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. 35 [X]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 37 [X]
STEIN ROE INVESTMENT TRUST
One South Wacker Drive, Chicago, Illinois 60606
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 September 10, 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: Stein Roe Growth & Income Fund, Stein Roe Balanced
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
(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
(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>
The Prospectuses and Statements of Additional Information relating
to Stein Roe Growth & Income Fund, Stein Roe Balanced Fund, Stein
Roe Growth Stock Fund, Stein Roe Capital Opportunities Fund, Stein
Roe Special Fund, Stein Roe Special Venture Fund and Stein Roe
International Fund, each a series of Stein Roe Investment Trust,
are not affected by the filing of this post-effective amendment No. 35.
<PAGE> 1
____________________
YOUNG INVESTOR FUND
The Fund's objective is long-term capital appreciation. Beginning
October 1, 1996, the Fund will seek to achieve its objective by
investing all of its investable net assets in shares of SR&F
Growth Investor Portfolio (the "Portfolio"), which has the same
investment objective as the Fund. (See Organization and
Description of Shares--Special Considerations Regarding Master
Fund/Feeder Fund Structure.) The Fund and the Portfolio invest in
securities of companies that affect the lives of young people.
The Fund is also intended to be an 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 and the Portfolio is a series of
SR&F Base Trust. Each Trust is a diversified 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 September 10, 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 Suite 3200, One South Wacker Drive, Chicago, Illinois
60606, 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 September 10, 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................9
How to Purchase Shares ........10
By Check ....................10
By Wire .....................10
By Electronic Transfer.......11
By Exchange .................11
Purchase Price and
Effective Date ..............11
Conditions of Purchase ......11
Purchases Through Third
Parties....................12
How to Redeem Shares ..........12
By Written Request ..........12
By Exchange .................12
Special Redemption
Privileges ................13
General Redemption Policies..14
Shareholder Services ..........15
Net Asset Value ...............17
Distributions and Income Taxes 17
Investment Return .............19
Management of the Fund ........19
Organization and
Description of Shares........21
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, which means
that there are no sales or redemption charges. (See The Fund and
Organization and Description of Shares.) This prospectus is not a
solicitation in any jurisdiction in which the Fund is not
registered for sale.
INVESTMENT OBJECTIVES AND POLICIES.
The investment objective of the Fund and SR&F Growth Investor
Portfolio (the "Portfolio") is long-term capital appreciation.
Beginning October 1, 1996, the Fund will invest all of its assets
in the Portfolio. The Fund and the Portfolio seek to achieve
their objective by investing primarily in common stocks and other
equity-type securities that Stein Roe believes to have long-term
appreciation potential. The Fund and the Portfolio invest
primarily in securities of companies that appeal to or affect the
lives of young people. The Fund is designed for long-term
investors, particularly children and teenagers.
In addition to the investment objective and policies, the Fund
also has an educational objective. It seeks to teach young people
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.
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 or the Portfolio. By investing
in companies whose products or services appeal to young investors,
the Fund and the Portfolio emphasize various consumer goods
sectors. Since the Fund and the Portfolio 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.
<PAGE> 3
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 investment
advisory services to the Fund (through September 30, 1996) and to
the Portfolio (beginning October 1, 1996). In addition, it
provides administrative and bookkeeping and accounting services to
the Fund and the Portfolio. 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
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
Other Expenses (after expense reimbursement) 1.25%
-----
Total Fund Operating Expenses (after expense
reimbursement) 1.25%
-----
-----
- -----------
*There is a $3.50 charge for wiring redemption proceeds to your bank.
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 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, Stein Roe may voluntarily absorb certain
expenses of the Fund. Stein Roe has agreed to voluntarily waive
its 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
<PAGE> 4
January 31, 1997, subject to earlier termination by Stein Roe 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.
On October 1, 1996, the Fund will begin investing all of its net
investable assets in the Portfolio and its management fee
structure will change. As of that date, the Fund will pay Stein
Roe an administrative fee and the Portfolio will pay Stein Roe a
management fee. The expenses of both the Fund and the Portfolio
are summarized in the Fee Table. (The fees are described under
Management of the Fund.) The Fund will bear its proportionate
share of Portfolio expenses. The trustees of the Trust have
considered whether the annual operating expenses of the Fund,
including its proportionate share of the expenses of the
Portfolio, would be more or less than if the Fund invested
directly in the securities held by the Portfolio, and concluded
that the Fund's expenses would not be greater in such case.
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 except for the
period ended March 31, 1996, which is unaudited. 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.
Period Year Six
Ended Ended Months Ended
Sept. 30, Sept. 30, March 31,
1994(a) 1995 1996
--------- -------- -------------
NET ASSET VALUE,
BEGINNING OF PERIOD $10.00 $10.24 $14.29
------ ------ ------
Income from investment
operations
Net investment income 0.03 0.06 0.04
Net realized and
unrealized gains on
investments 0.21 4.07 1.96
------ ------ ------
Total from investment
operations 0.24 4.13 2.00
DISTRIBUTIONS
Net investment income -- (0.08) (0.05)
Net realized capital gains -- -- (0.51)
------ ------ ------
Total Distributions -- (0.08) (0.56)
------ ------ ------
NET ASSET VALUE,
END OF PERIOD $10.24 $14.29 $15.73
------ ------ ------
------ ------ ------
Ratio of net expenses
to average net
assets (b) *0.99% 0.99% *1.10%
Ratio of net
investment income to
average net assets(c) *1.07% 0.47% *0.47%
Portfolio turnover rate *12% 55% **44%
Average commissions
(per share) -- -- $0.0632
Total return (c) **2.40% 40.58% **14.39%
Net assets, end of
period (000 omitted) $8,176 $31,401 $68,311
________________________________
*Annualized.
**Not annualized.
(a) From commencement of operations on April 29, 1994.
<PAGE> 5
(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, 2.87% for the year ended September 30, 1995, and 1.68%
for the six months ended March 31, 1996.
(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
administrative, management, and accounting and bookkeeping
services to the Fund and the Portfolio, and investment advisory
services to the Fund or Portfolio. 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 other
information on any of those mutual funds, please call 800-338-
2550.
Master and feeder funds
On October 1, 1996, the Fund will become a "feeder fund"--that
is, it will invest all of its assets in SR&F Growth Investor
Portfolio (the "Portfolio"), a "master fund" that has an
investment objective identical to the Fund's. Until then, the
Fund invests its assets directly in securities. Under the
"master fund/feeder fund structure," mutual funds with the same
investment objective (each a "feeder fund") pool their assets in a
master fund that has the same investment objective and
substantially the same investment policies and restrictions. The
purpose of such an arrangement is to achieve greater operational
efficiencies and reduce costs. The Portfolio, the Fund's master
fund, will be managed by Stein Roe in the same manner as the
Fund's assets were managed before conversion to the master
fund/feeder fund structure. (For more information, see
Organization and Description of Shares--Special Considerations
Regarding Master Fund/Feeder Fund Structure.)
<PAGE> 6
INVESTMENT POLICIES
The Fund and the Portfolio
invest primarily in equity
securities
The Fund will seek to achieve its objective by investing all of
its assets in the Portfolio beginning on October 1, 1996. The
investment objectives and policies of the Fund and the Portfolio
are identical. The investment objective of the Fund and the
Portfolio is long-term capital appreciation. Each 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 and the Portfolio
invest in companies that
affect the lives of young people
Under normal circumstances, at least 65% of the total assets of
the Fund and the Portfolio 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 young people. Such
companies may include companies that produce products or services
that young people use, are aware of, or could potentially have an
interest in.
Although the Fund and the Portfolio invest 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 and the
Portfolio may invest in securities of smaller emerging companies
as well as securities of well-seasoned companies of any size.
Smaller companies, however, involve higher risks in that they
typically have limited product lines, markets, and financial or
management resources. In addition, the securities of smaller
companies may trade less frequently and have greater price
fluctuation than larger companies, particularly those operating in
countries with developing markets. The Fund and the Portfolio 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 an
educational experience for young
investors and their parents
In addition to the 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 and the Portfolio
may invest in "investment
grade" debt securities
In pursuing its investment objective, the Fund and the Portfolio
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 and Portfolio
invest in debt securities, such holdings will be subject to
interest rate risk and credit risk. Interest rate risk is the
risk that the value of a portfolio will fluctuate in response to
changes in interest rates. Generally, the debt component of a
portfolio will tend to decrease in value when interest rates rise
and increase in value when interest rates fall. Credit risk is
the risk that an issuer will be unable to make principal and
interest payments when due. Investments in debt securities are
limited to those that are rated within the four highest grades
(generally referred to as "investment grade") assigned by a
nationally recognized statistical rating organization.
Investments in unrated debt securities are limited to those deemed
to be of comparable quality by Stein Roe. Securities rated
within the fourth highest grade may possess speculative
characteristics. If the rating of a security held by the Fund or
the Portfolio is lost or reduced below
<PAGE> 7
investment grade, the Fund or the Portfolio is not required to
dispose of the security--Stein Roe will, however, consider that
fact in determining whether the Fund or the Portfolio should
continue to hold the security. When Stein Roe considers a
temporary defensive position advisable, the Fund and the Portfolio
may invest without limitation in high-quality fixed income
securities, or hold assets in cash or cash equivalents.
The Fund and the Portfolio may
each invest up to 25% of its
assets in foreign securities,
which may entail a greater
degree of risk than domestic
securities
The Fund and the Portfolio may each 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, the Fund and the Portfolio 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 and Portfolio
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 and the Portfolio may make loans of 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 and the Portfolio
may invest in securities purchased on a when-issued or delayed-
delivery basis. Although the payment terms of these securities
are established at the time the Fund or the Portfolio enters into
the commitment, the securities may be delivered and paid for a
month or more after the date of purchase, when their value may
have changed. The Fund and the Portfolio will make such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
it is deemed advisable for investment reasons.
The Fund and the Portfolio
may invest in "derivative
products"
Consistent with its objective, the Fund and the Portfolio may
invest in a broad array of financial instruments and securities,
including conventional, exchange-traded and non-exchange-traded
options, futures , contracts futures options, 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.
Neither the Fund nor the Portfolio 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.
<PAGE> 8
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 and the
Portfolio may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2) enter
into interest rate, index and foreign currency futures contracts;
(3) write options on such futures contracts; and (4) purchase
other types of forward or investment contracts linked to
individual securities, indexes, or other benchmarks. The Fund and
the Portfolio may write a call or put option only if the option is
covered. As the writer of a covered call option, the Fund or the
Portfolio foregoes, during the option's life, the opportunity to
profit from increases in market value of the security covering the
call option above the sum of the premium and the exercise price of
the call. There can be no assurance that a liquid market will
exist when the Fund or the Portfolio seeks to close out a
position. In addition, because futures positions may require low
margin deposits, the use of futures contracts involves a high
degree of leverage and may result in losses in excess of the
amount of the margin deposit.
INVESTMENT RESTRICTIONS
The Fund and the Portfolio
will seek to limit the impact
of any one investment on its
portfolio
Neither the Fund nor the Portfolio may invest more than 5% of its
assets in the securities of any one issuer. This restriction
applies only to 75% of the 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.
Neither the Fund nor the Portfolio may invest more than 25% of its
total assets (at the time of investment) in the securities of
companies in any one industry.
Neither the Fund nor the Portfolio may acquire more than 10% of
the outstanding voting securities of any one issuer. The Fund
may, however, invest all of its assets in shares of another
investment company having the identical investment objective.
Neither the Fund not the Portfolio may make loans except that each
may (1) purchase money market instruments and enter into
repurchase agreements; (2) acquire publicly-distributed or
privately-placed debt securities; (3) lend its portfolio
securities under certain conditions; and (4) participate in an
interfund lending program with other Stein Roe Funds. Neither may
borrow money, except for non-leveraging, temporary, or emergency
purposes or in connection with participation in the
<PAGE> 9
interfund lending program. Neither the aggregate borrowings
(including reverse repurchase agreements) nor aggregate loans at
any one time may exceed 33 1/3% of the value of total assets.
The Fund and the Portfolio may invest in repurchase agreements,/1/
provided that neither will invest more than 5% of 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.
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 common investment objective of the Fund and the
Portfolio is non-fundamental and, as such, may be changed by the
Board of Trustees without shareholder approval, subject, however,
to at least 30 days' advance written notice to the Fund's
shareholders. 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
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 or the Portfolio will achieve its objective. The Fund is
also designed to be an educational experience for young investors
and their parents.
While the Fund and the Portfolio seek to reduce risk by investing
in a diversified portfolio, diversification does not eliminate all
risk. However, neither the Fund nor the Portfolio 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.
By investing in companies whose products or services appeal to
young investors, the Fund and the Portfolio emphasize various
consumer goods sectors.
Although the Fund and the Portfolio do 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
- ---------------------
/1/ A repurchase agreement involves a sale of securities to the
Fund or the Portfolio in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a specified
time. In the event of bankruptcy of the seller, the Fund or the
Portfolio could experience both losses and delays in liquidating
its collateral.
- ----------------------
<PAGE> 10
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.
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; 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 Mutual Funds, to SteinRoe Services
Inc., P.O. Box 8900, Boston, Massachusetts 02205. Participants in
the Stein Roe Counselor [SERVICE MARK] Program should send orders
to SteinRoe Services Inc., P.O. Box 803938, 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 First National Bank of Boston. 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
<PAGE> 11
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:
First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Fund No. 14; Stein Roe Young Investor Fund
Account of (exact name(s) in registration)
Shareholder Account No. ________
Participants in the Stein Roe Counselor [SERVICE MARK] program
should contact their Stein Roe Counselor [SERVICE MARK] Account
Executive for instructions at 800-322-8222.
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 the Automatic Exchange
Privilege). 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
instruction received by telephone on a business day before 3:00
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
<PAGE> 12
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. Stein
Roe pays these annual fees as well as all sales and promotional
expenses.
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 SteinRoe Services
Inc., P.O. Box 8900, Boston, MA 02205. Participants in the Stein
Roe Counselor [SERVICE MARK] Program should send redemption
requests to SteinRoe Services Inc., P.O. Box 803938, Chicago, IL
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.
BY EXCHANGE.
You may exchange shares
of the Fund for shares
of any other Stein Roe Fund
qualified for sale in 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
<PAGE> 13
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 may
not be used to redeem shares held by a tax-sheltered retirement
plan sponsored by Stein Roe. (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 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.
<PAGE> 14
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 shares from your account ($1,000 minimum;
$100,000 maximum) 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 $100,000 maximum. A Special Redemption request received by
telephone after 3:00 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 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.
<PAGE> 15
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 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 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.
<PAGE> 16
FUNDS-ON-CALL [REGISTERED] AUTOMATED TELEPHONE SERVICE.
Funds-on-Call [registered]
allows you to have 24-hour
access to information
To access Stein Roe Funds-on-Call [registered], 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. You also may use
Funds-on-Call [registered] to make Special Investments and
Redemptions, Telephone Exchanges, and Telephone Redemptions by
Check. 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; $100,000 maximum).
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).
<PAGE> 17
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
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
and of the Portfolio 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 their
respective assets and liabilities by the number of shares
outstanding. Beginning October 1, 1996, the Fund's shares of the
Portfolio will be valued at net asset value. (See Risks and
Investment Considerations.)
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 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
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> 18
Dividends and capital
gains will be reinvested
automatically unless you
elect another option
All of your income dividends and capital gain distributions will
be reinvested in additional shares of the Fund 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 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.
<PAGE> 19
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 Investment Trust and the Board of
Trustees of Base Trust have overall management responsibility for
the Fund and the Portfolio, respectively. See the Statement of
Additional Information for the names of and additional information
about the trustees and officers. Since Investment Trust and Base
Trust have the same trustees, the trustees have adopted conflict
of interest procedures to monitor and address potential conflicts
between the interests of the Fund and the Portfolio.
