one hundred eighty (180) days' written notice given by one
party to the other. Upon termination hereof, each Trust shall
pay to SSI such compensation as may be due as of the date of
such termination and shall reimburse SSI for its costs,
expenses, and disbursements payable under this Agreement to
such date. In the event that in connection with termination a
successor to any of the duties or responsibilities of SSI
hereunder is designated by the Trust by written notice to SSI,
it shall promptly upon such termination and at the expense of
the Trust, transfer to such successor a certified list of
shareholders of each series of the Trust (with name, address,
and tax identification number), a record of the account of
each shareholder and status thereof, and all other relevant
books, records, and data established or maintained by SSI
under this Agreement and shall cooperate in the transfer of
such duties and responsibilities, including provision, at the
expense of the Trust, for assistance from SSI personnel in the
establishment of books, records, and other data by such
successor.
42. ASSIGNMENT.
A. Except as provided below, neither this Agreement nor
any rights or obligations hereunder may be assigned
by either party without the written consent of the
other party.
<PAGE> 16
B. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective
permitted successors and assigns.
C. SSI may subcontract for the performance of any of its
duties or obligations under this Agreement with any
person if such subcontract is approved by the Board
of Trustees of a Trust provided, however, that SSI
shall be as fully responsible to the Trust for the
acts and omissions of any subcontractor as it is for
its own acts and omissions.
43. NOTICE. Any notice under this Agreement shall be in
writing, addressed and delivered or sent by registered mail,
postage prepaid to the other party at such address as such
other party may designate for the receipt of such notices.
Until further notice to the other parties, it is agreed that
the address of the Trusts is One South Wacker Drive, Chicago,
Illinois 60606, Attention: Secretary, and that of SSI for this
purpose is One South Wacker Drive, Chicago, Illinois 60606,
Attention: Secretary.
44. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS. Any
obligation of a Trust hereunder shall be binding only upon the
assets of that Trust (or the applicable series thereof), as
provided in its Agreement and Declaration of Trust, and shall
not be binding upon any Trustee, officer, employee, agent or
shareholder of the Trust or upon any other Trust. Neither the
authorization of any action by the Trustees or the
shareholders of a Trust, nor the execution of this Agreement
on behalf of the Trust shall impose any liability upon any
Trustee or any shareholder. Nothing in this Agreement shall
protect any Trustee against any liability to which such
Trustee would otherwise be subject by willful misfeasance, bad
faith or gross negligence in the performance of his duties, or
reckless disregard of his obligations and duties under this
Agreement.
45. REFERENCES AND HEADINGS. In this Agreement and in
any such amendment, references to this Agreement and all
expressions such as "herein," "hereof," and "hereunder," shall
be deemed to refer to this Agreement as amended or affected by
any such amendments. Headings are placed herein for
convenience of reference only and shall not be taken as a part
hereof or control or affect the meaning, construction or
effect of this Agreement. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an
original.
<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed as of the day and year first above
written.
STEINROE MUNICIPAL TRUST
STEINROE INCOME TRUST
STEINROE INVESTMENT TRUST
ATTEST: By: TIMOTHY K. ARMOUR
President
JILAINE HUMMEL BAUER
Secretary
STEINROE SERVICES INC.
ATTEST: By: STEPHEN P. LAUTZ
Vice President
JILAINE HUMMEL BAUER
Secretary
<PAGE> 18
Schedule A
Agency Agreement
(August 1, 1995)
Fees pursuant to Section 31 of the Agency Agreement shall
be calculated in accordance with the following schedule. For
each series, the fee shall accrue on each calendar day and
shall be payable monthly on the first business day of the next
succeeding calendar month.
The daily fee accrual shall be computed by multiplying
the fraction of one divided by the number of days in the
calendar year by the applicable annual fee and multiplying
this product by the net assets of the series, determined in
the manner established by the Board of Trustees of the
applicable Trust, as of the close of business on the last
preceding business day on which the series' net asset value
was determined.
Type of Series Annual Fee
- -------------------------------- ---------------------------
Fixed Income (non-money fund) 0.140% of average daily net
assets
Fixed Income (money market fund) 0.150% of average daily net
assets
Equity 0.220% of average daily net
assets
Dated: August 1, 1995
<PAGE> 19
Schedule B
Agency Agreement
The Series of the Trusts covered by this agreement are as
follows:
STEINROE INVESTMENT TRUST
SteinRoe Prime Equities
SteinRoe International Fund
SteinRoe Young Investor Fund
SteinRoe Special Venture Fund
SteinRoe Total Return Fund
SteinRoe Growth Stock Fund
SteinRoe Capital Opportunities Fund
SteinRoe Special Fund
STEINROE INCOME TRUST
SteinRoe Income Fund
SteinRoe Government Income Fund
SteinRoe Intermediate Bond Fund
SteinRoe Cash Reserves
SteinRoe Government Reserves
SteinRoe Limited Maturity Income Fund
STEINROE MUNICIPAL TRUST
SteinRoe Intermediate Municipals
SteinRoe High-Yield Municipals
SteinRoe Municipal Money Market Fund
SteinRoe Managed Municipals
Dated: August 1, 1995
<PAGE> 20
SCHEDULE C
SYSTEM DESCRIPTION
TRANSACTION PROCESSING LOG - PROCESSING SPAN IN DAYS
EXPEDITED REDEMPTION FILE - BATCH MAINTENANCE JOURNAL
DAILY CRT OPERATOR STATISTICS
DAILY BATCH MONITORING REPORT
ONLINE NEW ACCOUNT REPORT
DETAIL DAILY "AS OF" REPORT - BY ACCOUNTABILITY
SPECIAL HANDLING - DAILY CONFIRMATIONS
BANK ACCOUNT OUTSTANDING BALANCE VERIFICATION
MISCELLANEOUS FEE JOURNAL
BATCH ENTRY SUMMARY REPORT
ACCOUNT CLOSEOUT ADJUSTMENTS - SUMMARY REPORT
REDEMPTION CHECK REGISTER
WIRE INSTRUCTION REPORT FOR EXPEDITED REDEMPTIONS
DST INC. - DDPS DAILY CASH RECAP REPORT
DAILY UPDATE (MU100) ERROR LISTING
EXCHANGE DISTRIBUTION SUMMARY REPORT
BATCH TRANSMISSION ERRORS - TRANSACTION ID: DFUNP
DAILY CHECK RECONCILIATION UPDATE REGISTER UCHECK UPDATES
WIRE INSTRUCTION REPORT FOR EXPEDITED REDEMPTIONS
WIRE INSTRUCTION REPORT FOR DIRECT REDEMPTIONS
TRANSFER RECORD DAILY DVND INCREASE JOURNAL
RECORD DATE JOURNAL
DAILY RECAP & SHARE CONTROL SHEET - SHARE AMOUNT
EXCHANGE CLOSE-OUT AUTOMATIC REINVESTMENT REPORT BY EXCHANGE (FROM) FUND
DETAIL DAILY "AS OF" REPORT - BY REASON CODE
SHAREOWNER CHECK-CONFIRM RECONCILIATION
<PAGE> 21
DAILY/FREE DAILY BALANCE LISTING - ALPHA CODE SEQUENCE
CONSOLIDATED ERROR REPORTING
DAILY CONFIRMED UNPAID PURCHASE JOURNAL - NO LOAD
REQUESTS FOR DUPLICATE CONFIRMS
CALCULATED DAILY DIVIDEND RATE
EXTERNAL CHECK/INVESTMENT ISSUANCE REPORT
IN-HOUSE CHECK ISSUANCE REPORT
AUTOMATED CLEARING HOUSE REDEMPTION TRANSACTIONS
STEINROE FUNDS
ACH PURCHASE TRANSACTIONS REPORT
ACH MONTHLY REDEMPTION/PURCHASE - TRANSACTION REPORT
STEIN ROE & FARNHAM TRANSFER RECORD FOR DIRECT
PAYMENTS
REDEMPTION CHECK REGISTER
DAILY DIVIDEND ACCRUAL CLOSEOUTS COMBINED WITH
CLOSEOUT REDEMPTION WIRES
DAILY DIVIDEND ACCRUAL CLOSEOUTS UNMATCHED CLOSEOUT
ACCRUAL ERROR REPORT
AVERAGE COST ACCOUNT CALCULATION EXCEPTION REPORT
FOR DAILY AVERAGE COST FORMS REQUEST
NEW FOREIGN ACCOUNT REPORT
BATCH BALANCE LISTING
TRANSACTION TRACER REPORT
BATCH BALANCE LISTING - ACCOUNT DETAIL
TIMER - SWITCH UPDATE VERIFICATION
REDEMPTION & ADDRESS CHANGE PROCESSED SAME DAY
WARNING REPORT
AUTOMATE CLEARING HOUSE PRENOTE TRANSACTIONS
STEINROE FUNDS
EXRED WARNING REPORT
EXCHANGE WARNING REPORT UNLIKE TAX ID NUMBERS
INVESTOR TRANSFER TRANSACTIONS LISTING INVESTOR DISTRIBUTOR CODE: STR
<PAGE> 22
DETAIL DAILY "AS OF" REPORT BY TRANSACTION CODE
DAILY "AS OF" REPORT
DAILY FUND SHARE BALANCE ERROR LIST
DAILY BATCH BALANCE
DAILY SHAREOWNER MAINTENANCE ERROR LISTING
EXPEDITED REDEMPTION FILE STATUS JOURNAL
NEW ACCOUNT VERIFICATION QUALITY REPORT
SYSTEMATIC EXCHANGE DAILY MAINTENANCE ACTIVITY
ADDITIONAL MAIL MAINTENANCE JOURNAL
BATCH TRANSMISSION ERRORS TRANSACTION ID: ATRANS
DEALER FILE MAINTENANCE REPORT
CHECK-WRITING REDEMPTION REPORT
ASSET ALLOCATION - REALLOCATION
NEW ACCOUNT REPORT
<PAGE> 23
<TABLE>
SCHEDULE D
SCHEDULE OF INSURANCE
STEIN ROE & FARNHAM INCORPORATED
ONE SOUTH WACKER DRIVE
CHICAGO, IL 60606-4685
<CAPTION>
CARRIER POLICY NO. TERM COVERAGE EXPOSURE/RATE LIMITS PREMIUM
- --------- ------------ -------- --------- ---------------------------- -------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Federal (96)7626-89 01/01/95 Workers' FL-8810 $213,000 .71 Workers' Compensation: Statutory $61,612
Insurance. -79 -96 Compensation NY-8810 $660,000 .57
Co sation Experience Mod. .97 Employers Liability:
Premium Disc. 10.1% Bodily Injury by Accident:
$100,000 each accident
IL-8810 $18,900,000 .42
IL-8742 $ 710,000 .92 Bodily Injury by Disease:
Experience Mod. .97 $500,000 policy limit
IL Schedule Credit 25%
Premium Discount 10.1% Bodily Injury by Disease:
$100,000 each employee
Flat Coverage Monopolistic
Fund States 50. x 6
Expense Constant 160
- --------------------------------------------------------------------------------------------------------------------------------
Federal 681-26-32 01/01/95 Financial Blanket Personal $2,000,000 General Aggregate $21,686.92
Insurance -96 Package Property Limit $11,070,000 (other than Products Completed
Co. Policy Operations)
Two Scheduled Locations: $1,000,000 Products Completed
Puerto Rico $30,300 Operations Aggregate Limit
1510 Skokie Blvd. $600,000
$1,000,000 Personal & Advertising
Library Values: $80,000 Injury Limit
Fine Arts: $399,387 $1,000,000 Each Occurrence Limit
Inland Marine - Valuable $10,000 Medical Expense Limit
Papers
General Liability based on $100,000 Personal Property Damage
square feet to Rented Premises Limit
- --------------------------------------------------------------------------------------------------------------------------------
Vigilant 7312-72-46 01/01/95 Foreign Liability & N.O. Auto $1,765 General Liability: $3,100
Insurance -96 Package Policy Workers' Compensation 1,335 $1,000,000 Commercial Liability
Co. for Bodily Injury or Property
General Damage Liability per occurrence
Liability $50 Per Person, per trip- & Personal Injury or Advertising
Flat. Based on: Injury caused by an offense
Automobile Total Employees - 20 $1,000,000 Annual Aggregate -
Liability-DIC/ No. of Trips 49 Products/Completed Operations
Excess Auto Total No. of Days 104
$250,000 Fire Legal Liability
Foreign Volun- $10,000 Medical Expense Per person
ary Workers'
Compensation $30,000 Medical Expense per accident
Automobile Liability - DIC/Excess Auto
$1,000,000 Bodily Injury per person
$1,000,000 Bodily Injury per occurrence
$1,000,000 Property damage per occurrence
$10,000 Medial Expense per person
$30,000 Medical Per Accident
Foreign Voluntary Workers'
Compensation - Statutory
$100,000 Employers Liability Limit
$20,000 Repatriation Expense for
any one Employee
- --------------------------------------------------------------------------------------------------------------------------------
St. Paul IM01200804 01/01/95 Electronic Data/Media Flat $400 for Computer Equipment $4,132,731 $6,987
Insurance -96 Data $500,000 limit
Co. Processing
Business Interruption -
1,000,000 limit Valuable Papers & Records 600,000
Contingent Business Interrup-
tion: 1,000,000 - Kansas City Business Interruption 1,000,000
100,000 - Downers Grove
Deductible Contingent Business
Computer Equipment, Data and Interruption 1,100,000
Media and Extra Expense
Combined $1,000
Special Breakdown Deductible Extra Expense 500,000
$5,000
Transit
Computer Equipment $50,000
Data & Media $50,000
Valuable Papers $5,000
- --------------------------------------------------------------------------------------------------------------------------------
Gulf GA5743948P 02/15/96 Excess Mutual $15,000,000 excess of $5,000,000 $540,935
Insurance -96 Fund D&O/E&O excess of underlying deductible
Company
- --------------------------------------------------------------------------------------------------------------------------------
Federal 81391969-A 02/15/95 Investment Limits of Liability $25,000,000 $211,312
Insurance -96 Company Assets Extended Forgery 10,000,000
Co. Protection Bond Threats to Persons 5,000,000
Uncollectible items of Deposit 500,000
Audit Expense 100,000
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 9(c)
ADMINISTRATIVE AGREEMENT
BETWEEN
STEINROE INVESTMENT TRUST
AND
STEIN ROE & FARNHAM INCORPORATED
STEINROE INVESTMENT TRUST, a Massachusetts business trust
registered under the Securities Act of 1933 ("1933 Act") and the
Investment Company Act of 1940 ("1940 Act") (the "Trust"), hereby
appoints STEIN ROE & FARNHAM INCORPORATED, a Delaware
corporation, of Chicago, Illinois ("Administrator"), to furnish
certain administrative services with respect to the Trust and the
series of the Trust listed in Schedule A hereto, as such schedule
may be amended from time to time (each such series hereinafter
referred to as "Fund").
The Trust and Administrator hereby agree that:
1. ADMINISTRATIVE SERVICES. Subject to the terms of this
Agreement and the supervision and control of the Trust's Board of
Trustees ("Trustees"), Administrator shall provide the following
services with respect to the Trust:
(a) Preparation and maintenance of the Trust's registration
statement with the Securities and Exchange Commission
("SEC");
(b) Preparation and periodic updating of the prospectus and
statement of additional information for the Fund
("Prospectus");
(c) Preparation, filing with appropriate regulatory authorities,
and dissemination of various reports for the Fund, including
but not limited to semiannual reports to shareholders under
Section 30(d) of the 1940 Act, annual and semiannual reports
on Form N-SAR, and notices pursuant to Rule 24f-2;
(d) Arrangement for all meetings of shareholders, including the
collection of all information required for preparation of
proxy statements, the preparation and filing with appropriate
regulatory agencies of such proxy statements, the supervision
of solicitation of shareholders and shareholder nominees in
connection therewith, tabulation (or supervision of the
tabulation) of votes, response to all inquiries regarding
such meetings from shareholders, the public and the media,
and preparation and retention of all minutes and all other
records required to be kept in connection with such meetings;
(e) Maintenance and retention of all Trust charter documents and
the filing of all documents required to maintain the Trust's
status as a Massachusetts business trust and as a registered
open-end investment company;
(f) Arrangement and preparation and dissemination of all
materials for meetings of the Board of Trustees and
committees thereof and preparation and retention of all
minutes and other records thereof;
(g) Preparation and filing of the Trust's Federal, state, and
local income tax returns and calculation of any tax required
to be paid in connection therewith;
(h) Calculation of all Trust and Fund expenses and arrangement
for the payment thereof;
(i) Calculation of and arrangement for payment of all income,
capital gain, and other distributions to shareholders of each
Fund;
<PAGE> 2
(j) Determination, after consultation with the officers of the
Trust, of the jurisdictions in which shares of beneficial
interest of each Fund ("Shares") shall be registered or
qualified for sale, or may be sold pursuant to an exemption
from such registration or qualification, and preparation and
maintenance of the registration or qualification of the
Shares for sale under the securities laws of each such
jurisdiction;
(k) Provision of the services of persons who may be appointed as
officers of the Trust by the Board of Trustees (it is agreed
that some person or persons may be officers of both the Trust
and the Administrator, and that the existence of any such
dual interest shall not affect the validity of this Agreement
except as otherwise provided by specific provision of
applicable law);
(l) Preparation and, subject to approval of the Trust's Chief
Financial Officer, dissemination of the Trust's and each
Fund's quarterly financial information to the Board of
Trustees and preparation of such other reports relating to
the business and affairs of the Trust and each Fund as the
officers and Board of Trustees may from time to time
reasonably request;
(m) Administration of the Trust's Code of Ethics and periodic
reporting to the Board of Trustees of Trustee and officer
compliance therewith;
(n) Provision of internal legal, accounting, compliance, audit,
and risk management services and periodic reporting to the
Board of Trustees with respect to such services;
(o) Negotiation, administration, and oversight of third party
services to the Trust including, but not limited to, custody,
tax, transfer agency, disaster recovery, audit, and legal
services;
(p) Negotiation and arrangement for insurance desired or required
of the Trust and administering all claims thereunder;
(q) Response to all inquiries by regulatory agencies, the press,
and the general public concerning the business and affairs of
the Trust, including the oversight of all periodic
inspections of the operations of the Trust and its agents by
regulatory authorities and responses to subpoenas and tax
levies;
(r) Handling and resolution of any complaints registered with the
Trust by shareholders, regulatory authorities, and the
general public;
(s) Monitoring legal, tax, regulatory, and industry developments
related to the business affairs of the Trust and
communicating such developments to the officers and Board of
Trustees as they may reasonably request or as the
Administrator believes appropriate;
(t) Administration of operating policies of the Trust and
recommendation to the officers and the Board of Trustees of
the Trust of modifications to such policies to facilitate the
protection of shareholders or market competitiveness of the
Trust and Fund and to the extent necessary to comply with new
legal or regulatory requirements;
(u) Responding to surveys conducted by third parties and
reporting of Fund performance and other portfolio
information; and
(v) Filing of claims, class actions involving portfolio
securities, and handling administrative matters in connection
with the litigation or settlement of such claims.
2. USE OF AFFILIATED COMPANIES AND SUBCONTRACTORS. In
connection with the services to be provided by Administrator
under this Agreement, Administrator may,
<PAGE> 3
to the extent it deems appropriate, and subject to compliance
with the requirements of applicable laws and regulations and upon
receipt of approval of the Trustees, make use of (i) its
affiliated companies and their directors, trustees, officers, and
employees and (ii) subcontractors selected by Administrator,
provided that Administrator shall supervise and remain fully
responsible for the services of all such third parties in
accordance with and to the extent provided by this Agreement.
All costs and expenses associated with services provided by any
such third parties shall be borne by Administrator or such
parties.
3. INSTRUCTIONS, OPINIONS OF COUNSEL, AND SIGNATURES. At
any time Administrator may apply to a duly authorized agent of
Trust for instructions regarding the Trust, and may consult
counsel for the Trust or its own counsel, in respect of any
matter arising in connection with this Agreement, and it shall
not be liable for any action taken or omitted by it in good faith
in accordance with such instructions or with the advice or
opinion of such counsel. Administrator shall be protected in
acting upon any such instruction, advice, or opinion and upon any
other paper or document delivered by the Trust or such counsel
believed by Administrator to be genuine and to have been signed
by the proper person or persons and shall not be held to have
notice of any change of authority of any officer or agent of the
Trust, until receipt of written notice thereof from the Trust.
4. EXPENSES BORNE BY TRUST. Except to the extent expressly
assumed by Administrator herein or under a separate agreement
between the Trust and Administrator and except to the extent
required by law to be paid by Administrator, the Trust shall pay
all costs and expenses incidental to its organization, operations
and business. Without limitation, such costs and expenses shall
include but not be limited to:
(a) All charges of depositories, custodians and other agencies
for the safekeeping and servicing of its cash, securities,
and other property;
(b) All charges for equipment or services used for obtaining
price quotations or for communication between Administrator
or the Trust and the custodian, transfer agent or any other
agent selected by the Trust;
(c) All charges for investment advisory, portfolio management,
and accounting services provided to the Trust by the
Administrator, or any other provider of such services;
(d) All charges for services of the Trust's independent auditors
and for services to the Trust by legal counsel;
(e) All compensation of Trustees, other than those affiliated
with Administrator, all expenses incurred in connection with
their services to the Trust, and all expenses of meetings of
the Trustees or committees thereof;
(f) All expenses incidental to holding meetings of shareholders,
including printing and of supplying each record-date
shareholder with notice and proxy solicitation material, and
all other proxy solicitation expenses;
(g) All expenses of printing of annual or more frequent revisions
of the Trust's prospectus(es) and of supplying each then-
existing shareholder with a copy of a revised prospectus;
(h) All expenses related to preparing and transmitting
certificates representing the Trust's shares;
<PAGE> 4
(i) All expenses of bond and insurance coverage required by law
or deemed advisable by the Board of Trustees;
(j) All brokers' commissions and other normal charges incident to
the purchase, sale, or lending of Fund securities;
(k) All taxes and governmental fees payable to Federal, state or
other governmental agencies, domestic or foreign, including
all stamp or other transfer taxes;
(l) All expenses of registering and maintaining the registration
of the Trust under the 1940 Act and, to the extent no
exemption is available, expenses of registering the Trust's
shares under the 1933 Act, of qualifying and maintaining
qualification of the Trust and of the Trust's shares for sale
under securities laws of various states or other
jurisdictions and of registration and qualification of the
Trust under all other laws applicable to the Trust or its
business activities;
(m) All interest on indebtedness, if any, incurred by the Trust
or a Fund; and
(n) All fees, dues and other expenses incurred by the Trust in
connection with membership of the Trust in any trade
association or other investment company organization.
