File No. 33-11351
Rule 497(e)
<PAGE>
GROWTH & INCOME FUND (formerly named SteinRoe Prime Equities)
seeks to provide both growth of capital and current income.
TOTAL RETURN FUND seeks to obtain current income and capital
appreciation in order to achieve maximum total return consistent
with reasonable investment risk through investment in a
combination of equity, convertible, and fixed income securities.
GROWTH STOCK FUND seeks long-term capital appreciation by
investing in common stock and other equity-type securities.
SPECIAL FUND seeks capital appreciation by investing in securities
that are considered to have limited downside risk relative to
their potential for above-average growth, including securities of
undervalued, underfollowed, or out-of-favor companies.
SPECIAL VENTURE FUND seeks long-term capital appreciation by
investing primarily in a diversified portfolio of equity
securities of entrepreneurially managed companies. The Fund
emphasizes investments in financially strong small and medium-
sized companies, based principally on management appraisal and
stock valuation.
CAPITAL OPPORTUNITIES FUND seeks long-term capital appreciation by
investing in aggressive growth companies.
Each Fund is a "no-load" fund. There are no sales or redemption
charges, and the Funds have no 12b-1 plans. The Funds are series
of the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Funds. Please read it carefully and retain it
for future reference.
A Statement of Additional Information dated February 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the
Secretary at the address shown on the back cover or by calling
800-338-2550.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February 1, 1996.
<PAGE>
TABLE OF CONTENTS
Page
Summary ....................................2
Fee Table .................................6
Financial Highlights .......................8
The Funds .................................16
How the Funds Invest ......................16
Growth & Income Fund.....................16
Total Return Fund........................17
Growth Stock Fund........................17
Special Fund.............................17
Special Venture Fund.....................18
Capital Opportunities Fund...............19
Portfolio Investments and Strategies ......19
Restrictions on the Funds' Investments.....23
Risks and Investment Considerations........24
How to Purchase Shares ....................26
By Check ................................27
By Wire..................................27
By Electronic Transfer ..................27
By Exchange .............................28
Purchase Price and Effective Date .......28
Conditions of Purchase ..................28
Purchases Through Third Parties..........28
How to Redeem Shares ......................28
By Written Request ......................28
By Exchange .............................29
Special Redemption Privileges ...........29
General Redemption Policies .............31
Shareholder Services ......................33
Net Asset Value ...........................35
Distributions and Income Taxes ............36
Investment Return .........................38
Management of the Funds ...................38
Organization and Description of Shares.....42
Certificate of Authorization...............43
SUMMARY
The mutual funds described in this prospectus are series of the
Stein Roe Investment Trust, an open-end diversified management
investment company. Each Fund is a "no-load" fund. There are no
sales or redemption charges. (See The Funds and Organization and
Description of Shares.) This prospectus is not a solicitation in any
jurisdiction in which the Funds are not registered for sale.
INVESTMENT OBJECTIVES AND POLICIES. GROWTH & INCOME FUND seeks to
provide both growth of capital and current income. It is designed
for investors seeking a diversified portfolio of securities that
offers the opportunity for long-term growth of capital while also
providing a steady stream of income. In seeking to meet this
objective, the Fund invests primarily in well-established companies
whose common stocks are believed to have both the potential to
appreciate in value and to pay dividends to shareholders.
TOTAL RETURN FUND seeks current income and capital appreciation in
order to achieve maximum total return consistent with reasonable
investment risk through investment in a combination of equity,
fixed income, and convertible securities. There are no
limitations on the amount of the Fund's assets that may be
allocated to the various types of securities. Generally, the
equity portion of the Fund's portfolio will be invested in common
stocks that the Adviser believes to have long-term growth
possibilities. With respect to the fixed income portion of the
portfolio, emphasis is placed on acquiring investment grade
securities. Securities in the fourth highest grade may have
speculative characteristics.
GROWTH STOCK FUND seeks long-term capital appreciation by normally
investing at least 65% of its total assets in common stocks and
other equity-type securities that the Adviser believes to have
long-term appreciation possibilities.
SPECIAL FUND invests in securities selected for possible capital
appreciation. Particular emphasis is placed on securities that
are considered to have limited downside risk relative to their
potential for above-average growth--including securities of
undervalued, underfollowed or out-of-favor companies, and
companies that are low-cost producers of goods or services,
financially strong, or run by well-respected managers. The Fund's
investments may include securities of seasoned, established
companies that appear to have appreciation potential, as well as
securities of relatively small, new companies; securities with
limited marketability; new issues of securities; securities of
companies that, in the Adviser's opinion, will benefit from
management change, new technology, new product or service
development, or change in demand; and other securities that the
Adviser believes have capital appreciation possibilities.
SPECIAL VENTURE FUND seeks long-term capital appreciation by
investing primarily in a diversified portfolio of equity
securities of entrepreneurially managed companies that the Adviser
believes represent special opportunities. The Fund emphasizes
investments in financially strong small and medium-sized
companies, based principally on management appraisal and stock
valuation.
CAPITAL OPPORTUNITIES FUND seeks long-term capital appreciation by
investing in aggressive growth companies. An aggressive growth
company, in general, is one that appears to have the ability to
increase its earnings at an above-average rate. These may include
securities of smaller emerging companies as well as securities of
well-seasoned companies of any size that offer strong earnings
growth potential. Such companies may benefit from new products or
services, technological developments, or changes in management.
There can be no guarantee that the Funds will achieve their
investment objectives. Please see How the Funds Invest and
Portfolio Investments and Strategies for further information.
INVESTMENT RISKS. Growth & Income Fund is designed for long-term
investors who desire to participate in the stock market with
moderate investment risk while seeking to
limit market volatility. Total Return Fund is designed for long-
term investors who can accept the fluctuations in portfolio value
and other risks associated with seeking long-term capital
appreciation through investments in securities. Growth Stock Fund
and Special Fund are designed for long-term investors who desire
to participate in the stock market with more investment risk and
volatility than the stock market in general, but with less
investment risk and volatility than aggressive capital
appreciation funds. Special Venture Fund is designed for long-
term investors who want greater return potential than is available
from the stock market in general, and who are willing to tolerate
the greater investment risk and market volatility associated with
investments in small and medium-sized companies. Capital
Opportunities Fund is an aggressive growth fund and is designed
for long-term investors who can accept the fluctuations in
portfolio value and other risks associated with seeking long-term
capital appreciation through investments in common stocks.
Since the Funds may invest in foreign securities, investors should
understand and consider carefully the risks involved in foreign
investing. Investing in foreign securities involves certain
considerations involving both risks and opportunities not
typically associated with investing in U.S. securities. Such
risks include fluctuations in foreign currency exchange rates,
possible imposition of exchange controls, less complete financial
information, political instability, less liquidity, and greater
price volatility.
Please see How the Funds Invest, Portfolio Investments and
Strategies, and Risks and Investment Considerations for further
information.
PURCHASES. The minimum initial investment for each Fund is
$2,500, and additional investments must be at least $100 (only $50
for purchases by electronic transfer). Shares may be purchased by
check, by bank wire, by electronic transfer, or by exchange from
another Stein Roe Fund. For more detailed information, see How to
Purchase Shares.
REDEMPTIONS. For information on redeeming Fund shares, including
the special redemption privileges, see How to Redeem Shares.
NET ASSET VALUE. The purchase and redemption price of a Fund's
shares is its net asset value per share. The net asset value is
determined as of the close of trading on the New York Stock
Exchange. (For more detailed information, see Net Asset Value.)
DISTRIBUTIONS. Dividends for Growth & Income Fund and Total
Return Fund are normally declared and paid quarterly, and
dividends for the other Funds are normally declared and paid
annually. Distributions will be reinvested into your Fund account
unless you elect to have them paid in cash, deposited by
electronic transfer into your bank checking account, or invested
in another Stein Roe Fund account. (See Distributions and Income
Taxes and Shareholder Services.)
ADVISER AND FEES. Stein Roe & Farnham Incorporated (the
"Adviser") provides administrative, management, and investment
advisory services to the Funds. For a description of the Adviser
and the fees paid by the Funds, see Management of the Funds.
If you have any additional questions about the Funds, please feel
free to discuss them with an account representative by calling
800-338-2550.
FEE TABLE
<TABLE>
<CAPTION>
Growth & Total Growth Special Capital
Income Return Stock Special Venture Opportunities
Fund Fund Fund Fund Fund Fund
------- -------- ----- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None None None None
Sales Load Imposed on
Reinvested Dividends None None None None None None
Deferred Sales Load None None None None None None
Redemption Fees* None None None None None None
Exchange Fees None None None None None None
ANNUAL FUND OPERATING EXPENSES
(after expense reimbursement in
the case of Special Venture
Fund; as a percentage of average
net assets)
Management and Administrative
Fees (after expense reimbursement
in the case of Special Venture
Fund) 0.75% 0.70% 0.75% 0.84% 0.48% 0.90%
12b-1 Fees None None None None None None
Other Expenses 0.40% 0.37% 0.33% 0.32% 0.77% 0.35%
----- ----- ----- ----- ----- -----
Total Fund Operating Expenses
(after expense reimbursement in
the case of Special Venture Fund) 1.15% 1.07% 1.08% 1.16% 1.25% 1.25%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
- --------------
*There is a $3.50 charge for wiring redemption proceeds to your bank.
EXAMPLES. You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return; and (2) redemption at
the end of each time period:
1 year 3 years 5 years 10 years
------ ------- -------- ---------
Growth & Income Fund $12 $37 $63 $140
Total Return Fund 11 34 59 131
Growth Stock Fund 11 34 60 132
Special Fund 12 37 64 142
Special Venture Fund 13 40 69 151
Capital Opportunities Fund 13 40 69 151
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in a Fund. The Funds' transfer agency
fees were changed effective May 1, 1995, and changes in management
and administrative fees became effective on September 1, 1995, for
all Funds except Special Venture Fund. The above table
illustrates expenses that would have been borne by investors in
the last fiscal year assuming that the fee changes had been in
effect for the entire year; in the case, of Special Venture Fund,
which had less than one year of operation for the reporting
period, the expenses have been adjusted for the transfer agency
fee increase and annualized.
From time to time, the Adviser may voluntarily absorb certain
expenses of a Fund. The Adviser has agreed to voluntarily waive
its management fee and absorb the expenses of Special Venture Fund
to the extent that such fees and expenses on an annualized basis
exceed 1.25% of its annual average net assets through January 31,
1997, subject to earlier termination by the Adviser on 30 days'
notice. Any such absorption will temporarily lower the Fund's
overall expense ratio and increase its overall return to
investors. Absent such expense undertaking, Management and
Administrative Fees and Total Fund Operating Expenses for Special
Venture Fund would have been 0.90% and 1.67%, respectively. (Also see
Management of the Funds--Fees and Expenses.)
For purposes of the Examples above, the figures assume that the
percentage amounts listed for the respective Funds under Annual
Fund Operating Expenses remain the same in each of the periods;
that all income dividends and capital gain distributions are
reinvested in additional Fund shares; and that, for purposes of
management fee breakpoints, net assets remain at the same level as
in the most recently completed fiscal year.
The figures in the Examples are not necessarily indicative of past
or future expenses, and actual expenses may be greater or less
than those shown. Although information such as that shown in the
Examples and Fee Table is useful in reviewing the Funds' expenses
and in providing a basis for comparison with other mutual funds,
it should not be used for comparison with other investments using
different assumptions or time periods.
FINANCIAL HIGHLIGHTS
The tables below reflect the results of operations of the Funds on
a per-share basis for the periods shown. Information for periods
after December 31, 1987, for Total Return Fund and the tables for
the other Funds have been audited by Arthur Andersen LLP,
independent public accountants. All of the auditors' reports were
unqualified. These tables should be read in conjunction with the
respective Fund's financial statements and notes thereto. The
Funds' annual report, which may be obtained from the Trust without
charge upon request, contains additional performance information.
TOTAL RETURN FUND
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $21.37 $25.04 $25.07 $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 1.41 1.33 1.32 0.97 1.37 1.28 1.32 1.31 1.26 1.15 1.33
Net realized and
unrealized gains
(losses) on investments 3.87 2.75 (1.06) 0.45 3.10 (2.92) 4.85 1.48 2.37 (1.06) 2.22
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 5.28 4.08 0.26 1.42 4.47 (1.64) 6.17 2.79 3.63 0.09 3.55
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (1.42) (1.35) (1.63) (0.90) (1.34) (1.36) (1.26) (1.34) (1.30) (1.17) (1.23)
Net realized capital
gains (0.19) (2.70) (1.45) (0.11) (0.38) (0.73) (0.51) (0.62) (1.67) (0.71) (0.28)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (1.61) (4.05) (3.08) (1.01) (1.72) (2.09) (1.77) (1.96) (2.97) (1.88) (1.51)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $25.04 $25.07 $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78 $27.82
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.77% 0.79% 0.80% *0.87% 0.90% 0.88% 0.87% 0.85% 0.81% 0.83% 0.87%
Ratio of net investment
income to average net
assets 6.30% 5.21% 5.12% *5.68% 5.83% 5.36% 5.50% 4.94% 4.69% 4.53% 5.14%
Portfolio turnover rate 100% 108% 86% 85% 93% 75% 71% 59% 53% 29% 45%
Total return 25.78% 17.11% 0.74% 6.51% 20.76% (6.86%) 29.67% 11.13% 14.57% 0.36% 14.49%
Net assets, end of
period (000 omitted) $128,676 $149,831 $140,279 134,225 $144,890 $124,592 $150,689 $173,417 $222,292 $229,274 $228,560
</TABLE>
GROWTH & INCOME FUND
<TABLE>
<CAPTION>
Period Ended
Sept. 30, Years Ended September 30,
1987 (a) 1988 1989 1990 1991 1992 1993 1994 1995
------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.00 $10.49 $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54
------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.05 0.17 0.22 0.26 0.26 0.19 0.17 0.18 0.34
Net realized and
unrealized gains
(losses) on investments 0.47 (1.64) 2.46 (0.85) 2.17 1.49 2.16 0.40 2.56
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.52 (1.47) 2.68 (0.59) 2.43 1.68 2.33 0.58 2.90
------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (0.03) (0.14) (0.22) (0.26) (0.29) (0.18) (0.16) (0.16) (0.20)
Net realized capital
gains -- -- -- -- (0.36) (0.35) (0.76) (0.71) (0.59)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.03) (0.14) (0.22) (0.26) (0.65) (0.53) (0.92) (0.87) (0.79)
------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $10.49 $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54 $16.65
------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of net expenses
to average net
assets (b) *1.91% 1.47% 1.24% 1.08% 1.00% 0.97% 0.88% 0.90% 0.96%
Ratio of net investment
income to average net
assets (c) *1.43% 2.03% 2.28% 2.40% 2.27% 1.46% 1.23% 1.18% 1.78%
Portfolio turnover rate 32% 105% 63% 51% 48% 40% 50% 85% 70%
Total return 5.20% (13.90%) 30.63% (5.25%) 24.12% 14.00% 17.98% 4.03% 21.12%
Net assets, end of
period (000 omitted) $22,863 $23,002 $32,562 $43,446 $54,820 $70,724 $100,365 $129,680 $139,539
</TABLE>
GROWTH STOCK FUND
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $14.04 $17.43 $16.97 $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.31 0.26 0.24 0.19 0.34 0.39 0.33 0.18 0.15 0.13 0.12
Net realized and
unrealized gains (losses)
on investments 3.38 2.75 0.46 (0.11) 4.51 (1.17) 5.90 3.01 1.14 0.41 5.60
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 3.69 3.01 0.70 0.08 4.85 (0.78) 6.23 3.19 1.29 0.54 5.72
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (0.30) (0.25) (0.29) (0.15) (0.34) (0.37) (0.42) (0.16) (0.10) (0.12) (0.15)
Net realized capital gains -- (3.22) (2.71) -- (0.06) -- (0.92) (1.17) (0.95) (1.73) (3.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.30) (3.47) (3.00) (0.15) (0.40) (0.37) (1.34) (1.33) (1.05) (1.85) (3.17)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $17.43 $16.97 $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58 $26.13
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.67% 0.67% 0.65% *0.76% 0.77% 0.73% 0.79% 0.92% 0.93% 0.94% 0.99%
Ratio of net investment
income to average net
assets 1.89% 1.34% 1.25% *1.62% 2.05% 2.03% 1.63% 0.75% 0.59% 0.50% 0.56%
Portfolio turnover rate 114% 137% 143% 84% 47% 40% 34% 23% 29% 27% 36%
Total return 26.35% 16.91% 5.57% 0.54% 33.86% (4.17%) 36.64% 14.37% 5.09% 2.10% 28.18%
Net assets, end
of period (000 omitted) $224,371 $226,604 $232,658 $195,641 $206,476 $206,031 $291,767 $372,758 $373,921 $321,502 $360,336
</TABLE>
SPECIAL FUND
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $14.88 $18.41 $16.95 $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.25 0.35 0.23 0.14 0.36 0.42 0.34 0.21 0.17 0.15 0.13
Net realized and
unrealized gains
(losses) on investments 4.01 2.33 0.12 2.16 5.58 (2.10) 4.55 1.50 5.31 0.33 3.05
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 4.26 2.68 0.35 2.30 5.94 (1.68) 4.89 1.71 5.48 0.48 3.18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investmentincome (0.19) (0.34) (0.57) (0.01) (0.21) (0.39) (0.34) (0.37) (0.18) (0.21) (0.15)
Net realized capital
gains (0.54) (3.80) (3.90) -- (0.06) (2.08) (1.32) (0.31) (1.16) (1.77) (1.31)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.73) (4.14) (4.47) (0.01) (0.27) (2.47) (1.66) (0.68) (1.34) (1.98) (1.46)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $18.41 $16.95 $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54 $25.26
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.92% 0.92% 0.96% *0.99% 0.96% 1.02% 1.04% 0.99% 0.97% 0.96% 1.02%
Ratio of net
investment income to
average net assets 2.07% 1.75% 1.32% *1.31% 2.12% 2.33% 2.11% 0.99% 0.92% 0.91% 0.56%
Portfolio turnoverrate 96% 116% 103% 42% 85% 70% 50% 40% 42% 58% 41%
Total return 29.41% 14.70% 4.27% 17.94% 40.00% (8.78%) 32.18% 8.96% 27.35% 2.02% 14.60%
Net assets, end of
period (000 omitted) $278,082 $253,693 $187,997 $224,628 $322,056 $361,065 $587,259 $626,080 $1,076,818 $1,243,885 $1,201,469
</TABLE>
SPECIAL VENTURE FUND
Period Ended
Sept. 30, 1995 (a)
------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.01
Net realized and unrealized gains on investments 2.67
------
Total from investment operations 2.68
------
DISTRIBUTIONS
Net investment income (0.03)
Net realized capital gains (0.05)
------
Total distributions (0.08)
------
NET ASSET VALUE, END OF PERIOD $12.60
------
------
Ratio of net expenses to average net assets (b) *1.25%
Ratio of net investment income to average net assets (c) *0.12%
Portfolio turnover rate 84%
Total return 26.96%
Net assets, end of period (000 omitted) $60,533
CAPITAL OPPORTUNITIES FUND (D)
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.69 $11.91 $13.38 $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 15.79
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.10 0.03 0.03 0.03 0.05 0.06 0.11 0.06 0.01 0.02 0.01
Net realized and
unrealized gains
(losses) on investments 2.27 1.97 0.62 0.13 3.86 (4.72) 3.73 0.60 3.91 0.34 5.91
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 2.37 2.00 0.65 0.16 3.91 (4.66) 3.84 0.66 3.92 0.36 5.92
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (0.15) (0.10) (0.05) -- (0.05) (0.06) (0.08) (0.10) (0.04) (0.01) (0.02)
Net realized capital
gains -- (0.43) (3.36) -- (0.06) (2.54) (0.08) -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.15) (0.53) (3.41) -- (0.11) (2.60) (0.16) (0.10) (0.04) (0.01) (0.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $11.91 $13.38 $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 $15.79 $21.69
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.95% 0.95% 0.95% *1.01% 1.09% 1.14% 1.18% 1.06% 1.06% 0.97% 1.05%
Ratio of net investment
income to average
net assets 0.94% 0.19% 0.18% *0.34% 0.42% 0.43% 1.19% 0.42% 0.09% 0.04% 0.08%
Portfolio turnover rate 90% 116% 133% 164% 245% 171% 69% 46% 55% 46% 60%
Total return 24.58% 16.77% 9.38% 1.51% 36.68% (37.51%) 53.51% 5.99% 34.01% 2.31% 37.46%
Net assets, end of
period (000 omitted) $176,099 $191,415 $171,973 $194,160 $272,805 $86,342 $129,711 $118,726 $153,101 $175,687 $242,381
</TABLE>
*Annualized.