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
Illinois 60606, is responsible for managing the business affairs
of the Fund, the Portfolio, and the Trusts and the investment
portfolio of the Fund or the Portfolio, subject to the direction
of the respective Boards. 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.
<PAGE> 20
PORTFOLIO MANAGERS.
The portfolio managers are
Erik Gustafson, David Brady,
and Art McQueen
The portfolio managers of the Fund and the Portfolio are Erik P.
Gustafson, David P. Brady and Arthur J. McQueen. Mr. Gustafson
became portfolio manager of the Fund in February 1995, Mr. Brady
in March 1995, and Mr. McQueen in April 1996. As of December 31,
1995, Messrs. Gustafson and Brady were responsible for co-managing
$554 million and $42 million in mutual fund assets, respectively.
Messrs. Gustafson and McQueen are senior vice presidents of Stein
Roe and Mr. Brady is a vice president of Stein Roe. Before
joining Stein Roe, Mr. Gustafson was an attorney with Fowler,
White, Burnett, Hurley, Banick & Strickroot from 1989 to 1992.
He holds a B.A. from the University of Virginia (1985) and M.B.A.
and J.D. degrees (1989) from Florida State University. Mr. Brady,
who joined Stein Roe in 1993, was an equity investment analyst
with State Farm Mutual Automobile Insurance Company from 1986 to
1993. A chartered financial analyst, Mr. Brady earned a B.S. in
Finance, graduating Magna Cum Laude, from the University of
Arizona in 1986, and an M.B.A. from the University of Chicago in
1989. Mr. McQueen earned a B.S. from Villanova University (1980)
and an M.B.A. from the Wharton School of the University of
Pennsylvania (1987). Mr. McQueen has been employed by Stein Roe
as an equity analyst since 1987 and was previously employed by
Citibank and GTE.
FEES AND EXPENSES.
Stein Roe receives fees
from the Fund and the
Portfolio
From the Fund's inception in 1994 through August 31, 1995, under
an investment advisory agreement with Stein Roe, the Fund paid
Stein Roe an advisory fee at an annual rate of .75% of the first
$250 million of its average net assets, .70% of the next $250
million, and .60% thereafter. The investment advisory agreement
was replaced on September 1, 1995, with separate administrative
and management agreements with Stein Roe. Under the
administrative agreement, the Fund pays Stein Roe an annual fee of
.20% of the first $500 million of average net assets, .15% of the
next $500 million, and .125% thereafter. The annual management
fee is .60% of the first $500 million, .55% of the next $500
million, and .50% thereafter. With the conversion to the master
fund/feeder fund structure on October 1, 1996, the management fee
will be paid by the Portfolio instead of by the Fund.
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,
its 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 due to 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, 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. In doing so,
Stein Roe seeks
<PAGE> 21
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
SteinRoe Services Inc., P.O. Box 8900, Boston, MA 02205, except
for participants in the Stein Roe Counselor [SERVICE MARK]
Program, who should send orders to SteinRoe Services Inc., P.O.
Box 803938, Chicago, IL 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
and the Portfolio. Foreign securities are maintained in the
custody of foreign banks and trust companies that are members of
the Bank's Global Custody Network or foreign depositories used by
such members. (See Custodian in the Statement of Additional
Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
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
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
<PAGE> 22
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.
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND
STRUCTURE.
Beginning October 1, 1996, the Fund, which is an open-end
management investment company, will seek to achieve its objective
by investing all of its assets in shares of another mutual fund
having an identical investment objective to the Fund. This policy
permitting the Fund to act as a feeder fund by investing in the
Portfolio, acting as a master fund, was approved by the Fund's
shareholders. Please refer to the Fee Table, Investment Policies,
and Investment Restrictions for a description of the investment
objectives, policies, and restrictions of the Fund and the
Portfolio. The management and expenses of the Fund and the
Portfolio are described under the Fee Table and Management of the
Fund. The Fund will bear its proportionate share of Portfolio
expenses.
Although most of the mutual funds managed by Stein Roe are
conventionally structured funds, Stein Roe has been providing
investment management services in connection with other funds
employing the master fund/feeder fund structure since August,
1991.
SR&F Growth Investor Portfolio is a separate series of SR&F Base
Trust (the "Base Trust"), a Massachusetts common trust organized
under an Agreement and Declaration of Trust ("Declaration of
Trust") dated August 23, 1993. The Declaration of Trust of the
Base Trust provides that the Fund and other investors in the
Portfolio will each be liable for all obligations of the Portfolio
that are not satisfied by the Portfolio. However, the risk of the
Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance
existed and the Portfolio itself were unable to meet its
obligations. Accordingly, the Trustees of Investment Trust
believe that neither the Fund nor its shareholders will be
adversely affected by reason of the Fund's investing in the
Portfolio.
The Declaration of Trust of Base Trust provides that the Portfolio
will terminate 120 days after the withdrawal of the Fund or any
other investor in the Portfolio, unless the remaining investors
vote to agree to continue the business of the Portfolio. The
Trustees of Investment Trust may vote the Fund's interests in the
Portfolio for such continuation without approval of the Fund's
shareholders.
The common investment objective of the Fund and the Portfolio is
non-fundamental and may be changed without shareholder approval,
subject, however, to at least 30 days' advance written notice to
the Fund's shareholders.
The fundamental policies of the Fund and the corresponding
fundamental policies of the Portfolio can be changed only with
shareholder approval. If the Fund, as a Portfolio investor, is
requested to vote on a change in a fundamental policy of the
Portfolio or any other matter pertaining to the Portfolio (other
than continuation of the business of the
<PAGE> 23
Portfolio after withdrawal of another investor), the Fund will
solicit proxies from its shareholders and vote its interest in the
Portfolio for and against such matters proportionately to the
instructions to vote for and against such matters received from
Fund shareholders. The Fund will vote shares for which it
receives no voting instructions in the same proportion as the
shares for which it receives voting instructions. If there are
other investors in the Portfolio, there can be no assurance that
any matter receiving a majority of votes cast by Fund shareholders
will receive a majority of votes cast by all Portfolio investors.
If other Portfolio investors hold a majority interest in the
Portfolio, they could have voting control over the Portfolio.
In the event that the Portfolio's fundamental policies were
changed so as to be inconsistent with those of the Fund, the Board
of Trustees of Investment Trust would consider what action might
be taken, including changes to the Fund's investment objective or
fundamental policies, withdrawal of the Fund's assets from the
Portfolio and investment of such assets in another pooled
investment entity, or the retention of an investment adviser to
invest those assets directly in a portfolio of securities. Any of
these actions would require the approval of the Fund's
shareholders. The Fund's inability to find a substitute master
fund or comparable investment management could have a significant
impact upon its shareholders' investments. Any withdrawal of the
Fund's assets could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution) to the Fund.
Should such a distribution occur, the Fund would incur brokerage
fees or other transaction costs in converting such securities to
cash. In addition, a distribution in kind could result in a less
diversified portfolio of investments for the Fund and could affect
the liquidity of the Fund.
Each investor in the Portfolio, including the Fund, may add to or
reduce its investment in the Portfolio on each day the NYSE is
open for business. At 3:00 p.m., Central time, on each such
business day, the value of each investor's beneficial interest in
the Portfolio will be determined by multiplying the net asset
value of the Portfolio by the percentage effective for that day
which represents that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals which
are to be effected on that day will then be effected. The
investor's percentage of the aggregate beneficial interests in the
Portfolio will then be recomputed as the percentage equal to the
fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of 3:00 p.m., Central
time, on such day plus or minus, as the case may be, the amount of
any additions to or withdrawals from the investor's investment in
the Portfolio effected on such day; and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of 3:00
p.m., Central time, on such day plus or minus, as the case may be,
the amount of the net additions to or withdrawals from the
aggregate investment in the Portfolio by all investors in the
Portfolio. The percentage so determined will then be applied to
determine the value of the investor's interest in the Portfolio as
of 3:00 p.m., Central time, on the following such business day.
Base Trust may permit other investment companies and/or other
institutional investors to invest in the Portfolio, but members of
the general public may not invest directly in the Portfolio.
Other investors in the Portfolio are not required to sell their
shares at the same public offering price as the Fund, could have
different administrative fees and expenses
<PAGE> 24
than the Fund, and might charge a sales commission. Therefore,
Fund shareholders might have different investment returns than
shareholders in another investment company that invests
exclusively in the Portfolio. Investment by such other investors
in the Portfolio would provide funds for the purchase of
additional portfolio securities and would tend to reduce the
operating expenses as a percentage of the Portfolio's net assets.
Conversely, large-scale redemptions by any such other investors in
the Portfolio could result in untimely liquidations of the
Portfolio's security holdings, loss of investment flexibility, and
increases in the operating expenses of the Portfolio as a
percentage of the Portfolio's net assets. As a result, the
Portfolio's security holdings may become less diverse, resulting
in increased risk.
Currently, Colonial Young Investor Fund, a series of Colonial
Trust I, is anticipated to be the only other feeder that invests
in the Portfolio. Information regarding any investment company
that may invest in the Portfolio in the future may be obtained by
writing to Base Trust at Suite 3200, One South Wacker Drive,
Chicago, IL 60606, or by calling 800-338-2550. Stein Roe may
provide administrative or other services to one or more of such
investors.
<PAGE> 25
[Stein Roe Mutual 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 Balanced Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Young Investor Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
Stein Roe International Fund
800-338-2550
In Chicago, visit our Fund Center at One South Wacker Drive, Suite
3200
Liberty Securities Corporation, Distributor
YI996
<PAGE> 1
YOUNG INVESTOR FUND
The Fund's objective is long-term capital appreciation. Beginning
October 1, 1996, the Fund will seek to achieve its objective by
investing all of its investable net assets in shares of SR&F
Growth Investor Portfolio (the "Portfolio"), which has the same
investment objective as the Fund. (See Organization and
Description of Shares--Special Considerations Regarding Master
Fund/Feeder Fund Structure.) The Fund and the Portfolio invest in
securities of companies that affect the lives of young people.
The Fund is also intended to be an 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 and the Portfolio is a series of
SR&F Base Trust. Each Trust is a diversified 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 September 10, 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 Suite 3200, One South Wacker Drive, Chicago, Illinois
60606, 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 September 10, 1996.
<PAGE> 2
TABLE OF CONTENTS
Page
Summary ........................2
Fee Table .....................4
Financial Highlights............5
The Fund .......................5
Investment Policies ............6
Portfolio Investments and
Strategies.....................7
Investment Restrictions.........9
Risks and Investment
Considerations...............10
How to Purchase Shares ........10
By Check ....................11
By Wire .....................11
By Electronic Transfer.......11
By Exchange .................12
Purchase Price and
Effective Date ............12
Conditions of Purchase ......12
Purchases Through Third
Parties....................12
How to Redeem Shares ..........12
By Written Request ..........12
By Exchange .................13
Special Redemption
Privileges ................13
General Redemption Policies..14
Shareholder Services ..........16
Net Asset Value ...............17
Distributions and Income Taxes 18
Investment Return .............19
Management of the Fund ........19
Organization and
Description of Shares........21
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, which means
that there are no sales or redemption charges. (See The Fund and
Organization and Description of Shares.) This prospectus is not a
solicitation in any jurisdiction in which the Fund is not
registered for sale.
INVESTMENT OBJECTIVES AND POLICIES.
The investment objective of the Fund and SR&F Growth Investor
Portfolio (the "Portfolio") is long-term capital appreciation.
Beginning October 1, 1996, the Fund will invest all of its assets
in the Portfolio. The Fund and the Portfolio seek to achieve
their objective by investing primarily in common stocks and other
equity-type securities that Stein Roe believes to have long-term
appreciation potential. The Fund and the Portfolio invest
primarily in securities of companies that appeal to or affect the
lives of young people. The Fund is designed for long-term
investors, particularly children and teenagers.
<PAGE> 3
In addition to the investment objective and policies, the Fund
also has an educational objective. It seeks to teach young people
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.
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 or the Portfolio. By investing
in companies whose products or services appeal to young investors,
the Fund and the Portfolio emphasize various consumer goods
sectors. Since the Fund and the Portfolio 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 investment
advisory services to the Fund (through September 30, 1996) and to
the Portfolio (beginning October 1, 1996). In addition, it
provides administrative and bookkeeping and accounting services to
the Fund and the Portfolio. 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.
<PAGE> 4
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
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
Other Expenses (after expense reimbursement) 1.25%
-----
Total Fund Operating Expenses (after expense
reimbursement) 1.25%
-----
-----
- -----------
*There is a $3.50 charge for wiring redemption proceeds to your bank.
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 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, Stein Roe may voluntarily absorb certain
expenses of the Fund. Stein Roe has agreed to voluntarily waive
its 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 Stein Roe 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.
On October 1, 1996, the Fund will begin investing all of its net
investable assets in the Portfolio and its management fee
structure will change. As of that date, the Fund will pay Stein
Roe an administrative fee and the Portfolio will pay Stein Roe a
management fee. The expenses of both the Fund and the Portfolio
are summarized in the Fee Table. (The fees are described under
Management of the Fund.) The Fund will bear its proportionate
share of Portfolio expenses. The trustees of the Trust have
considered whether the annual operating expenses of the Fund,
including its proportionate share of the expenses of the
Portfolio, would be more or less than if the Fund invested
directly in the securities held by the Portfolio, and concluded
that the Fund's expenses would not be greater in such case.
<PAGE> 5
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 except for the
period ended March 31, 1996, which is unaudited. 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.
Period Year Six
Ended Ended Months Ended
Sept. 30, Sept. 30, March 31,
1994(a) 1995 1996
--------- -------- -------------
NET ASSET VALUE,
BEGINNING OF PERIOD $10.00 $10.24 $14.29
------ ------ ------
Income from investment
operations
Net investment income 0.03 0.06 0.04
Net realized and
unrealized gains on
investments 0.21 4.07 1.96
------ ------ ------
Total from investment
operations 0.24 4.13 2.00
DISTRIBUTIONS
Net investment income -- (0.08) (0.05)
Net realized capital gains -- -- (0.51)
------ ------ ------
Total Distributions -- (0.08) (0.56)
------ ------ ------
NET ASSET VALUE,
END OF PERIOD $10.24 $14.29 $15.73
------ ------ ------
------ ------ ------
Ratio of net expenses
to average net
assets (b) *0.99% 0.99% *1.10%
Ratio of net
investment income to
average net assets(c) *1.07% 0.47% *0.47%
Portfolio turnover rate *12% 55% **44%
Average commissions
(per share) -- -- $0.0632
Total return (c) **2.40% 40.58% **14.39%
Net assets, end of
period (000 omitted) $8,176 $31,401 $68,311
________________________________
*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, 2.87% for the year ended September 30, 1995, and 1.68%
for the six months ended March 31, 1996.
(c) Computed giving effect to the investment adviser's expense
limitation undertaking.
THE 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
<PAGE> 6
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 ("Stein Roe") provides
administrative, management, and accounting and bookkeeping
services to the Fund and the Portfolio, and investment advisory
services to the Fund or Portfolio. 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 other
information on any of those mutual funds, please call 800-338-
2550.
On October 1, 1996, the Fund will become a "feeder fund"--that
is, it will invest all of its assets in SR&F Growth Investor
Portfolio (the "Portfolio"), a "master fund" that has an
investment objective identical to the Fund's. Until then, the
Fund invests its assets directly in securities. Under the
"master fund/feeder fund structure," mutual funds with the same
investment objective (each a "feeder fund") pool their assets in a
master fund that has the same investment objective and
substantially the same investment policies and restrictions. The
purpose of such an arrangement is to achieve greater operational
efficiencies and reduce costs. The Portfolio, the Fund's master
fund, will be managed by Stein Roe in the same manner as the
Fund's assets were managed before conversion to the master
fund/feeder fund structure. (For more information, see
Organization and Description of Shares--Special Considerations
Regarding Master Fund/Feeder Fund Structure.)