5. ALLOCATION OF EXPENSES BORNE BY TRUST. Any expenses
borne by the Trust that are attributable solely to the
organization, operation or business of a Fund shall be paid
solely out of Fund assets. Any expense borne by the Trust which
is not solely attributable to a Fund, nor solely to any other
series of shares of the Trust, shall be apportioned in such
manner as Administrator determines is fair and appropriate, or as
otherwise specified by the Board of Trustees.
6. EXPENSES BORNE BY ADMINISTRATOR. Administrator at its
own expense shall furnish all executive and other personnel,
office space, and office facilities required to render the
services set forth in this Agreement. However, Administrator
shall not be required to pay or provide any credit for services
provided by the Trust's custodian or other agents without
additional cost to the Trust.
In the event that Administrator pays or assumes any expenses
of the Trust or a Fund not required to be paid or assumed by
Administrator under this Agreement, Administrator shall not be
obligated hereby to pay or assume the same or similar expense in
the future; provided that nothing contained herein shall be
deemed to relieve Administrator of any obligation to the Trust or
a Fund under any separate agreement or arrangement between the
parties.
7. ADMINISTRATION FEE. For the services rendered,
facilities provided, and charges assumed and paid by
Administrator hereunder, the Trust shall pay to Administrator out
of the assets of each Fund fees at the annual rate for such Fund
as set forth in Schedule B to this Agreement. For each Fund, the
administrative fee shall accrue on each calendar day, and shall
be payable monthly on the first business day of the next
succeeding calendar month. The daily fee accrual shall be
computed by multiplying the fraction of one divided by the number
of days in the calendar year by the applicable annual rate of
fee, and multiplying this product by the net assets of the Fund,
determined in the manner established by the Board of Trustees, as
of the close of business on the last preceding business day on
which the Fund's net asset value was determined.
<PAGE> 5
8. STATE EXPENSE LIMITATION. If for any fiscal year of a
Fund, its aggregate operating expenses ("Aggregate Operating
Expenses") exceed the applicable percentage expense limit imposed
under the securities law and regulations of any state in which
Shares of the Fund are qualified for sale (the "State Expense
Limit"), the Administrator shall pay such Fund the amount of such
excess. For purposes of this State Expense Limit, Aggregate
Operating Expenses shall (a) include (i) any fees or expense
reimbursements payable to Administrator pursuant to this
Agreement and (ii) to the extent the Fund invests all or a
portion of its assets in another investment company registered
under the 1940 Act, the pro rata portion of that company's
operating expenses allocated to the Fund, and (iii) any
compensation payable to Administrator pursuant to any separate
agreement relating to the Fund's investment operations and
portfolio management, but (b) exclude any interest, taxes,
brokerage commissions, and other normal charges incident to the
purchase, sale or loan of securities, commodity interests or
other investments held by the Fund, litigation and
indemnification expense, and other extraordinary expenses not
incurred in the ordinary course of business. Except as otherwise
agreed to by the parties or unless otherwise required by the law
or regulation of any state, any reimbursement by Administrator to
a Fund under this section shall not exceed the administrative fee
payable to Administrator by the Fund under this Agreement.
Any payment to a Fund by Administrator hereunder shall be
made monthly, by annualizing the Aggregate Operating Expenses for
each month as of the last day of the month. An adjustment for
payments made during any fiscal year of the Fund shall be made on
or before the last day of the first month following such fiscal
year of the Fund if the Annual Operating Expenses for such fiscal
year (i) do not exceed the State Expense Limitation or (ii) for
such fiscal year there is no applicable State Expense Limit.
9. NON-EXCLUSIVITY. The services of Administrator to the
Trust hereunder are not to be deemed exclusive and Administrator
shall be free to render similar services to others.
10. STANDARD OF CARE. Neither Administrator, nor any of
its directors, officers or stockholders, agents or employees
shall be liable to the Trust, any Fund, or its shareholders for
any action taken or thing done by it or its subcontractors or
agents on behalf of the Trust or the Fund in carrying out the
terms and provisions of this Agreement if done in good faith and
without negligence or misconduct on the part of Administrator,
its subcontractors, or agents.
11. INDEMNIFICATION. The Trust shall indemnify and hold
Administrator and its controlling persons, if any, harmless from
any and all claims, actions, suits, losses, costs, damages, and
expenses, including reasonable expenses for counsel, incurred by
it in connection with its acceptance of this Agreement, in
connection with any action or omission by it or its agents or
subcontractors in the performance of its duties hereunder to the
Trust, or as a result of acting upon any instruction believed by
it to have been executed by a duly authorized agent of the Trust
or as a result of acting upon information provided by the Trust
in form and under policies agreed to by
<PAGE> 6
Administrator and the Trust, provided that: (i) to the extent
such claims, actions, suits, losses, costs, damages, or expenses
relate solely to a particular Fund or group of Funds, such
indemnification shall be only out of the assets of that Fund or
group of Funds; (ii) this indemnification shall not apply to
actions or omissions constituting negligence or misconduct of
Administrator or its agents or subcontractors, including but not
limited to willful misfeasance, bad faith, or gross negligence in
the performance of their duties, or reckless disregard of their
obligations and duties under this Agreement; and (iii)
Administrator shall give the Trust prompt notice and reasonable
opportunity to defend against any such claim or action in its own
name or in the name of Administrator.
Administrator shall indemnify and hold harmless the Trust
from and against any and all claims, demands, expenses and
liabilities which such Trust may sustain or incur arising out of,
or incurred because of, the negligence or misconduct of
Administrator or its agents or subcontractors, provided that such
Trust shall give Administrator prompt notice and reasonable
opportunity to defend against any such claim or action in its own
name or in the name of such Trust.
12. EFFECTIVE DATE, AMENDMENT, AND TERMINATION. This
Agreement shall become effective as to any Fund as of the
effective date for that Fund specified in Schedule A hereto and,
unless terminated as hereinafter provided, shall remain in effect
with respect to such Fund thereafter from year to year so long as
such continuance is specifically approved with respect to that
Fund at least annually by a majority of the Trustees who are not
interested persons of Trust or Administrator.
As to any Trust or Fund of that Trust, this Agreement may be
modified or amended from time to time by mutual agreement between
the Administrator and the Trust and may be terminated by
Administrator or Trust by at least sixty (60) days' written
notice given by the terminating party to the other party. Upon
termination as to any Fund, the Trust shall pay to Administrator
such compensation as may be due under this Agreement as of the
date of such termination and shall reimburse Administrator for
its costs, expenses, and disbursements payable under this
Agreement to such date. In the event that, in connection with a
termination, a successor to any of the duties or responsibilities
of Administrator hereunder is designated by the Trust by written
notice to Administrator, upon such termination Administrator
shall promptly, and at the expense of the Trust or Fund with
respect to which this Agreement is terminated, transfer to such
successor all relevant books, records, and data established or
maintained by Administrator under this Agreement and shall
cooperate in the transfer of such duties and responsibilities,
including provision, at the expense of such Fund, for assistance
from Administrator personnel in the establishment of books,
records, and other data by such successor.
13. ASSIGNMENT. Any interest of Administrator under this
Agreement shall not be assigned either voluntarily or
involuntarily, by operation of law or otherwise, without the
prior written consent of Trust.
14. BOOKS AND RECORDS. Administrator shall maintain, or
oversee the maintenance by such other persons as may from time to
time be approved by the Board of
<PAGE> 7
Trustees to maintain, the books, documents, records, and data
required to be kept by the Trust under the 1940 Act, the laws of
the Commonwealth of Massachusetts or such other authorities
having jurisdiction over the Trust or the Fund or as may
otherwise be required for the proper operation of the business
and affairs of the Trust or the Fund (other than those required
to be maintained by any investment adviser retained by the Trust
on behalf of a Fund in accordance with Section 15 of the 1940
Act).
Administrator will periodically send to the Trust all books,
documents, records, and data of the Trust and each of its Funds
listed in Schedule A that are no longer needed for current
purposes or required to be retained as set forth herein.
Administrator shall have no liability for loss or destruction of
said books, documents, records, or data after they are returned
to such Trust.
Administrator agrees that all such books, documents,
records, and data which it maintains shall be maintained in
accordance with Rule 31a-3 of the 1940 Act and that any such
items maintained by it shall be the property of the Trust.
Administrator further agrees to surrender promptly to the Trust
any such items it maintains upon request, provided that the
Administrator shall be permitted to retain a copy of all such
items. Administrator agrees to preserve all such items
maintained under Rule 31a-1 for the period prescribed under Rule
31a-2 of the 1940 Act.
Trust shall furnish or otherwise make available to
Administrator such copies of the financial statements, proxy
statements, reports, and other information relating to the
business and affairs of each Fund of the Trust as Administrator
may, at any time or from time to time, reasonably require in
order to discharge its obligations under this Agreement.
15. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS. Any
obligation of Trust hereunder shall be binding only upon the
assets of Trust (or the applicable Fund thereof) and shall not be
binding upon any Trustee, officer, employee, agent or shareholder
of Trust. Neither the authorization of any action by the
Trustees or shareholders of Trust nor the execution of this
Agreement on behalf of Trust shall impose any liability upon any
Trustee or any shareholder.
16. USE OF ADMINISTRATOR'S NAME. The Trust may use its
name and the names of its Funds listed in Schedule A or any other
name derived from the name "Stein Roe & Farnham" only for so long
as this Agreement or any extension, renewal, or amendment hereof
remains in effect, including any similar agreement with any
organization which shall have succeeded to the business of
Administrator as it relates to the services it has agreed to
furnish under this Agreement. At such time as this Agreement or
any extension, renewal or amendment hereof, or such other similar
agreement shall no longer be in effect, Trust will cease to use
any name derived from the name "Stein Roe & Farnham" or otherwise
connected with Administrator, or with any organization which
shall have succeeded to Administrator's business herein
described.
17. REFERENCES AND HEADINGS. In this Agreement and in any
such amendment, references to this Agreement and all expressions
such as "herein," "hereof," and "hereunder" shall be deemed to
refer to this Agreement as amended or affected by any such
amendments. Headings are placed herein for convenience of
reference only
<PAGE> 8
and shall not be taken as a part hereof or control or affect the
meaning, construction or effect of this Agreement. This
Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
Dated: August 15, 1995
STEINROE INVESTMENT TRUST
Attest: By: TIMOTHY K. ARMOUR
Timothy K. Armour
JILAINE HUMMEL BAUER President
Jilaine Hummel Bauer
Secretary
STEIN ROE & FARNHAM INCORPORATED
Attest: By: HANS P. ZIEGLER
Hans P. Ziegler
KEITH J. RUDOLF Chief Executive Officer
Keith J. Rudolf
Secretary
<PAGE> 9
STEINROE INVESTMENT TRUST
ADMINISTRATIVE AGREEMENT
SCHEDULE A
The Funds of the Trust currently subject to this Agreement are as
follows:
Effective Date
------------------
SteinRoe Prime Equities September 1, 1995
SteinRoe Young Investor Fund September 1, 1995
SteinRoe Total Return Fund September 1, 1995
SteinRoe Growth Stock Fund September 1, 1995
SteinRoe Capital Opportunities Fund September 1, 1995
SteinRoe Special Fund September 1, 1995
Dated: August 15, 1995
<PAGE> 10
STEINROE INVESTMENT TRUST
ADMINISTRATIVE AGREEMENT
SCHEDULE B
Compensation pursuant to Section 7 of this Agreement shall be
calculated with respect to each Fund in accordance with the
following schedule applicable to average daily net assets of the
Fund:
Fund Administrative Fee Schedule B1
SteinRoe Young Investor Fund 0.200% of first $500 million,
0.150% of next $500 million,
0.125% thereafter
Fund Administrative Fee Schedule B2
SteinRoe Growth Stock Fund 0.150% of first $500 million,
SteinRoe Prime Equities 0.125 of next $500 million,
SteinRoe Total Return Fund 0.100% thereafter
Fund Administrative Fee Schedule B3
SteinRoe Special Fund 0.150% of first $500 million,
SteinRoe Capital Opportuni- 0.125% of next $500 million,
ties Fund 0.100% of next $500 million,
0.075% thereafter
Dated: August 15, 1995
Exhibit 11(a)
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of
our report dated November 21,1995, and to all references to our
Firm included in or made a part of this Registration Statement on
Form N-1A of the SteinRoe Investment Trust (comprising the SteinRoe
Total Return Fund, SteinRoe Prime Equities, SteinRoe Stock Fund,
SteinRoe International Fund, SteinRoe Special Fund, SteinRoe
Capital Opportunities Fund, and SteinRoe Special Venture Fund.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
November 28, 1995.
<PAGE>
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of
our report dated November 10,1995, and to all references to our
Firm included in or made a part of this Registration Statement on
Form N-1A of the SteinRoe Investment Trust (comprising the SteinRoe
Young Investor Fund).
ARTHUR ANDERSEN LLP
Chicago, Illinois,
November 28, 1995.
Exhibit 14(a)
SteinRoe Individual Retirement Account
How to Establish an IRA
IRA Disclosure Statement
SteinRoe IRA Plan
<PAGE> 1
Table of Contents
Page
IRA Disclosure Statement......................1
Revocation Rights ............................1
Eligibility ..................................2
Contributions ................................2
Contribution Corrections .....................5
Rollover Contributions and Asset Transfers ...5
Spousal IRA Contributions ....................7
Distribution of Benefits .....................7
Taxation of Distributions ....................9
Reporting to the Internal Revenue Service ...10
Prohibited Transactions......................10
The Custodian and the Plan Sponsor...........10
Investment of Contributions .................11
Charges and Fees ............................11
Simplified Employee Pension Plans............12
SteinRoe Funds Individual Retirement
Account Plan .............................15
IRA DISCLOSURE STATEMENT
We are required to give you this Disclosure Statement in order
to assure that you are informed and understand the nature of an
Individual Retirement Account ("IRA"). The Individual Retirement
Account Plan and the Application Form contained in this booklet
are considered a single document which, in a substantially similar
form, was approved by the Internal Revenue Service as a tax-
qualified Individual Retirement Account Plan ("IRA") and received
Internal Revenue Service Prototype Plan No. D100035c dated March
21, 1990. We intend to apply to the Service for approval of the
Plan as amended and restated in this booklet and will advise Plan
Participants when the Service responds to our application.
Internal Revenue Service approval is a determination only as to
the form of the documents and does not mean that the Service
approves the merits of the Plan.
By adopting the Plan, your IRA is qualified under the Internal
Revenue Code. Use of the Plan also simplifies and minimizes the
administration and investment of your IRA assets. WE URGE YOU TO
READ THIS BOOKLET CAREFULLY BEFORE ADOPTING THE PLAN.
REVOCATION RIGHTS
If you establish an IRA under the SteinRoe Funds Individual
Retirement Account Plan and you receive this booklet less than
seven days preceding the date on which you established your IRA,
you have the right to revoke your IRA. (If you receive this
booklet at least seven days prior to the date on which you
establish your IRA, you do not have this right.) If you revoke
your IRA, the full amount of your contributions will be refunded
without reduction for fees, expenses or market fluctuations. In
order to avoid possible losses in market values of contributions
during the seven-day revocation period, the Custodian reserves the
right not to invest your contributions in excess of $2,000 until
the end of the revocation period unless you invest them in
SteinRoe Government Reserves. For your convenience, initial
contributions of $2,000 or less generally will be invested as soon
as possible.
<PAGE> 2
Should you decide to revoke your IRA as described above, you
may do so and will receive a full refund only if you call SteinRoe
Services Inc. ("SSI"), agent of the Custodian, toll free (800)
338-2550, during normal business hours within seven days from the
date on which your IRA is established. Your telephone IRA
revocation instructions will be tape-recorded. If you fail to
properly revoke your IRA within seven days after it is
established, you may not revoke your IRA at a later date.
The rest of this Disclosure Statement is a general outline of
the provisions of the Plan and certain important considerations
involved in a decision to adopt the Plan for retirement savings.
ELIGIBILITY
If you are employed (or self-employed) and under age 70 1/2 at
the end of a taxable year, you may establish an IRA. A Spousal IRA
may be established for your non-working spouse if he or she is
under age 70 1/2 at the end of a taxable year. For federal income
tax purposes, your IRA contributions may be treated as deductible
or non-deductible. (See: "Contributions") You may establish an IRA
for the purpose of making a rollover contribution, regardless of
your age or employment status.
CONTRIBUTIONS
In General
As long as you are eligible, you may make annual contributions
to an IRA in an amount of up to the lesser of 100% of compensation
or $2,000. Compensation includes salary, bonuses, wages, overtime
pay, tips, professional fees, earned income from self-employment,
and taxable alimony or separate maintenance payments. It does not
include rental income, dividends or interest, or amounts received
as pension, annuity or deferred compensation income.
Your IRA contributions are held in a Custodial Account
exclusively for your benefit and the benefit of any beneficiaries
you may designate on a Beneficiary Form delivered to the
Custodian. The assets in your IRA generally may not be combined
with those of another individual, and your right to the entire
balance in your IRA is nonforfeitable.
IRA contributions for a given year may be made until the due
date for filing your federal income tax return for that year
(generally April 15th) but not including extensions. You must
designate the tax year for which each contribution is made. If you
do not designate the appropriate year for a contribution, your
contribution will be applied for the current year.
Under the Plan, the minimum annual contribution is $500 per
Fund account. This minimum amount must be contributed in a single
payment when you establish your IRA. Thereafter, you may
contribute as little as $50 each calendar month. These minimums do
not apply to IRAs established as part of a Simplified Employee
Pension Plan ("SEP") in which there is more than one participant.
Stein Roe & Farnham also may waive or reduce these minimums.
Deductible Contribution Limit
General - If neither you nor your spouse, if married, is an
active participant in an employer-maintained retirement plan
during the year for which your contribution is made, you may make
a deductible contribution of up to the lesser of $2,000 or 100% of
your individual compensation. If, however, either you or your
spouse, if married, is an active participant in an employer-
maintained retirement plan, the deductibility of your contribution
depends upon your adjusted gross income ("AGI") for the years for
which your contribution is made.
<PAGE> 3
If you or your spouse, if married, is an active participant in
an employer-maintained retirement plan, your contribution is fully
deductible if your AGI is less than $40,000 if you are married, or
$25,000 if you are unmarried. Your deduction is eliminated when
your AGI reaches $50,000 if you are married or $35,000 if you are
unmarried. Your deduction is phased out if your AGI is between
these amounts as explained below. If you are married but do not
live with your spouse for any part of the year and file a separate
return, the deductibility of your contribution is determined as if
you were unmarried.
Active Participant - Your annual IRS Form W-2 from your
employer should indicate whether you are an active participant for
purposes of your IRA deduction. In general, you (or your spouse)
are considered an active participant in an employer-maintained
retirement plan for any year if you participate in a qualified
defined benefit plan, a defined contribution plan (such as a money
purchase pension, profit-sharing, 401(k), stock bonus or annuity
plan), a SEP, or a government plan (excluding unfunded deferred
compensation plans under section 457 of the Internal Revenue Code)
during any part of the plan year ending with or within the year
for which you make an IRA contribution. You are treated as an
active participant even if your plan benefits are not yet fully
vested and nonforfeitable, but you are not treated as an active
participant if you have not yet satisfied the plan's minimum age
or service eligibility requirements. You also are treated as an
active participant for any year in which you make a voluntary or
mandatory contribution to an employer-maintained retirement plan,
even if your employer makes no contribution to the plan on your
behalf.
Adjusted Gross Income ("AGI") - For purposes of your IRA
deduction limit, your AGI includes any taxable social security
benefits you receive for the year. If you are married and file a
joint return, your deductible contribution limit is determined on
the basis of the combined AGI of you and your spouse.
Nondeductible Contribution Limit
To the extent you are not eligible to make a deductible
contribution, you may make a nondeductible contribution up to the
excess of (i) your aggregate contribution limit (100% of
compensation up to $2,000) over (ii) your deductible contribution
limit. If you make a contribution in excess of your deductible
contribution limit, you may correct the excess by designating it
as a nondeductible contribution to the extent it does not exceed
your nondeductible contribution limit.
You must designate your nondeductible contributions for a
given year on IRS Form 8606 which must be filed with your federal
income tax return for that year. You should retain a copy of your
return and IRS Form 8606 for your reference in determining the
amount of your cumulative deductible and nondeductible
contributions. Your return and IRS Form 8606 will be needed to
determine the taxable portion of any withdrawals you make. The
Custodian of your IRA does not differentiate between deductible
and nondeductible contributions on its own records.
Determining Your Deductible and Nondeductible Contribution Limits
Your deductible and nondeductible contribution limits are
determined as follows:
1. Determine Excess AGI by subtracting the applicable threshold
AGI (i.e., $40,000, if filing jointly; $25,000 or $0 if not)
from your actual AGI; if the difference is $10,000 or more,
stop because your deduction is zero.