(a) From the commencement of operations: March 23, 1987 for
Growth & Income Fund and October 17, 1994 for Special Venture
Fund.
(b) If the Funds had paid all of their expenses and there had
been no reimbursement by the Adviser, this ratio would have
been 2.49% for the period ended September 30, 1987 and 1.09%
for the year ended September 30, 1990 for Growth & Income Fund;
and 2.87% for the period ended September 30, 1995 for Special
Venture Fund.
(c) Computed giving effect to the Adviser's expense limitation
undertaking.
(d) For Capital Opportunities Fund, all per share amounts and
Average Shares Outstanding During Period on the debt table
reflect a two-for-one stock split effective August 25, 1995.
(e) For the periods indicated below, bank borrowing activity was
as follows:
Debt
outstanding Average debt Average shares Average
at end of outstanding outstanding debt per
Period period (in during period during period during
Ended thousands) (in thousands) (in thousands) period
- ------------ ----------- ------------ -------------- --------
Total Return
Fund
12/31/86 $-- 2 5,506 $0.0004
Growth Stock
Fund
12/31/85 -- 5 13,977 0.0004
9/30/89 -- 124 11,745 0.0106
Special Fund
12/31/86 -- 203 15,251 0.0133
Capital
Opportunities
Fund
12/31/85 -- 43 17,050 0.0026
12/31/86 -- 55 13,906 0.0039
12/31/87 -- 292 16,008 0.0183
9/30/88 -- 56 17,206 0.0033
9/30/89 -- 422 16,066 0.0263
9/30/90 200 1,042 15,944 0.0654
The Funds had no bank borrowings during any other periods.
THE FUNDS
The mutual funds offered by this prospectus are STEIN ROE GROWTH &
INCOME FUND ("Growth & Income Fund"), STEIN ROE TOTAL RETURN FUND
("Total Return Fund"), STEIN ROE GROWTH STOCK FUND ("Growth Stock
Fund"), STEIN ROE SPECIAL FUND ("Special Fund"), STEIN ROE SPECIAL
VENTURE FUND ("Special Venture Fund"), and STEIN ROE CAPITAL
OPPORTUNITIES FUND ("Capital Opportunities Fund") (collectively,
the "Funds"). Each of the Funds is a no-load, diversified "mutual
fund." Mutual funds sell their own shares to investors and use
the money they receive to invest in a portfolio of securities such
as common stocks. A mutual fund allows you to pool your money
with that of other investors in order to obtain professional
investment management. Mutual funds generally make it possible
for you to obtain greater diversification of your investments and
simplify your recordkeeping. The Funds do not impose commissions
or charges when shares are purchased or redeemed.
The Funds are series of the Stein Roe Investment Trust (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Funds. The Adviser also manages and
provides investment advisory services for several other no-load
mutual funds with different investment objectives, including
equity funds, international funds, taxable and tax-exempt bond
funds, and money market funds. To obtain prospectuses and other
information on any of those mutual funds, please call 800-338-
2550.
HOW THE FUNDS INVEST
The Funds invest as described below. Further information on
portfolio investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.
GROWTH & INCOME FUND.
This Fund's investment objective is to provide both growth of
capital and current income. It is designed for investors seeking
a diversified portfolio of securities that offers the opportunity
for long-term growth of capital while also providing a steady
stream of income.
In seeking to meet this objective, the Fund invests primarily in
well-established companies whose common stocks are believed to
have both the potential to appreciate in value and to pay
dividends to shareholders.
Although it may invest in a broad range of securities (including
common stocks, preferred stocks, securities convertible into or
exchangeable for common stocks, and warrants or rights to purchase
common stocks), normally the Fund will emphasize investments in
equity securities of companies having market capitalizations in
excess of $1 billion. Securities of these well-established companies
are believed to be generally less volatile than those of companies
with smaller capitalizations because companies with larger
capitalizations tend to have experienced management; broad, highly
diversified product lines; deep resources; and easy access to credit.
TOTAL RETURN FUND.
This Fund's investment objective is to obtain current income and
capital appreciation in order to achieve maximum total return
consistent with reasonable investment risk through investment in a
combination of equity, fixed income and convertible securities.
The percentages of Fund assets invested in various types of
securities will vary in accordance with the judgment of the
Adviser. There are no limitations on the amount of the Fund's
assets that may be allocated to the various types of securities.
Generally, the equity portion of the Fund's portfolio will be
invested in common stocks that the Adviser believes have long-term
growth possibilities. With respect to the fixed income portion of
the portfolio, emphasis is placed on acquiring investment grade
securities.
GROWTH STOCK FUND.
This Fund's investment objective is long-term capital appreciation,
which it attempts to achieve by normally investing at least 65% of its
total assets in common stocks and other equity-type securities (such as
preferred stocks, securities convertible into or exchangeable for common
stocks, and warrants or rights to purchase common stocks) that, in the
opinion of the Adviser, have long-term appreciation possibilities.
SPECIAL FUND.
This Fund's investment objective is to invest in securities
selected for capital appreciation. Particular emphasis is placed
on securities that are considered to have limited downside risk
relative to their potential for above-average growth--including
securities of undervalued, underfollowed or out-of-favor
companies, and companies that are low-cost producers of goods or
services, financially strong, or run by well-respected managers.
The Fund may invest in securities of seasoned, established
companies that appear to have appreciation potential, as well as
securities of relatively small, new companies. In addition, it
may invest in securities with limited marketability; new issues of
securities; securities of companies that, in the Adviser's
opinion, will benefit from management change, new technology, new
product or service development, or change in demand; and other
securities that the Adviser believes have capital appreciation
possibilities. However, the Fund does not currently intend to
invest, nor has it invested in the past fiscal year, more than 5%
of its net assets in any of these types of securities. Securities
of smaller, newer companies may be subject to greater price
volatility than securities of larger, well-established companies.
In addition, many smaller companies are less well known to the
investing public and may not be as widely followed by the investment
community. Although the Fund invests primarily in common stocks, it
may also invest in other equity-type securities, including preferred
stocks and securities convertible into equity securities.
SPECIAL VENTURE FUND.
This Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of common stocks and other
equity-type securities (such as preferred stocks, securities
convertible or exchangeable for common stocks, and warrants or
rights to purchase common stocks) of entrepreneurially managed
companies that the Adviser believes represent special
opportunities. The Fund emphasizes investments in financially
strong small and medium-sized companies, based principally on
management appraisal and stock valuation. The Adviser considers
"small" and "medium-sized" companies to be those with market
capitalizations of less than $1 billion and $1 to $3 billion,
respectively.
In both its initial and ongoing appraisals of a company's
management, the Adviser seeks to know both the principal owners
and senior management and to assess their business judgment and
strategies through personal visits. The Adviser favors companies
whose management has an owner/operator, risk-averse orientation
and a demonstrated ability to create wealth for investors.
Attractive company characteristics include unit growth, favorable
cost structures or competitive positions, and financial strength
that enables management to execute business strategies under
difficult conditions. A company is attractively valued when its
stock can be purchased at a meaningful discount to the value of
the underlying business.
CAPITAL OPPORTUNITIES FUND.
This Fund's investment objective is long-term capital
appreciation, which it attempts to achieve by investing in
selected companies that, in the opinion of the Adviser, offer
opportunities for capital appreciation.
The Fund pursues its objective by investing in aggressive growth
companies. An aggressive growth company, in general, is one that
appears to have the ability to increase its earnings at an above-
average rate. These may include securities of smaller emerging
companies as well as securities of well-seasoned companies of any
size that offer strong earnings growth potential. Such companies
may benefit from new products or services, technological
developments, or changes in management. Securities of smaller
companies may be subject to greater price volatility than
securities of larger companies. In addition, many smaller
companies are less well known to the investing public and may not
be as widely followed by the investment community. Although it invests
primarily in common stocks, the Fund may invest in all types of equity
securities, including preferred stocks and securities convertible
into common stocks.
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES. In pursuing its investment objective, each Fund
may invest in debt securities of corporate and governmental
issuers. Investments in debt securities by Growth & Income Fund,
Total Return Fund, and Growth Stock Fund are limited to those that
are rated within the four highest grades (generally referred to as
"investment grade") assigned by a nationally recognized
statistical rating organization. Investments in unrated debt
securities are limited to those deemed to be of comparable quality
by the Adviser. Securities in the fourth highest grade may
possess speculative characteristics, and changes in economic
conditions are more likely to affect the issuer's capacity to pay
interest and repay principal. If the rating of a security held by
a Fund is lost or reduced below investment grade, the Fund is not
required to dispose of the security--the Adviser will, however,
consider that fact in determining whether that Fund should
continue to hold the security. Special Venture Fund, Capital
Opportunities Fund, and Special Fund may invest up to 35% of their
net assets in debt securities, but do not expect to invest more than
5% of their net assets in debt securities that are rated below
investment grade.
The risks inherent in debt securities depend primarily on the term
and quality of the obligations in a Fund's portfolio as well as on
market conditions. A decline in the prevailing levels of interest
rates generally increases the value of debt securities.
Conversely, an increase in rates usually reduces the value of debt
securities. Securities that are rated below investment grade are
considered predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal according to the
terms of the obligation, and therefore carry greater investment
risk, including the possibility of issuer default and bankruptcy.
When the Adviser determines that adverse market or economic
conditions exist and considers a temporary defensive position
advisable, the Funds may invest without limitation in high-quality
fixed income securities or hold assets in cash or cash
equivalents.
CONVERTIBLE SECURITIES. By investing in convertible securities, a
Fund obtains the right to benefit from the capital appreciation
potential in the underlying stock upon exercise of the conversion
right, while earning higher current income than would be available
if the stock were purchased directly. In determining whether to
purchase a convertible, the Adviser will consider substantially
the same criteria that would be considered in purchasing the
underlying stock. Although convertible securities purchased by a
Fund are frequently rated investment grade, the Funds also may
purchase unrated securities or securities rated below investment
grade if the securities meet the Adviser's other investment
criteria. Convertible securities rated below investment grade:
- - Tend to be more sensitive to interest rate and economic
changes;
- - May be obligations of issuers who are less creditworthy than
issuers of higher quality convertible securities;
- - May be more thinly traded due to the fact that such securities
are less well known to investors than either common stock or
conventional debt securities. As a result, the Adviser's own
investment research and analysis tends to be more important than
other factors in the purchase of such securities.
FOREIGN SECURITIES. Each Fund may invest in foreign securities.
Other than American Depositary Receipts (ADRs), foreign debt
securities denominated in U.S. dollars, and securities guaranteed
by a U.S. person, each Fund is limited to investing no more than
25% of its total assets in foreign securities. (See Risks and
Investment Considerations.) The Funds may invest in sponsored or
unsponsored ADRs. In addition to, or in lieu of, such direct
investment, a Fund may construct a synthetic foreign position by
(a) purchasing a debt instrument denominated in one currency,
generally U.S. dollars; and (b) concurrently entering into a
forward contract to deliver a corresponding amount of that
currency in exchange for a different currency on a future date and
at a specified rate of exchange. Because of the availability of a
variety of highly liquid U.S. dollar debt instruments, a synthetic
foreign position utilizing such U.S. dollar instruments may offer
greater liquidity than direct investment in foreign currency debt
instruments. In connection with the purchase of foreign
securities, the Funds may contract to purchase an amount of
foreign currency sufficient to pay the purchase price of the
securities at the settlement date. Such a contract involves the
risk that the value of the foreign currency may decline relative
to the value of the dollar prior to the settlement date--this risk
is in addition to the risk that the value of the foreign security
purchased may decline. The Funds also may enter into foreign
currency contracts as a hedging technique to limit or reduce
exposure to currency fluctuations. In addition, the Funds may use
options and futures contracts, as described below, to limit or
reduce exposure to currency fluctuations.
As of September 30, 1995, the Funds' holdings of foreign
companies, as a percentage of net assets, were as follows: Growth
& Income Fund, 4.4% (1.5% in foreign securities and 2.9% in ADRs),
Total Return Fund, 5.2% (1.0% in foreign securities and 4.2% in
ADRs), Growth Stock Fund, 6.3% (1.2% in foreign securities and
5.1% in ADRs), Special Fund, 7.5% (6.0% in foreign securities and
1.5% in ADRs); Special Venture Fund, 4.9% (4.9% in foreign
securities and none in ADRs); and Capital Opportunities Fund, 2.5%
(none in foreign securities and 2.5% in ADRs).
LENDING PORTFOLIO SECURITIES; WHEN-ISSUED AND DELAYED-DELIVERY
SECURITIES. Each Fund may make loans of its portfolio securities
to broker-dealers and banks subject to certain restrictions
described in the Statement of Additional Information. Each Fund
may invest in securities purchased on a when-issued or delayed-
delivery basis. Although the payment terms of these securities
are established at the time the Fund enters into the commitment,
the securities may be delivered and paid for a month or more after
the date of purchase, when their value may have changed. A Fund
will make such commitments only with the intention of actually
acquiring the securities, but may sell the securities before
settlement date if it is deemed advisable for investment reasons.
PORTFOLIO TURNOVER. Although the Funds do not purchase securities
with a view to rapid turnover, there are no limitations on the
length of time portfolio securities must be held, and the
portfolio turnover rate may vary significantly from year to year.
Under normal circumstances, Special Venture Fund expects to
experience moderate portfolio turnover with an investment time
horizon of three to five years, but its portfolio turnover is not
expected to exceed 100%. At times, Special Fund and Capital
Opportunities Fund may invest for short-term capital appreciation.
Flexibility of investment and emphasis on capital appreciation may
involve greater portfolio turnover than that of mutual funds that
have the objectives of income or maintenance of a balanced
investment position. A high rate of portfolio turnover may result
in increased transaction expenses and the realization of capital
gains and losses. (See Financial Highlights and Distributions and
Income Taxes.) Growth Stock Fund, Special Fund, Special Venture
Fund, and Capital Opportunities Fund are not intended to be
income-producing investments, although they may produce varying
amounts of income.
DERIVATIVES. Consistent with its objective, each Fund may invest
in a broad array of financial instruments and securities,
including conventional exchange-traded and non-exchange-traded
options, futures contracts, futures options, securities
collateralized by underlying pools of mortgages or other
receivables, floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each case,
the value of the instrument or security is "derived" from the
performance of an underlying asset or a "benchmark" such as a
security index, an interest rate, or a currency. No Fund expects
to invest more than 5% of its net assets in any type of Derivative
except for options, futures contracts, and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in currency exchange rates, security prices, interest
rates and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as well
regulated and may be less marketable than exchange-traded
Derivatives. For additional information on Derivatives, please
refer to the Statement of Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuation, each Fund may: (1)
purchase and write both call options and put options on
securities, indexes and foreign currencies; (2) enter into
interest rate, index and foreign currency futures contracts; (3)
write options on such futures contracts; and (4) purchase other
types of forward or investment contracts linked to individual
securities, indexes or other benchmarks. A Fund may write a call
or put option only if the option is covered. As the writer of a
covered call option, a Fund foregoes, during the option's life,
the opportunity to profit from increases in market value of the
security covering the call option above the sum of the premium and
the exercise price of the call. There can be no assurance that a
liquid market will exist when a Fund seeks to close out a
position. In addition, because futures positions may require low
margin deposits, the use of futures contracts involves a high
degree of leverage and may result in losses in excess of the
amount of the margin deposit.
RESTRICTIONS ON THE FUNDS' INVESTMENTS
No Fund will invest more than 5% of its assets in the securities
of any one issuer. This restriction applies only to 75% of a
Fund's portfolio, but does not apply to securities of the U.S.
Government or repurchase agreements for such securities, and would
not prevent a Fund from investing all of its assets in shares of
another investment company having the identical investment
objective.
No Fund will acquire more than 10% of the outstanding voting
securities of any one issuer. Each Fund may, however, invest all
of its assets in shares of another investment company having the
identical investment objective.
No Fund will borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). No Fund will purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The Funds may invest in repurchase agreements, /1/ provided that
no Fund will invest more than 15% of its net assets in repurchase
agreements maturing in more than seven days, and any other
illiquid securities.
- ------------------------
/1/ A repurchase agreement involves a sale of securities to a Fund
in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, the Fund could experience both losses
and delays in liquidating its collateral.