INVESTMENT POLICIES
The Fund will seek to achieve its objective by investing all of
its assets in the Portfolio beginning on October 1, 1996. The
investment objectives and policies of the Fund and the Portfolio
are identical. The investment objective of the Fund and the
Portfolio is long-term capital appreciation. Each 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 total assets of
the Fund and the Portfolio 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 young people. Such
companies may include companies that produce products or services
that young people use, are aware of, or could potentially have an
interest in.
<PAGE> 7
Although the Fund and the Portfolio invest 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 and the
Portfolio may invest in securities of smaller emerging companies
as well as securities of well-seasoned companies of any size.
Smaller companies, however, involve higher risks in that they
typically have limited product lines, markets, and financial or
management resources. In addition, the securities of smaller
companies may trade less frequently and have greater price
fluctuation than larger companies, particularly those operating in
countries with developing markets. The Fund and the Portfolio may
also employ investment techniques described elsewhere in this
prospectus. (See Risks and Investment Considerations and Fees and
Expenses.)
In addition to the 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
In pursuing its investment objective, the Fund and the Portfolio
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 and Portfolio
invest in debt securities, such holdings will be subject to
interest rate risk and credit risk. Interest rate risk is the
risk that the value of a portfolio will fluctuate in response to
changes in interest rates. Generally, the debt component of a
portfolio will tend to decrease in value when interest rates rise
and increase in value when interest rates fall. Credit risk is
the risk that an issuer will be unable to make principal and
interest payments when due. Investments in debt securities are
limited to those that are rated within the four highest grades
(generally referred to as "investment grade") assigned by a
nationally recognized statistical rating organization.
Investments in unrated debt securities are limited to those deemed
to be of comparable quality by Stein Roe. Securities rated
within the fourth highest grade may possess speculative
characteristics. If the rating of a security held by the Fund or
the Portfolio is lost or reduced below investment grade, the Fund
or the Portfolio is not required to dispose of the security--Stein
Roe will, however, consider that fact in determining whether the
Fund or the Portfolio should continue to hold the security. When
Stein Roe considers a temporary defensive position advisable, the
Fund and the Portfolio may invest without limitation in high-
quality fixed income securities, or hold assets in cash or cash
equivalents.
The Fund and the Portfolio may each 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, the Fund and the Portfolio 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
<PAGE> 8
greater liquidity than direct investment in foreign currency debt
instruments. In connection with the purchase of foreign
securities, the Fund and Portfolio 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 and the Portfolio may make loans of 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 and the Portfolio
may invest in securities purchased on a when-issued or delayed-
delivery basis. Although the payment terms of these securities
are established at the time the Fund or the Portfolio enters into
the commitment, the securities may be delivered and paid for a
month or more after the date of purchase, when their value may
have changed. The Fund and the Portfolio will make such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
it is deemed advisable for investment reasons.
Consistent with its objective, the Fund and the Portfolio may
invest in a broad array of financial instruments and securities,
including conventional, exchange-traded and non-exchange-traded
options, futures , contracts futures options, 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.
Neither the Fund nor the Portfolio 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 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 and the
Portfolio may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2) enter
into interest rate, index and foreign currency futures contracts;
(3) write options on such futures contracts; and (4) purchase
other types of forward or investment contracts linked to
individual securities, indexes,
<PAGE> 9
or other benchmarks. The Fund and the Portfolio may write a call
or put option only if the option is covered. As the writer of a
covered call option, the Fund or the Portfolio foregoes, during
the option's life, the opportunity to profit from increases in
market value of the security covering the call option above the
sum of the premium and the exercise price of the call. There can
be no assurance that a liquid market will exist when the Fund or
the Portfolio seeks to close out a position. In addition, because
futures positions may require low margin deposits, the use of
futures contracts involves a high degree of leverage and may
result in losses in excess of the amount of the margin deposit.
INVESTMENT RESTRICTIONS
Neither the Fund nor the Portfolio may invest more than 5% of its
assets in the securities of any one issuer. This restriction
applies only to 75% of the 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.
Neither the Fund nor the Portfolio may invest more than 25% of its
total assets (at the time of investment) in the securities of
companies in any one industry.
Neither the Fund nor the Portfolio may acquire more than 10% of
the outstanding voting securities of any one issuer. The Fund
may, however, invest all of its assets in shares of another
investment company having the identical investment objective.
Neither the Fund not the Portfolio may make loans except that each
may (1) purchase money market instruments and enter into
repurchase agreements; (2) acquire publicly-distributed or
privately-placed debt securities; (3) lend its portfolio
securities under certain conditions; and (4) participate in an
interfund lending program with other Stein Roe Funds. Neither may
borrow money, except for non-leveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither the aggregate borrowings (including
reverse repurchase agreements) nor aggregate loans at any one time
may exceed 33 1/3% of the value of total assets.
The Fund and the Portfolio may invest in repurchase agreements,/1/
provided that neither will invest more than 5% of 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.
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 common investment objective of the Fund and the
Portfolio is non-fundamental and, as such, may be changed by the
Board of Trustees without shareholder approval,
- ---------------------
/1/ A repurchase agreement involves a sale of securities to the
Fund or the Portfolio in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a specified
time. In the event of bankruptcy of the seller, the Fund or the
Portfolio could experience both losses and delays in liquidating
its collateral.
- ----------------------
<PAGE> 10
subject, however, to at least 30 days' advance written notice to
the Fund's shareholders. 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 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 or the Portfolio will achieve its objective. The Fund is
also designed to be an educational experience for young investors
and their parents.
While the Fund and the Portfolio seek to reduce risk by investing
in a diversified portfolio, diversification does not eliminate all
risk. However, neither the Fund nor the Portfolio 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.
By investing in companies whose products or services appeal to
young investors, the Fund and the Portfolio emphasize various
consumer goods sectors.
Although the Fund and the Portfolio do 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.
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
<PAGE> 11
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; 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.
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 Mutual Funds, to SteinRoe Services
Inc., P.O. Box 8900, Boston, Massachusetts 02205. Participants in
the Stein Roe Counselor [SERVICE MARK] Program should send orders
to SteinRoe Services Inc., P.O. Box 803938, 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 First National Bank of Boston. 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:
First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Fund No. 14; Stein Roe Young Investor Fund
Account of (exact name(s) in registration)
Shareholder Account No. ________
Participants in the Stein Roe Counselor [SERVICE MARK] program
should contact their Stein Roe Counselor [SERVICE MARK] Account
Executive for instructions at 800-322-8222.
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
<PAGE> 12
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 the Automatic Exchange
Privilege). 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
instruction received by telephone on a business day before 3:00
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.
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. Stein
Roe pays these annual fees as well as all sales and promotional
expenses.
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 SteinRoe Services
Inc., P.O. Box 8900, Boston, MA 02205. Participants in the Stein
Roe Counselor [SERVICE MARK] Program should send
<PAGE> 13
redemption requests to SteinRoe Services Inc., P.O. Box 803938,
Chicago, IL 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.
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 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 may
not be used to redeem shares held by a tax-sheltered retirement
plan sponsored by Stein Roe. (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
<PAGE> 14
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 Wire Privilege. You may use this
Privilege to redeem shares from your account ($1,000 minimum;
$100,000 maximum) 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 $100,000 maximum. A Special Redemption request received by
telephone after 3:00 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
<PAGE> 15
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 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 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.
<PAGE> 16
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. 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. 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] AUTOMATED TELEPHONE SERVICE.
To access Stein Roe Funds-on-Call [registered], 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. You also may use
Funds-on-Call [registered] to make Special Investments and
Redemptions, Telephone Exchanges, and Telephone Redemptions by
Check. 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 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.
<PAGE> 17
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; $100,000 maximum).
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 the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
and of the Portfolio 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 their
respective assets and liabilities by the number of shares
outstanding. Beginning October 1, 1996, the Fund's shares of the
Portfolio will be valued at net asset value. (See Risks and
Investment Considerations.)
<PAGE> 18
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 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
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.
All of your income dividends and capital gain distributions will
be reinvested in additional shares of the Fund 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
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.
<PAGE> 19
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 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 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 of Investment Trust and the Board of
Trustees of Base Trust have overall management responsibility for
the Fund and the Portfolio, respectively. See the Statement of
Additional Information for the names of and additional information
about the trustees and officers. Since Investment Trust and Base
Trust have the same trustees, the trustees have adopted conflict
of interest
<PAGE> 20
procedures to monitor and address potential conflicts between the
interests of the Fund and the Portfolio.
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
Illinois 60606, is responsible for managing the business affairs
of the Fund, the Portfolio, and the Trusts and the investment
portfolio of the Fund or the Portfolio, subject to the direction
of the respective Boards. 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 portfolio managers of the Fund and the Portfolio are Erik P.
Gustafson, David P. Brady and Arthur J. McQueen. Mr. Gustafson
became portfolio manager of the Fund in February 1995, Mr. Brady
in March 1995, and Mr. McQueen in April 1996. As of December 31,
1995, Messrs. Gustafson and Brady were responsible for co-managing
$554 million and $42 million in mutual fund assets, respectively.
Messrs. Gustafson and McQueen are senior vice presidents of Stein
Roe and Mr. Brady is a vice president of Stein Roe. Before
joining Stein Roe, Mr. Gustafson was an attorney with Fowler,
White, Burnett, Hurley, Banick & Strickroot from 1989 to 1992.
He holds a B.A. from the University of Virginia (1985) and M.B.A.
and J.D. degrees (1989) from Florida State University. Mr. Brady,
who joined Stein Roe in 1993, was an equity investment analyst
with State Farm Mutual Automobile Insurance Company from 1986 to
1993. A chartered financial analyst, Mr. Brady earned a B.S. in
Finance, graduating Magna Cum Laude, from the University of
Arizona in 1986, and an M.B.A. from the University of Chicago in
1989. Mr. McQueen earned a B.S. from Villanova University (1980)
and an M.B.A. from the Wharton School of the University of
Pennsylvania (1987). Mr. McQueen has been employed by Stein Roe
as an equity analyst since 1987 and was previously employed by
Citibank and GTE.
FEES AND EXPENSES.
From the Fund's inception in 1994 through August 31, 1995, under
an investment advisory agreement with Stein Roe, the Fund paid
Stein Roe an advisory fee at an annual rate of .75% of the first
$250 million of its average net assets, .70% of the next $250
million, and .60% thereafter. The investment advisory agreement
was replaced on September 1, 1995, with separate administrative
and management agreements with Stein Roe. Under the
administrative agreement, the Fund pays Stein Roe an annual fee of
.20% of the first $500 million of average net assets, .15% of the
next $500 million, and .125% thereafter. The annual management
fee is .60% of the first $500 million, .55% of the next $500
million, and .50% thereafter. With the conversion to the master
fund/feeder fund structure on October 1, 1996, the management fee
will be paid by the Portfolio instead of by the Fund.
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.
<PAGE> 21
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 due to 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, 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. 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 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
SteinRoe Services Inc., P.O. Box 8900, Boston, MA 02205, except
for participants in the Stein Roe Counselor [SERVICE MARK]
Program, who should send orders to SteinRoe Services Inc., P.O.
Box 803938, Chicago, IL 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
and the Portfolio. Foreign securities are maintained in the
custody of foreign banks and trust companies that are members of
the Bank's Global Custody Network or foreign depositories used by
such members. (See Custodian in the Statement of Additional
Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
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
<PAGE> 22
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.
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND
STRUCTURE.
Beginning October 1, 1996, the Fund, which is an open-end
management investment company, will seek to achieve its objective
by investing all of its assets in shares of another mutual fund
having an identical investment objective to the Fund. This policy
permitting the Fund to act as a feeder fund by investing in the
Portfolio, acting as a master fund, was approved by the Fund's
shareholders. Please refer to the Fee Table, Investment Policies,
and Investment Restrictions for a description of the investment
objectives, policies, and restrictions of the Fund and the
Portfolio. The management and expenses of the Fund and the
Portfolio are described under the Fee Table and Management of the
Fund. The Fund will bear its proportionate share of Portfolio
expenses.
Although most of the mutual funds managed by Stein Roe are
conventionally structured funds, Stein Roe has been providing
investment management services in connection with other funds
employing the master fund/feeder fund structure since August,
1991.
SR&F Growth Investor Portfolio is a separate series of SR&F Base
Trust (the "Base Trust"), a Massachusetts common trust organized
under an Agreement and Declaration of Trust ("Declaration of
Trust") dated August 23, 1993. The Declaration of Trust of the
Base Trust provides that the Fund and other investors in the
Portfolio will each be liable for all obligations of the Portfolio
that are not satisfied by the Portfolio. However, the risk of the
Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance
existed and the Portfolio itself were unable to meet its
obligations. Accordingly, the Trustees of Investment Trust
believe that neither the Fund nor its shareholders will be
adversely affected by reason of the Fund's investing in the
Portfolio.
The Declaration of Trust of Base Trust provides that the Portfolio
will terminate 120 days after the withdrawal of the Fund or any
other investor in the Portfolio, unless the remaining investors
vote to agree to continue the business of the Portfolio. The
Trustees of Investment Trust may vote the Fund's interests in the
Portfolio for such continuation without approval of the Fund's
shareholders.
<PAGE> 23
The common investment objective of the Fund and the Portfolio is
non-fundamental and may be changed without shareholder approval,
subject, however, to at least 30 days' advance written notice to
the Fund's shareholders.
The fundamental policies of the Fund and the corresponding
fundamental policies of the Portfolio can be changed only with
shareholder approval. If the Fund, as a Portfolio investor, is
requested to vote on a change in a fundamental policy of the
Portfolio or any other matter pertaining to the Portfolio (other
than continuation of the business of the Portfolio after
withdrawal of another investor), the Fund will solicit proxies
from its shareholders and vote its interest in the Portfolio for
and against such matters proportionately to the instructions to
vote for and against such matters received from Fund shareholders.
The Fund will vote shares for which it receives no voting
instructions in the same proportion as the shares for which it
receives voting instructions. If there are other investors in the
Portfolio, there can be no assurance that any matter receiving a
majority of votes cast by Fund shareholders will receive a
majority of votes cast by all Portfolio investors. If other
Portfolio investors hold a majority interest in the Portfolio,
they could have voting control over the Portfolio.
In the event that the Portfolio's fundamental policies were
changed so as to be inconsistent with those of the Fund, the Board
of Trustees of Investment Trust would consider what action might
be taken, including changes to the Fund's investment objective or
fundamental policies, withdrawal of the Fund's assets from the
Portfolio and investment of such assets in another pooled
investment entity, or the retention of an investment adviser to
invest those assets directly in a portfolio of securities. Any of
these actions would require the approval of the Fund's
shareholders. The Fund's inability to find a substitute master
fund or comparable investment management could have a significant
impact upon its shareholders' investments. Any withdrawal of the
Fund's assets could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution) to the Fund.
Should such a distribution occur, the Fund would incur brokerage
fees or other transaction costs in converting such securities to
cash. In addition, a distribution in kind could result in a less
diversified portfolio of investments for the Fund and could affect
the liquidity of the Fund.
Each investor in the Portfolio, including the Fund, may add to or
reduce its investment in the Portfolio on each day the NYSE is
open for business. At 3:00 p.m., Central time, on each such
business day, the value of each investor's beneficial interest in
the Portfolio will be determined by multiplying the net asset
value of the Portfolio by the percentage effective for that day
which represents that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals which
are to be effected on that day will then be effected. The
investor's percentage of the aggregate beneficial interests in the
Portfolio will then be recomputed as the percentage equal to the
fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of 3:00 p.m., Central
time, on such day plus or minus, as the case may be, the amount of
any additions to or withdrawals from the investor's investment in
the Portfolio effected on such day; and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of 3:00
p.m., Central time, on such day plus or minus, as the case may be,
the amount of the net additions to or withdrawals from the
aggregate investment in the Portfolio by all investors in the
Portfolio. The percentage so determined will then be
<PAGE> 24
applied to determine the value of the investor's interest in the
Portfolio as of 3:00 p.m., Central time, on the following such
business day.