2. Subtract the Excess AGI determined in (1) from $10,000.
3. Divide the amount determined in (2) by $10,000.
4. Multiply $2,000 ($2,250 for a Spousal IRA; see "Spousal IRA
Contributions") by the amount (fraction)
<PAGE> 4
determined in (3). If the product is not a multiple of $10,
round the product down to the next lowest $10. This is your
deductible contribution limit. If, however, the product is
less than $200, but greater than $0, your deductible
contribution limit is $200.
5. Subtract your deductible contribution limit from your
aggregate contribution limit (100% of compensation up to
$2,000). This is your nondeductible contribution limit.
If your deductible contribution limit is less than $200 (and
your AGI is less than $50,000 or $35,000, respectively), you may
increase your limit to the minimum floor of $200. If you are
married and file a joint return, your deductible contribution
limit applies separately to each spouse.
Example: A working couple filing a joint return has combined
AGI of $47,000 and one spouse is an active participant in an
employer-maintained retirement plan.
Applicable threshold AGI: $40,000
Excess AGI: $47,000 - 40,000 = 7,000
Combined Aggregate Contribution Limit ($2,000
per working spouse): 4,000
Reduction in IRA Contribution Limit:
$4,000 x ($7,000/10,000) = 2,800
Combined Deductible Contribution Limit:
$4,000 - 2,800 = 1,200
Deductible Contribution Limit for each spouse:
$1,200/2 = 600
Nondeductible Contribution Limit for each spouse:
$2,000 - $600 = 1,400
CONTRIBUTION CORRECTIONS
Contributions in excess of your maximum allowable annual
contribution limit are treated as excess contributions whether or
not you deduct them. You will be liable for a nondeductible excise
tax of 6% on the amount of the excess for the year the excess
contribution is made unless (i) you withdraw the excess and the
income earned on the excess prior to the due date for filing your
federal income tax return (including extensions) and (ii) you do
not deduct the excess on your federal income tax return.
Alternatively, you may direct the Custodian to apply the excess as
a contribution for a subsequent year. The Custodian will
automatically treat a contribution in excess of the maximum dollar
contribution limits as a contribution for the subsequent year
unless you direct the Custodian in writing to distribute to you
such excess and the income earned on the excess prior to the
deadline for filing your federal income tax return for the year
for which the excess contribution was made.
If the excess contribution remains in your IRA after the due
date for filing your tax return, you will be subject to the 6%
excise tax for each year the excess remains uncorrected. If you
withdraw the excess after the date for filing your federal income
tax return for the year in which the excess contribution was made
and the total contribution for that year exceeded $2,250, the
amount withdrawn may be taxed as ordinary income and also may be
subject to a nondeductible excise tax on premature distributions
equal to 10% of the amount withdrawn. The withdrawal penalty (but
not the 6% excise tax) may be avoided if you correct your excess
contribution by applying the excess as a contribution for a later
year.
Contributions you deduct in excess of your deductible
contribution limit are also treated as excess contributions to the
extent you do not designate them as nondeductible contributions
or, if permitted, correct them by withdrawal or reallocation to a
subsequent year as described above.
<PAGE> 5
ROLLOVER CONTRIBUTIONS AND ASSET TRANSFERS
Eligible Rollover Distributions
You may defer taxation on an eligible rollover distribution
from your employer's tax-qualified plan or 403(b) plan by making a
rollover contribution of the distribution to an IRA within 60 days
of the date of the distribution. In addition, if you are a spouse
or former spouse who is receiving an eligible rollover
distribution paid by reason of your spouse's death or pursuant to
a qualified domestic relations order (within the meaning of
section 414(p) of the Internal Revenue Code) issued in a divorce
or similar proceeding you may make a rollover contribution of that
distribution. An "eligible rollover distribution" is all or any
part of the taxable portion of the balance to your credit in your
employer's tax-qualified plan except (i) any distribution that is
required to be made because you are over age 70 1/2; (ii) any
distribution made over your life or life expectancy (or the lives
or life expectancies of you and a designated beneficiary); and
(iii) any distribution which is part of a series of substantially
equal payments over a period of ten or more years.
You may roll over all or any portion of an eligible rollover
distribution, but only that portion which is properly rolled over
into an IRA will be eligible for the tax deferral. The remainder
will generally be included in your gross income as ordinary income
subject to federal income tax in the year in which you receive it.
If your qualifying distribution includes property other than cash,
you may sell the property and roll over cash equal to the fair
market value of the property or, with the consent of the
Custodian, you may roll over the property.
ELIGIBLE ROLLOVER DISTRIBUTIONS ARE SUBJECT TO MANDATORY 20%
FEDERAL INCOME TAX WITHHOLDING UNLESS YOU ELECT A DIRECT ROLLOVER
TO AN IRA OR TAX-QUALIFIED PLAN. If you elect a direct rollover,
your distribution proceeds must be made payable to the trustee or
custodian of the IRA or tax-qualified plan to which the rollover
is made. If the proceeds are made payable to you, mandatory
withholding will apply but you still may roll over all or any
portion of your eligible rollover distribution. However, if you
wish to roll over more than the 80% of your distribution which you
directly receive, you must use other money to make up for the
amount withheld which you elect to roll over.
IRA Rollover Contributions and Asset Transfers
You also may make an IRA-to-IRA rollover contribution, but you
are limited to one IRA-to-IRA rollover every twelve months
(beginning on the date you receive your IRA distribution, and not
on the date you make your rollover contribution). However, a tax-
free IRA asset transfer from one custodian to another is not
treated as a rollover and, therefore, is not subject to the
twelve-month limitation. You may make an IRA asset transfer to a
SteinRoe IRA by completing the Asset Transfer section of the
Application Form. An asset transfer from your SteinRoe IRA to
another custodian will be made upon receipt by SSI of a written
request signed by both you and your successor custodian in a form
acceptable to SSI. If you make an asset transfer from your
SteinRoe IRA in the year you reach age 70 1/2 or any subsequent
year, the amount transferred will be reduced by any amount
required to satisfy the minimum distribution requirement for the
year of transfer as provided in Section 4 of the Plan. The amount
by which the transfer is reduced shall be distributed to you.
In general, asset transfers and rollover contributions may be
invested in the same IRA as regular contributions. However, if
assets are transferred or rolled over from a plan ("transferor
plan") after distribution from the transferor plan required by
Sections 401(a)(9), 408(a)(6) or 408(b)(3) of the Code has
commenced ("required distribution"), the assets must be placed in
a separate IRA if you are receiving required distributions from
your pre-existing IRA over a period longer than the period over
which you were receiving required distributions from the
transferor plan. (The assets from the transferor plan must be
distributed over a period no longer than the period established
under the transferor plan.) In addition, an eligible rollover
distribution must
<PAGE> 6
be rolled over into a separate IRA if you wish to preserve the
ability to later roll over those assets to another qualified plan.
If you wish to make a rollover contribution to the Plan, you
must complete the appropriate sections of the Application Form. If
you decide to make a rollover from your SteinRoe IRA to another
IRA, you must complete and return a Distribution Request Form to
SSI. In order to avoid income and premature distribution taxes, a
rollover must be made within 60 days of the date of the
distribution.
SPOUSAL IRA CONTRIBUTIONS
If you are employed (or self-employed), you may elect the
alternative Spousal IRA arrangement for any taxable year in which
your spouse has not more than $250 in compensation and elects to
be treated as having no compensation (for IRA purposes) on your
joint federal income tax return for that year. Under this
arrangement, each of you must sign a separate Application Form to
establish separate IRAs. Because a separate IRA is established for
each of you, you may make regular IRA contributions to a Spousal
IRA which was established in a previous year. Conversely, Spousal
IRA contributions may be made to an IRA established in a prior
year for the purpose of making regular contributions. Except for
the limitations discussed below, a Spousal IRA is identical to a
regular IRA.
The deductibility of contributions under a spousal arrangement
is determined by the same rules as those applicable to regular
contributions, except that the contribution limit is 100% of your
compensation up to $2,250. If you reach age 70 1/2 before your
spouse does and you are still employed, you may no longer make
contributions to your IRA but you may continue to make spousal
contributions to your spouse's account until your spouse reaches
age 70 1/2. Your spousal contribution may be divided between your
IRAs in any way you decide so long as at least $250 (but not more
than $2,000) is contributed to either IRA for a single year.
Contributions which exceed the maximum limits are excess
contributions subject to penalties described earlier in this
booklet.
DISTRIBUTION OF BENEFITS
General
You may request a distribution from your IRA by completing and
returning to SSI a Distribution Request Form acceptable to the
Custodian. Distributions must begin no later than the April 1
following the year in which you attain age 70 1/2. (If you and
your spouse maintain IRAs under a spousal arrangement, then your
age is the relevant age in applying these requirements to
distributions from your IRA and your spouse's age is the relevant
age for your spouse's IRA.)
You may elect to receive your distribution in cash or in Fund
shares by either one or a combination of the following methods:
- - In a lump sum; or-
- - In installment payments payable over a period of time not
greater than your life expectancy or the joint and last
survivor life expectancy of you and your designated
beneficiary.-
Minimum Distribution Requirements
Beginning with the year in which you reach age 70 1/2, you
must begin to receive a minimum distribution amount each year.
Your initial minimum distribution must be made no later than the
April 1 following the year you reach age 70 1/2; thereafter your
minimum distribution must be made no later than December 31 of
each
<PAGE> 7
year. Thus, if you defer your first minimum distribution until the
year following the year you reach age 70 1/2, you will be required
to withdraw a minimum distribution amount for both the prior and
current year.
In general, the minimum distribution amount you are required
to withdraw each year is equal to the balance in your SteinRoe IRA
(aggregating all Fund accounts maintained under your IRA) on
December 31st of the prior year divided by the applicable life
expectancy. Your aggregate account balance, however, is increased
by any rollover contributions to your SteinRoe IRA received after
December 31 that were distributed from another IRA or tax-
qualified plan before December 31. If you establish an installment
plan, you are responsible for verifying that you have withdrawn
the requisite minimum distribution amount each year and making
additional withdrawals, if necessary. If you maintain more than
one IRA, your minimum distribution amount must be determined
separately for each IRA.
The applicable life expectancy used to determine your minimum
distribution amount each year is either your life expectancy or
the joint and last survivor life expectancies of you and your
designated beneficiary (who is either an individual, or a trust
meeting certain requirements) determined in the year you reach age
70 1/2 by using Internal Revenue Service life expectancy tables,
reduced by one for each year elapsed since that year unless you
elect to recalculate life expectancy. You may recalculate your
life expectancy or, if your spouse is your designated beneficiary,
your spouse's life expectancy, or the joint and last survivor life
expectancies of you and your spouse each year. Your election to
recalculate or not recalculate life expectancy becomes irrevocable
on the April 1 following the year you reach age 70 1/2. If you
elect to recalculate life expectancy, you are responsible for
advising the Custodian of the recalculated life expectancy each
year. In addition, if you elect to recalculate life expectancy and
you (or your spouse, if applicable) die after payments have
commenced, the life expectancy of the deceased will be reduced to
zero and the maximum period over which the remaining benefits may
be paid to your beneficiaries will be correspondingly reduced. If
your method of distribution is based on the joint and last
survivor life expectancies of you and a non-spouse beneficiary,
the method must comply with regulations designed to assure at
least 50% of the present value of the amount available for
distribution is paid within your life expectancy. These
regulations require certain minimum distributions based on a
table.
Additional Taxes on Distributions
If you receive a distribution prior to age 59 1/2, the taxable
portion of your distribution generally will be treated as a
premature distribution subject to a 10% additional tax. This
additional tax does not apply, however, to distributions by reason
of your death or permanent disability, or to distributions payable
in substantially equal installments over a period no greater than
your life expectancy or the joint and last survivor life
expectancies of you and your designated beneficiary. If you fail
to withdraw the minimum distribution amount for any year after
reaching age 70 1/2, you will be subject to a 50% additional tax
on the taxable portion of the amount by which the minimum
distribution amount exceeds the amount withdrawn. In addition, if
the aggregate distributions from all of your IRAs and any tax-
qualified retirement plans exceed $150,000 for any year, you may
be subject to a 15% additional tax on the excess amount.
Each of these taxes is nondeductible and is in addition to the
ordinary income tax applicable to the taxable portion of a
distribution.
Distribution of Death Benefits
You may designate one or more beneficiaries to receive the
benefits in your IRA upon your death by filing a properly executed
Beneficiary Form with the Custodian. If you do not designate a
beneficiary, your death benefits will be distributed to your
surviving spouse if you are married or, if you have no surviving
spouse, to your estate. If your beneficiary fails to elect a
method of distribution, your death benefits will be distributed in
a lump sum.
<PAGE> 8
If distributions to you have commenced before your death, and
you die on or after April 1 of the year following the year you
reach age 70 1/2, your death benefits must be distributed at least
as rapidly as under the method by which you were receiving
distributions. If you die before April 1 of the year following the
year you reach age 70 1/2, regardless of whether or not
distributions to you have commenced, your death benefits must be
distributed no later than five years after the last day of the
year in which you die unless your designated beneficiary (who is
either an individual or a trust meeting certain requirements)
elects the alternative distribution method described in the next
paragraph.
If he or she qualifies to elect the alternative distribution
method, your designated beneficiary may elect to receive your
death benefits in installments over a period of as long as his or
her life expectancy provided such installments commence no later
than the last day of the year following the year in which you die.
If your sole beneficiary is your surviving spouse, commencement of
such payments may be further delayed until the date on which you
would have reached age 70 1/2. Under this alternative method, your
designated beneficiary's life expectancy is determined as of his
or her birthdate in the year payments commence. In addition, if
your designated beneficiary is your surviving spouse, your spouse
may elect to treat his or her share of your death benefits as his
or her own IRA subject to the distribution requirements applicable
to a Participant.
For more complete information on the distribution of death
benefits, please refer to Sections 4.4 and 4.5 of the Plan and the
Beneficiary Form.
TAXATION OF DISTRIBUTIONS
In general, distributions from your IRA are taxed to the
recipient as ordinary income in the year of receipt and do not
receive the more favorable federal income tax treatment afforded
recipients of distributions from certain kinds of tax-qualified
retirement plans such as special income averaging. However,
recipients are eligible to utilize the general income averaging
provisions of the Internal Revenue Code. In some instances,
installment payments may reduce the total tax paid by the
recipient by extending taxation over a number of years. If,
however, the aggregate value of your aggregate interest in all of
your IRA's and tax-qualified retirement plans that remains
undistributed on your death exceeds the present value of a life
annuity with annual payments of a specified amount, your federal
estate tax on the excess will be increased by 15%. The specified
amount is indexed for inflation. In 1994, it is $150,000.
If you have made nondeductible contributions to any IRA, a
portion of your distribution will be nontaxable. The nontaxable
amount is the portion of your distribution that bears the same
ratio tothe distribution as (i) your aggregate nondeductible
contributions to all of your IRAs bear to (ii) the aggregate
balance in all of your IRAs on the last day of the year in which
you received your distribution plus the amount of your
distribution. For this purpose, the balances in all IRAs that you
maintain (including rollovers and SEPs) and all distributions you
receive during the year must be aggregated.
Distributions are subject to withholding of federal income tax
at a rate of 10% unless you elect not to have withholding apply.
REPORTING TO THE INTERNAL REVENUE SERVICE
Each year the Custodian will send you IRS Form 5498 reporting
contributions made to your IRA for the prior year. The Custodian
also will report to you your prior year distributions on IRS Form
1099-R. Copies of these reports are also filed with the Internal
Revenue Service ("IRS")
<PAGE> 9
If you make a nondeductible contribution to your IRA, you must
report it to the IRS on IRS Form 8606 which must be filed with
your federal income tax return for the year for which the
contribution is made. If you owe additional taxes on excess
contributions, premature distributions or for insufficient or
excessive distributions, you must file IRS Form 5329 with the IRS.
IRS Form 5330 must be filed in connection with a prohibited
transaction.
PROHIBITED TRANSACTIONS
If you engage in a "prohibited transaction" with your IRA,
your IRA will lose its tax exemption and you will be treated as
having received a distribution of your IRA as of the first day of
the year in which you engaged in the prohibited transaction.
Therefore, you would be subject to income taxation and, if you are
under age 59 1/2, to the additional 10% tax on premature
distributions on the balance in your IRA. You may also be subject
to the additional 15% tax on excess distributions. Prohibited
transactions include such transactions as the selling to, buying
from, leasing any property to or from, lending to or borrowing
from, furnishing goods or services to or receiving goods or
services from, or using the income or assets of your IRA, or
allowing certain other "disqualified persons" to do so. However, a
transfer of all or a portion of your IRA pursuant to a "qualified
domestic relations order" such as a property settlement agreement
under a divorce decree is not considered a prohibited transaction.
Further, your IRA may not be invested in life insurance nor
may any part of your IRA be pledged as security for a loan. If you
do pledge your IRA, you will be treated as if you received a
taxable distribution of the portion of your IRA assets used as
security for the loan. This portion of your IRA would be subject
to income taxation and, if you are under age 59 1/2, the
additional 10% tax on premature distributions. It would also be
subject to the additional 15% tax on excess distributions.
THE CUSTODIAN AND THE PLAN SPONSOR
The Custodian is named in the Application Form and is
responsible for the administration of the Plan in accordance with
the terms of the Application Form and Plan. The Custodian has
engaged SteinRoe Services Inc. ("SSI"), the parent of the Plan
Sponsor, Stein Roe & Farnham Incorporated, to perform most of the
ministerial functions in connection with the maintenance of
SteinRoe Fund accounts established under the Plan. SSI also serves
as transfer agent for each of the SteinRoe Funds. Stein Roe &
Farnham, as Plan Sponsor, has the authority to amend the Plan on
behalf of all participants.
INVESTMENT OF CONTRIBUTIONS
The Plan provides a wide range of investment alternatives from
which you may construct a portfolio to suit your own retirement
planning needs. You may invest your IRA in shares of one or any
combination of the no-load SteinRoe Funds listed on the
Application Form. If you have at least $250,000 in your IRA, you
also may invest your IRA in other investments in addition to (or
in lieu of) the SteinRoe Funds. However, at least 50% of your IRA
must be invested in the SteinRoe Funds and/or be subject to an
investment advisory agreement with Stein Roe & Farnham. Stein Roe
& Farnham may elect to reduce or waive these minimums.
The investment minimum required to establish an account with
any of the Funds is that which is specified in the Application
Form, unless Stein Roe & Farnham waives or reduces this minimum.
If your retirement investment objectives change, you may change
your portfolio by exchanging shares of one Fund for those of
another. This may be done by instructing SSI in writing or, if you
elect the Telephone Exchange Privilege on the Application Form and
the exchange is for $1,000 or more, by calling SSI. The SteinRoe
Funds levy no sales commissions or 12b-1 charges.
<PAGE> 10
In selecting a SteinRoe Fund for investment, it is important
that the investment objective of the Fund selected be consistent
with your retirement and investment objectives. Important
information concerning the SteinRoe Funds and their investment
objectives, policies and restrictions is contained in their
prospectuses and financial reports. Growth in value is not
guaranteed or projected. All income dividends and capital gain
distributions paid on Fund shares are reinvested in accordance
with the Fund's prospectus. For more complete information on the
Funds, including management fees and expenses, obtain the Funds'
prospectuses by calling toll free 1-800-338-2550. Read the
prospectuses carefully before you invest or send money.
CHARGES AND FEES
Custodial Fees - There are no fees charged when you make a
contribution. The only fees charged directly to your IRA are
Custodial fees, which are described below. These fees are
automatically paid by redemption of Fund shares except for the
Fund Account Annual Maintenance Fee which may be paid by separate
check made payable to SSI. Because SSI performs most of the
ministerial functions in maintaining Fund accounts, it receives a
substantial portion of these fees. These fees may be changed upon
45 days' written notice to you. The Custodian also reserves the
right to waive or reduce any of its charges or fees.
1. Fund Account Annual Maintenance Fee $12.00
Charged each calendar year for each Fund account
maintained for you during any part of such year
having a value of less than $5,000, including
accounts from which periodic distributions are
being made. No annual maintenance fee is charged
for a Fund account having a value of $5,000 or more.
2. Termination Fee $5.00
Charged for each Fund account liquidated in
connection with the termination or transfer of
your IRA
3. Distribution Fee $5.00
Charged for each distribution from a Fund account;
provided, however, in the case of installment
payments, this fee is charged only at the time
the installment plan is established or if there
is a change in the amount or frequency of the
payments.
4. Excess Contribution Fee $5.00
Charged for any refund or other correction of an
excess contribution from a Fund account.
5. Other Services
In the event that the Custodian is required to perform
services not ordinarily provided with respect to the Plan,
including making participant-directed investments of large
Custodial Accounts pursuant to Section 7.3 of the Plan, or you
make investments other than in the SteinRoe Funds, the
Custodian may charge such additional fees as are appropriate.
The Custodian also reserves the right to waive or reduce any
of its charges or fees.
SteinRoe Fund Fees - All of the SteinRoe Funds are pure no-
load investments. You pay no sales commissions or 12b-1 charges
for purchasing, redeeming or exchanging Fund shares. Each Fund
does, however, pay certain operational expenses, including
advisory fees. For complete information about Fund expenses and
the method of calculating each Fund's net asset value per share,
please read the Fund prospectuses.