- --------------------------
The policies summarized in the first three paragraphs under this
section (except for the first and second paragraphs as they relate
to Special Fund) and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" of a Fund as defined in the
Investment Company Act of 1940. The Funds' investment objectives
are non-fundamental and, as such, may be changed by the Board of
Trustees without shareholder approval. Any such change may result
in a Fund having an investment objective different from the
objective the shareholder considered appropriate at the time of
investment in the Fund. All of the investment restrictions are
set forth in the Statement of Additional Information.
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Growth & Income Fund is
designed for long-term investors who desire to participate in the
stock market with moderate investment risk while seeking to limit
market volatility. Total Return Fund is designed for long-term
investors who can accept the fluctuations in portfolio value and
other risks associated with seeking long-term capital appreciation
through investments in securities. Growth Stock Fund and Special
Fund are designed for long-term investors who desire to
participate in the stock market with more investment risk and
volatility than the stock market in general, but with less
investment risk and volatility than aggressive capital
appreciation funds. Special Venture Fund is designed for long-
term investors who want greater return potential than is available
from the stock market in general, and who are willing to tolerate
the greater investment risk and market volatility associated with
investments in small and medium-sized companies. Capital
Opportunities Fund is an aggressive growth fund and is designed for
long-term investors who can accept the fluctuations in portfolio value
and other risks associated with seeking long-term capital appreciation
through investments in common stocks. Of course, there can be no
guarantee that a Fund will achieve its objective.
Securities of small and medium-sized companies may be subject to
greater price volatility than securities of larger companies and
tend to have a lower degree of market liquidity. They also may be
more sensitive to changes in economic and business conditions, and
may react differently than securities of larger companies. In
addition, such companies are less well known to the investing
public and may not be as widely followed by the investment
community.
Debt securities rated in the fourth highest grade may have some
speculative characteristics, and changes in economic conditions or
other circumstances may lead to a weakened capacity of the issuers
of such securities to make principal and interest payments.
Securities rated below investment grade may possess speculative
characteristics, and changes in economic conditions are more
likely to affect the issuer's capacity to pay interest or repay
principal.
Although Growth & Income Fund, Total Return Fund, Special Fund,
Special Venture Fund, and Capital Opportunities Fund do not
attempt to reduce or limit risk through wide industry
diversification of investment, they usually allocate their
investments among a number of different industries rather than
concentrating in a particular industry or group of industries.
Growth Stock Fund seeks to reduce risk by investing in a
diversified portfolio, but this does not eliminate all risk. No
Fund, however, will invest more than 25% of the total value of its
assets (at the time of investment) in the securities of companies
in any one industry. (See How the Funds Invest.)
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers; less market liquidity; more market
volatility; less developed and regulated markets; and greater
political instability. In addition, various restrictions by
foreign governments on investments by non-residents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
non-residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION. Rather than invest in securities
directly, each Fund may in the future seek to achieve its
investment objective by pooling its assets with assets of other
mutual funds managed by the Adviser for investment in another
investment company having the same investment objective and
substantially the same investment policies and restrictions as the
Fund. The purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected that
any such investment company would be managed by the Adviser in
substantially the same manner as the Fund. Shareholders of a Fund
will be given at least 30 days' prior notice of any such
investment, although they will not be entitled to vote on the
action. Such investment would be made only if the Trustees determine
it to be in the best interests of the Fund and its shareholders.
HOW TO PURCHASE SHARES
You may purchase shares of any of the Funds by check, by wire, by
electronic transfer, or by exchange from your account with another
Stein Roe Fund. The initial purchase minimum per Fund account is
$2,500; the minimum for Uniform Gifts/Transfers to Minors Act
("UGMA") accounts is $1,000; the minimum for accounts established
under an automatic investment plan (i.e., Regular Investments,
Dividend Purchase Option, or Automatic Exchange Plan) is $1,000
for regular accounts and $500 for UGMA accounts; and the minimum
per account for Stein Roe IRAs is $500. The initial purchase
minimum is waived for shareholders who participate in the Stein
Roe Counselor [SERVICE MARK] and Stein Roe Counselor Preferred
[SERVICE MARK] programs and for clients of the Adviser.
Subsequent purchases must be at least $100, or at least $50 if you
purchase by electronic transfer. If you wish to purchase shares
to be held by a tax-sheltered retirement plan sponsored by the
Adviser, you must obtain special forms for those plans. (See
Shareholder Services.)
BY CHECK. To make an initial purchase of shares of a Fund by
check, please complete and sign the Application and mail it,
together with a check made payable to Stein Roe Funds, to P.O. Box
804058, Chicago, Illinois 60680.
You may make subsequent investments by submitting a check along
with either the stub from your Fund account confirmation statement
or a note indicating the amount of the purchase, your account
number, and the name in which your account is registered. Each
individual check submitted for purchase must be at least $100, and
the Trust generally will not accept cash, drafts, third party
checks, or checks drawn on banks outside the United States.
Should an order to purchase shares of a Fund be cancelled because
your check does not clear, you will be responsible for any
resulting loss incurred by that Fund.
BY WIRE. You also may pay for shares by instructing your bank to
wire federal funds (monies of member banks within the Federal
Reserve System) to the Funds' custodian bank. Your bank may
charge you a fee for sending the wire. If you are opening a new
account by wire transfer, you must first telephone the Trust to
request an account number and furnish your social security or
other tax identification number. Neither the Funds nor the Trust
will be responsible for the consequences of delays, including
delays in the banking or Federal Reserve wire systems. Your bank
must include the full name(s) in which your account is registered
and your Fund account number, and should address its wire as
follows:
State Street Bank & Trust Company
ABA Routing No. 011000028
Boston, Massachusetts
Attention: Custody
Fund No. ___; Stein Roe _____ Fund
Account of (exact name(s) in registration)
Shareholder Account No. ________
Fund Numbers:
7111--Growth & Income Fund
7105--Total Return Fund
7103--Growth Stock Fund
7106--Special Fund
7125--Special Venture Fund
7104--Capital Opportunities Fund
BY ELECTRONIC TRANSFER. You also may make subsequent investments
by an electronic transfer of funds from your bank checking
account. Electronic transfer allows you to make purchases at your
request ("Special Investments") by calling 800-338-2550 or at pre-
scheduled intervals ("Regular Investments"). (See Shareholder
Services.) Electronic transfer purchases are subject to a $50
minimum and a $100,000 maximum. You may not open a new account
through electronic transfer. Should an order to purchase shares
of a Fund be cancelled because your electronic transfer does not
clear, you will be responsible for any resulting loss incurred by
that Fund.
BY EXCHANGE. You may purchase shares by exchange of shares from
another Stein Roe Fund account either by phone (if the Telephone
Exchange Privilege has been established on the account from which
the exchange is being made), by mail, in person, or automatically
at regular intervals (if you have elected Automatic Exchanges).
Restrictions apply; please review the information on the Exchange
Privilege under How to Redeem Shares--By Exchange.
PURCHASE PRICE AND EFFECTIVE DATE. Each purchase of a Fund's
shares is made at that Fund's net asset value (see Net Asset
Value) next determined after receipt of payment as follows:
A purchase by check or wire transfer is made at the net asset
value next determined after the Fund receives the check or wire
transfer of funds in payment of the purchase.
A purchase by electronic transfer is made at the net asset value
next determined after the Fund receives the electronic transfer
from your bank. A Special Electronic Transfer Investment order
received by telephone on a business day before 2:00 p.m., Central
time, is effective on the next business day.
CONDITIONS OF PURCHASE. Each purchase order for a Fund must be
accepted by an authorized officer of the Trust in Chicago and is
not binding until accepted and entered on the books of that Fund.
Once your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interest of the Trust or of a
Fund's shareholders. The Trust also reserves the right to waive
or lower its investment minimums for any reason. The Trust does
not issue certificates for shares.
PURCHASES THROUGH THIRD PARTIES. You may purchase (or redeem)
shares through investment dealers, banks, or other financial
institutions. These institutions may charge for their services or
place limitations on the extent to which you may use the services
offered by the Trust. There are no charges or limitations imposed
by the Trust, other than those described in this prospectus, if
shares are purchased (or redeemed) directly from the Trust.
Some financial institutions that maintain nominee accounts with
the Funds for their clients for whom they hold Fund shares charge
an annual fee of up to 0.25% of the average net assets held in
such accounts for accounting, servicing, and distribution services
they provide with respect to the underlying Fund shares. Such
fees are paid by the Adviser.
HOW TO REDEEM SHARES
BY WRITTEN REQUEST. You may redeem all or a portion of your
shares of a Fund by submitting a written request in "good order"
to the Trust at P.O. Box 804058, Chicago, Illinois 60680. A
redemption request will be considered to have been received in
good order if the following conditions are satisfied:
(1) The request must be in writing, and must indicate the number
of shares or dollar amount to be redeemed and identify the
shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The request must be accompanied by any certificates for the
shares, either properly endorsed for transfer, or accompanied
by a stock assignment properly endorsed exactly as the shares
are registered;
(4) The signatures on either the written redemption request or the
certificates (or the accompanying stock power) must be
guaranteed (a signature guarantee is not a notarization, but is
a widely accepted way to protect you and the Funds by verifying
your signature);
(5) Corporations and associations must submit with each request a
completed Certificate of Authorization included in this
prospectus (or a form of resolution acceptable to the Trust);
and
(6) The request must include other supporting legal documents as
required from organizations, executors, administrators,
trustees, or others acting on accounts not registered in their
names.
BY EXCHANGE. You may redeem all or any portion of your Fund
shares and use the proceeds to purchase shares of any other Stein
Roe Fund offered for sale in your state if your signed, properly
completed Application is on file. AN EXCHANGE TRANSACTION IS A
SALE AND PURCHASE OF SHARES FOR FEDERAL INCOME TAX PURPOSES AND
MAY RESULT IN CAPITAL GAIN OR LOSS. Before exercising the
Exchange Privilege, you should obtain the prospectus for the Stein
Roe Fund in which you wish to invest and read it carefully. The
registration of the account to which you are making an exchange
must be exactly the same as that of the Fund account from which
the exchange is made and the amount you exchange must meet any
applicable minimum investment of the Stein Roe Fund being
purchased. An exchange may be made by following the redemption
procedure described above under By Written Request and indicating
the Stein Roe Fund to be purchased--a signature guarantee normally
is not required. (See also the discussion below of the Telephone
Exchange Privilege and Automatic Exchanges.)
SPECIAL REDEMPTION PRIVILEGES. The Telephone Exchange Privilege
and the Telephone Redemption by Check Privilege will be
established automatically for you when you open your account
unless you decline these Privileges on your Application. Other
Privileges must be specifically elected. If you do not want the
Telephone Exchange and Redemption Privileges, check the box(es)
under the section "Telephone Redemption Options" when completing your
Application. In addition, a signature guarantee may be required to
establish a Privilege after you open your account. If you establish
both the Telephone Redemption by Wire Privilege and the Electronic
Transfer Privilege, the bank account that you designate for both
Privileges must be the same.
You may not use any of the Special Redemption Privileges if you
hold certificates for any of your Fund shares. The Telephone
Redemption by Check Privilege, Telephone Redemption by Wire
Privilege, and Special Electronic Transfer Redemptions are not
available to redeem shares held by a tax-sheltered retirement plan
sponsored by the Adviser. (See also General Redemption Policies.)
Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account
by calling 800-338-2550 or by sending a telegram; new accounts
opened by exchange are subject to the $2,500 initial purchase
minimum. GENERALLY, YOU WILL BE LIMITED TO FOUR TELEPHONE
EXCHANGE ROUND-TRIPS PER YEAR AND THE FUNDS MAY REFUSE REQUESTS
FOR TELEPHONE EXCHANGES IN EXCESS OF FOUR ROUND-TRIPS (A ROUND-
TRIP BEING THE EXCHANGE OUT OF A FUND INTO ANOTHER STEIN ROE FUND,
AND THEN BACK TO THAT FUND). In addition, the Trust's general
redemption policies apply to redemptions of shares by Telephone
Exchange. (See General Redemption Policies.)
The Trust reserves the right to suspend or terminate, at any time
and without prior notice, the use of the Telephone Exchange
Privilege by any person or class of persons. The Trust believes
that use of the Telephone Exchange Privilege by investors
utilizing market-timing strategies adversely affects the Funds.
THEREFORE, THE TRUST GENERALLY WILL NOT HONOR REQUESTS FOR
TELEPHONE EXCHANGES BY SHAREHOLDERS IDENTIFIED BY THE TRUST AS
"MARKET-TIMERS." Moreover, the Trust reserves the right to
suspend, limit, modify, or terminate, at any time and without
prior notice, the Telephone Exchange Privilege in its entirety.
Because such a step would be taken only if the Board of Trustees
believes it would be in the best interests of the Funds, the Trust
expects that it would provide shareholders with prior written
notice of any such action unless the resulting delay in the
suspension, limitation, modification, or termination of the
Telephone Exchange Privilege would adversely affect the Funds. IF
THE TRUST WERE TO SUSPEND, LIMIT, MODIFY, OR TERMINATE THE
TELEPHONE EXCHANGE PRIVILEGE, A SHAREHOLDER EXPECTING TO MAKE A
TELEPHONE EXCHANGE MIGHT FIND THAT AN EXCHANGE COULD NOT BE
PROCESSED OR THAT THERE MIGHT BE A DELAY IN THE IMPLEMENTATION OF
THE EXCHANGE. (See How to Redeem Shares--By Exchange.) During
periods of volatile economic and market conditions, you may have
difficulty placing your exchange by telephone.
Automatic Exchanges. You may use the Automatic Exchange Privilege
to automatically redeem a fixed amount from your Fund account for
investment in another Stein Roe Fund account on a regular basis.
Telephone Redemption by Check Privilege. You may use the
Telephone Redemption by Check Privilege to redeem an amount of
$1,000 or more from your account by calling 800-338-2550. The
proceeds will be sent by check to your registered address. The
Telephone Redemption by Check Privilege is not available to redeem
shares held by a tax-sheltered retirement plan sponsored by the
Adviser.
Telephone Redemption by Wire Privilege. You may use this Privilege
to redeem 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.
Electronic Transfer Privilege. You may redeem shares by calling
800-338-2550 and requesting an electronic transfer ("Special
Redemption") of the proceeds to a checking account previously
designated by you at a bank that is a member of the Automated
Clearing House. You may also request electronic transfers at
scheduled intervals ("Automatic Redemptions"--see Shareholder
Services). Electronic transfers are subject to a $50 minimum and
a $100,000 maximum. A Special Redemption request received by
telephone after 2:00 p.m., Central time, is deemed received on the
next business day.
GENERAL REDEMPTION POLICIES. You may not cancel or revoke your
redemption order once instructions have been received and
accepted. The Trust cannot accept a redemption request that
specifies a particular date or price for redemption or any special
conditions. Please telephone the Trust if you have any questions
about requirements for a redemption before submitting your
request. If you wish to redeem shares held by a tax-sheltered
retirement plan sponsored by the Adviser, special procedures of
those plans apply to such redemptions. (See Shareholder Services-
- -Tax-Sheltered Retirement Plans.) The Trust reserves the right to
require a properly completed Application before making payment for
shares redeemed.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon that Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares and may result
in a realized capital gain or loss.
The Trust will generally mail payment for shares redeemed within
seven days after proper instructions are received. However, the
Trust normally intends to pay proceeds of a Telephone Redemption
paid by wire on the next business day. If you attempt to redeem
shares within 15 days after they have been purchased by check or
electronic transfer, the Trust may delay payment of the redemption
proceeds to you until it can verify that payment for the purchase
of those shares has been (or will be) collected. To reduce such
delays, the Trust recommends that your purchase be made by federal
funds wire through your bank.
Generally, you may not use the Exchange Privilege or any Special
Redemption Privilege to redeem shares purchased by check (other
than certified or cashiers' checks) or electronic transfer until
15 days after their date of purchase.
The Trust reserves the right to suspend, limit, modify, or
terminate, at any time without prior notice, any Privilege or its
use in any manner by any person or class.
Neither the Trust, its transfer agent, nor their respective
officers, trustees, directors, employees, or agents will be
responsible for the authenticity of instructions provided under
the Privileges, nor for any loss, liability, cost or expense for
acting upon instructions furnished thereunder if they reasonably
believe that such instructions are genuine. The Funds employ
procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special Electronic Transfer Redemption Privilege are
genuine. Use of any Special Redemption Privilege or the Special
Electronic Transfer Redemption Privilege authorizes the Funds and
their transfer agent to tape-record all instructions to redeem.
In addition, callers are asked to identify the account number and
registration, and may be required to provide other forms of
identification. Written confirmations of transactions are mailed
promptly to the registered address; a legend on the confirmation
requests that the shareholder review the transactions and inform
the Fund immediately if there is a problem. If a Fund does not
follow reasonable procedures for protecting shareholders against
loss on telephone transactions, it may be liable for any losses
due to unauthorized or fraudulent instructions.
The Trust reserves the right to redeem shares in any account and
send the proceeds to the owner if the shares in the account do not
have a value of at least $1,000. A shareholder would be notified
that his account is below the minimum and would be allowed 30 days
to increase the account before the redemption is processed.
Shares in any account you maintain with a Fund or any of the other
Stein Roe Funds may be redeemed to the extent necessary to
reimburse any Stein Roe Fund for any loss it sustains that is
caused by you (such as losses from uncollected checks and
electronic transfers for the purchase of shares, or any Stein Roe
Fund liability under the Internal Revenue Code provisions on
backup withholding).
SHAREHOLDER SERVICES
REPORTING TO SHAREHOLDERS. You will receive a confirmation
statement reflecting each of your purchases and redemptions of
shares of a Fund, as well as periodic statements detailing
distributions made by that Fund. Shares purchased by reinvestment
of dividends, by cross-reinvestment of dividends from another
Fund, or through an automatic investment plan will be confirmed to
you quarterly. In addition, the Trust will send you semiannual
and annual reports showing Fund portfolio holdings and will
provide you annually with tax information.
FUNDS-ON-CALL [REGISTERED] 24-HOUR INFORMATION SERVICE. To
access the Stein Roe Funds-on-Call [registered] automated
telephone service, just call 800-338-2550 on any touch-tone
telephone and follow the recorded instructions. Funds-on-Call
[registered] provides yields, prices, latest dividends, account
balances, last transaction, and other information 24 hours a day,
seven days a week.
FUNDS-ON-CALL [REGISTERED] AUTOMATED TELEPHONE TRANSACTIONS. If
you have established the Funds-on-Call [registered] transaction
privilege (Funds-on-Call [registered] Application will be
required), you may initiate Special Investments and Redemptions,
Telephone Exchanges, and Telephone Redemptions by Check 24 hours a
day, seven days a week by calling 800-338-2550 on a touch-tone
telephone. These transactions are subject to the terms and
conditions of the individual privileges. (See How to Purchase
Shares and How to Redeem Shares.)