Base Trust may permit other investment companies and/or other
institutional investors to invest in the Portfolio, but members of
the general public may not invest directly in the Portfolio.
Other investors in the Portfolio are not required to sell their
shares at the same public offering price as the Fund, could have
different administrative fees and expenses than the Fund, and
might charge a sales commission. Therefore, Fund shareholders
might have different investment returns than shareholders in
another investment company that invests exclusively in the
Portfolio. Investment by such other investors in the Portfolio
would provide funds for the purchase of additional portfolio
securities and would tend to reduce the operating expenses as a
percentage of the Portfolio's net assets. Conversely, large-scale
redemptions by any such other investors in the Portfolio could
result in untimely liquidations of the Portfolio's security
holdings, loss of investment flexibility, and increases in the
operating expenses of the Portfolio as a percentage of the
Portfolio's net assets. As a result, the Portfolio's security
holdings may become less diverse, resulting in increased risk.
Currently, Colonial Young Investor Fund, a series of Colonial
Trust I, is anticipated to be the only other feeder that invests
in the Portfolio. Information regarding any investment company
that may invest in the Portfolio in the future may be obtained by
writing to Base Trust at Suite 3200, One South Wacker Drive,
Chicago, IL 60606, or by calling 800-338-2550. Stein Roe may
provide administrative or other services to one or more of such
investors.
<PAGE> 25
[Stein Roe Mutual 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 Balanced Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Young Investor Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
Stein Roe International Fund
800-338-2550
In Chicago, visit our Fund Center at One South Wacker Drive, Suite
3200
Liberty Securities Corporation, Distributor
YI996
<PAGE> 1
[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE YOUNG INVESTOR FUND
The Fund seeks long-term capital appreciation. Beginning October
1, 1996, the Fund will seek to achieve its objective by investing
all of its investable net assets in shares of SR&F Growth Investor
Portfolio (the "Portfolio"), which has the same investment
objective as the Fund. (See Organization and Description of
Shares--Special Considerations Regarding Master Fund/Feeder Fund
Structure.) The Fund and the Portfolio invest in securities of
companies that affect thelives of young people. The Fund is also
intended to be an educational experience for young investors and
their parents.
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 and the Portfolio is a series of
SR&F Base Trust. Each Trust is a diversified 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.
A Statement of Additional Information dated September 10, 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 Suite 3200, One South Wacker Drive, Chicago, Illinois
60606, 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 September 10, 1996.
TABLE OF CONTENTS
Page
Fee Table .............................2
Financial Highlights...................3
The Fund...............................3
How the Fund Invests...................4
Portfolio Investments and Strategies...4
Restrictions on the Fund's Investments.6
Risks and Investment Considerations ...7
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 .................13
<PAGE> 2
__________________________
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
Other Expenses (after expense reimbursement) 1.25%
-----
Total Fund Operating Expenses (after expense
reimbursement) 1.25%
-----
-----
- -----------
*There is a $3.50 charge for wiring redemption proceeds to your bank.
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 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, Stein Roe may voluntarily absorb certain
expenses of the Fund. Stein Roe has agreed to voluntarily waive
its 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 Stein Roe 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.)
On October 1, 1996, the Fund will begin investing all of its net
investable assets in the Portfolio and its management fee
structure will change. As of that date, the Fund will pay Stein
Roe an administrative fee and the Portfolio will pay Stein Roe a
management fee. The expenses of both the Fund and the Portfolio
are summarized in the Fee Table. (The fees are described under
Management of the Fund.) The Fund will bear its proportionate
share of Portfolio expenses. The trustees of the Trust have
considered whether the annual operating expenses of the Fund,
including its proportionate share of the expenses of the
Portfolio, would be more or less than if the Fund invested
directly in the securities held by the Portfolio, and concluded
that the Fund's expenses would not be greater in such case.
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
<PAGE> 3
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 on
a per-share basis for the period shown and has been audited by
Arthur Andersen LLP, independent public accountants, except for
the six-month period ended March 31, 1996, which is unaudited.
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.
Period Year Six
Ended Ended Months Ended
Sept. 30, Sept. 30, March 31,
1994(a) 1995 1996
--------- -------- -------------
NET ASSET VALUE,
BEGINNING OF PERIOD $10.00 $10.24 $14.29
------ ------ ------
Income from investment
operations
Net investment income 0.03 0.06 0.04
Net realized and
unrealized gains on
investments 0.21 4.07 1.96
------ ------ ------
Total from investment
operations 0.24 4.13 2.00
DISTRIBUTIONS
Net investment income -- (0.08) (0.05)
Net realized capital gains -- -- (0.51)
------ ------ ------
Total Distributions -- (0.08) (0.56)
------ ------ ------
NET ASSET VALUE,
END OF PERIOD $10.24 $14.29 $15.73
------ ------ ------
------ ------ ------
Ratio of net expenses
to average net
assets (b) *0.99% 0.99% *1.10%
Ratio of net
investment income to
average net assets(c) *1.07% 0.47% *0.47%
Portfolio turnover rate *12% 55% **44%
Average commissions
(per share) -- -- $0.0632
Total return (c) **2.40% 40.58% **14.39%
Net assets, end of
period (000 omitted) $8,176 $31,401 $68,311
___________________
*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, 2.87% for the year ended September 30, 1995, and 1.68%
for the six months ended March 31, 1996.
(c) Computed giving effect to the investment adviser's expense
limitation undertaking.
__________________________
THE 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.
Stein Roe & Farnham Incorporated ("Stein Roe") provides
administrative, management, and bookkeeping and accounting
services to the Fund and the Portfolio, and investment advisory
services to the Fund or the Portfolio. Stein Roe also manages and
provides investment advisory services for several other no-
<PAGE> 4
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 those mutual
funds, please call 800-338-2550.
On October 1, 1996, the Fund will become a "feeder fund"--that is,
it will invest all of its assets in SR&F Growth Investor Portfolio
(the "Portfolio"), a "master fund" that has an investment
objective identical to the Fund's. Until then, the Fund invests
its assets directly in securities. Under the "master fund/feeder
fund structure," mutual funds with the same investment objective
(each a "feeder fund") pool their assets in a master fund that has
the same investment objective and substantially the same
investment policies and restrictions. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. The Portfolio, the Fund's master fund, will be
managed by Stein Roe in the same manner as the Fund's assets were
managed before conversion to the master fund/feeder fund
structure. (For more information, see Organization and
Description of Shares--Special Considerations Regarding Master
Fund/Feeder Fund Structure.)
__________________________
HOW THE FUND INVESTS
The Fund will seek to achieve its objective by investing all of
its assets in the Portfolio beginning October 1, 1996. The
investment objectives and policies of the Fund and the Portfolio
are identical. The investment objective of the Fund and the
Portfolio is long-term capital appreciation. Each 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 total assets of
the Fund and the Portfolio 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 young people. Such
companies may include companies that produce products or services
that young people use, are aware of, or could potentially have an
interest in.
Although the Fund and the Portfolio invest 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 and the
Portfolio may invest in securities of smaller emerging companies
as well as securities of well-seasoned companies of any size.
Smaller companies, however, involve higher risks in that they
typically have limited product lines, markets, and financial or
management resources. In addition, the securities of smaller
companies may trade less frequently and have greater price
fluctuation than larger companies, particularly those operating in
countries with developing markets. The Fund and the Portfolio may
also employ investment techniques described elsewhere in this
prospectus. (See Risks and Investment Considerations and Fees and
Expenses.)
In addition to the 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
DEBT SECURITIES.
In pursuing its investment objective, the Fund and the Portfolio
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 and the Portfolio
invest in debt securities, such holdings will be subject to
interest rate risk and credit risk. Interest rate risk is the
risk that the value of a portfolio will fluctuate in response to
changes in interest rates. Generally, the debt component of a
portfolio will tend to decrease in value when interest rates rise
and increase in value when interest rates fall. Credit risk is
the risk that an issuer will be unable to make principal and
interest payments when due. Investments in debt
<PAGE> 5
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 or the Portfolio is lost or reduced below investment
grade, the Fund or the Portfolio is not required to dispose of the
security--Stein Roe will, however, consider that fact in
determining whether the Fund or the Portfolio should continue to
hold the security. When Stein Roe considers a temporary defensive
position advisable, the Fund and the Portfolio may invest without
limitation in high-quality fixed income securities, or hold assets
in cash or cash equivalents.
FOREIGN SECURITIES.
The Fund and the Portfolio may each 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, the Fund and the Portfolio 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 and the
Portfolio 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.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund and the Portfolio may make loans of 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 and the Portfolio
may invest in securities purchased on a when-issued or delayed-
delivery basis. Although the payment terms of these securities
are established at the time the Fund or the Portfolio enters into
the commitment, the securities may be delivered and paid for a
month or more after the date of purchase, when their value may
have changed. The Fund and the Portfolio will make such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
it is deemed advisable for investment reasons.
DERIVATIVES.
Consistent with its objective, the Fund and the Portfolio may
invest in a broad array of financial instruments and securities,
including conventional, exchange-traded and non-exchange-traded
options, futures contracts, futures options, 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.
Neither the Fund nor the Portfolio 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 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 and the
Portfolio may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2) enter
<PAGE> 6
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 and
the Portfolio may write a call or put option only if the option is
covered. As the writer of a covered call option, the Fund or the
Portfolio foregoes, during the option's life, the opportunity to
profit from increases in market value of the security covering the
call option above the sum of the premium and the exercise price of
the call. There can be no assurance that a liquid market will
exist when the Fund or the Portfolio seeks to close out a
position. In addition, because futures positions may require low
margin deposits, the use of futures contracts involves a high
degree of leverage and may result in losses in excess of the
amount of the margin deposit.
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
Neither the Fund nor the Portfolio may 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.
Neither the Fund nor the Portfolio may invest more than 25% of its
total assets (at the time of investment) in the securities of
companies in any one industry.
Neither the Fund nor the Portfolio may acquire more than 10% of
the outstanding voting securities of any one issuer. The Fund
may, however, invest all of its assets in shares of another
investment company having the identical investment objective.
Neither the Fund nor the Portfolio may make loans except that each
may (1) purchase money market instruments and enter into
repurchase agreements; (2) acquire publicly-distributed or
privately-placed debt securities; (3) lend its portfolio
securities under certain conditions; and (4) participate in an
interfund lending program with other Stein Roe Funds. Neither may
borrow money, except for non-leveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither the aggregate borrowings (including
reverse repurchase agreements) nor aggregate loans at any one time
may exceed 33 1/3% of the value of total assets.
The Fund and the Portfolio may invest in repurchase agreements,/1/
provided that neither will 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 common investment objective of the Fund and the
Portfolio is non-fundamental and, as such, may be changed by the
Board of Trustees without shareholder approval, subject, however,
to at least 30 days' advance written notice to the Fund's
shareholders. 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 or the Portfolio in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a specified
time. In the event of bankruptcy of the seller, the Fund or the
Portfolio could experience both losses and delays in liquidating
its collateral.
- ----------------------
<PAGE> 7
__________________________
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 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 or the Portfolio will achieve its objective. The Fund is
also designed to be an educational experience for young investors
and their parents.
While the Fund and the Portfolio seek to reduce risk by investing
in a diversified portfolio, diversification does not eliminate all
risk. However, neither the Fund nor the Portfolio 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.
By investing in companies whose products or services appeal to
young investors, the Fund and the Portfolio emphasize various
consumer goods sectors.
Although the Fund and the Portfolio do 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.
__________________________
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.
<PAGE> 8
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
and of the Portfolio 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 their
respective assets and liabilities by the number of shares
outstanding. Beginning October 1, 1996, the Fund's shares of the
Portfolio will be valued at net asset value. (See Risks and
Investment Considerations.)
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 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.
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.
<PAGE> 9
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 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 of Investment Trust and the Board of
Trustees of Base Trust have overall management responsibility for
the Fund and the Portfolio, respectively. See the Statement of
Additional Information for the names of and additional information
about the trustees and officers. Since Investment Trust and Base
Trust have the same trustees, the trustees have adopted conflict
of interest procedures to monitor and address potential conflicts
between the interests of the Fund and the Portfolio.
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
Illinois 60606, is responsible for managing the business affairs
of the Fund, the Portfolio, and the Trusts and the investment
portfolio of the Fund or the Portfolio, subject to the direction
of the respective Boards. 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 portfolio managers of the Fund and the Portfolio are Erik P.
Gustafson, David P. Brady and Arthur J. McQueen. Mr. Gustafson
became portfolio manager of the Fund in February 1995, Mr. Brady
in March 1995, and Mr. McQueen in April 1996. As of December 31,
1995, Messrs. Gustafson and Brady were responsible for co-managing
$554 million and $42 million in mutual fund assets, respectively.
Messrs. Gustafson and McQueen are senior vice presidents of Stein
Roe and Mr. Brady is a vice president of Stein Roe. Before
joining Stein Roe, Mr. Gustafson was an attorney with Fowler,
White, Burnett, Hurley, Banick & Strickroot from 1989 to 1992. He
holds a B.A. from the University of Virginia (1985) and M.B.A. and
J.D. degrees (1989) from Florida State University. Mr. Brady, who
joined Stein Roe in 1993,
<PAGE> 10
was an equity investment analyst with State Farm Mutual Automobile
Insurance Company from 1986 to 1993. A chartered financial
analyst, Mr. Brady earned a B.S. in Finance, graduating Magna Cum
Laude, from the University of Arizona in 1986, and an M.B.A. from
the University of Chicago in 1989. Mr. McQueen earned a B.S. from
Villanova University (1980) and an M.B.A. from the Wharton School
of the University of Pennsylvania (1987). Mr. McQueen has been
employed by Stein Roe as an equity analyst since 1987 and was
previously employed by Citibank and GTE.
FEES AND EXPENSES.
From the Fund's inception in 1994 through August 31, 1995, under
an investment advisory agreement with Stein Roe, the Fund paid
Stein Roe an advisory fee at an annual rate of .75% of the first
$250 million of its average net assets, .70% of the next $250
million, and .60% thereafter. The investment advisory agreement
was replaced on September 1, 1995, with separate administrative
and management agreements with Stein Roe. Under the
administrative agreement, the Fund pays Stein Roe an annual fee of
.20% of the first $500 million of average net assets, .15% of the
next $500 million, and .125% thereafter. The annual management
fee is .60% of the first $500 million, .55% of the next $500
million, and .50% thereafter. With the conversion to the master
fund/feeder fund structure on October 1, 1996, the management fee
will be paid by the Portfolio instead of by the Fund.
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 due to 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, 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. 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 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
SteinRoe Services Inc., P.O. Box 8900, Boston, Massachusetts
02205. 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
and the Portfolio. Foreign securities are maintained in the
custody of foreign banks and trust companies that are members of
the Bank's Global Custody Network or foreign depositories used by
such members. (See Custodian in the Statement of Additional
Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
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
<PAGE> 11
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.
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND
STRUCTURE.
Beginning October 1, 1996, the Fund, which is an open-end
management investment company, will seek to achieve its objective
by investing all of its assets in shares of another mutual fund
having an identical investment objective to the Fund. This policy
permitting the Fund to act as a feeder fund by investing in the
Portfolio, acting as a master fund, was approved by the Fund's
shareholders. Please refer to the Fee Table, How the Fund
Invests, and Restrictions on the Fund's Investments for a
description of the investment objectives, policies, and
restrictions of the Fund and the Portfolio. The management and
expenses of the Fund and the Portfolio are described under the Fee
Table and Management of the Fund. The Fund will bear its
proportionate share of Portfolio expenses.