<PAGE> 11
SIMPLIFIED EMPLOYEE PENSION PLANS
The Internal Revenue Code permits certain employers to
establish Simplified Employee Pension Plans ("SEPs") to which
contributions may be made on behalf of all employees meeting
certain eligibility requirements. Contributions may be made by
either the employer ("non-elective contributions") or at the
election of the employee through "pre-tax" salary reduction
contributions ("elective deferrals"). However, elective deferrals
may be made to a SEP only if you had no more than 25 employees
eligible to participate during the prior calendar year and
provided at least 50% of eligible employees actually make elective
deferrals.
You may establish a SEP either by designing your own SEP or by
executing IRS Form 5305-SEP (non-elective contributions) or IRS
Form 5305A-SEP (elective deferrals). Copies of these forms are
available directly from the Internal Revenue Service or from the
office of the SteinRoe Funds. Before establishing a SEP, however,
we suggest you consult with your tax and legal advisers to
determine whether it is appropriate for your circumstances.
In general, except as otherwise specifically stated in the
Plan, the provisions of the Plan apply to IRAs to which SEP
contributions are made and each participant in the SEP has all the
rights described herein with respect to an ordinary IRA including,
for example, the right to select the Funds in which contributions
shall be invested.
Who May Establish a SEP
If you do not presently maintain any other qualified plan
(except another SEP) and you have never maintained a defined
benefit plan, you may establish a SEP by using either IRS Form
5305-SEP or IRS Form 5305A-SEP. Neither of these forms, however,
may be used if you are a member of an affiliated service group, or
a controlled group of corporations, trades or business (described
in Internal Revenue Code sections 414 (m), (b) and (c),
respectively) unless all eligible employees of the member
employers participate. In addition, you may not use IRS Form
5305A-SEP if you only have "highly compensated" employees
(described in Internal Revenue Code section 414(q) ) or you are a
state or local government or tax-exempt employer. You also may not
use IRS Form 5305-SEP if you have any leased employees (described
in Internal Revenue Code section 414(n). You may establish a SEP
up until your tax return due date (including extensions) for the
year for which contributions are first made.
If you decide to adopt a SEP, you must cover all employees who
have attained a minimum age requirement (which cannot be more than
21 years) and performed services for you for a minimum period
(which cannot be more than any part of 3 of the preceding 5
calendar years). Except as described below, for any year in which
you make a non-elective employer contribution, contributions must
be made for each employee who was eligible for any part of the
year, including those who are no longer employed by you as of the
SEP contribution date. In the case of elective deferrals, an
elective deferral is permitted in a given year only if at least
50% of all eligible employees elect to make them. In addition, the
elective deferrals of certain highly compensated employees, as a
percentage of each employee's compensation, may not exceed 125% of
the average amount deferred as a percentage of compensation by all
other eligible employees.
Under a SEP, each eligible employee must establish an IRA. If
an eligible employee does not establish an IRA, you must establish
one for him. Otherwise, your other employees may not participate
and other adverse tax consequences may result.
Excluded Employees
A contribution need not be made on behalf of any eligible
employee whose compensation is less than a
<PAGE> 12
specified amount indexed for inflation for the calendar year. (For
1994, you need not make a contribution on behalf or an individual
whose compensation is less than $396.) The following groups of
persons may also be excluded:
1. Employees who are members of a collective bargaining unit,
represented by a collective bargaining agent, and covered by a
collective bargaining agreement where retirement benefits were the
subject of good faith bargaining; and
2. Employees who are non-resident aliens who receive no earned
income from the employer which constitutes income from sources in
the United States as defined by the Internal Revenue Code.
SEP Contributions
Each year you may make deductible non-elective contributions
of up to the lesser of 15% of an employee's compensation up to
$150,000 (for 1994), or $30,000. Your eligible employees may make
elective deferrals of up to $9,240 (for 1994), which reduce gross
income but are included in the overall $30,000 and 15% limits. All
three of these dollar limits are subject to adjustment each year
for cost-of-living increases.
Deductible non-elective contributions in excess of the maximum
allowable annual contribution limit are excess contributions and
are subject to the regular IRA excess contribution rules. Elective
deferrals in excess of the maximum allowable annual deferral limit
are excess elective deferrals subject to special rules. For more
information on the treatment of excess elective deferrals, please
refer to Section 3.5 of the Plan. SEP contributions are in
addition to any regular IRA contributions your employees make as
individuals. Although you are not required to make non-elective
contributions each year nor make them at the same percentage rate
each year, for each year in which you make a non-elective
contribution, it must be made on behalf of each eligible employee
who has met the age and service requirement of your SEP and you
are responsible for allocating your contributions among all
eligible employees in proportion to their respective compensation.
Your non-elective contributions may be made up to 3 1/2 months
after the end of the calendar year to which such contribution
applies.
Miscellaneous
As employer, you are responsible for all aspects of the
interpretation, operation and administration of your SEP,
including the determination of contributions and their allocation.
If in any year an employee's account does not qualify as an
IRA or the SEP contribution is not properly made, contributions to
that employee's account may be treated as compensation and any
deduction for the contribution (plus any regular IRA contributions
the employee makes) may be subject to the regular IRA contribution
limitations and the regular IRA excess contribution and premature
distribution rules.
_____________________
This Disclosure Statement is not intended as a complete or
definitive explanation or interpretation of the laws and
regulations applicable to IRAs or the SteinRoe Funds Individual
Retirement Account Plan. Establishing an IRA for retirement
savings represents a decision which has significant legal,
financial and tax implications. If you are considering adopting an
IRA, we suggest that you consult with counsel regarding the legal,
financial and tax consequences of doing so. Further information
also can be obtained from any district office of the Internal
Revenue Service.
<PAGE> 13
STEINROE FUNDS
INDIVIDUAL RETIREMENT ACCOUNT PLAN
SECTION 1 - INTRODUCTION
The Custodian designated in the Application Form, by separate
agreement and by facsimile signature of its authorized officer
thereon, agrees that an individual retirement account is
established under section 408(a) of the Code and the terms of this
Plan pursuant to which it agrees to serve as Custodian when it is
appointed under a properly executed Application Form sent to the
custodian in accordance with the terms of the Application Form and
the Plan.
SECTION 2 - DEFINITIONS
As used herein:
2.1 "Beneficiary" means any person designated by a Participant in
accordance with Section 4.5 hereof to receive any death
benefits which shall be payable under the Plan.
2.2 "Code" means the Internal Revenue Code of 1986, as from time
to time amended, any regulations issued thereunder and any
subsequent Internal Revenue Code.
2.3 "Compensation" means the total compensation received by a
Participant for each Plan Year during which he is a
Participant, including wages, salary, professional fees, or
other amounts derived from or received for personal service
actually rendered (including, but not limited to, salesmen's
commissions, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums,
tips and bonuses) and Earned Income (reduced by the
deduction, if any, taken for contributions by a self-employed
individual to a tax-qualified retirement plan covering such
self-employed individual). Compensation also includes any
amount includible in a Participant's gross income under
section 71 of the Code with respect to a divorce or
separation instrument described in section 71(b)(2)(A).
Compensation does not include amounts derived from or
received as earnings or profits from property (including, but
not limited to, interest and dividends) or amounts not
includible in gross income. Compensation also does not
include any amount received as a pension or annuity or as
deferred compensation.
2.4 "Custodial Account" means the individual retirement account
established for the Participant under the Plan.
2.5 "Custodian" means the financial institution named in the
Application Form and any successor thereto.
2.6 "Disabled" or "Disability" means the inability to engage in
any substantial gainful activity because of a medically
determinable physical or mental impairment which can be
expected to result in death or be of a long, continued and
indefinite duration.
2.7 "Earned Income" means Earned Income of a Participant after
deductions under section 404 of the Code but before federal
income taxes for each taxable year for which a contribution
is made to his Custodial Account by him or on his behalf.
Earned Income shall equal his net earnings from self-
employment to the extent that such net earnings constitute
compensation for personal services actually rendered by him
for such year; provided, however, that his personal services
must be a material income-producing factor in his profession,
trade or business. If a Participant derives income from
services as an author or inventor, the term Earned Income
includes gain (other than any gain from the sale or exchange
of a capital asset) and net earnings derived from the sale or
other disposition of, the transfer of any interest in, or the
<PAGE> 14
licensing of the use of property (other than goodwill) by the
Participant if personal efforts created such property.
2.8 "Excess Deferral" means, for any taxable year, the amount of
any excess contribution made under a cash or deferral
arrangement to an annuity plan described in section 403(a) of
the Code, an annuity contract described in section 403(b) of
the Code, a SEP, or a plan described in section 501(c)(18) of
the Code.
2.9 "Mutual Fund" or "Mutual Funds" means the Mutual Fund(s)
specified in the Application Form in which assets of the
Custodial Account may be invested. No Mutual Fund shall be
available for investment under the Plan (i) prior to the date
the prospectus for such Mutual Fund discloses its
availability or (ii) with respect to any Participant who
resides in any state in which shares of the Mutual Fund are
not available for sale.
2.10 "Nonworking Spouse" means a Participant's spouse who has no
Compensation for a taxable year, or who has Compensation of
not more than $250 for the taxable year and elects to be
treated as having no Compensation for such year.
2.11 "Participant" means the person who executes the Application
Form effective on the date of execution.
2.12 "Plan" means the Individual Retirement Account Plan as
provided in this document and the Application Form (the
provisions of which are incorporated herein by reference) and
any amendments thereof.
2.13 "Rollover Contribution" means a rollover contribution as
described in section 402(a)(5), section 402(a)(6)(F), section
402(a)(7), section 403(a)(4), section 403(b)(8), section
408(d)(3), or, prior to their repeal, sections 405(d)(3),
409(b)(3)(C) or 409(b)(D) of the Code.
2.14 "SEP Contribution" means a contribution made by the employer
of a Participant pursuant to section 408(k) of the Code under
a Simplified Employee Pension Plan ("SEP") established by the
use of Internal Revenue Service Form 5305-SEP or Internal
Revenue Service Form 5305A-SEP.
2.15 "Sponsor" means Stein Roe & Farnham Incorporated ("Stein Roe
& Farnham"), or such other person qualified to act as sponsor
as from time to time designated by Stein Roe & Farnham.
Section 3 - Contributions
3.1 Restriction on Contributions. Except for Rollover
Contributions under Section 5.2 hereof, all contributions
shall be made in cash. Each contribution must be accompanied
by written instructions on a form provided or permitted by
the Custodian specifying the Participant's Custodial Account
to which they are to be credited and the manner in which they
are to be invested. Except for Rollover Contributions and SEP
Contributions, no contributions may be made by or on behalf
of any Participant for any taxable year beginning in the year
the Participant attains age 70 1/2. The Custodian may accept
such contributions by or on behalf of the Participant as it
may receive from time to time, provided, however, that except
in the case of Rollover Contributions, the Custodian shall
not accept contributions made by or on behalf of a
Participant for any taxable year in excess of the maximum
dollar amount specified in Section 3.3 hereof (or such other
maximum dollar amount as may from time to time be permitted
under the Code).
3.2 Minimum Contribution Amounts. For each taxable year for which
a contribution is made, other than a SEP Contribution, not
less than $500 shall be contributed by or on behalf of a
Participant. Annual contributions may be made in one or more
payments provided that payments may not be made more
frequently than once each calendar month and the amount of
each such payment shall be not less than $50. These minimums
may be waived or reduced by Stein Roe & Farnham.
<PAGE> 15
3.3 Maximum Contribution Amounts.
(a) Regular Contributions. Except as otherwise expressly
provided in this Section and Section 5 hereof, the
aggregate amount of contributions by or on behalf of a
Participant for the taxable year shall be not more than an
amount equal to or the lesser of one hundred percent
(100%) of the Compensation of the Participant within the
taxable year or $2,000.
(b) SEP Contributions. For any taxable year, the aggregate
amount of SEP Contributions made by an employer on behalf
of a Participant may not exceed the lesser of $30,000 (or
such other amount as may from time to time be permitted
under the Code or regulations thereunder) or 15% of the
Participant's Compensation paid by the employer determined
without regard to such contribution or Compensation in
excess of the annual compensation limit set forth by the
Omnibus Budget Reconciliation Act of 1993 (OBRA'93). The
OBRA'93 annual compensation limit is $150,000, as adjusted
by the Internal Revenue Commission for increases in the
cost of living in accordance with Section 401(a) - (17)(b)
of the Code. The cost-of-living adjustment in effect for a
calendar year applies to any period, not exceeding 12
months, over which compensation is determined
(determination period) beginning in such calendar year. If
a determination period consists of fewer than 12 months,
the OBRA'93 annual compensation limit will be multiplied
by a fraction, the numerator of which is the number of
months in the determination period, and the denominator of
which is 12. SEP Contributions made on behalf of a
Participant pursuant to an elective salary reduction
arrangement shall not exceed $9,240 for 1994 (or such
other amount as may from time to time be permitted under
the Code). SEP Contributions may be made in addition to
any other contributions made by or on behalf of the
Participant as described herein.
(c) Spousal Contributions. For any taxable year in which a
Participant is married (as described in section 143(a) of
the Code) to a Nonworking Spouse with whom a joint tax
return is filed, the Participant may elect to make
contributions on behalf of the Nonworking Spouse to a
Custodial Account which the Nonworking Spouse has
established by executing an Application Form. Under this
arrangement, the aggregate contributions made to the
Custodial Accounts of both the Participant and his
Nonworking Spouse for any taxable year may not exceed the
lesser of $2,250 or 100% of the Participant's
Compensation; provided, however, that the contributions to
either Custodial Account may not exceed $2,000.
A Nonworking Spouse who establishes a Custodial Account
under this Subsection shall be treated as a Participant
under the Plan for all purposes and, for any taxable year
in which the Nonworking Spouse has Compensation, the
Participant and the Nonworking Spouse may make
contributions to their respective Custodial Accounts as
provided in Section 3.3(a).
3.4 Contribution Corrections. If, for any taxable year, aggregate
contributions of a type specified in Section 3.3 hereof made
by or on behalf of a Participant exceed the maximum
permissible amount, and provided no deduction is allowed for
the excess amount, then no later than April 15 of the
following year, the Custodian shall eliminate the excess by
(a) treating it as a contribution for the following year to
the maximum extent allowable an amount equal to the lesser of
(i) the balance in the Custodial Account of the Participant
or (ii) the excess amount (together with an amount equal to
the net income earned on the excess amount), and (b)
distributing the remainder, if any, to the Participant. If a
contribution (a) exceeds the maximum permissible percentage
amounts set forth in Section 3.3 hereof, (b) exceeds the
amount permitted after application of the special
discrimination tests under section 408(k)(6) of the Code or,
in the case of a contribution intended to be a Rollover
Contribution, exceeds the amount qualifying as such or (c) is
an excess contribution within the meaning of Section 4973 of
the Code, the Participant must direct the Custodian in
writing to either return the excess amount or apply it as a
contribution for the following year, and in the absence of
such direction, the Custodian shall take no action.
<PAGE> 16
3.5 Treatment of Excess Deferrals. If the Participant directs the
Custodian in writing, not later than the first March 1
following the end of the year for which an Excess Deferral
was made, to distribute the amount of the Excess Deferral
contributed to the Plan and any earnings thereon, then the
Custodian shall distribute such amount and any earnings
thereon to the Participant no later than the first April 15
following the end of the year for which the Excess Deferral
was made. In the absence of such notification and direction,
the Custodian shall take no action.
Section 4 - Distributions
4.1 General. The Custodian shall distribute the amount credited
to the Custodial Account of a Participant at such times and
in such amounts as the Participant shall direct on a form
provided or permitted by the Custodian and in a manner
consistent with the prospectus(es) of the Mutual Fund(s) in
which the Custodial Account is invested. Such distributions
to a Participant shall commence no later than April 1
following the close of the calendar year in which he attains
age 70 1/2. Distributions of Excess Contributions and Excess
Deferrals and returns of nondeductible contributions shall be
made in accordance with Sections 3.4, 3.5 and 3.6 hereof,
respectively. Except as provided above, if a distribution is
made from the Participant's Custodial Account prior to the
date the Participant attains age 59 1/2 for reasons other
than (i) Disability or death, (ii) as part of a series of
substantially equal periodic payments made over the life
expectancy of the Participant or the joint and last survivor
life expectancies of the Participant and the Participant's
Beneficiary, (iii) as a distribution to an alternate payee
under a qualified domestic relations order (within the
meaning of section 414(p) of the Code), or (iv) as a
distribution of the principal amount of an Excess Deferral
pursuant to Section 3.5 hereof, then the tax on such
distribution shall be increased by an amount equal to 10% of
the taxable portion thereof. The Participant may direct an
immediate distribution which shall be made or commence on the
date (or as near thereto as is practicable) the Custodian
receives the Participant's written request in proper form, or
a future distribution which shall commence on a date
specified in such request which shall be within a reasonable
time after the filing of such form. The Participant
represents and warrants that all distribution instructions
provided to the Custodian shall be in accordance with the
terms of the Plan.
If the Custodian does not receive instructions to effect
distribution to a Participant by the first business day of
the month preceding the month in which distribution is
required to commence, the Custodian shall distribute the
benefits in cash or kind, in the sole discretion of the
Custodian, in a lump sum.
If any installment payment to a Participant or Beneficiary is
less than a minimum amount that may be established from time
to time by Stein Roe & Farnham or the Custodian then, at the
option of either of them, one or more payments under such
method may be paid less frequently or the value of the
Custodial Account may be paid in one sum to the person then
entitled to receive such payments, the contingent interest of
any Beneficiary notwithstanding.
4.2 Payment on Disability. If a Participant becomes Disabled, the
amount credited to the Custodial Account may be distributed,
in accordance with the distribution provision of Sections 4.1
and 4.3 hereof, commencing on the date the Custodian receives
notification from the Participant of Disability in a form
acceptable to the Custodian. Before making any distribution
in the case of the Disability of a Participant prior to the
date the Participant attains age 59 1/2, the Custodian shall
be furnished with proof of such Disability. Proof of
Disability shall mean either (1) proof that such
Participant's application for disability benefits under the
federal Social Security Act has been approved, or (2)
submission of a Certificate of Disability form provided or
permitted by the Custodian showing the same degree of proof
as would be required by such Participant in applying for
disability benefits under the federal Social Security Act.
<PAGE> 17
4.3 Method of Distribution.
(a) Distributions to a Participant made for any reason other
than the death of the Participant may be paid in cash or in
kind in one or a combination of the following ways:
(i) in a lump sum; or
(ii) in annual or more frequent installments over a
period certain not to exceed the life expectancy of the
Participant, or the joint and last survivor life
expectancies, determined as provided in Section 4.6
hereof, of the Participant and the Participant's
individual Beneficiary. Even if installment payments
have commenced pursuant to this option, the Participant
may receive a distribution of the balance in his
Custodial Account, or any part thereof, upon written
request as described in Section 4.1 hereof to the
Custodian.
(b) If the Participant elects to receive installment payments
then (except as otherwise permitted under regulations for
distributions required to commence prior to January 1, 1988),
beginning with the year the Participant reaches age 70 1/2,
the minimum distribution required for that year shall be at
least equal to the lesser of the balance in the Participant's
Custodial Account or the quotient obtained by dividing (i)
the balance in the Custodial Account as of the close of
business on December 31 of the prior year [reduced, in the
case of the year ("Second Distribution Year") following the
year in which the Participant reached age 70 1/2, by any
distribution made during the Second Distribution Year on or
prior to April 1 to satisfy the minimum distribution
requirement for the year the Participant reached age 70 1/2
by (ii) the life expectancy of the Participant (or, if
applicable, the joint and last survivor life expectancies of
the Participant and the Participant's Beneficiary, determined
as provided in Section 4.6 hereof. Distributions for the year
in which a Participant reaches age 70 1/2 will be deemed
timely made if made on or prior to April 1 of the succeeding
calendar year.
(c) For purposes of determining the minimum amount required
to be distributed under Section 4.3 (b) hereof, the balance
in the Custodial Account as of December 31 of any year shall
be increased by the amount of any Rollover Contribution from
another individual retirement account or tax-qualified
retirement plan received after December 31 which was
distributed from such other individual retirement account or
a tax-qualified retirement plan on or prior to December 31.
(d) If the case of a Rollover Contribution or an amount
transferred to the Plan pursuant to Section 5 hereof that was
distributed (or transferred) from an individual retirement
account or tax-qualified retirement plan ("transferor plan")
after the April 1 of the year following the year in which the
Participant reached age 70 1/2, such assets must be held in a
Custodial Account separate from any other Custodial Account
from which the Participant is receiving installment payments
in accordance with Section 4.3 (b) hereof, which payments are
being made over a period longer than the period over which
the Participant was receiving installment payments from the
transferor plan. Distribution from such separate Custodial
Account shall begin no later than the year following the year
of the rollover or transfer with payments over a period
established under the transferor plan. The designated
beneficiary under the transferor plan shall be substituted
for the Beneficiary designated hereunder if the distribution
period for such separate Custodial Account period is
determined based on the joint and last survivor life
expectancies of the Participant and designated Beneficiary.
(e) Notwithstanding any other provisions in this Plan,
effective for distributions made before the Participant's
death, where the distribution period is longer than the
Participant's life expectancy and the Participant's spouse is
not the Beneficiary, the minimum amount required to be
distributed each year, beginning with the year the
Participant reaches age 70 1/2, shall be at least the
quotient obtained
<PAGE> 18
by dividing the balance in the Custodial Account as of the
close of business on December 31 of the prior year [reduced,
in the case of the year ("Second Distribution Year")
following the year in which the Participant reached age 70
1/2, by any distribution made during the Second Distribution
Year on or prior to April 1 to satisfy the minimum
distribution requirement for the year the Participant reached
age 70 1/2] by the lesser of (i) the joint and last survivor
life expectancies of the Participant and the Participant's
Beneficiary determined as provided in Section 4.6 hereof or
(ii) the applicable divisor determined from the table set
forth in Q&A-4 of Prop. Treas. Reg. Section 1.401(a)-2.