STEIN ROE COUNSELOR [SERVICE MARK] PROGRAM. The Stein Roe
Counselor [SERVICE MARK] and Stein Roe Counselor Preferred
[SERVICE MARK] programs are professional investment advisory
services available to shareholders. These programs are designed
to provide investment guidance in helping investors to select a
portfolio of Stein Roe Funds. The Stein Roe Counselor Preferred
[SERVICE MARK] program, which automatically adjusts client
portfolios among the Stein Roe Funds, has a fee of up to 1% of
assets.
TAX-SHELTERED RETIREMENT PLANS. Booklets describing the following
programs and special forms necessary for establishing them are
available on request. You may use all of the Stein Roe Funds,
except those investing primarily in tax-exempt securities, in
these plans. Please read the prospectus for each fund in which
you plan to invest before making your investment.
Individual Retirement Accounts ("IRAs") for employed persons and
their non-employed spouses.
Prototype Money Purchase Pension and Profit Sharing Plans for
self-employed individuals, partnerships, and corporations.
Simplified Employee Pension Plans permitting employers to provide
retirement benefits to their employees by utilizing IRAs while
minimizing administration and reporting requirements.
SPECIAL SERVICES. The following special services are available to
shareholders. Please call 800-338-2550 or write the Trust for
additional information and forms.
Dividend Purchase Option--to diversify your Fund investments by
having distributions from one Fund account automatically invested
in another Stein Roe Fund account. Before establishing this
option, you should obtain and read carefully the prospectus of the
Stein Roe Fund into which you wish to have your distributions
invested. The account from which distributions are made must be
of sufficient size to allow each distribution to usually be at
least $25. The account into which distributions are to be
invested may be opened with an initial investment of only $1,000.
Automatic Dividend Deposit (electronic transfer)--to have income
dividends and capital gain distributions deposited directly into
your bank checking account.
Telephone Redemption by Check Privilege ($1,000 minimum) and
Telephone Exchange Privilege ($50 minimum)--established
automatically when you open your account unless you decline them
on your Application. (See How to Redeem Shares--Special
Redemption Privileges.)
Telephone Redemption by Wire Privilege--to redeem shares from your
account by phone and have the proceeds transmitted by wire to your
checking account ($1,000 minimum; $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 each Fund's shares is its net
asset value per share. The net asset value of a share of each
Fund is determined as of the close of trading on the New York
Stock Exchange ("NYSE") (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's assets
and liabilities by the number of shares outstanding. Net asset
value will not be determined on days when the NYSE is closed
unless, in the judgment of the Board of Trustees, the net asset
value of a Fund should be determined on any such day, in which
case the determination will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued at its
last sale price on that exchange on the day of valuation or, if
there are no sales that day, at the latest bid quotation. Each
over-the-counter security for which the last sale price on the day
of valuation is available from NASDAQ is valued at that price.
All other over-the-counter securities for which reliable
quotations are available are valued at the latest bid quotation.
Long-term straight-debt obligations are valued at a fair value
using a procedure determined in good faith by the Board of
Trustees. Pricing services approved by the Board provide
valuations (some of which may be "readily available market
quotations"). These valuations are reviewed by the Adviser. If
the Adviser believes that a valuation received from the service
does not represent a fair value, it values the obligation using a
method that the Board believes represents fair value. The Board
may approve the use of other pricing services and any pricing
service used may employ electronic data processing techniques,
including a so-called "matrix" system, to determine valuations.
Securities convertible into stocks are valued at the latest
valuation from a principal market maker. Other assets and securities
are valued by a method that the Board believes represents fair value.
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS. Income dividends for Growth & Income Fund and
Total Return Fund are normally declared and paid quarterly; and
income dividends for Growth Stock Fund, Special Fund, Special
Venture Fund, and Capital Opportunities Fund are normally declared
and paid annually. Each Fund intends to distribute by the end of
each calendar year at least 98% of any net capital gains realized
from the sale of securities during the twelve-month period ended
October 31 in that year. Therefore, an additional dividend may be
declared near year end. The Funds intend to distribute any
undistributed net investment income and net realized capital gains
in the following year.
All of your income dividends and capital gain distributions will
be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank checking account; (3) applied
to purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment into
the same Fund account normally occurs one business day after the
record date. Investment of distributions into another Stein Roe
Fund account occurs on the payable date. If you choose to receive
your distributions in cash, your distribution check normally will
be mailed approximately 15 days after the record date. The Trust
reserves the right to reinvest the proceeds and future
distributions in additional Fund shares if checks mailed to you
for distributions are returned as undeliverable or are not
presented for payment within six months.
INCOME TAXES. Your distributions will be taxable to you, under
income tax law, whether received in cash or reinvested in
additional shares. For federal income tax purposes, any
distribution that is paid in January but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital gain.
Distributions of net long-term capital gain will be taxable to you
as long-term capital gain regardless of the length of time you
have held your shares.
You will be advised annually as to the source of distributions for
tax purposes. If you are not subject to tax on your income, you
will not be required to pay tax on these amounts.
If you realize a loss on the sale or exchange of Fund shares held
for six months or less, your short-term loss is recharacterized as
long-term to the extent of any long-term capital gain
distributions you have received with respect to those shares.
For federal income tax purposes, each Fund is treated as a
separate taxable entity distinct from the other series of the
Trust.
This discussion of taxation is not intended to be a full
discussion of income tax laws and their effect on shareholders.
You may wish to consult your own tax advisor. The foregoing
information applies to U.S. shareholders. Foreign shareholders
should consult their tax advisors as to the tax consequences of
ownership of Fund shares.
BACKUP WITHHOLDING. The Trust may be required to withhold federal
income tax ("backup withholding") from certain payments to you,
generally redemption proceeds. Backup withholding may be required
if:
- - You fail to furnish your properly certified social security or
other tax identification number;
- - You fail to certify that your tax identification number is
correct or that you are not subject to backup withholding due to
the underreporting of certain income;
- - The Internal Revenue Service informs the Trust that your tax
identification number is incorrect.
These certifications are contained in the Application that you
should complete and return when you open an account. The Funds
must promptly pay to the IRS all amounts withheld. Therefore, it
is usually not possible for a Fund to reimburse you for amounts
withheld. You may, however, claim the amount withheld as a credit
on your federal income tax return.
INVESTMENT RETURN
The total return from an investment in a Fund is measured by the
distributions received (assuming reinvestment), plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
Comparison of a Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. Of course, past performance is not necessarily
indicative of future results.
MANAGEMENT OF THE FUNDS
TRUSTEES AND ADVISER. The Board of Trustees of the Trust has
overall management responsibility for the Trust and the Funds.
See the Statement of Additional Information for the names of and
additional information about the trustees and officers. The
Funds' Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing the
Funds, subject to the direction of the Board of Trustees. The
Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had advised and managed
mutual funds since 1949. The Adviser is a wholly owned subsidiary of
Liberty Financial Companies, Inc. ("Liberty Financial"), which in
turn is a majority owned indirect subsidiary of Liberty Mutual Insurance
Company.
PORTFOLIO MANAGERS. Robert A. Christensen and Lynn C.
Maddox are co-portfolio managers of Total Return Fund. Mr.
Christensen has been portfolio manager since 1981, and Mr.
Maddox became co-portfolio manager in 1995. Mr. Christensen
is a vice-president of the Trust and a senior vice president
of the Adviser, and has been associated with the Adviser
since 1962. A chartered investment counselor, he received
his B.A. degree from Vanderbilt University in 1955 and M.B.A.
from Harvard University in 1962. Mr. Maddox joined the
Adviser in 1971 and is a senior vice president. He received
a B.S. from the Georgia Institute of Technology in 1964 and
an M.B.A. from Indiana University in 1971. As of December
31, 1995, Messrs. Christensen and Maddox were responsible for
co-managing $872 and $227 million in mutual fund assets,
respectively. William Garrison is associate portfolio
manager of Total Return Fund. Mr. Garrison joined the
Adviser in 1989. He received his A.B. from Princeton
University in 1988.
Mr. Christensen and Daniel K. Cantor have been co-portfolio
managers of Growth & Income Fund since 1994 and 1995,
respectively. Mr. Cantor is a senior vice president of the
Adviser, which he joined in 1985. A chartered financial
analyst, he received a B.A. degree from the University of
Rochester in 1981 and an M.B.A. from the Wharton School of
the University of Pennsylvania in 1985. As of December 31,
1995, Mr. Cantor was responsible for managing $152 million in
mutual fund assets.
Growth Stock Fund is managed by Erik P. Gustafson and Harvey
B. Hirschhorn, who became co-managers of the Fund in 1994 and
1995, respectively. Mr. Gustafson is a vice president of the
Adviser, having joined it in 1992. From 1989 to 1992 he was
an attorney with Fowler, White, Burnett, Hurley, Banick &
Strickroot. He holds a B.A. from the University of Virginia
(1985) and M.B.A. and J.D. degrees (1989) from Florida State
University. Mr. Hirschhorn is executive vice president and
director of research services of the Adviser, which he joined
in 1973. He received an A.B. degree from Rutgers College in
1971 and an M.B.A. from the University of Chicago in 1973,
and is a chartered financial analyst. Messrs. Gustafson and
Hirschhorn were responsible for managing $554 million and
$512 million, respectively, in mutual fund assets at December
31, 1995.
Gloria J. Santella and Eric S. Maddix are co-portfolio
managers of Capital Opportunities Fund. Ms. Santella has
been portfolio manager since October, 1994, and had
previously been co-portfolio manager of the Fund since March,
1991. Ms. Santella is a vice-president of the Trust and a
senior vice president of the Adviser, having been associated
with the Adviser since 1979. She received her B.B.A. from
Loyola University in 1979 and M.B.A. from the University of
Chicago in 1983. As of December 31, 1995, she managed $332
million in mutual fund assets. Mr. Maddix became co-
portfolio manager of the Fund in 1996; he was previously
associate portfolio manager of the Fund. Mr. Maddix is a
vice president of the Adviser, which he joined in 1987. He
received his B.B.A. degree from Iowa State University in 1986
and his M.B.A. from the University of Chicago in 1992.
E. Bruce Dunn and Richard B. Peterson have been co-portfolio
managers of Special Fund since 1991 and of Special Venture
Fund since its inception in 1994. Each is a vice-president
of the Trust and a senior vice president of the Adviser. Mr.
Dunn has been associated with the Adviser since 1964. He
received his A.B. degree from Yale University in 1956 and his
M.B.A. from Harvard University in 1958 and is a chartered
investment counselor. Mr. Peterson, who began his investment
career at Stein Roe & Farnham in 1965 after graduating with a
B.A. from Carleton College in 1962 and the Woodrow Wilson
School at Princeton University in 1964 with a Masters in
Public Administration, rejoined the Adviser in 1991 after 15
years of equity research and portfolio management experience
with State Farm Investment Management Corporation. David P.
Brady has been associate portfolio manager of Special Fund
since 1995. A vice president of the Adviser and the Trust,
Mr. Brady joined the Adviser in 1993, and was an equity
investment analyst with State Farm Mutual Automobile
Insurance Company from1986 to 1993. As of December 31, 1995,
Messrs. Dunn and Peterson were responsible for co-managing
$1.3 billion in mutual fund assets.
FEES AND EXPENSES.
In return for its services, the Adviser receives a monthly
investment advisory fee from Special Venture Fund, computed and
accrued daily, based on an annual rate of .9% of average net
assets. The investment advisory agreements relating to the other
Funds were replaced on September 1, 1995, with an administrative
agreement and a management agreement. Under the terminated
advisory agreements, the annual fees, based on average net assets,
were: for Growth & Income Fund, .6% of the first $100 million,
.55% of the next $100 million, and .5% thereafter; for Total
Return Fund, .625% of the first $100 million and 0.5 of 1% above
that amount; for Growth Stock Fund, .75% of the first $250
million, .70% of the next $250 million, and .60% thereafter; and
for Special Fund and Capital Opportunities Fund, .75%. The new
fee schedules are as follows:
Management Administrative Total
Fund Fee Fee Fees
- --------------------- -------------- -------------- ---------------
Growth & Income Fund, .60% up to $500, .15% up to $500, .75% up to $500,
Growth Stock Fund .55% next $500, .125% next $500, .675% next $500,
. .50% thereafter .10% thereafter .60% thereafter
Total Return Fund .55% up to $500, .15% up to $500, .70% up to $500
.50% next $500, .125% next $500, .625% next $500,
.45% thereafter .10% thereafter .55% thereafter
Special Fund; .75% up to $500, .15% up to $500, .90% up to $500,
Capital Opportunities .70% next $500, .125% next $500, .825% next $500,
Fund .65% next $500, .10% next $500, .75% next $500,
.60% thereafter .075% thereafter .675% thereafter
The fees for Special Venture Fund, Special Fund, and Capital
Opportunities Fund are higher than those paid by most mutual
funds. For the year ended September 30, 1995, the fees for Growth
& Income Fund, Growth Stock Fund, Total Return Fund, Special Fund,
and Capital Opportunities Fund amounted to .60%, .74%, .57%, .76%,
and .75% of average net assets, respectively; and the fee for
Special Venture Fund, after the Fund's expense limitation
described under Fee Table, amounted to .48% of average net assets.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Funds,
including computation of each Fund's net asset value and
calculation of its net income and capital gains and losses on
disposition of Fund assets.
PORTFOLIO TRANSACTIONS. The Adviser places the orders for the
purchase and sale of portfolio securities and options and futures
transactions for each Fund. In doing so, the Adviser seeks to
obtain the best combination of price and execution, which involves
a number of judgmental factors.
TRANSFER AGENT. SteinRoe Services Inc., One South Wacker Drive,
Chicago, Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of shares,
disbursement of dividends, and maintenance of shareholder
accounting records.
DISTRIBUTOR. The shares of each Fund are offered for sale through
Liberty Securities Corporation ("Distributor") without any sales
commissions or charges to the Funds or to their shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN. State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
the Funds. Foreign securities are maintained in the custody of
foreign banks and trust companies that are members of the Bank's
Global Custody Network or foreign depositories used by such
members. (See Custodian in the Statement of Additional
Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular Fund shall look only to the assets of the Trust or of
the respective Fund for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the
Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on account
of unsatisfied liability of another Fund of the Trust is also
believed to be remote, because it would be limited to claims to
which the disclaimer did not apply and to circumstances in which
the other Fund was unable to meet its obligations.
<PAGE>
CERTIFICATE OF AUTHORIZATION (FOR USE BY CORPORATIONS AND
ASSOCIATIONS ONLY)
A corporation or association must complete this Certificate and
submit it with the Fund Application, each written redemption,
transfer or exchange request, and each request to terminate or
change any of the Privileges or special service elections.
If the entity submitting the Certificate is an association, the
word "association" shall be deemed to appear each place the word
"corporation" appears. If the officer signing this Certificate is
named as an authorized person, another officer must countersign
the Certificate. If there is no other officer, the person signing
the Certificate must have his signature guaranteed. If you are
not sure whether you are required to complete this Certificate,
call the office of the Stein Roe Funds, 800-338-2550 toll-free.
The undersigned hereby certifies that he is the duly elected
Secretary of ____________ _____________________________
(Name of Corporation/Association)
(the "Corporation") and that the following individual(s):
Authorized Persons
- -------------------------- ----------------------------
Name Title
- -------------------------- ----------------------------
Name Title
- -------------------------- ----------------------------
Name Title
is (are) duly authorized by resolution or otherwise to act on
behalf of the Corporation in connection with the Corporation's
ownership of shares of any mutual fund managed by Stein Roe &
Farnham Incorporated (individually, the "Fund" and collectively,
the "Funds") including, without limitation, furnishing any such
Fund and its transfer agent with instructions to transfer or
redeem shares of that Fund payable to any person or in any manner,
or to redeem shares of that Fund and apply the proceeds of such
redemption to purchase shares of another Fund (an "exchange"), and
to execute any necessary forms in connection therewith.
Unless a lesser number is specified, all of the Authorized Persons
must sign written instructions. Number of signatures required:
________.
If the undersigned is the only person authorized to act on behalf
of the Corporation, the undersigned certifies that he is the sole
shareholder, director, and officer of the Corporation and that the
Corporation's Charter and Bylaws provide that he is the only
person authorized to so act.
Unless expressly declined on the Application (or other form
acceptable to the Funds), the undersigned further certifies that
the Corporation has authorized by resolution or otherwise the
establishment of the Telephone Exchange and Telephone Redemption
by Check Privileges for the Corporation's account with any Fund
offering any such Privilege. If elected on the Application (or
other form acceptable to the Funds), the undersigned also
certifies that the Corporation has similarly authorized
establishment of the Electronic Transfer, Telephone Redemption by
Wire, and Check-Writing Privileges for the Corporation's account
with any Fund offering said Privileges. The undersigned has
further authorized each Fund and its transfer agent to honor any
written, telephonic, or telegraphic instructions furnished
pursuant to any such Privilege by any person believed by the Fund
or its transfer agent or their agents, officers, directors,
trustees, or employees to be authorized to act on behalf of the
Corporation and agrees that neither the Fund nor its transfer
agent, their agents, officers, directors, trustees, or employees
will be liable for any loss, liability, cost, or expense for
acting upon any such instructions.
These authorizations shall continue in effect until five business
days after the Fund and its transfer agent receive written notice
from the Corporation of any change.
IN WITNESS WHEREOF, I have hereunto subscribed my name as
Secretary and affixed the seal of this Corporation this ____ day
of _________________, 19___.
-------------------------
Secretary
-------------------------
Signature Guarantee*
*Only required if the person signing
the Certificate is the only person
named as "Authorized Person."
CORPORATE
SEAL
HERE
<PAGE>
[STEIN ROE FUNDS LOGO]
The Stein Roe Funds
Stein Roe Government Reserves Fund
Stein Roe Cash Reserves Fund
Stein Roe Limited Maturity Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Total Return Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
Stein Roe Special Venture Fund
P.O. Box 804058
Chicago, Illinois 60680
800-338-2550
In Chicago, visit our Fund Center
at One South Wacker Drive
Liberty Securities Corporation, Distributor
EQ296
<PAGE>
INTERNATIONAL FUND
The Fund seeks long-term growth of capital by investing in a
diversified portfolio of foreign securities.
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated February 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and most recent financial
statements may be obtained without charge by writing to the
Secretary at the address shown on the back cover or by calling
800-338-2550.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February 1, 1996.