Although most of the mutual funds managed by Stein Roe are
conventionally structured funds, Stein Roe has been providing
investment management services in connection with other funds
employing the master fund/feeder fund structure since August,
1991.
SR&F Growth Investor Portfolio is a separate series of SR&F Base
Trust (the "Base Trust"), a Massachusetts common trust organized
under an Agreement and Declaration of Trust ("Declaration of
Trust") dated August 23, 1993. The Declaration of Trust of the
Base Trust provides that the Fund and other investors in the
Portfolio will each be liable for all obligations of the Portfolio
that are not satisfied by the Portfolio. However, the risk of the
Fund incurring financial loss on account of such liability is
limited to circumstances in which both inadequate insurance
existed and the Portfolio itself were unable to meet its
obligations. Accordingly, the Trustees of Investment Trust
believe that neither the Fund nor its shareholders will be
adversely affected by reason of the Fund's investing in the
Portfolio.
The Declaration of Trust of Base Trust provides that the Portfolio
will terminate 120 days after the withdrawal of the Fund or any
other investor in the Portfolio, unless the remaining investors
vote to agree to continue the business of the Portfolio. The
Trustees of Investment Trust may vote the Fund's interests in the
Portfolio for such continuation without approval of the Fund's
shareholders.
The common investment objective of the Fund and the Portfolio is
non-fundamental and may be changed without shareholder approval,
subject, however, to at least 30 days' advance written notice to
the Fund's shareholders.
The fundamental policies of the Fund and the corresponding
fundamental policies of the Portfolio can be changed only with
shareholder approval. If the Fund, as a Portfolio investor, is
requested to vote on a change in a fundamental policy of the
Portfolio or any other matter pertaining to the Portfolio (other
than continuation of the business of the Portfolio after
withdrawal of another investor), the Fund will solicit proxies
from its shareholders and vote its interest in the Portfolio for
and against such matters
<PAGE> 12
proportionately to the instructions to vote for and against such
matters received from Fund shareholders. The Fund will vote
shares for which it receives no voting instructions in the same
proportion as the shares for which it receives voting
instructions. If there are other investors in the Portfolio,
there can be no assurance that any matter receiving a majority of
votes cast by Fund shareholders will receive a majority of votes
cast by all Portfolio investors. If other Portfolio investors
hold a majority interest in the Portfolio, they could have voting
control over the Portfolio.
In the event that the Portfolio's fundamental policies were
changed so as to be inconsistent with those of the Fund, the Board
of Trustees of Investment Trust would consider what action might
be taken, including changes to the Fund's investment objective or
fundamental policies, withdrawal of the Fund's assets from the
Portfolio and investment of such assets in another pooled
investment entity, or the retention of an investment adviser to
invest those assets directly in a portfolio of securities. Any of
these actions would require the approval of the Fund's
shareholders. The Fund's inability to find a substitute master
fund or comparable investment management could have a significant
impact upon its shareholders' investments. Any withdrawal of the
Fund's assets could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution) to the Fund.
Should such a distribution occur, the Fund would incur brokerage
fees or other transaction costs in converting such securities to
cash. In addition, a distribution in kind could result in a less
diversified portfolio of investments for the Fund and could affect
the liquidity of the Fund.
Each investor in the Portfolio, including the Fund, may add to or
reduce its investment in the Portfolio on each day the NYSE is
open for business. At 3:00 p.m., Central time, on each such
business day, the value of each investor's beneficial interest in
the Portfolio will be determined by multiplying the net asset
value of the Portfolio by the percentage effective for that day
which represents that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals which
are to be effected on that day will then be effected. The
investor's percentage of the aggregate beneficial interests in the
Portfolio will then be recomputed as the percentage equal to the
fraction (i) the numerator of which is the value of such
investor's investment in the Portfolio as of 3:00 p.m., Central
time, on such day plus or minus, as the case may be, the amount of
any additions to or withdrawals from the investor's investment in
the Portfolio effected on such day; and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of 3:00
p.m., Central time, on such day plus or minus, as the case may be,
the amount of the net additions to or withdrawals from the
aggregate investment in the Portfolio by all investors in the
Portfolio. The percentage so determined will then be applied to
determine the value of the investor's interest in the Portfolio as
of 3:00 p.m., Central time, on the following such business day.
Base Trust may permit other investment companies and/or other
institutional investors to invest in the Portfolio, but members of
the general public may not invest directly in the Portfolio.
Other investors in the Portfolio are not required to sell their
shares at the same public offering price as the Fund, could have
different administrative fees and expenses than the Fund, and
might charge a sales commission. Therefore, Fund shareholders
might have different investment returns than shareholders in
another investment company that invests exclusively in the
Portfolio. Investment by such other investors in the Portfolio
would provide funds for the purchase of additional portfolio
securities and would tend to reduce the operating expenses as a
percentage of the Portfolio's net assets. Conversely, large-scale
redemptions by any such other investors in the Portfolio could
result in untimely liquidations of the Portfolio's security
holdings, loss of investment flexibility, and increases in the
operating expenses of the Portfolio as a percentage of the
Portfolio's net assets. As a result, the Portfolio's security
holdings may become less diverse, resulting in increased risk.
Currently, Colonial Young Investor Fund, a series of Colonial
Trust I, is anticipated to be the only other feeder that invests
in the Portfolio. Information regarding any investment company
that may invest in the Portfolio in the future may be obtained by
writing to Base Trust at Suite 3200, One South Wacker Drive,
Chicago, IL 60606, or by calling 800-338-2550. Stein Roe may
provide administrative or other services to one or more of such
investors.
<PAGE> 13
__________________________
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 September 10, 1996
STEIN ROE INVESTMENT TRUST
Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
800-338-2550
STEIN ROE YOUNG INVESTOR FUND
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 September
10, 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............4
Investment Restrictions........................17
Additional Investment Considerations...........20
Purchases and Redemptions......................21
Management.....................................22
Financial Statements...........................26
Principal Shareholders.........................26
Investment Advisory Services...................27
Distributor....................................29
Transfer Agent.................................29
Custodian......................................30
Independent Public Accountants.................31
Portfolio Transactions.........................31
Additional Income Tax Considerations...........33
Investment Performance.........................33
Appendix--Ratings..............................38
<PAGE> 2
GENERAL INFORMATION AND HISTORY
Stein Roe Young Investor Fund is a series of the Stein Roe
Investment Trust (the "Investment Trust"). Each series of the
Investment Trust represents shares of beneficial interest in a
separate portfolio of securities and other assets, with its own
objectives and policies. As used herein, the "Fund" refers to
the series of the Investment 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.
Beginning October 1, 1996, the Fund will invest all of its
assets in shares of SR&F Growth Investor Portfolio (the
"Portfolio"), which is a series of shares of beneficial interest
of SR&F Base Trust (the "Base Trust"). The Fund and the
Portfolio have identical investment objectives and substantially
identical investment policies.
Stein Roe & Farnham Incorporated ("Stein Roe") is
responsible for the business affairs of each Trust and provides
administrative services to the Fund and the Portfolio and
investment advice to the Portfolio.
Currently, eight series of the Investment 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 of each
Trust 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 Investment 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 Investment Trust's outstanding
shares, the Investment 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 Investment Trust were subject to Section
16(c) of the Investment Company Act of 1940. All shares of all
series of the Investment 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
Beginning October 1, 1996, the Fund will seek to achieve its
objective by pooling its assets with assets of other mutual funds
for investment in the Portfolio, 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 Fund will convert to the master fund/feeder
fund structure on October 1, 1996 when it will become a feeder
fund of the Portfolio by investing all of its assets in the
Portfolio. For more information, please refer to the Prospectus
under the caption "Organization and Description of Shares--Master
Fund/Feeder Fund Structure."
INVESTMENT POLICIES
The common investment objective of the Fund and the
Portfolio 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 or the Portfolio,
respectively. The common investment objective is long-term
capital appreciation. Beginning October 1, 1996, the Fund will
seek to achieve its objective by investing all of its net
investable assets in shares of the Portfolio, another mutual fund
that has the identical investment objective and substantially
identical investment policies to those of the Fund. The Fund and
the Portfolio invest 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 total assets
of the Fund and the Portfolio 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 young people. Such
companies may include companies that produce products or services
that young people use, are aware of, or could potentially have
an interest in.
Although the Fund and the Portfolio invest 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 and the Portfolio may also employ investment techniques
described elsewhere in this Statement of Additional Information.
(See Portfolio Investments and Strategies.)
In addition to its 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.
- ------------
/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
PORTFOLIO INVESTMENTS AND STRATEGIES
In addition to the policies described above, the following
investment policies and techniques have been adopted. For
purposes of discussion under Portfolio Investments and
Strategies, the term "Fund" refers to the Fund and the Portfolio.
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.
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.
<PAGE> 5
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.
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
<PAGE> 6
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 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.
The Fund's foreign currency exchange transactions are
limited to transaction and portfolio hedging involving either
specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward contracts with respect
to specific receivables or payables of the Fund arising in
connection with the purchase and sale of its portfolio
securities. Portfolio hedging is the use of forward contracts
with respect to portfolio security positions denominated or
quoted in a particular foreign currency. Portfolio hedging
allows the Fund to limit or reduce its exposure in a foreign
currency by entering into a forward contract to sell such foreign
currency (or
<PAGE> 7
another foreign currency that acts as a proxy for that currency)
at a future date for a price payable in U.S. dollars so that the
value of the foreign-denominated portfolio securities can be
approximately matched by a foreign-denominated liability. 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
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
<PAGE> 8
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 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
<PAGE> 9
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.
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.)
<PAGE> 10
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. 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, 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
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.
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.
<PAGE> 11
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.
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.
<PAGE> 12
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.
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
- --------------------
/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
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 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.
<PAGE> 14
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 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 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. 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
<PAGE> 15
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
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
- -------------
/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> 16
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.
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.
- ---------------------
/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
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 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 and the Portfolio operate under the following
investment restrictions. The Fund and the Portfolio 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
<PAGE> 18
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 [Fund only] 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,
[Fund only] except that all or substantially all of the assets of
the Fund may be invested in another registered investment company
having the same investment objective and substantially similar
investment policies as the Fund;
(3) act as an underwriter of securities, except insofar as
it may be deemed an underwriter for purposes of the Securities
Act of 1933 on disposition of securities acquired subject to
legal or contractual restrictions on resale, [Fund only] except
that all or substantially all of the assets of the Fund may be
invested in another registered investment company having the same
investment objective and substantially similar investment
policies as the Fund;
(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate or
interests therein), commodities, or commodity contracts, except
that it may enter into (a) futures and options on futures and (b)
forward contracts for the purpose of facilitating payment for a
foreign security;
(5) make loans, although the Fund may (a) lend portfolio
securities and participate in an interfund lending program with
other Stein Roe Funds provided that no such loan may be made if,
as a result, the aggregate of such loans would exceed 33 1/3% of
the value of the Fund's total assets (taken at market value at
the time of such loans); (b) purchase money market instruments
and enter into repurchase agreements; and (c) acquire publicly-
distributed or privately-placed debt securities;
(6) borrow except that the Fund may (a) borrow for non-
leveraging, temporary or emergency purposes, (b) engage in
reverse repurchase agreements and make other borrowings, provided
that the combination of (a) and (b) shall not exceed 33 1/3% of
the value of the Fund's total assets (including the amount
borrowed) less liabilities (other than borrowings) or such other
percentage permitted by law, and (c) enter into futures and
options transactions; the Fund may borrow from banks, other Stein
Roe Funds, and other persons to the extent permitted by
applicable law;
(7) invest in a security if more than 25% of its total
assets (taken at market value at the time of a particular
purchase) would be invested in the securities of issuers in any
particular industry, except that this restriction does not apply
to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities and [Fund only] 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
<PAGE> 19
(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 and the Portfolio
are also subject to the following non-fundamental restrictions
and policies, which may be changed by the Board of Trustees of
the respective Trusts. 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 and the Portfolio may not:
(a) invest in any of the following: (i) interests in oil,
gas, or other mineral leases or exploration or development
programs (except readily marketable securities, including but not
limited to master limited partnership interests, that may
represent indirect interests in oil, gas, or other mineral
exploration or development programs); (ii) puts, calls,
straddles, spreads, or any combination thereof (except that it
may enter into transactions in options, futures, and options on
futures); (iii) shares of other open-end investment companies,
except in connection with a merger, consolidation, acquisition,
or reorganization; and (iv) limited partnerships in real estate
unless they are readily marketable;
(b) invest in companies for the purpose of exercising
control or management;
(c) purchase more than 3% of the stock of another investment
company or purchase stock of other investment companies equal to
more than 5% of 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;
(g) write an option on a security unless the option is
issued by the Options Clearing Corporation, an exchange, or
similar entity;
<PAGE> 20
(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 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.
ADDITIONAL INVESTMENT CONSIDERATIONS
Stein Roe 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
<PAGE> 21
objectives, risk tolerance levels, and time horizons. In
selecting a mutual fund, investors should ask the following
questions:
What are my investment goals?
It is important to a choose a fund that has investment objectives
compatible with your investment goals.
What is my investment time frame?
If you have a short investment time frame (e.g., less than three
years), a mutual fund that seeks to provide a stable share price,
such as a money market fund, or one that seeks capital
preservation as one of its objectives may be appropriate. If you
have a longer investment time frame, you may seek to maximize
your investment returns by investing in a mutual fund that offers
greater yield or appreciation potential in exchange for greater
investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks
which will vary depending on investment objective and security
type. However, mutual funds seek to reduce risk through
professional investment management and portfolio diversification.
In general, equity mutual funds emphasize long-term capital
appreciation and tend to have more volatile net asset values than
bond or money market mutual funds. Although there is no
guarantee that they will be able to maintain a stable net asset
value of $1.00 per share, money market funds emphasize safety of
principal and liquidity, but tend to offer lower income potential
than bond funds. Bond funds tend to offer higher income
potential than money market funds but tend to have greater risk
of principal and yield volatility.
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 Investment 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.
The net asset value of the Fund and the Portfolio 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 should be determined on
<PAGE> 22
any such day, in which case the determination will be made at
3:00 p.m., Chicago time.
The Investment 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 Investment
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 Investment 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
Investment Trust to redeem shares under certain other
circumstances as may be specified by the Board of Trustees.
The Investment 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 Investment 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 Controller of the Mutual Funds division of Stein Roe &
(4) Farnham Incorporated ("Stein Roe"); senior vice
president of Stein Roe since April, 1996; vice
president of Stein Roe, January, 1991 to April, 1996
Timothy K. Armour 47 President; Trustee President of the Mutual Funds division of Stein Roe
(1) (2) (4) and director of Stein Roe since June, 1992; senior
vice president and director of marketing of Citibank
Illinois prior thereto
Jilaine Hummel Bauer 41 Executive Vice-President; General counsel and secretary of Stein Roe since
(4) Secretary November, 1995; senior vice president of Stein Roe
since April, 1992; vice president of Stein Roe prior
thereto
<PAGE> 23
Bruno Bertocci 41 Vice-President Vice president 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) 76 Trustee Chairman emeritus of A. T. Kearney, Inc. (international
(4) management consultants)
William W. Boyd (3) 69 Trustee Chairman and director of Sterling Plumbing Group, Inc.