4.4 Distribution on Death of Participant.
(a) If the Participant dies after payment has commenced under
Section 4.3 hereof, and on or after the April 1
following the year in which the Participant reached age
70 1/2, the balance in his or her Custodial Account
shall be distributed to the Participant's Beneficiary,
designated in accordance with Section 4.5 hereof, at
least as rapidly as under the method of distribution by
which payments were being made to the Participant prior
to death.
(b) If a Participant dies before the April 1 following the
year in which the Participant reaches age 70 1/2, the
balance in his or her Custodial Account shall be
distributed to the Participant's Beneficiary, designated
in accordance with Section 4.5 hereof, as the
Beneficiary shall elect:
(i) in a lump sum no later than December 31 of the year
that contains the fifth anniversary of the Participant's
death or, if later, if the Participant's sole
Beneficiary is the Participant's surviving spouse,
December 31 of the calendar year in which the
Participant would have attained age 70 1/2; or
(ii) in annual or more frequent installment payments
over a period certain not to exceed the life expectancy,
determined in accordance with Section 4.6 hereof, of the
Beneficiary. If the Participant's sole Beneficiary is
the Participant's surviving spouse, payments shall
commence no later than the later of December 31 of the
year following the year in which the Participant died,
or December 31 of the calendar year in which the
Participant would have attained age 70 1/2. In all other
cases, payments shall commence no later than December 31
of the calendar year immediately following the year in
which the Participant died.
(c) If a Participant's spouse is named as Beneficiary in
accordance with Section 4.5 hereof, then notwithstanding
the provisions of Sections 4.4(a) and (b) hereof, the
Participant's spouse may elect to treat the interest in
the Participant's Custodial Account to which the spouse
becomes entitled upon the Participant's death as the
spouse's own individual retirement account subject to
the distribution provisions of Section 4.3 hereof by
execution of a new Application Form establishing the
spouse's own Custodial Account not later than the date
of filing the Participant's federal estate tax return
or, if earlier, the due date (including any extensions)
for such return. The determination of whether an
election has been made by a Participant's spouse to
treat the spouse's portion of death benefits as his or
her own individual retirement account will be made in
accordance with applicable rulings and regulations.
(d) Before making any distribution in the case of death of a
Participant, the Custodian shall be furnished with such
certified death certificates, inheritance tax releases,
indemnity agreements and other documents as may be
required by the Custodian.
(e) If a Participant dies before the total amount in the
Custodial Account has been distributed, and the
Participant's Beneficiary is other than the
Participant's spouse, no additional cash contributions
or Rollover Contributions may be accepted by the
Custodian.
<PAGE> 19
(f) To the extent prescribed by regulation under the Code,
for purposes of this Section 4.4, any amount paid to a
child of the Participant will be treated as if it had
been paid to the surviving spouse provided the balance
in the Participant's Custodial Account when the child
reaches the age of majority (or when any other
designated event permitted under regulations occurs)
will become payable to the surviving spouse.
4.5 Beneficiary Designation. A Participant shall have the right
to designate, or to change, the Beneficiary to receive the
balance in the Custodial Account at the time of the
Participant's death. Such designation may include contingent
or successive Beneficiaries. A Beneficiary designated by a
Participant shall select the method by which benefits payable
to him or her shall be paid. Designations by a Participant
and selection of a distribution method by a Beneficiary shall
be subject to the provisions of Section 4.4 hereof and shall
be made on a form provided or permitted by the Custodian. A
designation properly completed by a Participant shall be
effective upon receipt by the Custodian no later than 30 days
after the death of the Participant. If no properly completed
Beneficiary designation is received by the Custodian within
30 days after the Participant's death, the Custodial Account
shall be distributed in cash or kind as the Custodian directs
in a lump sum to the Participant's surviving spouse or, if
there is no surviving spouse, to the Participant's estate. A
selection of distribution method properly completed by a
Beneficiary shall be effective upon receipt by the Custodian
no later than the earliest of (i) the date the Custodian
receives instructions to distribute the Custodial Account of
the deceased Participant, which instructions it determines to
be in good order, or (ii) December 1 of the year that
contains the fifth anniversary of the Participant's death. If
the Custodian fails to receive from a Beneficiary a properly
completed designation of distribution method within the time
prescribed above, the Participant's Custodial Account shall
be distributed in a lump sum to the Beneficiary in cash or
kind as the Custodian directs.
The Custodian shall be responsible for determining the
identity of persons who qualify as the Beneficiaries entitled
to receive distributions upon the death of a Participant and
the identity of the person who qualifies as the executor or
administrator of the Participant's estate in accordance with
applicable regulations. If any person to whom all or a
portion of the Participant's interest is payable is a minor,
payment of such minor's interest shall be made on behalf of
such minor to the person designated by the Participant in his
Beneficiary Designation to receive such minor's interest as a
custodian under the Illinois Uniform Transfers Act or similar
statute. If the Participant does not designate a custodian to
receive the minor's interest on behalf of such minor or if
the person designated refuses or is unable to act, the
Custodian may in his sole discretion:
(a) distribute the interest to the legal guardian of such minor;
or
(b) designate an adult member of the minor's family, a guardian or
a trust company (including the Custodian), as those terms are
defined in the Illinois Uniform Transfers Act, as custodian
for such minor under the Illinois Uniform Transfers Act or
similar statute and distribute such minor's interest to the
person so designated. The person designated as custodian
under the Illinois Uniform Transfers Act, or similar statute,
shall hold, manage and distribute such property in accordance
with the provisions of such statute.
The Participant shall be responsible for determining the
Beneficiary whose life expectancy is to be used in
determining the maximum period of time over which the
Custodian Account may be distributed under Section 4.3 or 4.4
hereof. The designation of such Beneficiary shall be
irrevocable as of April 1 of the year following the year in
which the Participant attains age 70 1/2. If a Participant
designates more than one individual Beneficiary, the
Beneficiary (other than a Beneficiary whose receipt of
benefits is contingent
<PAGE> 20
on the death of a prior Beneficiary) with the shortest life
expectancy shall be the Beneficiary whose life expectancy is
used to determine the maximum period over which installment
distributions may be made from the Custodial Account. If a
Participant has a Beneficiary (other than a trust described
in the next sentence) that is not an individual, then
distributions from the Custodial Account shall not be made
under a method that takes into account the life expectancy of
a Beneficiary. If a Participant designates a trust as a
Beneficiary, and as of the later of the date on which the
trust is named as a beneficiary or April 1 of the year
following the year in which the Participants attains age 70
1/2, and as of all subsequent times, the following
requirements are met, the individual beneficiary of the trust
having the shortest life expectancy shall be the Beneficiary
considered in determining the appropriate Beneficiary life
expectancy to be used hereunder:
(a) There are no beneficiaries of the trust (other than
beneficiaries whose receipt of benefits is contingent on
the death of a prior beneficiary) who are not
individuals.
(b) The trust is a valid trust under state law, or would be
but for the fact that there is no corpus.
(c) The trust is irrevocable.
(d) The beneficiaries of the trust who are Beneficiaries with
respect to the Custodial Account are identifiable from
the trust instrument.
(e) A copy of the trust is provided to the Custodian.
The Custodian and its officers, employees, attorneys and
agents shall be fully discharged from all liability to any
and all persons making a claim to the Participant's Custodial
Account under the Plan in relying on evidence by affidavit or
otherwise as shall be satisfactory to the Custodian in
determining any questions of fact relative to payments under
the Plan, including the existence or identity of any
Beneficiary or trustee designated by the Participant, the
administrator or executor of the Participant's estate or any
person authorized to act on behalf of any such person.
Further, any amount paid to any such person in accordance
with the terms of the Plan shall fully discharge the
Custodian for the amount so paid.
4.6 Determination of Life Expectancies.
(a) General Rule. For purposes of this Section 4, life
expectancy and joint and last survivor life expectancies
shall be computed by the Participant (and, if applicable
after the Participant's death, by the Beneficiary) by
using the life return multiples in Regulation 1.72-9
under the Code. The life expectancy of the Participant
and a spouse Beneficiary may be redetermined, but not
more frequently than annually. The Participant's
election to determine life expectancy will become
irrevocable on April 1 of the year following the year in
which the Participant reaches age 70 1/2. In the case of
distributions pursuant to Section 4.4(b) (ii) hereof, a
spousal Beneficiary election to redetermine life
expectancy will become irrevocable on the date
distributions are required to commence thereunder. If no
election concerning redetermination of life expectancy
is made by the date such election would be irrevocable,
life expectancy will not be redetermined.
(b) Life Expectancy Not Recalculated. If the life expectancy
of the Participant and the Beneficiary are not
recalculated, then the following provisions apply to
determination of life expectancy. If distribution is
being made under Section 4.3(b) hereof, the life
expectancy of the Participant and the Beneficiary shall
be determined as of their respective attained ages as of
their respective birthdays in the calendar year in which
the Participant attained age 70 1/2, reduced by one for
each year that has elapsed since the year the
Participant attained age 70 1/2. If distribution is
being made under Section 4.4(b)(ii) hereof,
<PAGE> 21
the life expectancy of the Beneficiary shall be
determined as of the Beneficiary's attained age as of
his birthday in the calender year in which distributions
are required to commence thereunder, reduced by one for
each year that has elapsed since such calendar year.
(c) If the life expectancy of the Participant and/or a spouse
Beneficiary is to be recalculated, then the following
provisions shall apply to determine life expectancy, and
the Participant (or, if applicable, the spouse
Beneficiary) shall be solely responsible for advising
the Custodian of the redetermined life expectancy
annually, no later than 30 days prior to the beginning
of each calendar year in which an installment payment is
to be made.
If distribution is being made under Section 4.3(b) hereof,
the Participant's life expectancy (or the joint and last
survivor life expectancies of the Participant and his spouse
Beneficiary) each year beginning with the year in which the
Participant reached age 70 1/2, using the Participant's (and,
if applicable, the spouse Beneficiary's) attained age as of
the Participant's birthday (and, if applicable, the spouse
Beneficiary's birthday) in each such year.
If distribution is being made under Section 4.3(b) hereof and
the life expectancy of the Participant but not his
Beneficiary is being recalculated, the applicable joint and
last survivor life expectancies shall be recalculated by
using an adjusted age of the Beneficiary. The adjusted age of
the Beneficiary shall be determined by reducing the life
expectancy of the Beneficiary (determined as of his attained
age on his birthday in the calendar year in which the
Participant reached age 70 1/2) by one for each year that has
elapsed since the calendar year in which the Participant
reached age 70 1/2, and locating the age that corresponds to
that life expectancy (rounded to the next highest integer, if
not a whole number of years) in Table V of Regulation 1.72-9
under the Code.
If distribution is being made pursuant to Section 4.4(b)(ii)
hereof and the life expectancy of the Participant's spouse
Beneficiary is being recalculated, the life expectancy of the
spouse Beneficiary will be determined based on her attained
age as of her birthday in the calendar year in which
distributions are required to commence to her under Section
4.4(b)(ii) hereof.
Upon the death of the Participant or the Beneficiary, the
recalculated life expectancy of the decedent will be reduced
to zero in the calendar year of death. The balance in the
Custodial Account must be distributed prior to the last day
of the calendar year in which the last applicable life
expectancy is reduced to zero.
4.7 Distributions in Accordance with Regulations. In all
cases, distributions hereunder are not permitted except
in accordance with applicable regulations promulgated by
the Secretary of the Treasury.
Section 5 - Transfers and Rollover Contributions
5.1 Transfers. Any person may adopt the Plan for the sole purpose
of transferring to the Custodian in cash, or with the consent
of the Custodian, in kind any part of the assets of an
individual retirement account held for the person's benefit
by another custodian, trustee or insurance company, provided
however, that the Custodian may elect not to accept a
transfer unless it is preceded by asset transfer instructions
satisfactory to the Custodian. In case of assets transferred
to the Plan and held in a separate Custodial Account in the
year the Participant reaches age 70 1/2 or in any subsequent
year as provided in Section 4.3(d) hereof, the asset transfer
instructions must be accompanied by a Distribution Request
Form and a Beneficiary Form applicable to the transferred
assets computed in accordance with the distribution method in
effect under the transferor individual retirement account.
Transfers from the Custodian to a successor custodian or
trustee shall be made in accordance with Section 6.4 hereof.
<PAGE> 22
5.2 Rollover Contributions to the Plan. Any person may adopt the
Plan for the sole purpose of making a Rollover Contribution
in cash, or with the consent of the Custodian, in kind in an
amount of not less than $500 (unless waived or reduced by
Stein Roe & Farnham); provided, however, that the Custodian
may elect not to accept a Rollover Contribution unless
rollover contribution instructions satisfactory to the
Custodian are provided at the time the Rollover Contribution
is made or at such later date as the Custodian may permit. A
person adopting the Plan for the sole purpose of making a
Rollover Contribution shall be treated as a Participant under
the Plan for all purposes. If the Rollover Contribution was
distributed from the distribution plan after April 1 of the
year following the year in which the Participant reaches ages
70 1/2 and the Rollover Contribution is held in a separate
Custodial Account as provided in Section 4.3(d) hereof, the
Rollover Contribution instructions must be accompanied by a
Distribution Request Form and a Beneficiary Form applicable
to the amount rolled over computed in accordance with the
distribution method in effect under the distribution plan.
5.3 Rollover Contributions from the Plan. On, or as soon as
reasonably possible after, the date the Custodian receives
from a Participant a Distribution Request Form provided or
permitted by the Custodian, or at a future date specified in
the Form which shall be within a reasonable time after the
date the Custodian receives it, stating that the Participant
wishes to make a Rollover Contribution from the Plan, the
Custodian shall distribute such amount from the Participant's
Custodial Account as the Participant shall direct in a manner
consistent with the prospectus(es) of the Mutual Fund(s) in
which the Custodial Account is invested. The Custodian may
make such distribution to the Participant without inquiry as
to whether the statements made by the Participant in the
Distribution Request Form are correct, and in no event shall
the Custodian or any officers, employees, attorneys or agents
of the Custodian be liable for any costs, expenses, or income
or excise taxes which might arise by virtue of the
Custodian's making such distribution. The Participant
represents and warrants that all directions contained within
the Distribution Request Form shall be and are in accordance
with the terms of the Plan.
Section 6 - Administration
6.1 General. Except as provided herein, the Plan shall be
administered by the Participant, who shall have sole
responsibility for the operation of the Plan in accordance
with its terms and shall determine all questions arising out
of the administration, interpretation, and application of the
Plan (which determination shall be conclusive and binding on
all persons). The Participant also shall have sole authority
on behalf of any and all persons having or claiming any
interest in the Participant's Custodial Account. The
Participant shall have the sole authority and responsibility
to determine the amount of the contributions (except for SEP
Contributions which shall be the responsibility of both the
Participant and the Participant's employer) and distributions
to be made under the Plan and neither the Custodian nor any
other person shall be responsible therefor, or for any
consequences to the Participant resulting from making of
contributions which are in excess of those permitted or the
failure to make distributions required, under the Plan or
Code. In no event shall the Custodian, or any of its
officers, employees, attorneys or agents be liable for any
such costs, expenses, income taxes or excise taxes which
might accrue by virtue of a failure to comply with the
requirements of the Plan or the Code.
The Participant intends that the Custodial Account under the
Plan shall qualify and be tax-exempt under section 408 of the
Code, but if it should ever not so qualify, all assets held
in the Custodial Account shall be distributed to the
Participant in accordance with the termination provisions of
Section 8 hereof. Until advised to the contrary, the
Custodian may assume the Custodial Account is so qualified
and tax-exempt.
6.2 Establishment of Custodial Account. The Custodian shall
establish and maintain a Custodial Account for the
Participant whose interest therein shall immediately become,
and at all times shall remain, nonforfeitable.
<PAGE> 23
The Participant shall promptly notify the Custodian in
writing of any changes in the Participant's name or address.
The Participant warrants that at no time shall any part of
the assets of the Custodial Account, after deducting any
expenses properly chargeable to the Custodial Account, be
used for or diverted to purposes other than for the exclusive
benefit of the Participant and his or her Beneficiaries.
6.3 Reports of Custodian. The Custodian shall keep accurate and
detailed records of all receipts, disbursements and other
transactions relating to the Custodial Account. As soon as
practicable after the close of each taxable year (or after
the Custodian's resignation or removal pursuant to Section
6.4 hereof) and whenever required by the Code, the Custodian
shall deliver to the Participant a written report reflecting
receipts, disbursements and other transactions effected in
the Custodial Account during such period and fair market
value of the assets and liabilities of the Custodial Account
as of the close of such period.
The Custodian shall keep such records, make such
identifications and file with the Internal Revenue Service
such returns and other information concerning the Custodial
Account as may be required of it under the Code or forms
adopted by the Treasury Department thereunder. Further, the
Participant and the Custodian shall furnish to each other
such information relevant to the Plan and Custodial Account
as may be required by the Code or such forms.
Unless the Participant sends the Custodian written objection
to a report within 60 days of delivery, the Participant shall
be deemed to have approved such report and the Custodian and
its officers, employees, attorneys and agents shall be
forever released and discharged from all liability and
accountability to anyone with respect to their acts,
transactions, duties and obligations or responsibilities as
shown on, or reflected by, such report. Nothing in the Plan
shall prevent the Custodian from having its accounts
judicially settled by a court of competent jurisdiction.
6.4 Registration or Removal of Custodian. The Custodian may
resign at any time upon 30 days' notice in writing to the
Participant and to Stein Roe & Farnham and may be removed by
the Participant (or Stein Roe & Farnham as agent for the
Participant) at any time upon notice in writing to the
Custodian. Upon such resignation or removal, the Participant
(or Stein Roe & Farnham as agent for the Participant) shall
appoint a successor custodian, which successor shall be a
"bank" as defined in section 401(d) of the Code or such other
person who demonstrates to the satisfaction of the Secretary
of the Treasury or his delegate that the manner in which such
other person will administer the Custodial Account will be
consistent with the requirements of section 408 of the Code.
Upon receipt by the Custodian of written acceptance of such
appointment by the successor custodian, the Custodian shall
transfer and pay over to such successor the assets of the
Custodial Account and all records pertaining thereto.
However, the Custodian shall, if the transfer occurs in the
year the Participant reaches age 70 1/2 or any subsequent
year, distribute to the Participant any amount required to
satisfy the minimum distribution requirements for the year of
transfer, as provided in Section 4. Further, the Custodian is
authorized to reserve such sum of money as it may deem
advisable for payment of all its fees, compensation, costs
and expenses, or for payment of any other liabilities
constituting a charge on or against the assets of the
Custodial Account or on or against the Custodian, with any
balance of such reserve remaining after the payment of such
items to be paid over to the successor custodian. The
successor custodian shall hold the assets paid over to it
under terms similar to those of the Agreement that qualify
the Custodial Account under section 408(h) of the Code.
If, within 30 days after the Custodian's resignation or
removal the Participant (or Stein Roe & Farnham as agent for
the Participant) has not appointed a successor custodian
which has accepted the appointment, the Custodian shall,
unless it elects to terminate the Custodial Account pursuant
to Section 6.5, appoint such successor itself. The Custodian
shall not be liable for the acts or omissions of any
successor custodian whether or not the Custodian makes such
appointment itself.
<PAGE> 24
6.5 Termination of Account. The Custodian may elect to terminate
the Custodial Account if, within 30 days after its
resignation or removal pursuant to Section 6.4, the
Participant (or Stein Roe & Farnham as agent for the
Participant) has not appointed a successor custodian which
has accepted such appointment. Termination of the Custodial
Account shall be effected by distributing all assets thereof
to the Participant pursuant to the written direction of the
Participant (who represents and warrants that such directions
shall be in accordance with the provisions of the Plan) or,
if the Participant fails or is unable to give such
directions, such distribution shall be effected in such
manner as is determined by the Custodian, in each instance in
accordance with and subject to the provisions and limitations
of the Plan. Upon the completion of such distribution, the
Custodian shall be relieved from all further liability with
respect to all amounts so paid.
6.6 Other Matters Concerning the Custodian. To the extent
permitted by federal law, the Custodian shall not be
responsible in any way for the collection of contributions
provided for under the Plan, the purpose or propriety of any
distribution made pursuant to Section 4 hereof, or any other
action taken at the Participant's direction. The Custodian
shall also not have any duty or responsibility to determine
whether information furnished to it by the Participant is
correct or whether amounts contributed to the Custodial
Account are tax-deductible or whether amounts distributed
from the Custodial Account are subject to income or excise
tax or any other tax whatsoever. To the extent permitted by
federal law, nothing contained in the Plan, either expressly
or by implication, shall be deemed to impose any powers,
duties or responsibilities on the Custodian other than those
set forth herein. The Custodian and its officers, employees,
attorneys and agents shall be indemnified and saved harmless
by the Participant (and the legal representatives, heirs,
successors or agents) and from the Custodial Account from and
against any and all personal liability arising from actions
taken at the Participant's direction, and from any and all
other liability whatsoever which may arise in connection with
the administration of the Plan, except the obligation of the
Custodian to perform in accordance with the provisions of the
Plan and with respect to the Custodial Account unless the
Participant shall furnish the Custodian with instruction in
proper form and such instruction shall have been specifically
agreed to by the Custodian. The Custodian shall be under no
duty to defend or engage in any suit with respect to the
Custodial Account unless the Custodian shall have first
agreed in writing to do so and shall have been fully
indemnified to the satisfaction of the Custodian. The
Custodian shall be protected in acting upon any order or
direction from a Participant (including any order or
direction permitted by and in accordance with and subject to
the terms and conditions of the Telephone Exchange Privilege,
if applicable) or any other notice, request, consent,
certificate, or other instrument on paper believed by it to
be genuine and to have been properly executed (including
Beneficiary Designations received from a Participant) and, so
long as it acts in good faith, in taking or omitting to take
any other action.