<PAGE>
TABLE OF CONTENTS
Page
Summary..................................2
Fee Table ..............................4
Financial Highlights.....................5
The Fund ................................6
How the Fund Invests ....................6
Portfolio Investments and Strategies.....7
Restrictions on the Fund's Investments..11
Risks and Investment Considerations.....12
How to Purchase Shares .................14
By Check ...........................15
By Wire ............................15
By Electronic Transfer .............15
By Exchange ........................16
Purchase Price and Effective Date ..16
Conditions of Purchase .............16
Purchases Through Third Parties.....16
How to Redeem Shares ...................17
By Written Request .................17
By Exchange ........................17
Special Redemption Privileges ......18
General Redemption Policies ........19
Shareholder Services ...................21
Net Asset Value ........................23
Distributions and Income Taxes .........24
Investment Return ......................26
Management of the Fund .................26
Organization and Description of Shares..28
Certificate of Authorization............29
SUMMARY
The Stein Roe International Fund (the "Fund") is a series of the
Stein Roe Investment Trust, an open-end diversified management
investment company. The Fund is a "no-load" fund. There are no
sales or redemption charges. (See The Fund and Organization and
Description of Shares.) This prospectus is not a solicitation in any
jurisdiction in which the Fund is not registered for sale.
INVESTMENT OBJECTIVE AND POLICIES. The Fund seeks long-term
growth of capital by investing primarily in a diversified
portfolio of foreign securities. The Fund invests primarily in
equity securities. Under normal market conditions, the Fund will
invest at least 65% of its total assets (taken at market value) in
foreign securities of at least three countries outside the United
States. The Fund diversifies its investments among several
countries and does not concentrate investments in any particular
industry.
There can be no guarantee that the Fund will achieve its
investment objective. Please see How the Fund Invests and
Portfolio Investments and Strategies for further information.
INVESTMENT RISKS. The Fund is intended for long-term investors
who can accept the risks entailed in investing in foreign
securities.
Since the Fund invests primarily in foreign securities, investors
should understand and consider carefully the risks involved in
foreign investing. Investing in foreign securities involves
certain considerations involving both risks and opportunities not
typically associated with investing in U.S. securities. Such
risks include fluctuations in exchange rates on foreign
currencies, less public information, less government supervision,
less liquidity, and greater price volatility.
Please see How the Fund Invests, Portfolio Investments and
Strategies, and Risks and Investment Considerations for further
information.
PURCHASES. The minimum initial investment for the Fund is $2,500
and additional investments must be at least $100 (only $50 for
purchases by electronic transfer). Shares may be purchased by
check, by bank wire, by electronic transfer, or by exchange from
another Stein Roe Fund. For more detailed information, see How to
Purchase Shares.
REDEMPTIONS. For information on redeeming Fund shares, including
the special redemption privileges, see How to Redeem Shares.
NET ASSET VALUE. The purchase and redemption price of the Fund's
shares is its net asset value per share. The net asset value is
determined as of the close of trading on the New York Stock
Exchange. (For more detailed information, see Net Asset Value.)
DISTRIBUTIONS. Dividends for the Fund are normally declared and
paid annually. Distributions will be reinvested into your Fund
account unless you elect to have them paid in cash, deposited by
electronic transfer into your bank checking account, or invested
in another Stein Roe Fund account. (See Distributions and Income
Taxes and Shareholder Services.)
ADVISER AND FEES. Stein Roe & Farnham Incorporated (the
"Adviser") provides management and investment advisory
services to the Fund. For a description of the Adviser and the
advisory fees paid by the Fund, see Management of the Fund.
If you have any additional questions about the Fund, please feel
free to discuss them with an account representative by calling
800-338-2550.
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None*
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (as a percentage
of average net assets)
Management Fees 1.00%
12b-1 Fees None
Other Expenses 0.65%
-----
Total Fund Operating Expenses 1.65%
-----
-----
- -------------
* 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
------ ------- ------- ---------
$17 $52 $90 $195
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based on
expenses incurred in the last fiscal year, except that it has been
adjusted to reflect changes in the Fund's transfer agency services
and fees. From time to time, the Adviser may voluntarily absorb
certain expenses of the Fund. The Adviser has agreed to
voluntarily waive its management fee and absorb the expenses of
the Fund to the extent that such fees and expenses on an
annualized basis exceed 1.65% of its annual average net assets
from May 1, 1995 through January 31, 1997, subject to earlier
termination by the Adviser on 30 days' notice. Any such
absorption will temporarily lower the Fund's overall expense ratio
and increase its overall return to investors. The Fund's expenses
were not limited during the period since they did not exceed the
limitation. (Also see Management of the Fund--Fees and Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts listed for the Fund under Annual Fund Operating
Expenses remain the same in each of the periods and that all
income dividends and capital gain distributions are reinvested in
additional Fund shares.
The figures in the Example are not necessarily indicative of past
or future expenses, and actual expenses may be greater or less
than those shown. Although information such as that shown in the
Example and Fee Table is useful in reviewing the Fund's expenses
and in providing a basis for comparison with other mutual funds,
it should not be used for comparison with other investments using
different assumptions or time periods.
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund on
a per-share basis for the period shown and has been audited by
Arthur Andersen LLP, independent public accountants. The
auditors' report was unqualified. The table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust without charge upon request, contains additional performance
information.
Period Ended Year Ended
Sept. 30, Sept. 30,
1994 (a) 1995
------------ ---------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.61
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.12
Net realized and unrealized gains (losses)
on investments and foreign currency
transactions 0.58 (0.26)
------ ------
Total from investment operations 0.61 (0.14)
------ ------
DISTRIBUTIONS
Net investment income -- (0.05)
Net realized capital gains -- (0.17)
------ ------
Total distributions -- (0.22)
------ ------
NET ASSET VALUE, END OF PERIOD $10.61 $10.25
------ ------
------ ------
Ratio of net expenses to average net assets *1.61% 1.59%
Ratio of net investment income to average
net assets *0.61% 1.41%
Portfolio turnover rate 48% 59%
Total return 6.10% (1.28%)
Net assets, end of period (000 omitted) $74,817 $83,020
- -----------
*Annualized.
(a) From commencement of operations on March 1, 1994.
THE FUND
The STEIN ROE INTERNATIONAL FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own shares to
investors and use the money they receive to invest in a portfolio
of securities such as common stocks. A mutual fund allows you to
pool your money with that of other investors in order to obtain
professional investment management. Mutual funds generally make
it possible for you to obtain greater diversification of your
investments and simplify your recordkeeping. The Fund does not
impose commissions or charges when shares are purchased or
redeemed.
The Fund is a series of the Stein Roe Investment Trust (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages and
provides investment advisory services for several other no-load
mutual funds with different investment objectives, including
equity funds, taxable and tax-exempt bond funds, and money market
funds. To obtain prospectuses and other information on any of
those mutual funds, please call 800-338-2550.
HOW THE FUND INVESTS
The Fund invests as described below and may also employ investment
techniques described under Portfolio Investments and Strategies
in this prospectus.
The Fund's investment objective is to seek long-term growth of
capital by investing primarily in a diversified portfolio of
foreign securities. Current income is not a primary factor in the
selection of portfolio securities. The Fund invests primarily in
common stocks and other equity-type securities (such as preferred
stocks, securities convertible or exchangeable for common stocks,
and warrants or rights to purchase common stocks). The Fund may
invest in securities of smaller emerging companies as well as
securities of well-seasoned companies of any size. Smaller
companies, however, involve higher risks in that they typically
have limited product lines, markets, and financial or management
resources. In addition, the securities of smaller companies may
trade less frequently and have greater price fluctuation than
larger companies, particularly those operating in countries with
developing markets.
The Fund diversifies its investments among several countries and
does not concentrate investments in any particular industry. In
pursuing its objective, the Fund varies the geographic allocation
and types of securities in which it invests based on the Adviser's
continuing evaluation of economic, market, and political trends
throughout the world. While the Fund has not established limits
on geographic asset distribution, it ordinarily invests in the
securities markets of at least three countries outside the United
States, including but not limited to Western European countries
(such as Belgium, France, Germany, Ireland, Italy, The
Netherlands, the countries of Scandinavia, Spain, Switzerland, and
the United Kingdom); countries in the Pacific Basin (such as
Australia, Hong Kong, Japan, Malaysia, the Philippines, Singapore,
and Thailand); and countries in the Americas (such as Argentina,
Brazil, Chile, and Mexico).
Under normal market conditions, the Fund will invest at least 65%
of its total assets (taken at market value) in foreign securities.
If, however, investments in foreign securities appear to be
relatively unattractive in the judgment of the Adviser because of
current or anticipated adverse political or economic conditions,
the Fund may hold cash or invest any portion of its assets in
securities of the U.S. Government and equity and debt securities
of U.S. companies, as a temporary defensive strategy. To meet
liquidity needs, the Fund may also hold cash in domestic and
foreign currencies and invest in domestic and foreign money market
securities (including repurchase agreements and foreign money
market positions).
In the past the U.S. Government has from time to time imposed
restrictions, through taxation and other methods, on foreign
investments by U.S. investors such as the Fund. If such
restrictions should be reinstated, it might become necessary for
the Fund to invest all or substantially all of its assets in U.S.
securities. In such an event, the Fund would review its
investment objective and policies to determine whether changes are
appropriate.
The Fund may purchase foreign securities in the form of American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs),
or other securities representing underlying shares of foreign
issuers. The Fund may invest in sponsored or unsponsored ADRs.
(For a description of ADRs and EDRs, see the Statement of
Additional Information.)
PORTFOLIO INVESTMENTS AND STRATEGIES
DERIVATIVES. Consistent with its objective, the Fund may invest
in a broad array of financial instruments and securities,
including conventional exchange-traded and non-exchange-traded
options, futures contracts, futures options, forward contracts,
securities collateralized by underlying pools of mortgages or
other receivables, floating rate instruments, and other
instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument or
security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, an interest rate, or a
currency. The Fund does not expect to invest more than 5% of its
net assets in any type of Derivative except for options, futures
contracts, futures options, and forward contracts.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in currency exchange rates, security prices, interest
rates and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as well
regulated and may be less marketable than exchange-traded
Derivatives. For additional information on Derivatives, please
refer to the Statement of Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, the Fund may: (1)
purchase and write both call options and put options on
securities, indexes and foreign currencies; (2) enter into
interest rate, index and foreign currency futures contracts; (3)
write options on such futures contracts; and (4) purchase other
types of forward or investment contracts linked to individual
securities, indexes, or other benchmarks. The Fund may write a
call or put option only if the option is covered. As the writer
of a covered call option, the Fund foregoes, during the option's
life, the opportunity to profit from increases in market value of
the security covering the call option above the sum of the premium
and the exercise price of the call. There can be no assurance
that a liquid market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require low
margin deposits, the use of futures contracts involves a high
degree of leverage and may result in losses in excess of the
amount of the margin deposit.
DEBT SECURITIES. In pursuing its investment objective, the Fund
may invest up to 35% of its total assets in debt securities.
Investments in debt securities are limited to those that are rated
within the four highest grades (generally referred to as
"investment grade") assigned by a nationally recognized
statistical rating organization. Investments in unrated debt
securities are limited to those deemed to be of comparable quality
by the Adviser. Securities in the fourth highest grade may
possess speculative characteristics. If the rating of a security
held by the Fund is lost or reduced below investment grade, the
Fund is not required to dispose of the security--the Adviser will,
however, consider that fact in determining whether the Fund should
continue to hold the security. The risks inherent in debt securities
depend primarily on the term and quality of the obligations in the
Fund's portfolio, as well as on market conditions. A decline in the
prevailing levels of interest rates generally increases the value of
debt securities. Conversely, an increase in rates usually reduces the
value of debt securities.
SETTLEMENT TRANSACTIONS. When the Fund enters into a contract
for the purchase or sale of a foreign portfolio security, it
usually is required to settle the purchase transaction in the
relevant foreign currency or receive the proceeds of the sale in
that currency. In either event, the Fund is obliged to acquire or
dispose of an appropriate amount of foreign currency by selling or
buying an equivalent amount of U.S. dollars. At or near the time
of the purchase or sale of the foreign portfolio security, the
Fund may wish to lock in the U.S. dollar value of a transaction at
the exchange rate or rates then prevailing between the U.S. dollar
and the currency in which the security is denominated. Known as
"transaction hedging," this may be accomplished by purchasing or
selling such foreign securities on a "spot," or cash, basis.
Transaction hedging also may be accomplished on a forward basis,
whereby the Fund purchases or sells a specific amount of foreign
currency, at a price set at the time of the contract, for receipt
or delivery at either a specified date or at any time within a
specified time period. In so doing, the Fund will attempt to
insulate itself against possible losses and gains resulting from a
change in the relationship between the U.S. dollar and the foreign
currency during the period between the date the security is
purchased or sold and the date on which payment is made or
received. Similar transactions may be entered into by using other
currencies if the Fund seeks to move investments denominated in
one currency to investments denominated in another.
CURRENCY HEDGING. Most of the Fund's portfolio will be invested
in foreign securities. As a result, in addition to the risk of
change in the market value of portfolio securities, the value of
the portfolio in U.S. dollars is subject to fluctuations in the
exchange rate between the foreign currencies and the U.S. dollar.
When, in the opinion of the Adviser, it is desirable to limit or
reduce exposure in a foreign currency to moderate potential
changes in the U.S. dollar value of the portfolio, the Fund may
enter into a forward currency exchange contract to sell or buy
such foreign currency (or another foreign currency that acts as a
proxy for that currency)--through the contract, the U.S. dollar
value of certain underlying foreign portfolio securities can be
approximately matched by an equivalent U.S. dollar liability.
This technique is known as "currency hedging." By locking in a
rate of exchange, currency hedging is intended to moderate or
reduce the risk of change in the U.S. dollar value of the Fund's
portfolio only during the period of the forward contract. Forward
contracts usually are entered into with banks and broker-dealers;
are not exchange traded; and while they are usually less than one
year, may be renewed. A default on the contract would deprive the
Fund of unrealized profits or force the Fund to cover its
commitments for purchase or sale of currency, if any, at the
current market price.
Neither type of foreign currency transaction will eliminate
fluctuations in the prices of the Fund's portfolio securities or
prevent loss if the price of such securities should decline. In
addition, such forward currency exchange contracts will diminish
the benefit of the appreciation in the U.S. dollar value of that
foreign currency. (For further information on forward foreign currency
exchange transactions, see the Statement of Additional Information.)
PORTFOLIO TURNOVER. Although the Fund does not purchase
securities with a view to rapid turnover, there are no limitations
on the length of time portfolio securities must be held.
Accordingly, the portfolio turnover rate may vary significantly
from year to year, but is not expected to exceed 100% under normal
market conditions. Flexibility of investment and emphasis on
capital appreciation may involve greater portfolio turnover than
that of mutual funds that have the objectives of income or
maintenance of a balanced investment position. A high rate of
portfolio turnover may result in increased transaction expenses
and the realization of capital gains and losses. (See
Distributions and Income Taxes.) The Fund is not intended to be
an income-producing investment.
OTHER TECHNIQUES. The Fund may invest in securities purchased on
a when-issued or delayed-delivery basis. Although the payment
terms of these securities are established at the time the Fund
enters into the commitment, the securities may be delivered and
paid for a month or more after the date of purchase, when their
value may have changed. The Fund will make such commitments only
with the intention of actually acquiring the securities, but may
sell the securities before settlement date if it is deemed
advisable for investment reasons. The Fund may utilize spot and
forward foreign exchange transactions to reduce the risk caused by
exchange rate fluctuations between one currency and another when
securities are purchased or sold on a when-issued basis. It may
also invest in synthetic money market instruments. The Fund may
invest in repurchase agreements, provided that it will not invest
more than 15% of its net assets in repurchase agreements maturing
in more than seven days and any other illiquid securities. (See
the Statement of Additional Information.)
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S. Government or repurchase agreements for such securities,
and would not prevent the Fund from investing all of its assets in
shares of another investment company having the identical
investment objective.
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. It may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
The Fund will not borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The Fund may invest in repurchase agreements, /1/ provided that
the Fund will not invest more than 15% of its net assets in
repurchase agreements maturing in more than seven days, and any
other illiquid securities.
- -----------------
/1/ A repurchase agreement involves a sale of securities to the
Fund in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, the Fund could experience both losses
and delays in liquidating its collateral.
- -----------------
The policies summarized in the first three paragraphs of this
section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" of the Fund as defined in the
Investment Company Act of 1940. The Fund's investment objective
is non-fundamental and, as such, may be changed by the Board of
Trustees without shareholder approval. Any such change may result
in the Fund having an investment objective different from the
objective the shareholder considered appropriate at the time of
investment in the Fund. All of the investment restrictions are
set forth in the Statement of Additional Information.
Nothing in the investment restrictions outlined here shall be
deemed to prohibit the Fund from purchasing the securities of any
issuer pursuant to the exercise of subscription rights distributed
to the Fund by the issuer. No such purchase may be made if, as a
result, the Fund will no longer be a diversified investment
company as defined in the Investment Company Act of 1940 or if the
Fund will fail to meet the diversification requirements of the
Internal Revenue Code.
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. THE FUND IS INTENDED
FOR LONG-TERM INVESTORS WHO CAN ACCEPT THE RISKS ENTAILED IN
INVESTING IN FOREIGN SECURITIES. Of course, there can be no
guarantee that the Fund will achieve its objective.
Although the Fund does not attempt to reduce or limit risk through
wide industry diversification of investment, the Fund usually
allocates its investments among a number of different industries
rather than concentrating in a particular industry or group of
industries. The Fund will not, however, invest more than 25% of
its total assets (at the time of investment) in the securities of
companies in any one industry.
FOREIGN INVESTING. The Fund provides long-term investors with an
opportunity to invest a portion of their assets in a diversified
portfolio of foreign securities. Non-U.S. investments may be
attractive because they increase diversification, as compared to a
portfolio comprised solely of U.S. investments. In addition, many
foreign economies have, from time to time, grown faster than the
U.S. economy, and the returns on investments in these countries
have exceeded those of similar U.S. investments--there can be no
assurance, however, that these conditions will continue.
International diversification allows the Fund and an investor to
achieve greater diversification and to take advantage of changes
in foreign economies and market conditions.
Investors should understand and consider carefully the greater
risks involved in foreign investing. Investing in foreign
securities--positions which are generally denominated in
foreign currencies--and utilization of forward foreign currency
exchange contracts involve certain considerations comprising both
risks and opportunities not typically associated with investing in
U.S. securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulations or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and issuers of securities; lack of uniform accounting, auditing,
and financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment
in the securities of companies in developing as well as developed
countries; and sometimes less advantageous legal, operational, and
financial protections applicable to foreign sub-custodial
arrangements. These risks are greater for emerging market
countries.