(4) (manufacturer of plumbing products) since 1992;
chairman, president, and chief executive officer of
Sterling Plumbing Group, Inc. prior thereto
David P. Brady 32 Vice-President Vice president of Stein Roe since November, 1995;
portfolio manager for Stein Roe since 1993; equity
investment analyst, State Farm Mutual Automobile
Insurance Company prior thereto
Thomas W. Butch 39 Vice-President Senior vice president of Stein Roe since September,
1994; first vice president, corporate communications,
of Mellon Bank Corporation prior thereto
N. Bruce Callow (4) 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 37 Vice-President Senior vice president of Stein Roe
Lindsay Cook (1)(4) 44 Trustee Senior vice president of Liberty Financial Companies,
Inc. (the indirect parent of Stein Roe)
E. Bruce Dunn 62 Vice-President Senior vice president of Stein Roe
Erik P. Gustafson 33 Vice-President Senior portfolio manager of Stein Roe; senior vice
president of Stein Roe since April, 1996; vice
president of Stein Roe from May, 1994 to April, 1996;
associate of Stein Roe from April, 1992 to May, 1994;
associate attorney with Fowler White Burnett Hurley
Banick & Strickroot prior thereto
David P. Harris 32 Vice-President Vice president 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
Douglas A. Hacker (4) 40 Trustee Senior vice president and chief financial officer,
United Airlines, since July, 1994; senior vice
president--Finance, United Airlines, February, 1993 to
July, 1994; vice president--corporate & fleet planning,
American Airlines, 1991 to February, 1993
<PAGE> 24
Philip D. Hausken(4) 38 Vice-President Vice president of Stein Roe since November, 1995;
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, and
investment strategist of Stein Roe; director of
research of Stein Roe, 1991 to 1995
Stephen P. Lautz (4) 39 Vice-President Vice president of Stein Roe since May, 1994;
associate of Stein Roe prior thereto
Eric S. Maddix 32 Vice-President Vice president of Stein Roe since November, 1995;
portfolio manager or research assistant for Stein Roe
since 1987
Lynn C. Maddox 55 Vice-President Senior vice president of Stein Roe
Anne E. Marcel 38 Vice-President Vice president of Stein Roe since April, 1996;
manager, Mutual Fund Sales & Services of Stein Roe
since October, 1994; supervisor of the Counselor
Department of Stein Roe from October, 1992 to
October, 1994; vice president of Selected Financial
Services from May, 1990 to March, 1992
Francis W. Morley(3) 76 Trustee Chairman of Employer Plan Administrators and
(4) Consultants Co. (designer, administrator, and
communicator of employee benefit plans)
Charles R. Nelson(3) 54 Trustee Van Voorhis Professor of Political Economy, University
(4) of Washington
Nicolette D. Parrish 46 Vice-President; Senior compliance administrator and assistant secretary
(4) Assistant Secretary of Stein Roe since 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 (4) 40 Assistant Secretary Senior compliance administrator and assistant secretary
of Stein Roe
Gloria J. Santella 38 Vice-President Senior vice president of Stein Roe since November,
1995; vice president of Stein Roe from January, 1992
to November, 1995; 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
Thomas C. Theobald 58 Trustee Managing partner, William Blair Capital Partners
(4) (private equity fund) since 1994; chief executive
officer and chairman of the Board of Directors of
Continental Bank Corporation, 1987-1994
<PAGE> 25
Gordon R. Worley 76 Trustee Private investor
(2) (3) (4)
Hans P. Ziegler 55 Executive Vice-President Chief executive officer of Stein Roe since May, 1994;
(4) 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 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
<FN>
______________________________
(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.
</TABLE>
Certain of the trustees and officers of the Investment 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. Hacker is P.O. Box 66100, Chicago, IL 60666;
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.
Theobald is Suite 3300, 222 West Adams Street, Chicago, IL 60606;
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 Investment 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
Investment Trust during the fiscal year ended September 30, 1995
to each of the trustees:
<PAGE> 26
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 elected trustees of
the Trust on January 17, 1995. Messrs. Hacker and
Theobald were elected trustees on June 18, 1996 and,
therefore, received no compensation for the fiscal year
ended September 30, 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 9/30/95 Financial Statements
(balance sheets and schedules of investments as of 9/30/95 and
the statements of operations, changes in net assets, and notes
thereto) and the report of independent auditors contained in the
9/30/95 Annual Report of the Fund and to the Fund's 3/31/96
Financial Statements (unaudited balance sheets and schedules of
investments as of 3/31/96 and the statements of operations,
changes in net assets, and notes thereto) contained in the
3/31/96 Semiannual Report of the Fund. The Financial Statements
and the report of independent auditors (but no other material
from the Annual Report or the Semiannual Report) are incorporated
herein by reference. The Annual Report and the Semiannual 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
Investment 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:
<PAGE> 27
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 **
*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 will serve as investment
adviser to the Fund through September 30, 1996; on October 1,
1996, it will become investment adviser to the Portfolio. Stein
Roe will continue to provide administrative services to the Fund
pursuant to a separate administrative agreement.
Stein Roe 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. ("Liberty
Financial"), which is a majority-owned subsidiary of Liberty
Mutual Equity Corporation, which is a wholly owned subsidiary of
Liberty Mutual Insurance Company. Liberty Mutual Insurance
Company is a mutual insurance company, principally in the
property/casualty insurance field, organized under the laws of
Massachusetts in 1912.
The directors of Stein Roe are Kenneth R. Leibler, C. Allen
Merritt, Jr., Timothy K. Armour, N. Bruce Callow, and Hans P.
Ziegler. Mr. Leibler is President and Chief Executive Officer of
Liberty Financial; Mr. Merritt is Senior Vice President and
Treasurer of Liberty Financial; 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 Messrs.
Leibler and Merritt is Federal Reserve Plaza, Boston,
Massachusetts 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.
<PAGE> 28
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, management
agreement, administrative agreement, fees, expense limitations,
and transfer agency services under Management of the Fund and Fee
Table 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.
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 Investment 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, Stein Roe 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.
<PAGE> 29
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 Base Trust or any shareholder of the Base 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
Investment 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 of the Investment Trust.
BOOKKEEPING AND ACCOUNTING AGREEMENT
Pursuant to a separate agreement with the Investment 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, Stein Roe received aggregate fees of
$192,479 from the Investment Trust for services performed under
this Agreement.
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
Investment 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.
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
Investment Trust, as described under Management of the Fund in
the Prospectus. For performing these
<PAGE> 30
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
Investment 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 Investment Trust and Base 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.
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.
Each Board of Trustees reviews, at least annually, whether
it is in the best interest of the Fund, the Portfolio, and their
shareholders to maintain assets in each of the countries in which
it invests with particular foreign sub-custodians in such
countries, pursuant to contracts between such respective foreign
sub-custodians and the Bank. The review includes an assessment
of the risks of holding assets in any such country (including
risks of expropriation or imposition of exchange controls), the
operational capability and reliability of each such foreign sub-
custodian, and the impact of local laws on each such custody
arrangement. 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.
<PAGE> 31
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 Investment Trust
and the Portfolio 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 Investment Trust.
PORTFOLIO TRANSACTIONS
For purposes of the following discussion, the term "Fund"
includes the Fund and the Portfolio. Stein Roe places the orders
for the purchase and sale of 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;
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
<PAGE> 32
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, 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 $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
Each 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.
<PAGE> 33
ADDITIONAL INCOME TAX CONSIDERATIONS
The Fund and the Portfolio intend 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 or the Portfolio 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
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
<PAGE> 34
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 the Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at March 31, 1996 were:
TOTAL TOTAL RETURN AVERAGE ANNUAL
RETURN RETURN PERCENTAGE TOTAL RETURN
------- ----------------- -------------
1 year $1,443 44.27% 44.27%
*Life of Fund 1,647 64.66 29.72
________________________
*Life of Fund is from its date of public offering, 4/29/94.
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:
<PAGE> 35
Architectural Digest
Arizona Republic
Atlanta Constitution
Associated Press
Barron's
Bloomberg
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World
Forbes
Fortune
Fund Action
Fund Decoder
Gourmet
Individual Investor
Investment Adviser
Investment Dealers' Digest
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Lipper Analytical Services
Los Angeles Times
Louis Rukeyser's Wall Street
Money
Morningstar
Mutual Fund Market News
Mutual Fund News Service
Mutual Funds Magazine
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
The San Francisco Chronicle
Securities Industry Daily
Smart Money
Smithsonian
Strategic Insight
Time
Travel & Leisure
USA Today
U.S. News & World Report
Value Line
The Wall Street Journal
The Washington Post
Working Women
Worth
Your Money
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
<PAGE> 37
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
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 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 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
<PAGE> 37
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> 38
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.
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.
<PAGE> 39
Ba. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa through B in its corporate
bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
RATINGS BY S&P
AAA. Debt rated AAA has the highest rating. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A. Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in
this category than for debt in higher rated categories.
BB, B, CCC, CC, AND C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance
with the terms of the obligation. BB indicates the lowest degree
of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no
interest is being paid.
<PAGE> 40
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 September 10, 1996
STEIN ROE INVESTMENT TRUST
Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
800-338-2550
STEIN ROE YOUNG INVESTOR FUND
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 September
10, 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............4
Investment Restrictions........................17
Additional Investment Considerations...........20
Purchases and Redemptions......................21
Management.....................................22
Financial Statements...........................26
Principal Shareholders.........................26
Investment Advisory Services...................27
Distributor....................................29
Transfer Agent.................................29
Custodian......................................30
Independent Public Accountants.................31
Portfolio Transactions.........................31
Additional Income Tax Considerations...........33
Investment Performance.........................33
Appendix--Ratings..............................38
<PAGE> 2
GENERAL INFORMATION AND HISTORY
Stein Roe Young Investor Fund is a series of the Stein Roe
Investment Trust (the "Investment Trust"). Each series of the
Investment Trust represents shares of beneficial interest in a
separate portfolio of securities and other assets, with its own
objectives and policies. As used herein, the "Fund" refers to
the series of the Investment 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.
Beginning October 1, 1996, the Fund will invest all of its
assets in shares of SR&F Growth Investor Portfolio (the
"Portfolio"), which is a series of shares of beneficial interest
of SR&F Base Trust (the "Base Trust"). The Fund and the
Portfolio have identical investment objectives and substantially
identical investment policies.
Stein Roe & Farnham Incorporated ("Stein Roe") is
responsible for the business affairs of each Trust and provides
administrative services to the Fund and the Portfolio and
investment advice to the Portfolio.
Currently, eight series of the Investment 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 of each
Trust 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 Investment 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 Investment Trust's outstanding
shares, the Investment 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 Investment Trust were subject to Section
16(c) of the Investment Company Act of 1940. All shares of all
series of the Investment 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
Beginning October 1, 1996, the Fund will seek to achieve its
objective by pooling its assets with assets of other mutual funds
for investment in the Portfolio, 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 Fund will convert to the master fund/feeder
fund structure on October 1, 1996 when it will become a feeder
fund of the Portfolio by investing all of its assets in the
Portfolio. For more information, please refer to the Prospectus
under the caption "Organization and Description of Shares--Master
Fund/Feeder Fund Structure."
INVESTMENT POLICIES
The common investment objective of the Fund and the
Portfolio 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 or the Portfolio,
respectively. The common investment objective is long-term
capital appreciation. Beginning October 1, 1996, the Fund will
seek to achieve its objective by investing all of its net
investable assets in shares of the Portfolio, another mutual fund
that has the identical investment objective and substantially
identical investment policies to those of the Fund. The Fund and
the Portfolio invest 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 total assets
of the Fund and the Portfolio 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 young people. Such
companies may include companies that produce products or services
that young people use, are aware of, or could potentially have
an interest in.
Although the Fund and the Portfolio invest 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 and the Portfolio may also employ investment techniques
described elsewhere in this Statement of Additional Information.
(See Portfolio Investments and Strategies.)
In addition to its 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.
- ------------
/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
PORTFOLIO INVESTMENTS AND STRATEGIES
In addition to the policies described above, the following
investment policies and techniques have been adopted. For
purposes of discussion under Portfolio Investments and
Strategies, the term "Fund" refers to the Fund and the Portfolio.
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.
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.
<PAGE> 5
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.
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
<PAGE> 6
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 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.
The Fund's foreign currency exchange transactions are
limited to transaction and portfolio hedging involving either
specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward contracts with respect
to specific receivables or payables of the Fund arising in
connection with the purchase and sale of its portfolio
securities. Portfolio hedging is the use of forward contracts
with respect to portfolio security positions denominated or
quoted in a particular foreign currency. Portfolio hedging
allows the Fund to limit or reduce its exposure in a foreign
currency by entering into a forward contract to sell such foreign
currency (or
<PAGE> 7
another foreign currency that acts as a proxy for that currency)
at a future date for a price payable in U.S. dollars so that the
value of the foreign-denominated portfolio securities can be
approximately matched by a foreign-denominated liability. 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
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
<PAGE> 8
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 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
<PAGE> 9
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.
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.)
<PAGE> 10
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. 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, 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
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.
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.
<PAGE> 11
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.
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.
<PAGE> 12
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.
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
- --------------------
/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
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 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.
<PAGE> 14
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 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 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. 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
<PAGE> 15
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
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
- -------------
/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
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.
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.
- ---------------------
/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
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 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 and the Portfolio operate under the following
investment restrictions. The Fund and the Portfolio 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
<PAGE> 18
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 [Fund only] 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,
[Fund only] except that all or substantially all of the assets of
the Fund may be invested in another registered investment company
having the same investment objective and substantially similar
investment policies as the Fund;
(3) act as an underwriter of securities, except insofar as
it may be deemed an underwriter for purposes of the Securities
Act of 1933 on disposition of securities acquired subject to
legal or contractual restrictions on resale, [Fund only] except
that all or substantially all of the assets of the Fund may be
invested in another registered investment company having the same
investment objective and substantially similar investment
policies as the Fund;
(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate or
interests therein), commodities, or commodity contracts, except
that it may enter into (a) futures and options on futures and (b)
forward contracts for the purpose of facilitating payment for a
foreign security;
(5) make loans, although the Fund may (a) lend portfolio
securities and participate in an interfund lending program with
other Stein Roe Funds provided that no such loan may be made if,
as a result, the aggregate of such loans would exceed 33 1/3% of
the value of the Fund's total assets (taken at market value at
the time of such loans); (b) purchase money market instruments
and enter into repurchase agreements; and (c) acquire publicly-
distributed or privately-placed debt securities;
(6) borrow except that the Fund may (a) borrow for non-
leveraging, temporary or emergency purposes, (b) engage in
reverse repurchase agreements and make other borrowings, provided
that the combination of (a) and (b) shall not exceed 33 1/3% of
the value of the Fund's total assets (including the amount
borrowed) less liabilities (other than borrowings) or such other
percentage permitted by law, and (c) enter into futures and
options transactions; the Fund may borrow from banks, other Stein
Roe Funds, and other persons to the extent permitted by
applicable law;
(7) invest in a security if more than 25% of its total
assets (taken at market value at the time of a particular
purchase) would be invested in the securities of issuers in any
particular industry, except that this restriction does not apply
to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities and [Fund only] 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
<PAGE> 19
(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 and the Portfolio
are also subject to the following non-fundamental restrictions
and policies, which may be changed by the Board of Trustees of
the respective Trusts. 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 and the Portfolio may not:
(a) invest in any of the following: (i) interests in oil,
gas, or other mineral leases or exploration or development
programs (except readily marketable securities, including but not
limited to master limited partnership interests, that may
represent indirect interests in oil, gas, or other mineral
exploration or development programs); (ii) puts, calls,
straddles, spreads, or any combination thereof (except that it
may enter into transactions in options, futures, and options on
futures); (iii) shares of other open-end investment companies,
except in connection with a merger, consolidation, acquisition,
or reorganization; and (iv) limited partnerships in real estate
unless they are readily marketable;
(b) invest in companies for the purpose of exercising
control or management;
(c) purchase more than 3% of the stock of another investment
company or purchase stock of other investment companies equal to
more than 5% of 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;
(g) write an option on a security unless the option is
issued by the Options Clearing Corporation, an exchange, or
similar entity;
<PAGE> 20
(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 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.