The Custodian is authorized to allocate fiduciary
responsibilities and duties between or among itself and any
other fiduciary or fiduciaries, if any, and to delegate any
of its ministerial, clerical or administrative functions to
or among such persons as it shall deem appropriate; provided
however, that in no event shall the Custodian either allocate
or delegate its responsibilities and duties for the
management of assets held in the Custodial Account except for
Participant-directed investments of large Custodial Accounts
under Section 7.3 hereof.
The Custodian may allocate or delegate any of its
responsibilities and duties hereunder by following a
procedure pursuant to which it shall (1) allocate or delegate
its responsibilities and duties in a written agreement
between it and each person to whom such responsibilities and
duties are allocated or delegated (which agreement shall
describe the nature and the extent of such allocation or
delegation), and (2) specify in writing to the Participant
the name of the person or persons to whom such
responsibilities and duties are allocated or delegated, the
nature and extent of the responsibilities and duties which
are allocated or delegated
<PAGE> 25
and the terms and conditions of such allocation or
delegation, including compensation therefor (if any). The
Custodian shall not be liable for any act or omission of the
person or persons to whom such responsibilities and duties
are allocated or delegated.
Section 7 - Investment of Plan Assets
7.1 General. Except as otherwise permitted under Section 7.3
hereof, contributions by or on behalf of a Participant shall
be invested by the Custodian solely in the Mutual Funds the
Participant or the Beneficiary (or the duly authorized agent
of either of them) shall elect on a form provided or
permitted by the Custodian. At such times as the Participant
or the Beneficiary (or the duly authorized agent of either of
them) shall deem appropriate, changes of investment may be
made by written instruction to the Custodian on such form as
is provided or permitted by the Custodian. If the Telephone
Exchange Privilege has been elected on the Application Form,
such changes may be made by telephone or such other means of
communication permitted by, and in accordance with, the terms
and conditions of the Telephone Exchange Privilege. No change
shall be effective until received by the Custodian and, once
effective, shall remain in effect until properly changed. If
a Participant or a Beneficiary (or duly authorized agent of
either of them) fails to properly direct the investment of
the Custodial Account, such Participant's Custodial Account
shall be invested in shares of the Mutual Fund specified in
the Application Form for such circumstances. Instructions
concerning the investment of the assets held in a Custodial
Account shall be executed by the Custodian on, or as soon as
reasonably practicable after, the date the Custodian receives
instructions in proper form.
The Participant warrants that no investment made pursuant to
his or her direction under this Section shall cause the
Custodial Account to lose its exemption as provided in
section 408(e)(2) of the Code.
The assets of a Custodial Account shall not be commingled
with other property except in a common trust fund or a common
investment fund and shall not be invested in life insurance
contracts or in "collectibles" as defined in section 408(m)
of the Code.
7.2 Mutual Fund Investments. Plan assets invested in shares of
the Mutual Fund(s) shall be made in accordance with, and
shall be subject to, the provisions of the prospectus(es) of
such Mutual Funds(s) and such shares shall be registered in
the name of the Custodian or its nominee until distributed.
The Participant for whom such shares are acquired shall be
beneficial owner of such shares.
Except as otherwise provided, herein, all income dividends
and capital gain distributions paid on Mutual Fund shares
held in a Custodial Account shall be reinvested in accordance
with the Mutual Funds' prospectuses. If any distribution may
be received in shares, cash or other property at the election
of the shareholder, the Custodian shall elect to make such
distribution in shares in accordance with the Mutual Funds'
prospectuses. A Participant may elect to receive income
dividends and capital gain distributions in cash as part of a
distribution from the Custodial Account.
The Mutual Funds in which the assets held in the Custodial
Account are invested shall furnish to the Custodian, and the
Custodian shall promptly deliver to the Participant,
confirmation of all investments, changes of investment and
investments of distributions paid with respect to Mutual Fund
shares held in the Participant's Custodial Account and all
notices, prospectuses, financial statements, proxies, and
proxy soliciting materials relating to such shares. To the
extent required, the Custodian or its nominee shall sign such
proxies as record owner of such shares, but shall not
otherwise vote them except in accordance with the written
instructions of the Participant. Delivery by the Custodian of
any of these items to the Participant shall be deemed to be
on the date such items are mailed by the Custodian to the
Participant at
<PAGE> 26
the Participant's last address of record (or to such other
address as the Participant shall direct); provided, however,
that anything herein to the contrary notwithstanding, such
delivery by the Custodian shall be in compliance with the
minimum requirements of applicable securities laws.
7.3 Investment of Large Custodial Accounts.
(a) Notwithstanding the provisions of the Plan to the contrary, a
Participant who has a Custodial Account with a balance of not
less than $250,000 (unless waived or reduced by Stein Roe &
Farnham) may, if so elected a form acceptable to the
Custodian, direct the Custodian in writing to invest such
Custodial Account and income therefrom in such stocks, bonds,
notes, shares of other mutual funds registered under the
Investment Company Act of 1940, as amended, or other
property, real or personal, as the Participant deems
appropriate. However, if the value of the Custodial Account
shall at any time be less than $100,000 (unless waived or
reduced by Stein Roe & Farnham), the investment of the
Custodial Account shall be limited to the Mutual Funds.
Further, any amount invested pursuant to this Section in an
investment, other than securities traded on a national stock
exchange or in the over-the-counter market, shall be subject
to the prior written agreement of the Custodian, and not less
than 50% (unless waived or reduced by Stein Roe & Farnham) of
the Participant's Custodial Account shall be invested in the
Mutual Funds and/or be subject to an Investment Advisory
Agreement between the Participant and Stein Roe & Farnham.
(b) The Custodian may charge the Custodial Account of the
Participant who elects to invest the Custodial Account
pursuant to this Section such fees in addition to the fees
set forth in the Application Form as the Custodian and the
Participant may from time to time agree in writing.
(c) Subject to the direction of the Participant, the Custodian
shall have the following powers with respect to a Custodial
Account invested pursuant to this Section:
(i) to invest all or any portion of the Custodial
Account in investment contracts issued by an insurance
company, including, but not limited to, guaranteed
income contracts, immediate participation guarantee
contracts, group annuity contracts and deposit
administration contracts, and to excise all rights under
such contracts in the manner directed by the
Participant; provided that, notwithstanding the
foregoing, no such investment shall be made in life
insurance contracts or in any other investment which
would cause the Participant's Custodial Account to lose
its exemption as provided in section 408(e)(2) of the
Code;
(ii) to keep, in its sole discretion, such portion of
the Custodial Account in cash balances (regardless of
whether interest is paid on such balances) with a bank
or trust company (including the Custodian) as the
Custodian may from time to time deem to be in the best
interest of the Participant, and the Custodian shall not
be liable for any loss of interest on cash so held;
provided, however, that any cash balances held by the
Custodian shall bear a reasonable rate of interest;
(iii) to sell, exchange, convey, transfer or otherwise
dispose of any property held by it by private sale or
contract or by public auction, and no person dealing
with the Custodian shall be bound to see to the
application of the purchase money or to inquire into the
validity, expediency or propriety of any such sale or
other disposition;
(iv) to vote (or refrain from voting), either in person
or by general or limited proxy, any securities; to
exercise any conversion privileges, subscription rights
or other options and to make any payments incidental
thereto; to consent to or otherwise participate in
reorganizations or other
<PAGE> 27
changes affecting corporate securities and delegate
discretionary power and to pay any assessments or
charges in connection therewith; and to generally
exercise any powers of any owner with respect to stocks,
bonds, securities or other property (other than shares
of Mutual Funds) held in the account;
(v) to make, execute, acknowledge, and deliver any and
all documents of transfer and conveyance and any and all
other instruments that may be necessary or appropriate
to carry out the powers herein granted;
(vi) to register any investments made pursuant to this
Section in its own name or in the name of a nominee and
to hold any investment in bearer form, but the books and
records of the Custodian shall at all times show that
all such investments are part of the Participant's
Custodial Account;
(vii) to employ, and pay compensation to, suitable
agents, custodians, counsel and accountants as the
Custodian deems necessary or desirable to manage or
protect the Custodial Account, and if the Custodian
shall employ counsel, the Custodian shall be fully
protected in acting on the advice of such counsel; and
(viii) to do all acts, whether or not expressly
authorized, which the Custodian may deem necessary or
proper for the protection of the property held
hereunder.
Section 8 - Amendment and Termination
The Participant may amend the Application Form or terminate
the Custodial Account and Stein Roe & Farnham may, as agent
for the Participant, amend the Plan (including retroactive
amendment of the Plan), by delivering to the Custodian a
signed copy of such amendment or a notice of termination;
provided that the Custodian's duties may not be increased
without its written consent. By mutual agreement, Stein Roe &
Farnham and the Custodian may change the Custodial Fees set
forth in the Application Form upon 45 days' written notice to
the Participant.
In the event that the Participant amends the Plan, other than
by amending the Application Form, the Participant's Plan
shall no longer be considered as approved by the Internal
Revenue Service as adoption of this prototype IRA Plan.
No amendment or termination shall be effective if it would
cause or permit any part of the Custodial Account to be
diverted to purposes other than for the exclusive benefit of
the Participant (and the Participant's Beneficiaries) and no
retroactive amendment shall be effective if it deprives any
Participant of any benefit to which the Participant was
entitled under the Plan by reason of contributions made
before the amendment, unless such amendment is necessary to
conform the Plan to, or satisfy the requirements of, the
Code.
Section 9 - Miscellaneous
9.1 Status of Participants. Neither the Participant nor any other
person shall have any legal or equitable right against the
Custodian or Stein Roe & Farnham, except as provided herein.
9.2 Loss of Exemption of Custodial Account. If the Custodian
receives notice that the Participant's Custodial Account has
lost its tax-exempt status under section 408(e)(2) of the
Code for any reason, including by reason of a transaction
prohibited by section 4975 of the Code, the Custodian shall
distribute to the Participant the entire balance in the
Custodial Account, in cash or in kind, in the sole discretion
of the Custodian no later than 90 days after the date the
Custodian receives such notice.
<PAGE> 28
9.3 Payment of Taxes, Expenses and Custodial Fees. The Custodian
shall pay out of the Custodial Account any income, gift,
estate or inheritance taxes or other tax of any kind
whatsoever that may be levied upon or assessed against or in
respect of the Custodial Account (other than transfer taxes),
and any expenses of investment management or investment
advisory services rendered to the Custodial Account, and at
its option, collect any amounts so charged from the amount of
any contribution or distribution to be credited to the
Custodial Account or by sale or liquidation of the assets
credited to such account. If the assets of the Custodial
Account are insufficient to satisfy such charges, the
Participant shall pay any deficit therein to the Custodian.
Any transfer taxes incurred by the Custodian in connection
with the investment and reinvestment or transfer of the
assets of the Custodial Account and all other administrative
expenses incurred by the Custodian in the performance of its
duties, including fees for legal service rendered to the
Custodian and such compensation to the Custodian as may be
established from time to time by the Custodian, shall be
collected by the Custodian from the amount of any
contribution credited to or distribution to be made from the
Custodial Account or by sale or liquidation of the assets
credited thereto.
Until otherwise changed in accordance with the terms of
Section 8 hereof, the Custodian shall receive fees for its
services with respect to a Participant's Custodial Account as
set forth in the Application Form and shall receive such
additional fees as my be agreed upon by it and the
Participant from time to time for its services in connection
with investments made pursuant to Section 7.3 hereof.
Payment of any taxes, expenses or Custodial fees described in
this Section may also be paid directly by, or on behalf of,
the Participant subject to agreement by the Custodian.
9.4 Gender and Number. Except where the context indicates to the
contrary, when used herein, masculine terms shall be deemed
to include the feminine, and singular the plural. In section
3.3(c) and 4.4 hereof, feminine terms shall be deemed to
include the masculine.
9.5 Other Conditions. A Participant, by participating in the
Plan, expressly agrees that he shall look solely to the
assets of the Custodial Account for the payment of any
benefits to which he or she is entitled under the Plan. The
benefits provided under the Plan shall not be subject to
alienation, assignment, garnishment, attachment, execution or
levy of any kind, and any attempt to do so shall not be
recognized, except by the Custodian for the taxes, expenses
and Custodial fees described in Section 9.3 hereof and except
to such extent as may be required by law. The Plan and any
forms provide by the Custodian, including the Beneficiary
Designation filed pursuant to Section 4.5 and all property
rights of the Participant under the Plan, shall be construed,
administered, and enforced according to the laws of the State
of Illinois, other than its laws with respect to choice of
laws, except to the extent preempted by the Employee
Retirement Income Security Act of 1974, as amended.
_________________________
<PAGE> 29
RECEIVED MAR 22 1990
Internal Revenue Service Department of the Treasury
Washington, DC 20224
Plan Name: IRA Custodial Account
FFN: 50153960000-001 Case: 8970313 EIN: 36-3447638
Letter Serial No. D100035c Person to Contact: Mr. Westry
Stein Roe & Farnham Inc Telephone Number (202) 535-4972
One South Wacker Street Refer Reply to E:EP:Q:4
Chicago, IL 60606 Date 03/21/90
Dear Applicant:
In our opinion, the amendment to the form of the prototype trust,
custodial account or annuity contract identified above does not
adversely affect its acceptability under section 408 of the Internal
Revenue Code, as amended by the Tax Reform Act of 1986.
Each individual who adopts this approved plan will be considered to
have a retirement savings program that satisfies the requirements of
Code section 408, provided they follow the terms of the program and
do not engage in certain transactions specified in Code section
408(e). Please provide a copy of this letter to each person
affected.
The Internal Revenue Service has not evaluated the merits of this
savings program and does not guarantee contributions or investments
made under the savings program. Furthermore, this letter does not
express any opinion as to the applicability of the Code section
4975, regarding prohibited transactions.
Code section 408(i) and related regulations require that the
trustee, custodian or issuer of a contract provide a disclosure
statement to each participant in this program as specified in the
regulations Publication 590, Tax Information on Individual
Retirement Arrangements, gives information about the items to be
disclosed.
The trustee, custodian or issuer of a contract is also required to
provide each adopting individual with annual reports of savings
program transactions.
Your program may have to be amended to include or revise provisions
in order to comply with future changes in the law or regulations.
If you have any questions concerning IRS processing of this case,
call us at the above telephone number Please refer to the Letter
Serial Number and File Folder Number shown in the heading of this
letter. Please provide those adopting this plan with your phone
number, and advise them to contact your office if they have any
questions about the operation of this plan.
You should keep this letter as a permanent record. Please notify us
if you terminate the form of this plan.
Sincerely yours,
JOHN SWIECA
Chief, Employee Plans
Qualifications Branch
<PAGE>
Stein Roe & Farnham
Mutual Funds
SteinRoe Mutual Funds
SteinRoe Mutual Fund Center
300 West Adams Street
Chicago, IL 60606
Or Call
Toll Free 1-800-338-2550
Liberty Securities Corporation, Distributor
08623 2/94. Printed on recycled paper.
<PAGE>
STEIN ROE & FARNHAM FUNDS
INDIVIDUAL RETIREMENT ACCOUNT PLAN
SUPPLEMENT TO BOOKLET DATED FEBRUARY, 1994
Effective July 17, 1995, the Stein Roe & Farnham Funds Individual
Retirement Account Disclosure Statement and Plan are amended as
follows:
DISCLOSURE STATEMENT
1. TAXATION OF DISTRIBUTIONS (PAGE 8). The 1995 aggregate dollar
limit in the last sentence of the first paragraph remains
unchanged at $150,000.
2. INVESTMENT OF CONTRIBUTIONS (PAGE 10). The fourth sentence of
the third paragraph of this section is restated as follows:
"All income dividends and capital gain distributions paid on
Fund shares are invested in accordance with the Fund's
prospectus."
3. CHARGES AND FEES--CUSTODIAL FEES (PAGE 10). Custodial fees
are no longer charged for your Stein Roe & Farnham Funds IRA
unless you require special services. Accordingly, the
subsection on Custodial Fees is restated as follows:
"Custodial Fees--Currently, there are no Custodial fees
charged for your IRA assets invested in the SteinRoe Funds.
In the event that the Custodian is required to perform
services not ordinarily provided with respect to the Plan,
including making participant-directed investments of large
Custodial Accounts pursuant to Section 7.3 of the Plan, or
you make investments other than in the SteinRoe Funds, the
Custodian may charge such fees as are appropriate. The
Custodian reserves the right to charge additional fees for
assets invested in the SteinRoe Funds upon 45 days' written
notice to you, and to waive or reduce any of its charges or
fees as to any single IRA or group of IRAs."
4. SIMPLIFIED EMPLOYEE PENSION PLANS--EXCLUDED EMPLOYEES (PAGE
12). The annual compensation level below which an employee may
be excluded from SEP-IRA contribution eligibility is increased
and the second sentence of the first paragraph of this
subsection is revised as follows:
"(For 1995, you need not make a contribution on behalf of an
individual whose compensation is less than $400.)"
5. SIMPLIFIED EMPLOYEE PENSION PLANS--SEP CONTRIBUTIONS (PAGE
12). The 1995 aggregate dollar limit for contributions remains
unchanged at 15% of an employee's compensation up to $150,000
for non-elective contributions and $9,240 for elective
contributions.
INDIVIDUAL RETIREMENT ACCOUNT PLAN
1. SECTION 3--CONTRIBUTIONS, SUBSECTION 3.3(B) (PAGE 15). The
annual dollar limit for 1995 contributions remains unchanged at
$9,240.
2. SUBSECTION 4.1--GENERAL (PAGE 16). The distribution method
used by the Custodian to pay required distributions when no
instructions are furnished by a Participant has been changed
and the second paragraph restated as follows:
"If the Custodian does not receive instructions to effect
distribution to a Participant by the first business day of
the month preceding the month in which distribution is
required to commence, the Custodian shall distribute the
benefits in cash or kind, in the sole discretion of the
Custodian, in the amount of the minimum distribution required
as provided under Section 4.3(b) using the life expectancy of
the Participant by using the birthdate indicated on the
Custodian's records; provided, however, if the Participant's
birthdate is unknown to the Custodian, the amount distributed
shall be a lump sum."
3. SUBSECTION 4.4(B)(II) (PAGE 18). The following sentence is
added at the end of this subsection to clarify that a
Beneficiary may accelerate the distribution of death benefits:
"Even if installment payments have commenced pursuant to this
option, the Beneficiary may receive a distribution of the
balance in his Custodial Account, or any part thereof, upon
written request as described in Section 4.1 hereof to the
Custodian."
4. SUBSECTION 4.5--BENEFICIARY DESIGNATION (PAGE 19). The
distribution method used by the Custodian to pay death benefits
when no instructions are furnished by a Beneficiary has been
changed, and the following sentence replaces the last sentence
of the first full paragraph of this subsection:
"If the Custodian fails to receive from a Beneficiary a
properly completed designation of distributions method within
the time prescribed above, the Participant's Custodial Account
shall be distributed over the course of five (5) years in
substantially equal installments commencing no later than
December 31 of the year of the Participant's death."
5. SUBSECTION 7.2--MUTUAL FUND INVESTMENTS (PAGE 25).
Participants may now elect to have dividend distributions
invested in either the SteinRoe Fund paying the dividend or
another SteinRoe Fund offered under the Stein Roe & Farnham
Funds IRA. Accordingly, the second paragraph is amended and
restated as follows:
"Except as otherwise provided herein, all income dividends and
capital gain distributions paid on Mutual Fund shares held in
a Custodial Account shall be invested in accordance with the
Mutual Funds' prospectuses unless the Participant instructs
the Custodian to invest the income dividends and capital
gains distributions in another Mutual Fund within the
Participant's IRA. If any distribution may be received in
shares, cash or other property at the election of the
shareholder, the Custodian shall elect to make such
distribution in shares in accordance with the Mutual Funds'
prospectuses. If over age 59 1/2, a Participant may elect to
receive income dividends and capital gain distributions in
cash as part of a distribution from the Custodial Account."
6. SUBSECTION 7.3(B) (PAGE 26). Because Custodial fees are
currently charged only for special services, this subsection is
restated as follows:
"The Custodian may charge the Custodial Account of the
Participant who elects to invest the Custodial account
pursuant to this Section such fees as the Custodian and the
Participant may from time to time agree in writing."
____________________
<PAGE>
IRA
APPLICATION
Prototype Plan No. D100035C dated March 21, 1990
Use this application to establish an Individual Retirement Account
in a SteinRoe Mutual Fund or as a part of a SteinRoe Counselor
[SERVICE MARK] or SteinRoe Counselor Preferred [SERVICE MARK]
portfolio.
1 PARTICIPANT
Please complete a separate form for each type of IRA you wish to
establish.
_________________________________________________________
First Name Middle Initial Last Name
_________________________________________________________
Street Address
_________________________________________________________
City State Zip Code
_________________________________________________________
Daytime Telephone Evening Telephone
_________________________________________________________
Social Security Number Date of Birth
2 STEINROE COUNSELOR [SERVICE MARK] AND STEINROE
COUNSELOR PREFERRED [SERVICE MARK] PORTFOLIOS ONLY
If you are enrolled in one of these programs and want your IRA
invested as part of your Portfolio, check the appropriate box. If
you require assistance from your account executive please call 1
800 322-8222.
A. SteinRoe Counselor [SERVICE MARK]
Please check one of the following:
____ 1. Please include my IRA in my Portfolio according to
my most recent Portfolio recommendation.
____ 2. I would like you to invest my IRA assets
differently than my Portfolio recommendation as
indicated in Section 4.