Although the Fund will try to invest in companies and governments
of countries having stable political environments, there is the
possibility of expropriation or confiscatory taxation, seizure or
nationalization of foreign bank deposits or other assets,
establishment of exchange controls, the adoption of foreign
government restrictions, and other adverse political, social or
diplomatic developments that could affect investment in these
nations.
The price of securities of small, rapidly growing companies is
expected to fluctuate more widely than the general market due to
the difficulty in assessing financial prospects of companies
developing new products or operating in countries with developing
markets.
The strategy for selecting investments will be based on various
criteria. A company proposed for investment should have a good
market position in a fast-growing segment of the economy, strong
management, preferably a leading position in its business,
prospects of superior financial returns, ability to self-finance,
and securities available for purchase at a reasonable market
valuation. Because of the foreign domicile of such companies,
however, information on some of the above factors may be
difficult, if not impossible, to obtain.
To the extent portfolio securities are issued by foreign issuers
or denominated in foreign currencies, the Fund's investment
performance is affected by the strength or weakness of the U.S.
dollar against these currencies. If the dollar falls relative to
the Japanese yen, for example, the dollar value of a yen-
denominated stock held in the portfolio will rise even though the
price of the stock remains unchanged. Conversely, if the dollar
rises in value relative to the yen, the dollar value of the yen-
denominated stock will fall. (See the discussion of portfolio and
transaction hedging under Portfolio Investments and Strategies.)
MASTER FUND/FEEDER FUND OPTION. Rather than invest in securities
directly, the Fund may in the future seek to achieve its
investment objective by pooling its assets with assets of other
mutual funds managed by the Adviser for investment in another
investment company having the same investment objective and
substantially the same investment policies and restrictions as the
Fund. The purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected that
any such investment company would be managed by the Adviser in
substantially the same manner as the Fund. Shareholders of the
Fund will be given at least 30 days' prior notice of any such
investment, although they will not be entitled to vote on the
action. Such investment would be made only if the Trustees
determine it to be in the best interests of the Fund and its
shareholders.
HOW TO PURCHASE SHARES
You may purchase Fund shares by check, by wire, by electronic
transfer, or by exchange from your account with another Stein Roe
Fund. The initial purchase minimum per Fund account is $2,500;
the minimum for Uniform Gifts/Transfers to Minors Act ("UGMA")
accounts is $1,000; the minimum for accounts established under an
automatic investment plan (i.e., Regular Investments, Dividend
Purchase Option, or the Automatic Exchange Plan) is $1,000 for
regular accounts and $500 for UGMA accounts; and the minimum per
account for Stein Roe IRAs is $500. The initial purchase minimum
is waived for shareholders who participate in the Stein Roe
Counselor [SERVICE MARK] and Stein Roe Counselor Preferred
[SERVICE MARK] programs and for clients of the Adviser.
Subsequent purchases must be at least $100, or at least $50 if you
purchase by electronic transfer. If you wish to purchase shares
to be held by a tax-sheltered retirement plan sponsored by the
Adviser, you must obtain special forms for those plans. (See
Shareholder Services.)
BY CHECK. To make an initial purchase of shares of the Fund by
check, please complete and sign the Application and mail it,
together with a check made payable to Stein Roe Funds, to P.O. Box
804058, Chicago, Illinois 60680.
You may make subsequent investments by submitting a check along
with either the stub from your Fund account confirmation statement
or a note indicating the amount of the purchase, your account
number, and the name in which your account is registered. Each
individual check submitted for purchase must be at least $100, and
the Trust generally will not accept cash, drafts, third party
checks, or checks drawn on banks outside the United States.
Should an order to purchase shares of the Fund be cancelled
because your check does not clear, you will be responsible for any
resulting loss incurred by the Fund.
BY WIRE. You also may pay for shares by instructing your bank to
wire federal funds (monies of member banks within the Federal
Reserve System) to the Fund's custodian bank. Your bank may
charge you a fee for sending the wire. If you are opening a new
account by wire transfer, you must first telephone the Trust to
request an account number and furnish your social security or
other tax identification number. Neither the Fund nor the Trust
will be responsible for the consequences of delays, including
delays in the banking or Federal Reserve wire systems. Your bank
must include the full name(s) in which your account is registered
and your Fund account number, and should address its wire as
follows:
State Street Bank & Trust Company
ABA Routing No. 011000028
Boston, Massachusetts
Attention: Custody
Fund No. 7123; Stein Roe International Fund
Account of (exact name(s) in registration)
Shareholder Account No. _________
BY ELECTRONIC TRANSFER. You may also make subsequent investments
by an electronic transfer of funds from your bank checking
account. Electronic transfer allows you to make purchases at your
request ("Special Investments") by calling 800-338-2550 or at pre-
scheduled intervals ("Regular Investments"). (See Shareholder
Services.) Electronic transfer purchases are subject to a $50
minimum and a $100,000 maximum. You may not open a new account
through electronic transfer. Should an order to purchase shares
of the Fund be cancelled because your electronic transfer does not
clear, you will be responsible for any resulting loss incurred by
the Fund.
BY EXCHANGE. You may purchase shares by exchange of shares from
another Stein Roe Fund account either by phone (if the Telephone
Exchange Privilege has been established on the account from which
the exchange is being made), by mail, in person, or automatically
at regular intervals (if you have elected Automatic Exchanges).
Restrictions apply; please review the information on the Exchange
Privilege under How to Redeem Shares--By Exchange.
PURCHASE PRICE AND EFFECTIVE DATE. Each purchase of the Fund's
shares is made at the Fund's net asset value (see Net Asset Value)
next determined after receipt of payment as follows:
A purchase by check or wire transfer is made at the net asset
value next determined after the Fund receives the check or wire
transfer of funds in payment of the purchase.
A purchase by electronic transfer is made at the net asset value
next determined after the Fund receives the electronic transfer
from your bank. A Special Electronic Transfer Investment order
received by telephone on a business day before 2:00 p.m., Central
time, is effective on the next business day.
CONDITIONS OF PURCHASE. Each purchase order for the Fund must be
accepted by an authorized officer of the Trust in Chicago and is
not binding until accepted and entered on the books of the Fund.
Once your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interests of the Trust or of the
Fund's shareholders. The Trust also reserves the right to waive
or lower its investment minimums for any reason.
PURCHASES THROUGH THIRD PARTIES.
You may purchase (or redeem) shares through investment dealers,
banks, or other financial institutions. These institutions may
charge for their services or place limitations on the extent to
which you may use the services offered by the Trust. There are no
charges or limitations imposed by the Trust, other than those
described in this prospectus, if shares are purchased (or
redeemed) directly from the Trust.
Some financial institutions that maintain nominee accounts with
the Fund for their clients for whom they hold Fund shares charge
an annual fee of up to 0.25% of the average net assets held in
such accounts for accounting, servicing, and distribution services
they provide with respect to the underlying Fund shares. Such
fees are paid by the Adviser.
HOW TO REDEEM SHARES
BY WRITTEN REQUEST. You may redeem all or a portion of your
shares of the Fund by submitting a written request in "good order"
to the Trust at P.O. Box 804058, Chicago, Illinois 60680. A
redemption request will be considered to have been received in
good order if the following conditions are satisfied:
(1) The request must be in writing, and must indicate the number
of shares or dollar amount to be redeemed and identify the
shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The signatures on the written redemption request must be
guaranteed (a signature guarantee is not a notarization, but is a
widely accepted way to protect you and the Fund by verifying your
signature);
(4) Corporations and associations must submit with each request a
completed Certificate of Authorization included in this prospectus
(or a form of resolution acceptable to the Trust); and
(5) The request must include other supporting legal documents as
required from organizations, executors, administrators, trustees,
or others acting on accounts not registered in their names.
BY EXCHANGE. You may redeem all or any portion of your Fund
shares and use the proceeds to purchase shares of any other Stein
Roe Fund offered for sale in your state if your signed, properly
completed Application is on file. AN EXCHANGE TRANSACTION IS A
SALE AND PURCHASE OF SHARES FOR FEDERAL INCOME TAX PURPOSES AND
MAY RESULT IN CAPITAL GAIN OR LOSS. Before exercising the
Exchange Privilege, you should obtain the prospectus for the Stein
Roe Fund in which you wish to invest and read it carefully. The
registration of the account to which you are making an exchange
must be exactly the same as that of the Fund account from which
the exchange is made and the amount you exchange must meet any
applicable minimum investment of the Stein Roe Fund being
purchased. An exchange may be made by following the redemption
procedure described above under By Written Request and indicating
the Stein Roe Fund to be purchased--a signature guarantee normally
is not required. (See also the discussion below of the Telephone
Exchange Privilege and Automatic Exchanges.)
SPECIAL REDEMPTION PRIVILEGES. The Telephone Exchange Privilege
and the Telephone Redemption by Check Privilege will be
established automatically for you when you open your account
unless you decline these Privileges on your Application. Other
Privileges must be specifically elected. If you do not want the
Telephone Exchange and Redemption Privileges, check the box(es)
under the section "Telephone Redemption Options" when completing
your Application. In addition, a signature guarantee may be
required to establish a Privilege after you open your account. If
you establish both the Telephone Redemption by Wire Privilege and the
Electronic Transfer Privilege, the bank account that you designate
for both Privileges must be the same.
The Telephone Redemption by Check Privilege, Telephone Redemption
by Wire Privilege, and Special Electronic Transfer Redemptions are
not available to redeem shares held by a tax-sheltered retirement
plan sponsored by the Adviser. (See also General Redemption
Policies.)
Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account
by calling 800-338-2550 or by sending a telegram; new accounts
opened by exchange are subject to the initial purchase minimum for
the Fund being purchased. GENERALLY, YOU WILL BE LIMITED TO FOUR
TELEPHONE EXCHANGE ROUND-TRIPS PER YEAR AND THE FUND MAY REFUSE
REQUESTS FOR TELEPHONE EXCHANGES IN EXCESS OF FOUR ROUND-TRIPS (A
ROUND-TRIP BEING THE EXCHANGE OUT OF THE FUND INTO ANOTHER STEIN
ROE FUND, AND THEN BACK TO THE FUND). In addition, the Trust's
general redemption policies apply to redemptions of shares by
Telephone Exchange. (See General Redemption Policies.)
The Trust reserves the right to suspend or terminate, at any time
and without prior notice, the use of the Telephone Exchange
Privilege by any person or class of persons. The Trust believes
that use of the Telephone Exchange Privilege by investors
utilizing market-timing strategies adversely affects the Fund.
THEREFORE, THE TRUST GENERALLY WILL NOT HONOR REQUESTS FOR
TELEPHONE EXCHANGES BY SHAREHOLDERS IDENTIFIED BY THE TRUST AS
"MARKET-TIMERS." Moreover, the Trust reserves the right to
suspend, limit, modify, or terminate, at any time and without
prior notice, the Telephone Exchange Privilege in its entirety.
Because such a step would be taken only if the Board of Trustees
believes it would be in the best interests of the Fund, the Trust
expects that it would provide shareholders with prior written
notice of any such action unless the resulting delay in the
suspension, limitation, modification, or termination of the
Telephone Exchange Privilege would adversely affect the Fund. IF
THE TRUST WERE TO SUSPEND, LIMIT, MODIFY, OR TERMINATE THE
TELEPHONE EXCHANGE PRIVILEGE, A SHAREHOLDER EXPECTING TO MAKE A
TELEPHONE EXCHANGE MIGHT FIND THAT AN EXCHANGE COULD NOT BE
PROCESSED OR THAT THERE MIGHT BE A DELAY IN THE IMPLEMENTATION OF
THE EXCHANGE. (See How to Redeem Shares--By Exchange.) During
periods of volatile economic and market conditions, you may have
difficulty placing your exchange by telephone.
Automatic Exchanges. You may use the Automatic Exchange Privilege
to automatically redeem a fixed amount from your Fund account for
investment in another Stein Roe Fund account on a regular basis.
Telephone Redemption by Check Privilege. You may use the
Telephone Redemption by Check Privilege to redeem an amount of
$1,000 or more from your account by calling 800-338-2550. The
proceeds will be sent by check to your registered address. The
Telephone Redemption by Check Privilege is not available to redeem
shares held by a tax-sheltered retirement plan sponsored by the
Adviser.
Telephone Redemption by Wire Privilege. You may use this Privilege
to redeem 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.
Electronic Transfer Privilege. You may redeem shares by calling
800-338-2550 and requesting an electronic transfer ("Special
Redemption") of the proceeds to a checking account previously
designated by you at a bank that is a member of the Automated
Clearing House. You may also request electronic transfers at
scheduled intervals ("Automatic Redemptions"--see Shareholder
Services). Electronic transfers are subject to a $50 minimum and
a $100,000 maximum. A Special Redemption request received by
telephone after 2:00 p.m., Central time, is deemed received on the
next business day.
GENERAL REDEMPTION POLICIES. You may not cancel or revoke your
redemption order once instructions have been received and
accepted. The Trust cannot accept a redemption request that
specifies a particular date or price for redemption or any special
conditions. Please telephone the Trust if you have any questions
about requirements for a redemption before submitting your
request. If you wish to redeem shares held by a tax-sheltered
retirement plan sponsored by the Adviser, special procedures of
those plans apply to such redemptions. (See Shareholder Services-
- -Tax-Sheltered Retirement Plans.) The Trust reserves the right to
require a properly completed Application before making payment for
shares redeemed.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares and may result
in a realized capital gain or loss.
The Trust will generally mail payment for shares redeemed within
seven days after proper instructions are received. However, the
Trust normally intends to pay proceeds of a Telephone Redemption
paid by wire on the next business day. If you attempt to redeem
shares within 15 days after they have been purchased by check or
electronic transfer, the Trust may delay payment of the redemption
proceeds to you until it can verify that payment for the purchase
of those shares has been (or will be) collected. To reduce such
delays, the Trust recommends that your purchase be made by federal
funds wire through your bank.
Generally, you may not use the Exchange Privilege or any Special
Redemption Privilege to redeem shares purchased by check (other
than certified or cashiers' checks) or electronic transfer until
15 days after their date of purchase.
The Trust reserves the right to suspend, limit, modify, or
terminate, at any time and without prior notice, any Privilege or
its use in any manner by any person or class.
Neither the Trust, its transfer agent, nor their respective
officers, trustees, directors, employees, or agents will be
responsible for the authenticity of instructions provided under
the Privileges, nor for any loss, liability, cost or expense for
acting upon instructions furnished thereunder if they reasonably
believe that such instructions are genuine. The Fund employs
procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special Electronic Transfer Redemption Privilege are genuine.
Use of any Special Redemption Privilege or the Special Electronic
Transfer Redemption Privilege authorizes the Fund and its transfer
agent to tape-record all instructions to redeem. In addition, callers
are asked to identify the account number and registration, and may be
required to provide other forms of identification. Written
confirmations of transactions are mailed promptly to the registered
address; a legend on the confirmation requests that the shareholder
review the transactions and inform the Fund immediately if there is a
problem. If the Fund does not follow reasonable procedures for protecting
shareholders against loss on telephone transactions, it may be liable
for any losses due to unauthorized or fraudulent instructions.
The Trust reserves the right to redeem shares in any account and
send the proceeds to the owner if the shares in the account do not
have a value of at least $1,000. A shareholder would be notified
that his account is below the minimum and would be allowed 30 days
to increase the account before the redemption is processed.
Shares in any account you maintain with the Fund or any of the
other Stein Roe Funds may be redeemed to the extent necessary to
reimburse any Stein Roe Fund for any loss it sustains that is
caused by you (such as losses from uncollected checks and
electronic transfers for the purchase of shares, or any Stein Roe
Fund liability under the Internal Revenue Code provisions on
backup withholding).
SHAREHOLDER SERVICES
REPORTING TO SHAREHOLDERS. You will receive a confirmation
statement reflecting each of your purchases and redemptions of
shares of the Fund, as well as periodic statements detailing
distributions made by the Fund. Shares purchased by reinvestment
of dividends, by cross-reinvestment of dividends from another
Fund, or through an automatic investment plan will be confirmed to
you quarterly. In addition, the Trust will send you semiannual
and annual reports showing Fund portfolio holdings and will
provide you annually with tax information.
FUNDS-ON-CALL [REGISTERED] 24-HOUR INFORMATION SERVICE. To
access the Stein Roe Funds-on-Call [registered] automated
telephone service, just call 800-338-2550 on any touch-tone
telephone and follow the recorded instructions. Funds-on-Call
[registered] provides yields, prices, latest dividends, account
balances, last transaction, and other information 24 hours a day,
seven days a week.
FUNDS-ON-CALL [REGISTERED] AUTOMATED TELEPHONE TRANSACTIONS. If
you have established the Funds-on-Call [registered] transaction
privilege (Funds-on-Call [registered] Application will be
required), you may initiate Special Investments and Redemptions,
Telephone Exchanges, and Telephone Redemptions by Check 24 hours a
day, seven days a week by calling 800-338-2550 on a touch-tone
telephone. These transactions are subject to the terms and
conditions of the individual privileges. (See How to Purchase
Shares and How to Redeem Shares.)
STEIN ROE COUNSELOR [SERVICE MARK] PROGRAM. The Stein Roe
Counselor [SERVICE MARK] and Stein Roe Counselor Preferred
[SERVICE MARK] programs are professional investment advisory
services available to shareholders. These programs are designed
to provide investment guidance in helping investors to select a
portfolio of Stein Roe Funds. The Stein Roe Counselor Preferred
[SERVICE MARK] program, which automatically adjusts client portfolios
among the Stein Roe Funds, has a fee of up to 1% of assets.
TAX-SHELTERED RETIREMENT PLANS. Booklets describing the following
programs and special forms necessary for establishing them are
available on request. You may use all of the Stein Roe Funds,
except those investing primarily in tax-exempt securities, in
these plans. Please read the prospectus for each fund in which
you plan to invest before making your investment.
Individual Retirement Accounts ("IRAs") for employed persons and
their non-employed spouses.
Prototype Money Purchase Pension and Profit Sharing Plans for
self-employed individuals, partnerships, and corporations.
Simplified Employee Pension Plans permitting employers to provide
retirement benefits to their employees by utilizing IRAs while
minimizing administration and reporting requirements.
SPECIAL SERVICES. The following special services are available to
shareholders. Please call 800-338-2550 or write the Trust for
additional information and forms.