ADDITIONAL INVESTMENT CONSIDERATIONS
Stein Roe 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
<PAGE> 21
objectives, risk tolerance levels, and time horizons. In
selecting a mutual fund, investors should ask the following
questions:
What are my investment goals?
It is important to a choose a fund that has investment objectives
compatible with your investment goals.
What is my investment time frame?
If you have a short investment time frame (e.g., less than three
years), a mutual fund that seeks to provide a stable share price,
such as a money market fund, or one that seeks capital
preservation as one of its objectives may be appropriate. If you
have a longer investment time frame, you may seek to maximize
your investment returns by investing in a mutual fund that offers
greater yield or appreciation potential in exchange for greater
investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks
which will vary depending on investment objective and security
type. However, mutual funds seek to reduce risk through
professional investment management and portfolio diversification.
In general, equity mutual funds emphasize long-term capital
appreciation and tend to have more volatile net asset values than
bond or money market mutual funds. Although there is no
guarantee that they will be able to maintain a stable net asset
value of $1.00 per share, money market funds emphasize safety of
principal and liquidity, but tend to offer lower income potential
than bond funds. Bond funds tend to offer higher income
potential than money market funds but tend to have greater risk
of principal and yield volatility.
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 Investment 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.
The net asset value of the Fund and the Portfolio 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 should be determined on
<PAGE> 22
any such day, in which case the determination will be made at
3:00 p.m., Chicago time.
The Investment 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 Investment
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 Investment 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
Investment Trust to redeem shares under certain other
circumstances as may be specified by the Board of Trustees.
The Investment 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 Investment 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 Controller of the Mutual Funds division of Stein Roe &
(4) Farnham Incorporated ("Stein Roe"); senior vice
president of Stein Roe since April, 1996; vice
president of Stein Roe, January, 1991 to April, 1996
Timothy K. Armour 47 President; Trustee President of the Mutual Funds division of Stein Roe
(1) (2) (4) and director of Stein Roe since June, 1992; senior
vice president and director of marketing of Citibank
Illinois prior thereto
Jilaine Hummel Bauer 41 Executive Vice-President; General counsel and secretary of Stein Roe since
(4) Secretary November, 1995; senior vice president of Stein Roe
since April, 1992; vice president of Stein Roe prior
thereto
<PAGE> 23
Bruno Bertocci 41 Vice-President Vice president 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) 76 Trustee Chairman emeritus of A. T. Kearney, Inc. (international
(4) management consultants)
William W. Boyd (3) 69 Trustee Chairman and director of Sterling Plumbing Group, Inc.
(4) (manufacturer of plumbing products) since 1992;
chairman, president, and chief executive officer of
Sterling Plumbing Group, Inc. prior thereto
David P. Brady 32 Vice-President Vice president of Stein Roe since November, 1995;
portfolio manager for Stein Roe since 1993; equity
investment analyst, State Farm Mutual Automobile
Insurance Company prior thereto
Thomas W. Butch 39 Vice-President Senior vice president of Stein Roe since September,
1994; first vice president, corporate communications,
of Mellon Bank Corporation prior thereto
N. Bruce Callow (4) 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 37 Vice-President Senior vice president of Stein Roe
Lindsay Cook (1)(4) 44 Trustee Senior vice president of Liberty Financial Companies,
Inc. (the indirect parent of Stein Roe)
E. Bruce Dunn 62 Vice-President Senior vice president of Stein Roe
Erik P. Gustafson 33 Vice-President Senior portfolio manager of Stein Roe; senior vice
president of Stein Roe since April, 1996; vice
president of Stein Roe from May, 1994 to April, 1996;
associate of Stein Roe from April, 1992 to May, 1994;
associate attorney with Fowler White Burnett Hurley
Banick & Strickroot prior thereto
David P. Harris 32 Vice-President Vice president 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
Douglas A. Hacker (4) 40 Trustee Senior vice president and chief financial officer,
United Airlines, since July, 1994; senior vice
president--Finance, United Airlines, February, 1993 to
July, 1994; vice president--corporate & fleet planning,
American Airlines, 1991 to February, 1993
<PAGE> 24
Philip D. Hausken(4) 38 Vice-President Vice president of Stein Roe since November, 1995;
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, and
investment strategist of Stein Roe; director of
research of Stein Roe, 1991 to 1995
Stephen P. Lautz (4) 39 Vice-President Vice president of Stein Roe since May, 1994;
associate of Stein Roe prior thereto
Eric S. Maddix 32 Vice-President Vice president of Stein Roe since November, 1995;
portfolio manager or research assistant for Stein Roe
since 1987
Lynn C. Maddox 55 Vice-President Senior vice president of Stein Roe
Anne E. Marcel 38 Vice-President Vice president of Stein Roe since April, 1996;
manager, Mutual Fund Sales & Services of Stein Roe
since October, 1994; supervisor of the Counselor
Department of Stein Roe from October, 1992 to
October, 1994; vice president of Selected Financial
Services from May, 1990 to March, 1992
Francis W. Morley(3) 76 Trustee Chairman of Employer Plan Administrators and
(4) Consultants Co. (designer, administrator, and
communicator of employee benefit plans)
Charles R. Nelson(3) 54 Trustee Van Voorhis Professor of Political Economy, University
(4) of Washington
Nicolette D. Parrish 46 Vice-President; Senior compliance administrator and assistant secretary
(4) Assistant Secretary of Stein Roe since 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 (4) 40 Assistant Secretary Senior compliance administrator and assistant secretary
of Stein Roe
Gloria J. Santella 38 Vice-President Senior vice president of Stein Roe since November,
1995; vice president of Stein Roe from January, 1992
to November, 1995; 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
Thomas C. Theobald 58 Trustee Managing partner, William Blair Capital Partners
(4) (private equity fund) since 1994; chief executive
officer and chairman of the Board of Directors of
Continental Bank Corporation, 1987-1994
<PAGE> 25
Gordon R. Worley 76 Trustee Private investor
(2) (3) (4)
Hans P. Ziegler 55 Executive Vice-President Chief executive officer of Stein Roe since May, 1994;
(4) 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 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
<FN>
______________________________
(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.
</TABLE>
Certain of the trustees and officers of the Investment 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. Hacker is P.O. Box 66100, Chicago, IL 60666;
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.
Theobald is Suite 3300, 222 West Adams Street, Chicago, IL 60606;
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 Investment 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
Investment Trust during the fiscal year ended September 30, 1995
to each of the trustees:
<PAGE> 26
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 elected trustees of
the Trust on January 17, 1995. Messrs. Hacker and
Theobald were elected trustees on June 18, 1996 and,
therefore, received no compensation for the fiscal year
ended September 30, 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 9/30/95 Financial Statements
(balance sheets and schedules of investments as of 9/30/95 and
the statements of operations, changes in net assets, and notes
thereto) and the report of independent auditors contained in the
9/30/95 Annual Report of the Fund and to the Fund's 3/31/96
Financial Statements (unaudited balance sheets and schedules of
investments as of 3/31/96 and the statements of operations,
changes in net assets, and notes thereto) contained in the
3/31/96 Semiannual Report of the Fund. The Financial Statements
and the report of independent auditors (but no other material
from the Annual Report or the Semiannual Report) are incorporated
herein by reference. The Annual Report and the Semiannual 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
Investment 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:
<PAGE> 27
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 **
*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 will serve as investment
adviser to the Fund through September 30, 1996; on October 1,
1996, it will become investment adviser to the Portfolio. Stein
Roe will continue to provide administrative services to the Fund
pursuant to a separate administrative agreement.
Stein Roe 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. ("Liberty
Financial"), which is a majority-owned subsidiary of Liberty
Mutual Equity Corporation, which is a wholly owned subsidiary of
Liberty Mutual Insurance Company. Liberty Mutual Insurance
Company is a mutual insurance company, principally in the
property/casualty insurance field, organized under the laws of
Massachusetts in 1912.
The directors of Stein Roe are Kenneth R. Leibler, C. Allen
Merritt, Jr., Timothy K. Armour, N. Bruce Callow, and Hans P.
Ziegler. Mr. Leibler is President and Chief Executive Officer of
Liberty Financial; Mr. Merritt is Senior Vice President and
Treasurer of Liberty Financial; 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 Messrs.
Leibler and Merritt is Federal Reserve Plaza, Boston,
Massachusetts 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.
<PAGE> 28
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, management
agreement, administrative agreement, fees, expense limitations,
and transfer agency services under Management of the Fund and Fee
Table 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.
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 Investment 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, Stein Roe 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.
<PAGE> 29
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 Base Trust or any shareholder of the Base 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
Investment 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 of the Investment Trust.
BOOKKEEPING AND ACCOUNTING AGREEMENT
Pursuant to a separate agreement with the Investment 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, Stein Roe received aggregate fees of
$192,479 from the Investment Trust for services performed under
this Agreement.
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
Investment 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.
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
Investment Trust, as described under Management of the Fund in
the Prospectus. For performing these
<PAGE> 30
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
Investment 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 Investment Trust and Base 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.
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.
Each Board of Trustees reviews, at least annually, whether
it is in the best interest of the Fund, the Portfolio, and their
shareholders to maintain assets in each of the countries in which
it invests with particular foreign sub-custodians in such
countries, pursuant to contracts between such respective foreign
sub-custodians and the Bank. The review includes an assessment
of the risks of holding assets in any such country (including
risks of expropriation or imposition of exchange controls), the
operational capability and reliability of each such foreign sub-
custodian, and the impact of local laws on each such custody
arrangement. 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.
<PAGE> 31
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 Investment Trust
and the Portfolio 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 Investment Trust.
PORTFOLIO TRANSACTIONS
For purposes of the following discussion, the term "Fund"
includes the Fund and the Portfolio. Stein Roe places the orders
for the purchase and sale of 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;
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
<PAGE> 32
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, 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 $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
Each 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.
<PAGE> 33
ADDITIONAL INCOME TAX CONSIDERATIONS
The Fund and the Portfolio intend 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 or the Portfolio 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
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
<PAGE> 34
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 the Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at March 31, 1996 were:
TOTAL TOTAL RETURN AVERAGE ANNUAL
RETURN RETURN PERCENTAGE TOTAL RETURN
------- ----------------- -------------
1 year $1,443 44.27% 44.27%
*Life of Fund 1,647 64.66 29.72
________________________
*Life of Fund is from its date of public offering, 4/29/94.
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:
<PAGE> 35
Architectural Digest
Arizona Republic
Atlanta Constitution
Associated Press
Barron's
Bloomberg
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World
Forbes
Fortune
Fund Action
Fund Decoder
Gourmet
Individual Investor
Investment Adviser
Investment Dealers' Digest
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Lipper Analytical Services
Los Angeles Times
Louis Rukeyser's Wall Street
Money
Morningstar
Mutual Fund Market News
Mutual Fund News Service
Mutual Funds Magazine
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
The San Francisco Chronicle
Securities Industry Daily
Smart Money
Smithsonian
Strategic Insight
Time
Travel & Leisure
USA Today
U.S. News & World Report
Value Line
The Wall Street Journal
The Washington Post
Working Women
Worth
Your Money
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
<PAGE> 37
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
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 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 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
<PAGE> 37
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> 38
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.
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.
<PAGE> 39
Ba. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa through B in its corporate
bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
RATINGS BY S&P
AAA. Debt rated AAA has the highest rating. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A. Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity
to pay interest and repay principal. Whereas it normally
exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a
weakened capacity to pay interest and repay principal for debt in
this category than for debt in higher rated categories.
BB, B, CCC, CC, AND C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance
with the terms of the obligation. BB indicates the lowest degree
of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no
interest is being paid.
<PAGE> 40
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>
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
for each of the two years in the period ended June 30, 1995,
and notes thereto) are incorporated by reference to
Registrant's 9/30/95 annual reports. Investments as of
3/31/96, balance sheets as of 3/31/96, statements of
operations for the period ended 3/31/96, statements of
changes in net assets for the period ended 3/31/96, and
notes thereto are incorporated by reference to Registrant's
3/31/96 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. Agreement and Declaration of Trust as amended through
February 1, 1996. (Exhibit 1 to PEA #32.)*
2. By-Laws of Registrant as amended through February 3, 1993.
(Exhibit 2 to PEA #34).*
3. None.
4. Inapplicable.
5. (a) Management agreement between Registrant and Stein Roe &
Farnham Incorporated (the "Adviser"), relating to the
series Stein Roe Growth & Income Fund, Stein Roe
Young Investor Fund, Stein Roe Balanced Fund, Stein Roe
Growth Stock Fund, Stein Roe Capital Opportunities
Fund, Stein Roe Special Fund, Stein Roe International
Fund, and Stein Roe Special Venture Fund as amended
through July 1, 1996. (Exhibit 5(a) to PEA #34).*
(b) Expense undertakings relating to Stein Roe
International Fund, Stein Roe Young Investor Fund and
Stein Roe Special Venture Fund dated February 1, 1996.
(Exhibit 5(d) to PEA #32.)*
(c) Expense undertaking relating to Stein Roe Special Fund
dated July 1, 1996. (Exhibit 5(c) to PEA #34).*
6. Underwriting agreement between Registrant and Liberty
Securities Corporation dated June 22, 1987 as amended
through October 28, 1992. (Exhibit 6 to PEA #34).*
7. None.
8. Custodian contract between Registrant and State Street
Bank and Trust Company as amended through May 8, 1995.
(Exhibit 8 to PEA #31.)*
9. (a) Restated Transfer Agency Agreement between Registrant
and SteinRoe Services Inc. dated August 1, 1995.(Exhibit
9(a) to PEA No. 31.)*
(b) Accounting and Bookkeeping Agreement dated August 1,
1994. (Exhibit 9(b) to PEA #34).*
(c) Administrative Agreement between Registrant and the
Adviser dated August 15, 1995 as amended through July 1,
1996. (Exhibit 9(c) to PEA #34).*
10. (a) Opinions and consents of Ropes & Gray. (Exhibit 10(a) to
PEA #34).*
(b) Opinions and consents of Bell, Boyd & Lloyd with respect
to SteinRoe Prime Equities (now named Stein Roe Growth &
Income Fund), Stein Roe Capital Opportunities Fund, Stein
Roe Special Fund, SteinRoe Stock Fund (now named Stein Roe
Growth Stock Fund), SteinRoe Total Return Fund (now named
Stein Roe Balanced Fund), Stein Roe International Fund,
Stein Roe Young Investor Fund, and Stein Roe Special
Venture Fund. (Exhibit 10(b) to PEA #34).*
11. (a) Consent of Arthur Andersen LLP, independent public
accountants.
(b) Consent of Morningstar, Inc. (Exhibit 11(b) to PEA #34).*
12. None.
13. Inapplicable.
14. (a) Stein Roe & Farnham Funds Individual Retirement
Account Plan. (Exhibit 14(a) to PEA #33.)*
(b) Stein Roe & Farnham Prototype Paired Defined
Contribution Plan.**
15. None.
16. Schedules for computation of each performance
quotation provided in the Registration Statement in
response to Item 22 for SteinRoe Prime Equities (now
named Stein Roe Growth & Income Fund), Stein Roe Total
Return Fund (now named Stein Roe Balanced Fund), Stein Roe
Stock Fund (now named 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. (Exhibit 16 to PEA #34).*
17. (a) Financial Data Schedule--Stein Roe Growth & Income Fund.
(b) Financial Data Schedule--Stein Roe Balanced Fund.
(c) Financial Data Schedule--Stein Roe Growth Stock Fund.
(d) Financial Data Schedule--Stein Roe Capital Opportunities
Fund.