B. SteinRoe Counselor Preferred [SERVICE MARK]
____ 1. Please include my IRA in my Portfolio according to
my most recent Portfolio recommendation.
3 CONTRIBUTION TYPE
Please select your contribution type. The initial investment
minimum is $500 per fund account, except for a SEP-IRA. Please
refer to the Plan booklet for an explanation of each contribution
type. Enclose a check payable to SteinRoe Services Inc. for at
least $500, unless you are making an IRA transfer.
A. Contribution
Contribution is for current year unless you
specify different year: 19_
B. SEP
C. Asset Transfer
Complete Asset Transfer Form on back page
D. Rollover
I have enclosed a check payable to SteinRoe
Services Inc. in the amount of $_____
This represents a rollover from:
IRA
SEP
Spousal IRA
403(b) Plan
Transfer Incident to Divorce from IRA/
Tax-qualified Plan
Spousal Death Benefit
Distribution from Tax-qualified Plan
Direct Rollover
Other
Date qualifying distribution was made*: ____
Check this box if you would like to establish a Conduit/Segregated
IRA Rollover account.
*This may not be more than 60 days prior to date SteinRoe
Services Inc. receives your Rollover Contribution.
SteinRoe account representatives are available
Monday thru Friday from 7 a.m. to 8 p.m. and
Saturday and Sunday from 8 a.m. to 5 p.m.
(Central Time)
If you have any questions, please call us toll free at
1 800 338-2550
Please return this completed form to:
SteinRoe Services Inc.
SteinRoe Mutual Funds
P.O. Box 804058
Chicago, IL 60680-4058
4 INVESTMENT OF CONTRIBUTIONS
Please select your investments. If you do not choose a Fund, all
of your contributions will be invested in SteinRoe Government
Reserves, a money market fund.
SteinRoe SteinRoe
SteinRoe Fund IRA Counselor [SERVICE MARK]
Government Reserves $______ ______
Cash Reserves ______ ______
Limited Maturity Income Fund ______ ______
Government Income Fund ______ ______
Intermediate Bond Fund ______ ______
Income Fund ______ ______
Total Return Fund ______ ______
Prime Equities ______ ______
Special Fund ______ ______
Growth Stock Fund ______ ______
Young Investor Fund ______ ______
International Fund ______ ______
Special Venture Fund ______ ______
Capital Opportunities Fund ______ ______
Total Contributions $______ ______
5 AUTOMATIC INVESTMENT PLAN
This option allows you to make current year contributions to your
IRA directly from your bank checking or savings account by
electronic transfer. Please be sure the amount you specify does
not exceed your maximum permissible annual contribution amount.
Please allow three weeks to establish your Automatic Investment
Plan.
_________________________________________________________
Fund Name Account Number Amount
(leave blank if new) ($50 minimum)
_________________________________________________________
Fund Name Account Number Amount
(leave blank if new) ($50 minimum)
I authorize SteinRoe Mutual Funds to draw on my bank account to
purchase shares for the account(s) listed above (check one period
only):
Monthly Every 6 months Quarterly Annually
These purchases should be made on or about the:
5th or 20th day of the month
Please begin: Immediately or
IRA contributions made through the Automatic Investment Plan will
be credited as a contribution for the year in which the shares are
purchased. You are solely responsible for adhering to applicable
contribution limitations.
Bank Information
Name of Bank
Street Address of Bank
City State Zip Code
Name(s) on Checking Account
Checking Account Number______ ACH Routing Number
(Attach a voided check to this form and verify the above
information with your bank.)
6 AUTOMATIC EXCHANGE PLAN
With this option you can authorize SteinRoe to regularly exchange
shares from one SteinRoe Fund to another with the same account
registration. A $500 minimum applies to each new account (the
minimum for Limited Maturity
Income Fund is $5,000).
_________________________________________________________
Redeem Shares from (Fund Name) Account Number
(or "new" if a new account)
_________________________________________________________
Amount ($50 minimum)
_________________________________________________________
Purchase Shares in (Fund Name) Account Number
(or "new" if a new account)
Check one period below and fill in dates between the 1st and 28th
of the month:
Twice monthly on the ___ and ___ beginning _______________
specify month
Monthly on the _____ beginning _________________
specify month
Quarterly on the ________ of ___________________
list four months
Twice yearly on the ______ of ___________________
list two months
Annually on the _________ of ___________________
list one month
7 TELEPHONE EXCHANGE
Unless you check the box below, you automatically have the
privilege to exchange shares between your IRA accounts.
_____ I do NOT want the telephone exchange privilege.
Anyone who is supplied with the proper account information can
make telephone exchanges on your behalf. You may make up to four
round trip telephone exchanges every 12 months. A round trip is
the exchange from one Fund to another, and back again. SteinRoe
reserves the right to discontinue or modify the exchange
privilege, and certain restrictions apply.
8 DIVIDEND DISTRIBUTION OPTION
Dividends and capital gains will automatically be reinvested into
your IRA fund account. If you would like to have your income
dividends and capital gains distributions invested in a different
SteinRoe Mutual Fund within your IRA, please
complete this section.
Note: The Fund into which you direct your dividends or capital
gains must be registered exactly the same as your current account
registration.
Reinvest my ___ dividends ___ capital gains ___ both into:
Fund name: ____________________________
Account number:________________________
9 CUSTODIAL ACCOUNTS OF $250,000 OR MORE
If you are establishing an IRA by transfer or rollover of an
amount of at least $250,000, you may select investments other than
the Funds in accordance with the terms of the Plan by checking the
following box and attaching a separate letter of investment
instructions.
10 SIGNATURE
Sign exactly as your name is printed in Section 1.
I hereby adopt the SteinRoe Funds Individual Retirement Account
Plan and appoint First Bank, N.A.to serve as Custodian as provided
therein. I have read the Plan documents, including the General
Provisions on the reverse side of this form, and agree to be bound
by their terms. I have received the current prospectus(es) of the
Fund(s) in which my initial contribution is to be invested and
agree to be bound by their terms.
(Signature continued)
Unless I have declined the Telephone Exchange Privilege in Section
7, I have authorized any Fund the shares of which are purchased
for my IRA, and SteinRoe Services Inc., transfer agent for the
fund and agent for my IRA Custodian (the "SteinRoe Parties") to
act upon instructions received by telephone to exchange them for
shares of any other SteinRoe Fund. I agree that no SteinRoe
Parties will be liable for any loss, injury, damage or expense as
a result of action upon, and will not be responsible for the
authenticity of any telephone instructions, and will hold the
SteinRoe Parties harmless from any loss, claims or liability
arising from its or their compliance with these instructions.
Accordingly, I understand that I will bear any risk of loss
resulting from unauthorized instructions. I understand that the
SteinRoe Parties employ reasonable procedures to confirm that
telephone instructions are genuine.
Signature:___________
Date:________________
11 CUSTODIAN ACCEPTANCE
The undersigned, First Bank, N.A., by separate agreement and the
below signature, offers to serve as Custodian in accordance with
the SteinRoe Funds Individual Retirement Account Plan once this
Application form has been properly completed and delivered (or
mailed) to the Custodian. If relating to an asset transfer, the
undersigned accepts the appointment as successor Custodian of the
above referenced account(s) and directs the resigning custodian to
liquidate the assets and remit as described above.
OFFER TO SERVE AS CUSTODIAN:
First Bank National Association
By: TERRY S. RICHTER
If you have any questions, please call us toll free at
1 800 338-2550
SteinRoe account representatives are available
Monday thru Friday from 7 a.m. to 8 p.m. and
Saturday and Sunday from 8 a.m. to 5 p.m.
(Central Time)
Asset Transfer Form
Please complete this section only if you are making an asset
transfer. Please consult the resigning custodian to determine
if there are any special requirements (eg: signature guarantee)
you must meet before making an asset transfer.
A. Resigning Custodian Information
_________________________________________________________
Resigning Custodian
_________________________________________________________
Street Address or P.O. Box
_________________________________________________________
City State Zip Code
_________________________________________________________
Account Representative
_________________________________________________________
Daytime Telephone
_________________________________________________________
Account Name and Number to be Transferred
Type of IRA
Regular ____ Rollover ____ SEP ____
B. Transfer Instructions
If your IRA C.D. investment matures in less than 15 days, please
notify your custodian that we will be sending asset transfer
instructions. If your IRA C.D. investment matures in more than 30
days, please check with your custodian to determine if a penalty
will apply for early liquidation.
Please liquidate all assets (or $ ___________) in the above-
referenced account on ____________ (if no date, liquidate
immediately) and remit proceeds payable to SteinRoe Services Inc.
for the IRA of the individual listed in Section 1 to the following
address:
SteinRoe Mutual Funds
P.O. Box 804058
Chicago, IL 60680-4058
Attention: SteinRoe Services Inc.
Your signature:_____________________________
(Sign here and in Section 10)
Signature Guarantee
(If required by resigning custodian)
Signature Guaranteed by:
_________________________________________________________
Name of Institution
_________________________________________________________
Name of Authorized Officer
_________________________________________________________
Signature of Authorized Officer
_________________________________________________________
Guarantor's Stamp:
General Provisions
1. Plan Establishment.
Your IRA will be established when SteinRoe Services Inc.
receives your properly completed form. If you fail to complete
this form properly, the establishment of your IRA may be delayed.
2. Custodial Fees.
Currently, there are no Custodial fees charged for your IRA
assets invested in the SteinRoe Funds. In the event the Custodian
is required to perform services not ordinarily provided with
respect to the Plan, including making participant-directed
investments of large Custodial Accounts pursuant to Section 7.3 of
the Plan, or you make investments other than in the SteinRoe
Funds, the Custodian may charge such fees as are appropriate. The
Custodian reserves the right to charge additional fees for assets
invested in the SteinRoe Funds upon 45 days' written notice to
you, and to waive or reduce any of its charges or fees as to any
single IRA or group of IRAs.
3. Telephone Inquiry Responses.
The Funds in which contributions by you or on your behalf are
invested and SteinRoe Services Inc., as transfer agent for the
Funds and as agent for the Custodian of the Plan, are authorized
to respond to any written inquiries from you and any telephonic
inquiries (WHETHER FROM YOU OR ANY PERSON) relating to the status
of your IRA and none of the Funds, SteinRoe Services Inc., or the
Custodian shall be held liable for any action taken or information
communicated pursuant to any such communication.
4. Terms of Privileges.
The following terms and conditions and those stated in the
prospectus as in effect from time to time apply to the Fund
Privileges you elect:
a. None of the Funds, the Funds' transfer agent, your IRA
Custodian nor their respective officers, trustees nor directors,
agents nor employees shall be liable for any loss, liability, cost
or expense for acting upon instructions furnished under a
Privilege.
b. You agree that any Privilege you elect shall continue until
five business days after any Fund, shares of which are held in
your IRA or its transfer agent, receive notice from you of any
change thereof. You also agree that any Fund offering a Privilege,
its transfer agent or your IRA Custodian may suspend, limit or
terminate any Privilege or its use at any time without prior
notice to you. You agree that none of the Funds, their transfer
agent, or your IRA Custodian shall be held liable for any action
taken or information communicated pursuant to this authorization.
c. You authorize the Fund(s) and its transfer agent to initiate
any and all credit or debit entries (and reversals thereof) to
effect electronic transfers under any Privilege and redeem shares
of any Funds(s) you own equal to the amount of any loss incurred
by any of them in effecting any electronic transfer and retain the
proceeds.
d. You understand that the Funds or their transfer agent will
generally record (by electronic means or otherwise) any telephonic
instruction given pursuant to a Privilege and you expressly
authorize such recording. You also understand and agree that the
Funds and your transfer agent reserve the right to refuse any
telephonic instruction.
5. Transfers/Rollovers by Persons over age 70 1/2.
If you are making an asset transfer/rollover contribution
after the April 1 of the year following the year you reach age 70
1/2 or a subsequent year, your assets transferred/rolled over must
be distributed over a period no longer than the period over which
they were scheduled to be distributed from your
transferor/distributing plan. If you already have a SteinRoe IRA
and are scheduled to receive distributions from that IRA over a
period longer than the period over which you were scheduled to
receive distributions from the transferor/distributing plan, you
must establish a new SteinRoe IRA for your transfer/rollover. In
addition, you must complete and return with this form a
Distribution Request Form requesting that your transferred/rolled
over assets be distributed at least as rapidly as under the
distribution method in effect under your transferor/distributing
plan. If the distribution period for your transferor/distributing
plan is based on the joint and last survivor life expectancies of
you and a designated beneficiary, you cannot extend the payment
period under the SteinRoe IRA into which your assets are
transferred/rolled over by naming a younger Beneficiary. You may
designate a different Beneficiary than under your
transferor/distributing plan, but if that Beneficiary has a
shorter life expectancy than the beneficiary designated under your
transferor plan, your maximum IRA payment period must be
correspondingly reduced. If that Beneficiary has a life expectancy
longer than the beneficiary designated under your
transferor/distributing plan, your maximum IRA payment period
still must be the same as under the transferor/distributing plan.
In either event, you must designate a Beneficiary for the SteinRoe
IRA into which your assets are transferred/rolled over by
completing and returning an IRA Beneficiary Form with your
Distribution Request Form. For other rollover provisions, see Plan
Booklet.
EXHIBIT 16(c)
Stein Roe Special Venture Fund
Total Return as of September 30, 1995
<TABLE>
<CAPTION>
Initial
Investment Total
Total Return Date Distributions +/- App/Depr = Return + Principal = ERV (ERV/Princ)-1
------------ -------------- --------- ------- --------- ----- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Special Venture Fund 10/17/94 $78 $192 $270 $1,000 $1,270 26.96%
</TABLE>
<TABLE>
<CAPTION>
Average Annual n
Total Return P T n P(1+T) = ERV
---------- ------- ------- -------- ----
<S> <C> <C> <C> <C> <C>
Special Venture Fund 10/17/94 1,000 28.20% 0.9562 $1,270
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> STEINROE PRIME EQUITIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 110,061
<INVESTMENTS-AT-VALUE> 140,055
<RECEIVABLES> 702
<ASSETS-OTHER> 283
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 141,040
<PAYABLE-FOR-SECURITIES> 1,166
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 335
<TOTAL-LIABILITIES> 1,501
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 96,547
<SHARES-COMMON-STOCK> 8,381
<SHARES-COMMON-PRIOR> 8,917
<ACCUMULATED-NII-CURRENT> 942
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,763
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 30,287
<NET-ASSETS> 139,539
<DIVIDEND-INCOME> 2,129
<INTEREST-INCOME> 1,341
<OTHER-INCOME> 0
<EXPENSES-NET> 1,217
<NET-INVESTMENT-INCOME> 2,253
<REALIZED-GAINS-CURRENT> 12,531
<APPREC-INCREASE-CURRENT> 9,832
<NET-CHANGE-FROM-OPS> 24,616
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,706
<DISTRIBUTIONS-OF-GAINS> 5,016
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,884
<NUMBER-OF-SHARES-REDEEMED> 2,856
<SHARES-REINVESTED> 436
<NET-CHANGE-IN-ASSETS> 9,859
<ACCUMULATED-NII-PRIOR> 395
<ACCUMULATED-GAINS-PRIOR> 4,247
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 764
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,217
<AVERAGE-NET-ASSETS> 126,538
<PER-SHARE-NAV-BEGIN> 14.54
<PER-SHARE-NII> .34
<PER-SHARE-GAIN-APPREC> 2.56
<PER-SHARE-DIVIDEND> (.20)
<PER-SHARE-DISTRIBUTIONS> (.59)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.65
<EXPENSE-RATIO> .96
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> STEINROE INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 80,511
<INVESTMENTS-AT-VALUE> 83,245
<RECEIVABLES> 5,782
<ASSETS-OTHER> 63
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 89,090
<PAYABLE-FOR-SECURITIES> 5,792
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 278
<TOTAL-LIABILITIES> 6,070
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 81,351
<SHARES-COMMON-STOCK> 8,100
<SHARES-COMMON-PRIOR> 7,054
<ACCUMULATED-NII-CURRENT> 865
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1,936
<ACCUM-APPREC-OR-DEPREC> 2,740
<NET-ASSETS> 83,020
<DIVIDEND-INCOME> 1,505
<INTEREST-INCOME> 686
<OTHER-INCOME> 0
<EXPENSES-NET> 1,160
<NET-INVESTMENT-INCOME> 1,031
<REALIZED-GAINS-CURRENT> (1,820)
<APPREC-INCREASE-CURRENT> (33)
<NET-CHANGE-FROM-OPS> (822)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 340
<DISTRIBUTIONS-OF-GAINS> 1,229
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,669
<NUMBER-OF-SHARES-REDEEMED> 1,766
<SHARES-REINVESTED> 143
<NET-CHANGE-IN-ASSETS> 8,203
<ACCUMULATED-NII-PRIOR> 210
<ACCUMULATED-GAINS-PRIOR> 1,076
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 737
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,160
<AVERAGE-NET-ASSETS> 73,099
<PER-SHARE-NAV-BEGIN> 10.61
<PER-SHARE-NII> .12
<PER-SHARE-GAIN-APPREC> (.26)
<PER-SHARE-DIVIDEND> (.05)
<PER-SHARE-DISTRIBUTIONS> (.17)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.25
<EXPENSE-RATIO> 1.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> STEINROE YOUNG INVESTOR FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 25,357
<INVESTMENTS-AT-VALUE> 30,878
<RECEIVABLES> 1,212
<ASSETS-OTHER> 26
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32,116
<PAYABLE-FOR-SECURITIES> 669
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46
<TOTAL-LIABILITIES> 715
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,523
<SHARES-COMMON-STOCK> 2,197
<SHARES-COMMON-PRIOR> 798
<ACCUMULATED-NII-CURRENT> 20
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,337
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,521
<NET-ASSETS> 31,401
<DIVIDEND-INCOME> 144
<INTEREST-INCOME> 108
<OTHER-INCOME> 0
<EXPENSES-NET> 171
<NET-INVESTMENT-INCOME> 81
<REALIZED-GAINS-CURRENT> 1,448
<APPREC-INCREASE-CURRENT> 5,236
<NET-CHANGE-FROM-OPS> 6,765
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 85
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,439
<NUMBER-OF-SHARES-REDEEMED> 48
<SHARES-REINVESTED> 8
<NET-CHANGE-IN-ASSETS> 23,225
<ACCUMULATED-NII-PRIOR> 25
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 111
<GROSS-ADVISORY-FEES> 131
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 494
<AVERAGE-NET-ASSETS> 17,187
<PER-SHARE-NAV-BEGIN> 10.24
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> 4.07
<PER-SHARE-DIVIDEND> (.08)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.29
<EXPENSE-RATIO> .99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> STEINROE SPECIAL VENTURE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 54,389
<INVESTMENTS-AT-VALUE> 60,323
<RECEIVABLES> 459
<ASSETS-OTHER> 48
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60,830
<PAYABLE-FOR-SECURITIES> 204
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 93
<TOTAL-LIABILITIES> 297
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 51,614
<SHARES-COMMON-STOCK> 4,806
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 6
<ACCUMULATED-NET-GAINS> 2,991
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,934
<NET-ASSETS> 60,533
<DIVIDEND-INCOME> 165
<INTEREST-INCOME> 284
<OTHER-INCOME> 0
<EXPENSES-NET> 410
<NET-INVESTMENT-INCOME> 39
<REALIZED-GAINS-CURRENT> 3,073
<APPREC-INCREASE-CURRENT> 5,934
<NET-CHANGE-FROM-OPS> 9,046
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 45
<DISTRIBUTIONS-OF-GAINS> 82
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,362
<NUMBER-OF-SHARES-REDEEMED> 567
<SHARES-REINVESTED> 11
<NET-CHANGE-IN-ASSETS> 60,533
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 295
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 538
<AVERAGE-NET-ASSETS> 34,427
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 2.67
<PER-SHARE-DIVIDEND> (.03)
<PER-SHARE-DISTRIBUTIONS> (.05)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.60
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> STEINROE TOTAL RETURN FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 183,730
<INVESTMENTS-AT-VALUE> 223,406
<RECEIVABLES> 6,928
<ASSETS-OTHER> 180
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 230,514
<PAYABLE-FOR-SECURITIES> 1,489
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 465
<TOTAL-LIABILITIES> 1,954
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 183,010
<SHARES-COMMON-STOCK> 8,217
<SHARES-COMMON-PRIOR> 8,893
<ACCUMULATED-NII-CURRENT> 1,180
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,694
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 39,676
<NET-ASSETS> 228,560
<DIVIDEND-INCOME> 6,511
<INTEREST-INCOME> 6,846
<OTHER-INCOME> 0
<EXPENSES-NET> 1,942
<NET-INVESTMENT-INCOME> 11,415
<REALIZED-GAINS-CURRENT> 4,680
<APPREC-INCREASE-CURRENT> 13,869
<NET-CHANGE-FROM-OPS> 29,964
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,573
<DISTRIBUTIONS-OF-GAINS> 2,423
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,052
<NUMBER-OF-SHARES-REDEEMED> 2,146
<SHARES-REINVESTED> 418
<NET-CHANGE-IN-ASSETS> (714)
<ACCUMULATED-NII-PRIOR> 338
<ACCUMULATED-GAINS-PRIOR> 2,436
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,263
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,942
<AVERAGE-NET-ASSETS> 222,196
<PER-SHARE-NAV-BEGIN> 25.78
<PER-SHARE-NII> 1.33
<PER-SHARE-GAIN-APPREC> 2.22
<PER-SHARE-DIVIDEND> (1.23)
<PER-SHARE-DISTRIBUTIONS> (.28)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.82
<EXPENSE-RATIO> .87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> STEINROE GROWTH STOCK FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 242,792
<INVESTMENTS-AT-VALUE> 363,583
<RECEIVABLES> 414
<ASSETS-OTHER> 246
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 364,243
<PAYABLE-FOR-SECURITIES> 1,404
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,503
<TOTAL-LIABILITIES> 3,907
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 207,119
<SHARES-COMMON-STOCK> 13,790
<SHARES-COMMON-PRIOR> 13,636
<ACCUMULATED-NII-CURRENT> 1,122
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 31,304
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 120,791
<NET-ASSETS> 360,336
<DIVIDEND-INCOME> 3,852
<INTEREST-INCOME> 1,171
<OTHER-INCOME> 0
<EXPENSES-NET> 3,223
<NET-INVESTMENT-INCOME> 1,800
<REALIZED-GAINS-CURRENT> 35,566
<APPREC-INCREASE-CURRENT> 44,475
<NET-CHANGE-FROM-OPS> 81,841
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,950
<DISTRIBUTIONS-OF-GAINS> 39,914
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,358
<NUMBER-OF-SHARES-REDEEMED> 3,017
<SHARES-REINVESTED> 1,813
<NET-CHANGE-IN-ASSETS> 38,834
<ACCUMULATED-NII-PRIOR> 1,272
<ACCUMULATED-GAINS-PRIOR> 35,652
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,397
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,223
<AVERAGE-NET-ASSETS> 323,928
<PER-SHARE-NAV-BEGIN> 23.58
<PER-SHARE-NII> .12
<PER-SHARE-GAIN-APPREC> 5.60
<PER-SHARE-DIVIDEND> (.15)
<PER-SHARE-DISTRIBUTIONS> (3.02)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.13
<EXPENSE-RATIO> .99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> STEINROE CAPITAL OPPORTUNITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 160,950
<INVESTMENTS-AT-VALUE> 241,585
<RECEIVABLES> 258
<ASSETS-OTHER> 1,075
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 242,918
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 537
<TOTAL-LIABILITIES> 537
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 148,688
<SHARES-COMMON-STOCK> 11,173
<SHARES-COMMON-PRIOR> 5,564
<ACCUMULATED-NII-CURRENT> 97
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,961
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 80,635
<NET-ASSETS> 242,381
<DIVIDEND-INCOME> 441
<INTEREST-INCOME> 1,772
<OTHER-INCOME> 0
<EXPENSES-NET> 2,061
<NET-INVESTMENT-INCOME> 152
<REALIZED-GAINS-CURRENT> 18,194
<APPREC-INCREASE-CURRENT> 45,624
<NET-CHANGE-FROM-OPS> 63,970
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 105
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,276
<NUMBER-OF-SHARES-REDEEMED> 2,669
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 66,694
<ACCUMULATED-NII-PRIOR> 50
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 5,234
<GROSS-ADVISORY-FEES> 1,479
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,061
<AVERAGE-NET-ASSETS> 196,922
<PER-SHARE-NAV-BEGIN> 15.79
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 5.91
<PER-SHARE-DIVIDEND> (.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 21.69
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> STEINROE SPECIAL FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 913,767
<INVESTMENTS-AT-VALUE> 1,193,625
<RECEIVABLES> 9,801
<ASSETS-OTHER> 1,583
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,205,009
<PAYABLE-FOR-SECURITIES> 959
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,581
<TOTAL-LIABILITIES> 3,540
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 842,089
<SHARES-COMMON-STOCK> 47,569
<SHARES-COMMON-PRIOR> 52,844
<ACCUMULATED-NII-CURRENT> 4,642
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 74,880
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 279,858
<NET-ASSETS> 1,201,469
<DIVIDEND-INCOME> 12,936
<INTEREST-INCOME> 5,963
<OTHER-INCOME> 0
<EXPENSES-NET> 12,216
<NET-INVESTMENT-INCOME> 6,683
<REALIZED-GAINS-CURRENT> 85,576
<APPREC-INCREASE-CURRENT> 70,232
<NET-CHANGE-FROM-OPS> 162,491
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,700
<DISTRIBUTIONS-OF-GAINS> 69,358
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,272
<NUMBER-OF-SHARES-REDEEMED> 16,938
<SHARES-REINVESTED> 3,391
<NET-CHANGE-IN-ASSETS> (42,416)
<ACCUMULATED-NII-PRIOR> 5,659
<ACCUMULATED-GAINS-PRIOR> 58,662
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,109
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 12,216
<AVERAGE-NET-ASSETS> 1,202,330
<PER-SHARE-NAV-BEGIN> 23.54
<PER-SHARE-NII> .13
<PER-SHARE-GAIN-APPREC> 3.05
<PER-SHARE-DIVIDEND> (.15)
<PER-SHARE-DISTRIBUTIONS> (1.31)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.26
<EXPENSE-RATIO> 1.02
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
EXHIBIT 18(a)
FUND APPLICATION Please do not remove label
[Stein Roe Mutual Funds logo]
.........