Dividend Purchase Option--to diversify your Fund investments by
having distributions from one Fund account automatically invested
in another Stein Roe Fund account. Before establishing this
option, you should obtain and read carefully the prospectus of the
Stein Roe Fund into which you wish to have your distributions
invested. The account from which distributions are made must be
of sufficient size to allow each distribution to usually be at
least $25. The account into which distributions are to be
invested may be opened with an initial investment of only $1,000.
Automatic Dividend Deposit (electronic transfer)--to have income
dividends and capital gain distributions deposited directly into
your bank checking account.
Telephone Redemption by Check Privilege ($1,000 minimum) and
Telephone Exchange Privilege ($50 minimum)--established
automatically when you open your account unless you decline them
on your Application. (See How to Redeem Shares--Special
Redemption Privileges.)
Telephone Redemption by Wire Privilege--to redeem shares from your
account by phone and have the proceeds transmitted by wire to your
checking account ($1,000 minimum; $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
is determined as of the close of trading on the New York Stock
Exchange ("NYSE") (currently 3:00 p.m., Central time) by dividing
the difference between the values of the Fund's assets and
liabilities by the number of shares outstanding. Net asset value
will not be determined on days when the NYSE is closed unless, in
the judgment of the Board of Trustees, the net asset value of the
Fund should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Central time.
In computing the net asset value of the Fund, the values of
portfolio securities are generally based upon market quotations.
Depending upon local convention or regulation, these market
quotations may be the last sale price, last bid or asked price, or
the mean between the last bid and asked prices as of, in each
case, the close of the appropriate exchange or other designated
time. Trading in securities on European and Far Eastern
securities exchanges and over-the-counter markets is normally
completed at various times before the close of business on each
day on which the NYSE is open. Trading of these securities may
not take place on every NYSE business day. In addition, trading
may take place in various foreign markets on Saturdays or on other
days when the NYSE is not open and on which the Fund's net asset
value is not calculated. Therefore, such calculation does not
take place contemporaneously with the determination of the prices
of many of the portfolio securities used in such calculation and
the value of the Fund's portfolio may be significantly affected on
days when shares of the Fund may not be purchased or redeemed.
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS. Income dividends for the Fund are normally
declared and paid annually. The Fund intends to distribute by the
end of each calendar year at least 98% of any net capital gains
realized from the sale of securities during the twelve-month
period ended October 31 in that year. The Fund intends to
distribute any undistributed net investment income and net
realized capital gains in the following year.
All of your income dividends and capital gain distributions will
be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank checking account; (3) applied
to purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment into
the same Fund account normally occurs one business day after the
record date. Investment of distributions into another Stein Roe
Fund account occurs on the payable date. If you choose to receive
your distributions in cash, your distribution check normally will
be mailed approximately 15 days after the record date. The Trust
reserves the right to reinvest the proceeds and future
distributions in additional Fund shares if checks mailed to you
for distributions are returned as undeliverable or are not
presented for payment within six months.
U.S. FEDERAL INCOME TAXES. Your distributions will be taxable to
you, under income tax law, whether received in cash or reinvested
in additional shares. For federal income tax purposes, any
distribution that is paid in January but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital
gains. Distributions of net long-term capital gains will be
taxable to you as long-term capital gain regardless of the length
of time you have held your shares.
You will be advised annually as to the source of distributions for
tax purposes. If you are not subject to tax on your income, you
will not be required to pay tax on these amounts.
If you realize a loss on the sale or exchange of Fund shares held
for six months or less, your short-term loss is recharacterized as
long-term to the extent of any long-term capital gain
distributions you have received with respect to those shares.
For federal income tax purposes, the Fund is treated as a separate
taxable entity distinct from the other series of the Trust.
FOREIGN INCOME TAXES. Investment income received by the Fund from
sources within foreign countries may be subject to foreign income
taxes withheld at the source. The United States has entered into
tax treaties with many foreign countries that entitle the Fund to
a reduced rate of tax or exemption from tax on such income. It is
impossible to determine the effective rate of foreign tax in
advance since the amount of the Fund's assets to be invested
within various countries will fluctuate and the extent to which
tax refunds will be recovered is uncertain. The Fund intends to
operate so as to qualify for treaty-reduced tax rates where
applicable.
To the extent that the Fund is liable for foreign income taxes
withheld at the source, the Fund also intends to operate so as to
meet the requirements of the U.S. Internal Revenue Code to "pass
through" to the Fund's shareholders foreign income taxes paid, but
there can be no assurance that the Fund will be able to do so.
This discussion of U.S. and foreign taxation is not intended to be
a full discussion of income tax laws and their effect on
shareholders. You may wish to consult your own tax advisor. The
foregoing information applies to U.S. shareholders. Foreign
shareholders should consult their tax advisors as to the tax
consequences of ownership of Fund shares.
BACKUP WITHHOLDING. The Trust may be required to withhold federal
income tax ("backup withholding") from certain payments to you,
generally redemption proceeds. Backup withholding may be required
if:
- - You fail to furnish your properly certified social security or
other tax identification number;
- - You fail to certify that your tax identification number is
correct or that you are not subject to backup withholding due to
the underreporting of certain income;
- - The Internal Revenue Service informs the Trust that your tax
identification number is incorrect.
These certifications are contained in the Application that you
should complete and return when you open an account. The Fund
must promptly pay to the IRS all amounts withheld. Therefore, it
is usually not possible for the Fund to reimburse you for amounts
withheld. You may, however, claim the amount withheld as a
credit on your federal income tax return.
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment), plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
Comparison of the Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. Of course, past performance is not necessarily
indicative of future results.
MANAGEMENT OF THE FUND
TRUSTEES AND ADVISERS. The Board of Trustees of the Trust has
overall management responsibility for the Trust and the Fund. See
the Statement of Additional Information for the names of and
additional information about the trustees and officers. The
Fund's Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing the
Fund, subject to the direction of the Board of Trustees. The
Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940. The Adviser was organized in
1986 to succeed to the business of Stein Roe & Farnham, a
partnership that had advised and managed mutual funds since
1949. The Adviser is a wholly owned indirect subsidiary of
Liberty Financial Companies, Inc. ("Liberty Financial"), which in
turn is a majority owned indirect subsidiary of Liberty Mutual
Insurance Company.
PORTFOLIO MANAGERS. Bruno Bertocci and David P. Harris, co-
portfolio managers of the Fund, joined the Adviser in 1995,
as senior vice president and vice president, respectively, to
create Stein Roe Global Capital Management, a dedicated
global and international equity management unit. Messrs.
Bertocci and Harris are also employed by Colonial Management
Associates, Inc., a subsidiary of Liberty Financial, as vice
presidents, effective January, 1996.
Prior to joining the Adviser, Mr. Bertocci was a senior
global equity portfolio manager with Rockefeller & Co.
("Rockefeller") from 1983 to 1995. While at Rockefeller, he
served as portfolio manager for the Fund, when Rockefeller
was the Fund's sub-adviser. Mr. Bertocci managed
Rockefeller's London office from 1987 to 1989 and its Hong
Kong office from 1989 to 1990. Prior to working at
Rockefeller, he served for three years at T. Rowe Price
Associates. Mr. Bertocci is a graduate of Oberlin College
and holds an M.B.A. from Harvard University.
Mr. Harris was a portfolio manager with Rockefeller from 1990
to 1995. After earning a bachelor's degree from the
University of Michigan, he was an actuarial associate for
GEICO before returning to school to earn an M.B.A. from
Cornell University.
FEES AND EXPENSES. In return for its services, the Adviser
receives a monthly fee from the Fund, computed and accrued daily,
at an annual rate of 1% of average net assets. This fee is higher
than the fees paid by most mutual funds. Please refer to the Fee
Table for a description of the Fund's expense limitation.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset value and calculation of its net
income and capital gains and losses on disposition of Fund assets.
PORTFOLIO TRANSACTIONS. The Adviser places the orders for the
purchase and sale of portfolio securities and options and futures
transactions for the Fund. In doing so, the Adviser seeks to
obtain the best combination of price and execution, which involves
a number of judgmental factors.
TRANSFER AGENT. SteinRoe Services Inc., One South Wacker Drive,
Chicago, Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of shares,
disbursement of dividends, and maintenance of shareholder
accounting records.
DISTRIBUTOR. The shares of the Fund are offered for sale through
Liberty Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN. State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
the Fund. Foreign securities are maintained in the custody of
foreign banks and trust companies that are members of the Bank's
Global Custody Network or foreign depositories used by such
members. (See Custodian in the Statement of Additional
Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular Fund shall look only to the assets of the Trust or of
the respective Fund for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the
Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on account
of unsatisfied liability of another Fund of the Trust is also
believed to be remote, because it would be limited to claims to
which the disclaimer did not apply and to circumstances in which
the other Fund was unable to meet its obligations.
<PAGE>
CERTIFICATE OF AUTHORIZATION (FOR USE BY CORPORATIONS AND
ASSOCIATIONS ONLY)
A corporation or association must complete this Certificate and
submit it with the Fund Application, each written redemption,
transfer or exchange request, and each request to terminate or
change any of the Privileges or special service elections.
If the entity submitting the Certificate is an association, the
word "association" shall be deemed to appear each place the word
"corporation" appears. If the officer signing this Certificate is
named as an authorized person, another officer must countersign
the Certificate. If there is no other officer, the person signing
the Certificate must have his signature guaranteed. If you are
not sure whether you are required to complete this Certificate,
call the office of the Stein Roe Funds, 800-338-2550 toll-free.
The undersigned hereby certifies that he is the duly elected
Secretary of _________________________________________
(Name of Corporation/Association)
(the "Corporation") and that the following individual(s):
Authorized Persons
- -------------------------- ----------------------------
Name Title
- -------------------------- ----------------------------
Name Title
- -------------------------- ----------------------------
Name Title
is (are) duly authorized by resolution or otherwise to act on
behalf of the Corporation in connection with the Corporation's
ownership of shares of any mutual fund managed by Stein Roe &
Farnham Incorporated (individually, the "Fund" and collectively,
the "Funds") including, without limitation, furnishing any such
Fund and its transfer agent with instructions to transfer or
redeem shares of that Fund payable to any person or in any manner,
or to redeem shares of that Fund and apply the proceeds of such
redemption to purchase shares of another Fund (an "exchange"), and
to execute any necessary forms in connection therewith.
Unless a lesser number is specified, all of the Authorized Persons
must sign written instructions. Number of signatures required:
________.
If the undersigned is the only person authorized to act on behalf
of the Corporation, the undersigned certifies that he is the sole
shareholder, director, and officer of the Corporation and that the
Corporation's Charter and Bylaws provide that he is the only
person authorized to so act.
Unless expressly declined on the Application (or other form
acceptable to the Funds), the undersigned further certifies that
the Corporation has authorized by resolution or otherwise the
establishment of the Telephone Exchange and Telephone Redemption
by Check Privileges for the Corporation's account with any Fund
offering any such Privilege. If elected on the Application (or
other form acceptable to the Funds), the undersigned also
certifies that the Corporation has similarly authorized
establishment of the Electronic Transfer, Telephone Redemption by
Wire, and Check-Writing Privileges for the Corporation's account
with any Fund offering said Privileges. The undersigned has
further authorized each Fund and its transfer agent to honor any
written, telephonic, or telegraphic instructions furnished
pursuant to any such Privilege by any person believed by the Fund
or its transfer agent or their agents, officers, directors,
trustees, or employees to be authorized to act on behalf of the
Corporation and agrees that neither the Fund nor its transfer
agent, their agents, officers, directors, trustees, or employees
will be liable for any loss, liability, cost, or expense for
acting upon any such instructions.
These authorizations shall continue in effect until five business
days after the Fund and its transfer agent receive written notice
from the Corporation of any change.
IN WITNESS WHEREOF, I have hereunto subscribed my name as
Secretary and affixed the seal of this Corporation this ____ day
of _________________, 19___.
-------------------------
Secretary
-------------------------
Signature Guarantee*
*Only required if the person signing
the Certificate is the only person
named as "Authorized Person."
CORPORATE
SEAL
HERE
<PAGE>
[STEIN ROE FUNDS LOGO]
The Stein Roe Funds
Stein Roe Government Reserves Fund
Stein Roe Cash Reserves Fund
Stein Roe Limited Maturity Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Total Return Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
Stein Roe Special Venture Fund
P.O. Box 804058
Chicago, Illinois 60680
800-338-2550
In Chicago, visit our Fund Center
at One South Wacker Drive
Liberty Securities Corporation, Distributor
IN296
<PAGE>
YOUNG INVESTOR FUND
The Fund's objective is long-term capital appreciation. The Fund
invests in securities of companies that affect the lives of
children or teenagers. The Fund is also intended to be a fun,
educational experience for young investors and their parents.
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INVESTMENT TRUST, an open-end management investment
company.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
If you have any questions about new Fund accounts, please call
800-403-KIDS (800-403-5437); for existing accounts, shareholders
should call 800-338-2550.
A Statement of Additional Information dated February 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the
Secretary at the address shown on the back cover or by calling the
Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February 1, 1996.
<PAGE>
TABLE OF CONTENTS
Page
Summary .................................2
Fee Table ..............................3
Financial Highlights.....................4
The Fund ............................... 4
Investment Policies .....................5
Portfolio Investments and Strategies.....5
Investment Restrictions................ .7
Risks and Investment Considerations.... .8
How to Purchase Shares ..................9
By Check .............................9
By Wire ..............................9
By Electronic Transfer...............10
By Exchange .........................10
Purchase Price and Effective Date ...10
Conditions of Purchase ..............10
Purchases Through Third Parties......10
How to Redeem Shares ...................11
By Written Request ..................11
By Exchange .........................11
Special Redemption Privileges .......11
General Redemption Policies .........13
Shareholder Services ...................14
Net Asset Value ........................15
Distributions and Income Taxes .........16
Investment Return ......................17
Management of the Fund .................17
Organization and Description of Shares..19
SUMMARY
STEIN ROE YOUNG INVESTOR FUND (the "Fund") is a series of the
Stein Roe Investment Trust, an open-end diversified management
investment company. The Fund is a "no-load" fund. There are no
sales or redemption charges. (See The Fund and Organization and
Description of Shares.) This prospectus is not a solicitation in any
jurisdiction in which the Fund is not registered for sale.
INVESTMENT OBJECTIVES AND POLICIES.
The Fund's investment objective is long-term capital appreciation.
It seeks to achieve its objective by investing primarily in common
stocks and other equity-type securities that Stein Roe believes to
have long-term appreciation potential. The Fund invests primarily
in securities of companies that appeal to or affect the lives of
children or teenagers. It is designed for long-term investors,
particularly children and teenagers.
In addition to the Fund's investment objective and policies, the
Fund also has an educational objective. It seeks to teach
children and teenagers about the Fund, basic economic principles,
and personal finance through a variety of educational materials
prepared and paid for by the Fund.
There can be no guarantee that the Fund will achieve its
investment objective. Please see Investment Policies and
Portfolio Investments and Strategies for further information.
<PAGE>
INVESTMENT RISKS.
The Fund is designed for long-term investors who are willing to
accept the investment risk and volatility of equity-type
securities in general, as well as the specific types of equity
securities emphasized by the Fund. By investing in companies
whose products or services appeal to young investors, the Fund
emphasizes various consumer goods sectors. Since the Fund may
invest in foreign securities, investors should understand and
consider carefully the risks involved in foreign investing.
Investing in foreign securities involves certain considerations
involving both risks and opportunities not typically associated
with investing in U.S. securities. Please see Investment
Policies, Portfolio Investments and Strategies, and Risks and
Investment Considerations for further information.
PURCHASES.
The minimum initial investment for the Fund is $2,500; the minimum
investment for Uniform Gifts/ Transfers to Minors Act accounts is
$1,000. Additional investments must be at least $50. Shares may
be purchased by check, by bank wire, by electronic transfer, or by
exchange from another Stein Roe Fund. For more detailed
information, see How to Purchase Shares.
REDEMPTIONS.
For information on redeeming Fund shares, including the special
redemption privileges, see How to Redeem Shares.
NET ASSET VALUE.
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value is determined as of
the close of trading on the New York Stock Exchange. (For more
detailed information, see Net Asset Value.)
DISTRIBUTIONS.
Dividends are normally declared and paid annually. Distributions
will be reinvested into your Fund account unless you elect to have
them paid in cash, deposited by electronic transfer into your bank
checking account, or invested in another Stein Roe Fund account.
(See Distributions and Income Taxes and Shareholder Services.)
MANAGEMENT AND FEES.
Stein Roe & Farnham Incorporated ("Stein Roe") provides management
and investment advisory services to the Fund. For a description
of Stein Roe and its fees, see Management of the Fund.
If you have any additional questions about the Fund, please feel
free to discuss them with an account representative by calling
800-338-2550.
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None*
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (after expense
reimbursement; as a percentage of average net assets)
Management and Administrative Fees (after
expense reimbursement) None
12b-1 Fees None
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, the Adviser may voluntarily
absorb certain expenses of the Fund. Stein Roe has agreed to
voluntarily waive its management fee and absorb the expenses of
the Fund to the extent that such fees and expenses on an
annualized basis exceed 1.25% of its annual average net assets
from February 1, 1996 through January 31, 1997, subject to earlier
termination by the Adviser on 30 days' notice (previously, Stein
Roe had undertaken to reimburse the Fund for expenses in excess of
0.99%). Any such absorption will temporarily lower the Fund's
overall expense ratio and increase its overall return to
investors. Absent the expense undertaking, Management and
Administrative Fees, Other Expenses, and Total Fund Operating
Expenses would have been 0.76%, 2.11%, and 2.87%, respectively.
(Also see Management of the Fund--Fees and Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts listed for the Fund under Annual Fund Operating
Expenses remain the same in each of the periods; that all income
dividends and capital gain distributions are reinvested in
additional Fund shares; and that, for purposes of management fee
breakpoints, net assets remain at the same level as in the most
recently completed fiscal year.
The figures in the Example are not necessarily indicative of past
or future expenses, and actual expenses may be greater or less
than those shown. Although information such as that shown in the
Example and Fee Table is useful in reviewing the Fund's expenses
and in providing a basis for comparison with other mutual funds,
it should not be used for comparison with other investments using
different assumptions or time periods.
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund on
a per-share basis for the period shown and has been audited by
Arthur Andersen LLP, independent public accountants. The
auditors' report was unqualified. The table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust without charge upon request, contains additional performance
information.