(e) Financial Data Schedule--Stein Roe Special Fund.
(f) Financial Data Schedule--Stein Roe International Fund.
(g) Financial Data Schedule--Stein Roe Young Investor Fund.
(h) Financial Data Schedule--Stein Roe Special Venture Fund.
18. Inapplicable
19. (Miscellaneous.)
(a) Fund Application. (Exhibit 19(a) to PEA #33.)*
(b) Stein Roe Young Investor Fund application. (Exhibit
19(b) to PEA #33.)*
(c) Automatic Redemption Services Application. (Exhibit
19(c) to PEA #34).*
_______________________
*Incorporated by reference.
**Incorporated by reference to Exhibit 14(b) to Post-Effective
Amendment No. #13 to the Registration Statement on Form N-1A of
Stein Roe Income Trust, No. 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 July 5, 1996
--------------------------------- -------------------------
Stein Roe Growth & Income Fund 5,707
Stein Roe International Fund 3,180
Stein Roe Young Investor Fund 40,258
Stein Roe Special Venture Fund 2,401
Stein Roe Balanced Fund 6,849
Stein Roe Growth Stock Fund 11,955
Stein Roe Capital Opportunities Fund 27,903
Stein Roe Special Fund 36,780
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 Kenneth R. Leibler, C. Allen Merritt, Jr., 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. Leibler is President and Chief Executive Officer of Liberty
Financial Companies, Inc.; Mr. Merritt is Senior Vice President and
Treasurer 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. as vice presidents and portfolio managers.
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
Philip D. Hausken Vice President
Kenneth J. Kozanda Vice President; Treasurer
Stephen P. Lautz Vice President
Kenneth R. Leibler Director
C. Allen Merritt, Jr. Director; Vice President
Hans P. Ziegler Director, President, Vice Chairman
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
Philip D. Hausken 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
Philip D. Hausken Vice-President
Michael T. Kennedy Vice-President
Stephen P. Lautz Vice-President
Steven P. Luetger Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel 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
David P. Brady Vice-President
Thomas W. Butch Vice-President
N. Bruce Callow Executive Vice-President
Daniel K. Cantor Vice-President
E. Bruce Dunn Vice-President
Erik P. Gustafson Vice-President
David P. Harris Vice-President
Philip D. Hausken Vice-President
Harvey B. Hirschhorn Vice-President
Alfred F. Kugel Trustee
Stephen P. Lautz Vice-President
Eric S. Maddix Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel 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
Philip D. Hausken Vice-President
Stephen P. Lautz Vice-President
Lynn C. Maddox Vice-President
M. Jane McCart Vice-President
Anne E. Marcel 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
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
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.
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 12th day of July,
1996.
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 July 12, 1996
Timothy K. Armour
Principal Executive Officer
GARY A. ANETSBERGER Senior Vice-President July 12, 1996
Gary A. Anetsberger
Principal Financial Officer
SHARON R. ROBERTSON Controller July 12, 1996
Sharon R. Robertson
Principal Accounting Officer
KENNETH L. BLOCK Trustee July 12, 1996
Kenneth L. Block
WILLIAM W. BOYD Trustee July 12, 1996
William W. Boyd
LINDSAY COOK Trustee July 12, 1996
Lindsay Cook
DOUGLAS A. HACKER Trustee July 12, 1996
Douglas A. Hacker
FRANCIS W. MORLEY Trustee July 12, 1996
Francis W. Morley
CHARLES R. NELSON Trustee July 12, 1996
Charles R. Nelson
THOMAS C. THEOBALD Trustee July 12, 1996
Thomas C. Theobald
GORDON R. WORLEY Trustee July 12, 1996
Gordon R. Worley
STEIN ROE INVESTMENT TRUST
INDEX TO EXHIBITS FILED WITH THIS AMENDMENT
Exhibit
Number Description
- ------- ------------
11(a) Consent of Arthur Andersen LLP
17(a) Financial Data Schedule for Stein Roe Growth & Income
Fund
17(b) Financial Data Schedule for Stein Roe Balanced Fund
17(c) Financial Data Schedule for Stein Roe Growth Stock Fund
17(d) Financial Data Schedule for Stein Roe Capital
Opportunities Fund
17(e) Financial Data Schedule for Stein Roe Special Fund
17(f) Financial Data Schedule for Stein Roe International Fund
17(g) Financial Data Schedule for Stein Roe Young Investor
Fund
17(h) Financial Data Schedule for Stein Roe Special Venture Fund
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 Stein Roe Investment Trust (comprising the Stein
Roe Growth & Income Fund, Stein Roe Balanced Fund, Stein Roe Growth
Stock Fund, Stein Roe International Fund, Stein Roe Special Fund,
Stein Roe Capital Opportunities Fund and Stein Roe Special Venture
Fund).
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 9, 1996
<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 Stein Roe Investment Trust (comprising the Stein
Roe Young Investor Fund).
ARTHUR ANDERSEN LLP
Chicago, Illinois
July 9, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> STEIN ROE GROWTH & INCOME FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 122,899
<INVESTMENTS-AT-VALUE> 165,642
<RECEIVABLES> 584
<ASSETS-OTHER> 235
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 166,461
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 323
<TOTAL-LIABILITIES> 323
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 119,019
<SHARES-COMMON-STOCK> 9,748
<SHARES-COMMON-PRIOR> 8,381
<ACCUMULATED-NII-CURRENT> 263
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,408
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42,448
<NET-ASSETS> 166,138
<DIVIDEND-INCOME> 1,190
<INTEREST-INCOME> 942
<OTHER-INCOME> 0
<EXPENSES-NET> 872
<NET-INVESTMENT-INCOME> 1,260
<REALIZED-GAINS-CURRENT> 5,020
<APPREC-INCREASE-CURRENT> 12,162
<NET-CHANGE-FROM-OPS> 18,442
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,939)
<DISTRIBUTIONS-OF-GAINS> (12,376)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,530
<NUMBER-OF-SHARES-REDEEMED> (961)
<SHARES-REINVESTED> 798
<NET-CHANGE-IN-ASSETS> 26,599
<ACCUMULATED-NII-PRIOR> 942
<ACCUMULATED-GAINS-PRIOR> 11,763
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<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 450
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 872
<AVERAGE-NET-ASSETS> 151,562
<PER-SHARE-NAV-BEGIN> 16.65
<PER-SHARE-NII> .14
<PER-SHARE-GAIN-APPREC> 1.90
<PER-SHARE-DIVIDEND> (.22)
<PER-SHARE-DISTRIBUTIONS> (1.43)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.04
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> STEIN ROE TOTAL RETURN FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 187,884
<INVESTMENTS-AT-VALUE> 232,309
<RECEIVABLES> 2,244
<ASSETS-OTHER> 140
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 234,693
<PAYABLE-FOR-SECURITIES> 2,573
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 525
<TOTAL-LIABILITIES> 3,098
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 174,319
<SHARES-COMMON-STOCK> 7,911
<SHARES-COMMON-PRIOR> 8,217
<ACCUMULATED-NII-CURRENT> 616
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,235
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 44,425
<NET-ASSETS> 231,595
<DIVIDEND-INCOME> 2,614
<INTEREST-INCOME> 2,602
<OTHER-INCOME> 0
<EXPENSES-NET> 1,188
<NET-INVESTMENT-INCOME> 4,028
<REALIZED-GAINS-CURRENT> 13,204
<APPREC-INCREASE-CURRENT> 4,748
<NET-CHANGE-FROM-OPS> 21,980
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,592)
<DISTRIBUTIONS-OF-GAINS> (5,662)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 380
<NUMBER-OF-SHARES-REDEEMED> (996)
<SHARES-REINVESTED> 310
<NET-CHANGE-IN-ASSETS> 3,035
<ACCUMULATED-NII-PRIOR> 1,180
<ACCUMULATED-GAINS-PRIOR> 4,693
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 619
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,188
<AVERAGE-NET-ASSETS> 227,520
<PER-SHARE-NAV-BEGIN> 27.82
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> 2.21
<PER-SHARE-DIVIDEND> (.57)
<PER-SHARE-DISTRIBUTIONS> (.70)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 29.27
<EXPENSE-RATIO> 1.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> STEIN ROE GROWTH STOCK FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 262,165
<INVESTMENTS-AT-VALUE> 391,759
<RECEIVABLES> 499
<ASSETS-OTHER> 344
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 392,602
<PAYABLE-FOR-SECURITIES> 2,284
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 838
<TOTAL-LIABILITIES> 3,122
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 233,883
<SHARES-COMMON-STOCK> 14,848
<SHARES-COMMON-PRIOR> 13,790
<ACCUMULATED-NII-CURRENT> 400
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 25,603
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 129,594
<NET-ASSETS> 389,480
<DIVIDEND-INCOME> 1,968
<INTEREST-INCOME> 721
<OTHER-INCOME> 0
<EXPENSES-NET> 2,011
<NET-INVESTMENT-INCOME> 678
<REALIZED-GAINS-CURRENT> 27,176
<APPREC-INCREASE-CURRENT> 8,803
<NET-CHANGE-FROM-OPS> 36,657
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,400)
<DISTRIBUTIONS-OF-GAINS> (32,877)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,237
<NUMBER-OF-SHARES-REDEEMED> (1,392)
<SHARES-REINVESTED> 1,213
<NET-CHANGE-IN-ASSETS> 29,144
<ACCUMULATED-NII-PRIOR> 1,122
<ACCUMULATED-GAINS-PRIOR> 31,304
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,113
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,011
<AVERAGE-NET-ASSETS> 375,123
<PER-SHARE-NAV-BEGIN> 26.13
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 2.49
<PER-SHARE-DIVIDEND> (.10)
<PER-SHARE-DISTRIBUTIONS> (2.33)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.23
<EXPENSE-RATIO> 1.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> STEIN ROE CAPITAL OPPORTUNITIES FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 553,365
<INVESTMENTS-AT-VALUE> 725,698
<RECEIVABLES> 12,937
<ASSETS-OTHER> 4,833
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 743,468
<PAYABLE-FOR-SECURITIES> 46,541
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 846
<TOTAL-LIABILITIES> 47,387
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 518,309
<SHARES-COMMON-STOCK> 26,184
<SHARES-COMMON-PRIOR> 11,173
<ACCUMULATED-NII-CURRENT> (445)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,884
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 172,333
<NET-ASSETS> 696,081
<DIVIDEND-INCOME> 292
<INTEREST-INCOME> 1,522
<OTHER-INCOME> 0
<EXPENSES-NET> 2,206
<NET-INVESTMENT-INCOME> (392)
<REALIZED-GAINS-CURRENT> 5,883
<APPREC-INCREASE-CURRENT> 91,698
<NET-CHANGE-FROM-OPS> 97,189
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (150)
<DISTRIBUTIONS-OF-GAINS> (12,960)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,655
<NUMBER-OF-SHARES-REDEEMED> (4,177)
<SHARES-REINVESTED> 533
<NET-CHANGE-IN-ASSETS> 453,700
<ACCUMULATED-NII-PRIOR> 97
<ACCUMULATED-GAINS-PRIOR> 12,961
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,342
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,206
<AVERAGE-NET-ASSETS> 362,910
<PER-SHARE-NAV-BEGIN> 21.69
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 5.90
<PER-SHARE-DIVIDEND> (.01)
<PER-SHARE-DISTRIBUTIONS> (.99)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.58
<EXPENSE-RATIO> 1.23
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> STEIN ROE SPECIAL FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 807,788
<INVESTMENTS-AT-VALUE> 1,126,727
<RECEIVABLES> 9,367
<ASSETS-OTHER> 1,381
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,137,475
<PAYABLE-FOR-SECURITIES> 10,864
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,532
<TOTAL-LIABILITIES> 14,396
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 754,881
<SHARES-COMMON-STOCK> 44,183
<SHARES-COMMON-PRIOR> 47,569
<ACCUMULATED-NII-CURRENT> 474
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 48,424
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 319,300
<NET-ASSETS> 1,123,079
<DIVIDEND-INCOME> 5,322
<INTEREST-INCOME> 1,991
<OTHER-INCOME> 0
<EXPENSES-NET> 6,656
<NET-INVESTMENT-INCOME> 657
<REALIZED-GAINS-CURRENT> 58,730
<APPREC-INCREASE-CURRENT> 39,442
<NET-CHANGE-FROM-OPS> 98,829
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (4,825)
<DISTRIBUTIONS-OF-GAINS> (85,187)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,897
<NUMBER-OF-SHARES-REDEEMED> (9,915)
<SHARES-REINVESTED> 3,632
<NET-CHANGE-IN-ASSETS> (78,390)
<ACCUMULATED-NII-PRIOR> 4,642
<ACCUMULATED-GAINS-PRIOR> 74,786
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,006
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,656
<AVERAGE-NET-ASSETS> 1,130,858
<PER-SHARE-NAV-BEGIN> 25.26
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> 2.16
<PER-SHARE-DIVIDEND> (.11)
<PER-SHARE-DISTRIBUTIONS> (1.91)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.42
<EXPENSE-RATIO> 1.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> STEIN ROE INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 108,422
<INVESTMENTS-AT-VALUE> 114,799
<RECEIVABLES> 1,879
<ASSETS-OTHER> 244
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 116,922
<PAYABLE-FOR-SECURITIES> 2,786
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 246
<TOTAL-LIABILITIES> 3,032
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 108,776
<SHARES-COMMON-STOCK> 10,795
<SHARES-COMMON-PRIOR> 7,750
<ACCUMULATED-NII-CURRENT> (13)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,248)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,375
<NET-ASSETS> 113,890
<DIVIDEND-INCOME> 581
<INTEREST-INCOME> 296
<OTHER-INCOME> 0
<EXPENSES-NET> 714
<NET-INVESTMENT-INCOME> 163
<REALIZED-GAINS-CURRENT> 723
<APPREC-INCREASE-CURRENT> 3,634
<NET-CHANGE-FROM-OPS> 4,357
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,075)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,493
<NUMBER-OF-SHARES-REDEEMED> (875)
<SHARES-REINVESTED> 77
<NET-CHANGE-IN-ASSETS> 30,870
<ACCUMULATED-NII-PRIOR> 865
<ACCUMULATED-GAINS-PRIOR> (1,936)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 460
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 714
<AVERAGE-NET-ASSETS> 93,066
<PER-SHARE-NAV-BEGIN> 10.25
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> .41
<PER-SHARE-DIVIDEND> (.12)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.55
<EXPENSE-RATIO> 1.55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> STEIN ROE YOUNG INVESTOR FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 58,900
<INVESTMENTS-AT-VALUE> 68,537
<RECEIVABLES> 514
<ASSETS-OTHER> 243
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69,294
<PAYABLE-FOR-SECURITIES> 921
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 62
<TOTAL-LIABILITIES> 983
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,037
<SHARES-COMMON-STOCK> 4,342
<SHARES-COMMON-PRIOR> 1,465
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,637
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,637
<NET-ASSETS> 68,311
<DIVIDEND-INCOME> 207
<INTEREST-INCOME> 144
<OTHER-INCOME> 0
<EXPENSES-NET> 246
<NET-INVESTMENT-INCOME> 105
<REALIZED-GAINS-CURRENT> 2,683
<APPREC-INCREASE-CURRENT> 4,116
<NET-CHANGE-FROM-OPS> 6,904
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (125)
<DISTRIBUTIONS-OF-GAINS> (1,383)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,175
<NUMBER-OF-SHARES-REDEEMED> (135)
<SHARES-REINVESTED> 105
<NET-CHANGE-IN-ASSETS> 36,910
<ACCUMULATED-NII-PRIOR> 20
<ACCUMULATED-GAINS-PRIOR> 1,337
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 134
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<NAME> STEIN ROE SPECIAL VENTURE FUND
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