Mail to: P.O. Box 804058, Chicago, IL 60680-4058
This application is: [ ] New account [ ] Change to current account
(See Section 12)
_________________________
Account number
If you have questions, please call us toll-free (7 a.m. to 7 p.m. Central
Time) 1-800-338-2550
Liberty Securities Corporation, Distributor
Member SIPC
For office use only ______________________
1 YOUR ACCOUNT REGISTRATION
[ ] INDIVIDUAL OR JOINT* ACCOUNT
_______________________________________________
Owner's name (First, middle initial, last)
_______________________________________________
Joint owner's name (First, middle initial, last)
______________________________ ____________________________________
Owner's Social Security number Joint owner's Social Security number
*Joint tenants with right of survivorship, unless indicated otherwise.
[ ] GIFTS (TRANSEFRS) TO MINORS ACCOUNT
_________________________________________ as custodian for:
Name of one custodian only
_________________________________________ under the
Name of one minor only
__________________ Uniform Gifts (Transfers) to Minors Act.
State of residence
_______________________________ ___________________
Minor's Social Security Number Minor's birth date
[ ] TRUST OR RETIREMENT ACCOUNT
(For Stein Roe IRA or other Defined Contribution plan, please call us
for a separate application.)
_________________________________________
Name of trustee(s)
_________________________________________
_________________________________________
Name of trust
______________ _____________________
Date of trust Trust's tax ID number
_________________________________________
Trust beneficiary
[ ] ORGANIZATION OR OTHER ACCOUNT
Please complete and return the Certificate of Authorization on the
last page of the prospectus.
_______________________________________________
Name of corporation, partnership, estate, etc.
_________________________________________
Tax identification number
2 YOUR ADDRESS
_________________________________________
Street or P.O. box
_________________________________________
_________________________________________
City State Zip code
_________________________________________
Daytime telephone Evening telephone
_____________________________ _________________________
Owner's citizenship Joint owner's citizenship
3 YOUR FUND SELECTION
The initial minimum is $2,500; for UGMAs the minimum is $1,000. If you
elect an automatic investment option, the minimum is $1,000 ($500 for
UGMAs). If you do not specify a Fund, your investment will be in
Stein Roe Cash Reserves, a money market fund.
Money Market Funds Growth and Income Funds
- ------------------ ------------------------
Government Reserves _____ Total Return Fund _____
Cash Reserves _____ Gorwth & Income Fund _____
Tax-Exempt Funds Growth Funds
- ---------------- -------------
Municipal Money Fund _____ Special Fund _____
Intermediate Municipals _____ Growth Stock Fund _____
Managed Municipals _____ Young Investor Fund _____
High-Yield Municipals _____ Special Venture Fund _____
Capital Opportunities _____
Bond Funds International Fund _____
- ----------
Government Income _____
Intermediate Bond _____
Income Fund _____
Limited Maturity Income _____
4 INVESTMENT METHOD
[ ] BY CHECK: Payable to Stein Roe Funds
[ ] BY EXCHANGE FROM:
__________________________
Name of Stein Roe Fund
___________________________ ____________________________
Account number Number of shares or $ amount
[ ] BY WIRE: Call us for instructions at 1-800-338-2550
5 DISTRIBUTION OPTIONS
We will automatically reinvest all distributions for you. If you want
this option, you do not need to fill out this section. Please check
below if you prefer another option. Distributions may be (A) invested in
shares of another Stein Roe Fund with the same account registration (a
$1,000 minimum applies to the account in which you are investing), (B)
deposited into your checking account or (C) sent by check to your
address.
Dividends Capital gains
(check one or both)
[ ] (A) Distribution Purchase
Invest into _______________ [ ] [ ]
Fund name
___________________________
Account number
from: _____________________
Fund name
___________________________
Account number
[ ] (B) Automatic Deposit direct to my [ ] [ ]
checking account (Also complete
Section 9)
[ ] (C) Send check to my address [ ] [ ]
6 MONEY MARKET FUND OPTIONS
These options are only available for Government Reserves, Cash Reserves
and Municipal Money Market Fund.
[ ] A. TELEPHONE REDEMPTION BY WIRE
Check this box if you wish to redeem shares in your account and
wire the proceeds to your bank account designated in Section 9.
[ ] B. FREE CHECK WRITING
Check this box and complete the signature card below if you wish
to write checks ($50 minimum) on your Money Market Fund account
You must also complete Section 11.
- ------------------------------------------------------------------
*DO NOT DETACH*
State Street Bank and Trust Company Check Writing Signature Card
Check Fund: [ ] Cash Reserves [ ] Government [ ] Municipal Money
Reserves Market Fund
Account name(s) as registered: ____________________________
By signing this card, I authorize State Street Bank and Trust Company to
honor any check drawn by me on an account with the bank and to redeem
and pay to bank shares in my Fund account having a redemption price equal
to the amount of such check. I agree to be subject to the rules
governing the Check Writing Redemption option as in effect from time to
time.
Signature (Sign as you will on checks) Signature guarantee*
_____________________________________ ________________________________
_____________________________________ ________________________________
Number of signatures on each check**: __________
(Office use only) Account no. _________________ Date: ______________
*Required if you are adding these options to an existing account; or if
you are requesting checkwriting for a Trust, Corporation or other
Organization account, guarantee required for any person signing these
cards who has not signed in Section 11. Otherwise a signature guarantee
is not required.
**If left blank, only one signature is required for joint tenant
accounts, but all signatures are required for all other types of
accounts.
(OVER)
*DO NOT DETACH*
You are subject to the Fund and bank rules pertaining to checking
accounts under the privilege as in effect from time to time. For a
joint tenancy with rights of survivorship, each owner appoints each other
owner as attorney-in-fact with power to authorize redemptions on his
behalf by signing checks under the privilege unless the reverse side
indicates all owners must sign checks.
You agree to hold Fund and its transfer agent free from any liability
resulting from payment of any forged, altered, lost or stolen check
unless you notify Fund and bank of such misappropriation no later than 14
days after the earliest of the date on which you (a) discover the
misappropriation or (b) receive a copy of the check cancelled by bank. A
copy of a cancelled check paid during a calendar month is deemed
received 6 days after posting in the U.S. mail to your registered address
with Fund unless you notify Fund of non-receipt by certified mail within
20 days after the close of such month.
You agree to hold Fund and its transfer agent free from any liability for
any other check misappropriated by the same wrongdoer and paid from
proceeds of a redemption made in good faith on or after the date you
notify Fund of the first misappropriated check.
- -----------------------------------------------------------------------
7 TELEPHONE REDEMPTION OPTIONS
A. Telephone Redemption Options. You can redeem shares two ways: with
Telephone Redemption, a check is mailed to your address; with Telephone
Exchange, redemption proceeds are used to purchase shares in another
Stein Roe Fund. Most shareholders prefer these conveniences. They apply
unless you check the boxes below:
I DO NOT WANT:
[ ] Telephone Redemption [ ] Telephone Exchange
[ ] B. Special Redemption Option. This allows you to redeem shares at
any time and have the proceeds sent to your bank checking account.
Check the box and complete Section 9 for this option.
If you decide to add these options at a later date, you will be required
to obtain a signature guarantee.
8 AUTOMATIC INVESTMENT PLAN
A. Regular Investments. This option allows you to make scheduled
investments into your accent(s) directly from your bank checking account
by electronic transfer. To establish a new account with this service, a
$1,000 minimum applies to each account except for a $500 minimum which
applies to a Uniform Gift to Minors account. Please also complete
Section 9.
________________________________________________________________
Fund name Account number Amount ($50 minimum)
________________________________________________________________
Fund name Account number Amount ($50 minimum)
I authorize Stein Roe Mutual Funds to draw on my bank account to purchase
shares for the account(s) listed above: (check one period)
[ ] Monthly [ ] Quarterly [ ] Every 6 months [ ] Annually
These purchases should be made on or about the:
[ ] 5th or [ ] 20th day of the month
Please begin: Immediately or _______ (specify month)
[ ] B. Special Investments. You can also purchase shares by telephone
and pay for them by electronic transfer from your bank checking account
on request. Check the box above for this option, which saves you the
trouble and expense of arranging for a wire transfer or writing a check.
(Also complete Section 9.)
9 BANK INFORMATION
Complete this section if you have selected options from Sections 5B, 6A,
7B, 8A or 8B. You must use the same bank checking account for these
options.
________________________________________________________________
Name of bank
________________________________________________________________
Street address of bank
________________________________________________________________
City State Zip code
________________________________________________________________
Name(s) on checking account
______________________________ ________________________________
Checking account number ACH Routing number
(Attach a voided check to this form and verify the above information with
your bank.)
Attach voided check here.
10 AUTOMATIC EXCHANGE PLAN
With this option you can authorize Stein Roe to regularly exchange shares
from one Stein Roe Fund account to another with the same account
registration. A $1,000 minimum applies to each new account.
________________________________________________________________
Redeem shares from (fund name) Account number (or "new" if a
new account
________________________________________________________________
Amount ($50 minimum)
________________________________________________________________
Purchase shares from (fund name) Account number (or "new" if a
new account
Check one period below and fill in dates between the 1st and 28th of the
month:
[ ] Twice monthly on the ___ and ___ beginning ______ (specify month)
[ ] Monthly on the ______ beginning __________ (specify month)
[ ] Quarterly on the ______ of _______________ (list four months)
[ ] Twice yearly on the _____ of _____________ (list two months)
[ ] Annually on the _____ of _________________ (list one month)
11 YOUR SIGNATURES
By signing this form, I certify that:
- -I have received the current Fund prospectus and SteinRoe Services
brochure and agree to be bound by their terms as governed by Illinois
law. I have full authority and legal capacity to purchase Fund shares
and establish and use any related privileges.
- -By signing below, I certify under penalties or perjury that:
-All information and certifications on this application are true and
correct including the Social Security or other tax identification
number (TIN) in Section 1.
-If I have not provided a TIN, I have not been issued a number but have
applied (or will apply) for one and understand that if I do not
provide the Fund(s) a TIN within 60 days, the Fund(s) will withhold
31% from all my dividend, capital gain and redemption payments until I
provide one.
-Check one of the following only if applicable:
[ ] The IRS has informed me that I am subject to backup withholding as a
result of a failure to report all interest or dividend income.
[ ] I am a trust or organization that qualifies for the IRS backup
withholding exemption.
- -Unless I have declined the Telephone Redemption and Telephone Exchange
privileges in Section 7A, I have authorized the Fund and its agents to
act upon instructions received by telephone to redeem my shares of the
Fund or to exchange them for shares of another Stein Roe Fund, and I
agree that, subject to the Funds employing reasonable procedures to
confirm that such telephone instructions are genuine, neither the Fund,
nor any of its agents will be liable for any loss, injury, damage, or
expense as a result of acting upon, and will not be responsible for the
authenticity of, any telephone instructions, and will hold the Fund and
its agents harmless from any loss, claims or liability arising from its
or their compliance with these instructions. Accordingly, I understand
that I will bear any risk of loss resulting from unauthorized
instructions.
Sign below exactly as your name(s) appears in Section 1.
________________________________________________________________
Signature Date
________________________________________________________________
Title (if owner is an organization)
________________________________________________________________
Signature Date
________________________________________________________________
Title (if owner is an organization)
12 SIGNATURE GUARANTEE (IF REQUIRED)
A signature guarantee is not required if you are establishing a new
account. For existing accounts, a signature guarantee is required if
you are adding or making changes to options listed in Sections 5B, 6, 7,
8 or 9. We are unable to accept notarizations.
Signature(s) Guaranteed by:
________________________________________________________________
Name of institution
________________________________________________________________
Name of authorized officer
________________________________________________________________
Signature of authorized officer
Guarantor's stamp:
EXHIBIT 18(b)
[Stein Roe Mutual Funds logo]
YOUNG INVESTOR FUND APPLICATION
This application is to establish an account in the Stein Roe Young
Investor Fund only. To change a current account registration, to
establish a trust, retirement or other type of account, or to establish
an account in any other Stein Roe Mutual Fund, please call 1-800-338-2550
for the appropriate forms.
1 YOUR ACCOUNT REGISTRATION
Please complete the appropriate section for either a Gift to Minors
Account or Individual or Joint Account. Fund account statements and
other shareholder communications will be mailed to the custodian's
address.
[ ] GIFTS (TRANSEFRS) TO MINORS ACCOUNT (UGMA)
The Custodian is responsible for managing the account (UGMA or UTMA
depending upon the state) until the minor reaches the age of majority
(18-21 depending upon the state).
_________________________________________ as custodian for:
Name of Custodian (one only)
_________________________________________ under the
Name of Minor (one only)
__________________ Uniform Gifts (Transfers) to Minors Act.
State of Residence
_______________________________ ___________________
Minor's Social Security Number Minor's Birthdate
[ ] INDIVIDUAL OR JOINT ACCOUNT
This account can be used for individuals over the age of majority or for
other joint tenant accounts with right of survivorship, unless indicated
otherwise.
_______________________________________________
Owner's Name (first, middle initial, last)
_______________________________________________
Joint Owner's Name (first, middle initial, last)
______________________________ ____________________________________
Owner's Social Security Number Joint Owner's Social Security Number
REGISTERED ADDRESS
_________________________________________
Street or P.O. Box Number
_________________________________________
City State Zip
_________________________________________
Daytime Telephone Evening Telephone
_____________________________ _________________________
Owner's Citizenship Joint Owner's Citizenship
COMPLETE THIS SECTION IF MINOR'S ADDRESS IS DIFFERENT.
_________________________________________
Street or P.O. Box Number
_________________________________________
City State Zip
2 INVESTMENT METHOD
The initial minimum is $2,500; for UGMAs the minimum is $1,000. If you
elect an automatic investment plan for at least $50 per month or $150 per
quarter, the minimum is $1,000 ($500 for UGMAs).
Investment amount: $_____________
[ ] By Check: Payable to Stein Roe Funds
[ ] By Exchange from:
__________________________ ___________________________
Name of Stein Roe Fund Account number
[ ] By Wire: Call us for instructions at 1-800-338-2550
3 DISTRIBUTION OPTIONS
We will automatically reinvest all distributions for you. If you want
this option, you do not need to fill out this section. Please check
below if you prefer another option. Distributions may:
Dividends Capital gains
(check one or both)
[ ] (A) Distribution Purchase
Invest into _______________ [ ] [ ]
Stein Roe Fund name
Account Number: ________________
[ ] (B) Automatic Deposit direct into [ ] [ ]
checking account (Complete Bank
Information in Section 4)
[ ] (C) Send check to my address [ ] [ ]
4 AUTOMATIC INVESTMENT PLAN
This option allows you to make scheduled investments into your account
directly from your bank checking account by electronic transfer.
Amount $_____________
($50 minimum)
[ ] Monthly or
[ ] Quarterly
These purchases should be made on or about the:
[ ] 5th or
[ ] 20th day of the month
(Please allow three weeks to establish this Automatic Investment Plan.)
BANK INFORMATION
________________________________________________________________
Name of Bank
________________________________________________________________
Street Address of Bank
________________________________________________________________
City State Zip Code
________________________________________________________________
Name(s) on Checking Account
______________________________ ________________________________
Checking Account Number ACH Routing Number
(Attach a voided check to this form and verify the above information with
your bank.)
5 TELEPHONE OPTIONS
Unless you check the boxes below, you can redeem shares or make exchanges
among the Stein Roe Funds by telephone; redemption proceeds are paid by
check mailed to the registered address.
I DO NOT WANT:
[ ] Telephone Redemption
[ ] Telephone Exchange
SPECIAL INVESTMENT/REDEMPTION OPTION.
If you check the box below, you may purchase or redeem shares by
telephone with proceeds remitted to or from your bank checking account
by electronic transfer. [ ]
6 SIGNATURE
Sign below exactly as your name(s) appears in Section 1.
By signing this form, I certify that:
- -I have received the current Fund prospectus and SteinRoe Services
brochure and agree to be bound by their terms as governed by Illinois
law. I have full authority and legal capacity to purchase Fund shares
and establish and use any related privileges.
- -Under penalties or perjury all information on this application is true
and correct, including the Social Security or other tax identification
number (TIN). If I have not provided a TIN, I have applied for one and
understand that if I do not provide the Fund(s) a TIN within 60 days,
the Fund(s) will withhold 31% from all my distributions and redemptions
until I provide one.
Check if applicable:
[ ] The IRS has informed me that I am subject to backup withholding as a
result of a failure to report all interest or dividend income.
I have authorize the Fund and its agent to act on any instructions for my
account reasonably determined to be genuine; including instructions under
the telephone exchange and redemption options if elected. I agree that
none of them will be liable for loss or expense due to acting on such
instructions and hold them harmless from any liability therefrom.
________________________________________________________________
Signature of Custodian or Joint Tenant Date
________________________________________________________________
Signature of Joint Tenant Date
If you have any questions, please call toll-free at
1-800-338-2550
Send this completed form to:
Stein Roe Mutual Funds
P.O. Box 804058
Chicago, Illinois 60680