Period Ended Year Ended
Sept. 30, Sept. 30,
1994 (a) 1995
-------------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.24
------ -------
Income from investment operations
Net investment income 0.03 0.06
Net realized and unrealized gains on investments 0.21 4.07
Total from investment operations 0.24 4.13
------ -------
Distributions from net investment income -- (0.08)
------ -------
NET ASSET VALUE, END OF PERIOD $10.24 $14.29
------ -------
------ -------
Ratio of net expenses to average net assets (b) *0.99% 0.99%
Ratio of net investment income to average
net assets (c) *1.07% 0.47%
Portfolio turnover rate **12% 55%
Total return **2.40% 40.58%
Net assets, end of period (000 omitted) $8,176 $31,401
________________________________
*Annualized.
**Not annualized.
(a) From commencement of operations on April 29, 1994.
(b) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the investment adviser, this
ratio would have been 4.58% for the period ended September 30,
1994 and 2.87% for the year ended September 30, 1995.
(c) Computed giving effect to the investment adviser's expense
limitation undertaking.
THE FUND
The Fund is a no-load
mutual fund
STEIN ROE YOUNG INVESTOR FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own shares to
investors and use the money they receive to invest in a
portfolio of securities such as common stocks. A mutual fund
allows you to pool your money with that of other investors in
order to obtain professional investment management. Mutual funds
generally make it possible for you to obtain greater
diversification of your investments and simplify your
recordkeeping. The Fund does not impose commissions or charges
when shares are purchased or redeemed.
The Fund is a series of the Stein Roe Investment Trust (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
The Fund is managed
by Stein Roe & Farnham
Stein Roe & Farnham Incorporated ("Stein Roe") provides investment
advisory, administrative, and bookkeeping and accounting services
to the Fund. Stein Roe also manages and
provides investment advisory services for several other no-load
mutual funds with different investment objectives, including
equity funds, international funds, taxable and tax-exempt bond
funds, and money market funds. To obtain prospectuses and
other information on any of those mutual funds, please call 800-
338-2550.
INVESTMENT POLICIES
The Fund invests primarily
in equity securities
The Fund's investment objective is long-term capital appreciation.
It seeks to achieve its objective by investing primarily in common
stocks and other equity-type securities that, in the opinion of
Stein Roe, have long-term appreciation potential.
The Fund invests in
companies that affect
the lives of children
or teenagers
Under normal circumstances, at least 65% of the Fund's total
assets will be invested in securities of companies that, in the
opinion of Stein Roe, directly or through one or more
subsidiaries, affect the lives of children or teenagers. Such
companies may include companies that produce products or services
that children or teenagers use, are aware of, or could potentially
have an interest in.
Although the Fund invests primarily in common stocks and other
equity-type securities (such as preferred stocks, securities
convertible into or exchangeable for common stocks, and warrants
or rights to purchase common stocks), it may invest up to 35% of
its total assets in debt securities. The Fund may invest in
securities of smaller emerging companies as well as securities of
well-seasoned companies of any size. Smaller companies, however,
involve higher risks in that they typically have limited product
lines, markets, and financial or management resources. In
addition, the securities of smaller companies may trade less
frequently and have greater price fluctuation than larger
companies, particularly those operating in countries with
developing markets. The Fund may also employ investment
techniques described elsewhere in this prospectus. (See Risks and
Investment Considerations and Fees and Expenses.)
The Fund is intended to
be a fun, educational
experience for young investors
and their parents
In addition to the Fund's investment objective and policies, the
Fund also has an educational objective. The Fund will seek to
educate its shareholders by providing educational materials
regarding personal finance and investing as well as materials on
the Fund and its portfolio holdings.
PORTFOLIO INVESTMENTS AND STRATEGIES
The Fund may invest in
"investment grade" debt
securities
In pursuing its investment objective, the Fund may invest in debt
securities. A debt security is an obligation of a borrower to
make payments of principal and interest to the holder of the
security. To the extent the Fund invests in debt securities, such
holdings will be subject to interest rate risk and credit risk.
Interest rate risk is the risk that the value of a portfolio will
fluctuate in response to changes in interest rates. Generally,
the debt component of a portfolio will tend to decrease in value
when interest rates rise and increase in value when interest rates
fall. Credit risk is the risk that an issuer will be unable to make principal
and interest payments when due. Investments in debt securities
are limited to those that are rated within the four highest grades
(generally referred to as "investment grade") assigned by a nationally
recognized statistical rating organization. Investments in unrated debt
securities are limited to those deemed to be of comparable quality by
Stein Roe. Securities rated within the fourth highest grade may possess
speculative characteristics. If the rating of a security held by the
Fund is lost or reduced below investment grade, the Fund is not required
to dispose of the security--Stein Roe will, however, consider that
fact in determining whether the Fund should continue to hold the
security. When Stein Roe considers a temporary defensive position
advisable, the Fund may invest without limitation in high-quality
fixed income securities, or hold assets in cash or cash
equivalents.
The Fund may invest up
to 25% of its assets in
foreign securities, which
may entail a greater degree
of risk than domestic securities
The Fund may invest up to 25% of its total assets in foreign
securities. (See Risks and Investment Considerations.) In
addition to, or in lieu of, such direct investment, the Fund may
construct a synthetic foreign position by (a) purchasing a debt
instrument denominated in one currency, generally U.S. dollars;
and (b) concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
Such a contract involves the risk that the value of the foreign
currency may decline relative to the value of the dollar prior to
the settlement date--this risk is in addition to the risk that the
value of the foreign security purchased may decline.
The Fund may make loans of its portfolio securities to broker-
dealers and banks and enter into reverse repurchase agreements
subject to certain restrictions described in the Statement of
Additional Information. The Fund may invest in securities
purchased on a when-issued or delayed-delivery basis. Although
the payment terms of these securities are established at the time
the Fund enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. The Fund will make such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
it is deemed advisable for investment reasons.
The Fund may invest
in "derivative products"
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional, exchange-traded and non-exchange-traded
options, futures contracts, futures options, forward contracts,
securities collateralized by underlying pools of mortgages or
other receivables, floating rate instruments, and other
instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument or
security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, or an interest rate.
The Fund does not expect to invest more than 5% of its net assets
in any type of Derivative except for options, futures contracts,
and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on Stein Roe's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, the Fund may: (1)
purchase and write both call options and put options on
securities, indexes and foreign currencies; (2) enter into
interest rate, index and foreign currency futures contracts; (3)
write options on such futures contracts; and (4) purchase other
types of forward or investment contracts linked to individual
securities, indexes, or other benchmarks. The Fund may write a
call or put option only if the option is covered. As the writer
of a covered call option, the Fund foregoes, during the option's
life, the opportunity to profit from increases in market value of
the security covering the call option above the sum of the premium
and the exercise price of the call. There can be no assurance
that a liquid market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require low
margin deposits, the use of futures contracts involves a high
degree of leverage and may result in losses in excess of the
amount of the margin deposit.
INVESTMENT RESTRICTIONS
The Fund will seek to
limit the impact of any
one investment on the
portfolio
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S.Government or repurchase agreements for such securities,
and would not prevent the Fund from investing all of its assets in
shares of another investment company having the identical investment
objective.
The Fund will not invest more than 25% of its total assets (at the
time of investment) in the securities of companies in any one
industry.
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. It may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
The Fund will not borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The Fund may invest in repurchase agreements, /1/ provided that
it will not invest more than 5% of its net assets in repurchase
agreements maturing in more than seven days, and any other
illiquid securities. An investment in illiquid securities could
involve relatively greater risks and costs to the Fund.
- -----------------
/1/ A repurchase agreement involves a sale of securities to the
Fund in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, the Fund could experience both losses
and delays in liquidating its collateral.
- ------------------
The investment restrictions described in the first three paragraphs
of this section are fundamental policies and, as such, can be
changed only with the approval of a "majority of the outstanding
voting securities" as defined in the Investment Company Act of
1940. The investment objective is non-fundamental and, as such,
may be changed by the Board of Trustees without shareholder
approval. Any such change may result in the Fund having an
investment objective different from the objective the shareholder
considered appropriate at the time of investment in the Fund. All
of the investment restrictions are set forth in the Statement of
Additional Information.
RISKS AND INVESTMENT CONSIDERATIONS
The Fund is designed for
long-term investors who
desire to participate in
the stock market and places
an emphasis on companies that
appeal to young investors.
These investors can accept
more investment risk and
volatility than the stock
market in general but want
less investment risk and
volatility than aggressive
capital appreciation funds
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. The Fund is designed
for long-term investors who desire to participate in the stock
market and places an emphasis on companies that appeal to young
investors. These investors can accept more investment risk and
volatility than the stock market in general but want less
investment risk and volatility than aggressive capital
appreciation funds. Of course, there can be no guarantee that the
Fund will achieve its objective. The Fund is also designed to be
a fun, educational experience for young investors and their
parents.
While the Fund seeks to reduce risk by investing in a diversified
portfolio, diversification does not eliminate all risk. The Fund
will not, however, invest more than 25% of the total value of its
assets (at the time of investment) in the securities of companies
in any one industry. By investing in companies whose products or
services appeal to young investors, the Fund emphasizes various
consumer goods sectors.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
portfolio securities must be held. Accordingly, the portfolio
turnover rate may vary significantly from year to year, but is not
expected to exceed 100% under normal market conditions. A high
rate of portfolio turnover may result in increased transaction
expenses and the realization of capital gains and losses. (See
Distributions and Income Taxes.) The Fund is not intended to be
an income-producing investment, although it may produce income.
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers, less market liquidity, more market
volatility, less developed and regulated markets, and greater
political instability. In addition, various restrictions by
foreign governments on investments by non-residents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
non-residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER/FEEDER OPTION.
Rather than investing in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by Stein Roe for
investment in another investment company having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and to
reduce costs. It is expected that any such investment company
would be managed by Stein Roe in substantially the same manner as
the Fund. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be made
only if the Trustees determine it to be in the best interests of
the Fund and its shareholders.
HOW TO PURCHASE SHARES
$2,500 minimum investment;
$1,000 for UGMA accounts
You may purchase Fund shares by check, by wire, by electronic
transfer, or by exchange from your account with another Stein Roe
Fund. The initial purchase minimum per Fund account is
$2,500; the minimum for Uniform Gifts/Transfers to Minors Act
accounts is $1,000; the minimum for accounts established under an
automatic investment plan of at least $50 per month (i.e., Regular
Investments or the Automatic Exchange Plan) is $100 through June
30, 1996, after which time it will be $500; and the minimum per
account for Stein Roe IRAs is $500. The initial purchase minimum
is waived for shareholders who participate in the Stein Roe
Counselor [SERVICE MARK] and Stein Roe Counselor Preferred
[SERVICE MARK] programs and for clients of Stein Roe. Subsequent
purchases must be at least $50. (See Shareholder Services.)
BY CHECK.
You may purchase shares
by check, by wire, by
electronic transfer, or
by exchange
To make an initial purchase of shares of the Fund by check, please
complete and sign the Application and mail it, together with a
check made payable to Stein Roe Funds, to P.O. Box 804058,
Chicago, Illinois 60680.
You may make subsequent investments by submitting a check along
with either the stub from your Fund account confirmation statement
or a note indicating the amount of the purchase, your account
number, and the name in which your account is registered. Each
individual check submitted for purchase must be at least $50, and
the Trust generally will not accept cash, drafts, third party
checks, or checks drawn on banks outside the United States.
Should an order to purchase shares of the Fund be cancelled
because your check does not clear, you will be responsible for any
resulting loss incurred by the Fund.
BY WIRE.
You also may pay for shares by instructing your bank to wire
federal funds (monies of member banks within the Federal Reserve
System) to the Fund's custodian bank. Your bank may charge you a
fee for sending the wire. If you are opening a new account by
wire transfer, you must first telephone the Trust to request an
account number and furnish your social security or other tax
identification number. Neither the Fund nor the Trust will be
responsible for the consequences of delays, including delays in
the banking or Federal Reserve wire systems. Your bank
must include the full name(s) in which your account is registered
and your Fund account number, and should address its wire as
follows:
State Street Bank and Trust Company
ABA Routing No. 011000028
Boston, Massachusetts
Attention: Custody
Fund No. 7124; Stein Roe Young Investor Fund
Account of (exact name(s) in registration)
Shareholder Account No. ___________
BY ELECTRONIC TRANSFER.
You may also make subsequent investments by an electronic transfer
of funds from your bank checking account. Electronic transfer
allows you to make purchases at your request ("Special
Investments") by calling 800-338-2550 or at pre-scheduled
intervals ("Regular Investments"). (See Shareholder Services.)
Electronic transfer purchases are subject to a $50 minimum and a
$100,000 maximum. You may not open a new account through
electronic transfer. Should an order to purchase shares of the
Fund be cancelled because your electronic transfer does not clear,
you will be responsible for any resulting loss incurred by the
Fund.
BY EXCHANGE.
You may purchase shares by exchange of shares from another Stein
Roe Fund account either by phone (if the Telephone Exchange
Privilege has been established on the account from which the
exchange is being made), by mail, in person, or automatically at
regular intervals (if you have elected Automatic Exchanges).
Restrictions apply; please review the information on the Exchange
Privilege under How to Redeem Shares--By Exchange.
PURCHASE PRICE AND EFFECTIVE DATE.
Purchases are made at net
asset value
Each purchase of the Fund's shares is made at the Fund's net asset
value (see Net Asset Value) next determined after receipt of
payment as follows:
A purchase by check or wire transfer is made at the net asset
value next determined after the Fund receives the check or wire
transfer of funds in payment of the purchase.
A purchase by electronic transfer is made at the net asset value
next determined after the Fund receives the electronic transfer
from your bank. A Special Electronic Transfer Investment order
received by telephone on a business day before 2:00 p.m., Central
time, is effective on the next business day.
CONDITIONS OF PURCHASE.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until
accepted and entered on the books of the Fund. Once your purchase
order has been accepted, you may not cancel or revoke it; you may,
however, redeem the shares. The Trust reserves the right not to
accept any purchase order that it determines not to be in the best
interests of the Trust or of the Fund's shareholders. The Trust
also reserves the right to waive or lower its investment minimums
for any reason.
PURCHASES THROUGH THIRD PARTIES.
You may purchase (or redeem) shares through investment dealers,
banks, or other financial institutions. These institutions may
charge for their services or place limitations on the extent to
which you may use the services offered by the Trust. There are no
charges or limitations imposed by the Trust, other than those
described in this prospectus, if shares are purchased (or
redeemed) directly from the Trust.
Some financial institutions that maintain nominee accounts with
the Fund for their clients for whom they hold Fund shares charge
an annual fee of up to 0.25% of the average net assets held in
such accounts for accounting, servicing, and distribution services
they provide with respect to the underlying Fund shares. Such
fees are paid by Stein Roe.
HOW TO REDEEM SHARES
BY WRITTEN REQUEST.
To make sure your
redemption request is
in "good order," please
read this section carefully
You may redeem all or a portion of your shares of the Fund by
submitting a written request in "good order" to the Trust at P.O.
Box 804058, Chicago, Illinois 60680. A redemption request will be
considered to have been received in good order if the following
conditions are satisfied:
(1) The request must be in writing, and must indicate the number
of shares or dollar amount to be redeemed and identify the
shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The signatures on the written redemption request must be
guaranteed (a signature guarantee is not a notarization, but is a
widely accepted way to protect you and the Fund by verifying your
signature);
(4) The request must include other supporting legal documents as
required from organizations, executors, administrators, trustees,
or others acting on accounts not registered in their names.
BY EXCHANGE.
You may exchange shares
of the Fund for shares of
any other Stein Roe Fund
qualified for sale to
residents of your state
You may redeem all or any portion of your Fund shares and use the
proceeds to purchase shares of any other Stein Roe Fund offered
for sale in your state if your signed, properly completed
Application is on file.
An exchange transaction is a sale and purchase of shares for
federal income tax purposes and may result in capital gain or
loss. Before exercising the Exchange Privilege, you should obtain
the prospectus for the Stein Roe Fund in which you wish to invest
and read it carefully. The registration of the account to which
you are making an exchange must be exactly the same as that of the
Fund account from which the exchange is made and the amount you
exchange must meet any applicable minimum investment of the Stein
Roe Fund being purchased. An exchange may be made by following
the redemption procedure described above under By Written Request
and indicating the Stein Roe Fund to be purchased--a signature
guarantee normally is not required. (See also the discussion
below of the Telephone Exchange Privilege and Automatic
Exchanges.)
SPECIAL REDEMPTION PRIVILEGES.
Telephone Redemption
Privileges will be established
for you automatically
The Telephone Exchange Privilege and the Telephone Redemption by
Check Privilege will be established automatically for you when you
open your account unless you decline these Privileges on your
Application. Other Privileges must be
specifically elected. If you do not want the Telephone Exchange
and Redemption Privileges, check the box(es) under the section
"Telephone Redemption Options" when completing your Application.
In addition, a signature guarantee may be required to establish a
Privilege after you open your account. If you establish both the
Telephone Redemption by Wire Privilege and the Electronic Transfer
Privilege, the bank account that you designate for both Privileges
must be the same.
The Telephone Redemption by Check Privilege, Telephone Redemption
by Wire Privilege, and Special Electronic Transfer Redemptions are
not available to redeem shares held by a tax-sheltered retirement
plan sponsored by the Adviser. (See also General Redemption
Policies.)
Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account
by calling 800-338-2550 or by sending a telegram; new accounts
opened by exchange are subject to the $2,500 initial purchase
minimum. GENERALLY, YOU WILL BE LIMITED TO FOUR TELEPHONE
EXCHANGE ROUND-TRIPS PER YEAR AND THE FUND MAY REFUSE REQUESTS FOR
TELEPHONE EXCHANGES IN EXCESS OF FOUR ROUND-TRIPS (A ROUND-TRIP
BEING THE EXCHANGE OUT OF THE FUND INTO ANOTHER STEIN ROE FUND,
AND THEN BACK TO THE FUND). In addition, the Trust's general
redemption policies apply to redemptions of shares by Telephone
Exchange. (See General Redemption Policies.)
Restrictions on
Special Redemption
Privileges apply
The Trust reserves the right to suspend or terminate, at any time
and without prior notice, the use of the Telephone Exchange
Privilege by any person or class of persons. The Trust believes
that use of the Telephone Exchange Privilege by investors
utilizing market-timing strategies adversely affects the Fund.
THEREFORE, THE TRUST GENERALLY WILL NOT HONOR REQUESTS FOR
TELEPHONE EXCHANGES BY SHAREHOLDERS IDENTIFIED BY THE TRUST AS
"MARKET-TIMERS." Moreover, the Trust reserves the right to
suspend, limit, modify, or terminate, at any time and without
prior notice, the Telephone Exchange Privilege in its entirety.
Because such a step would be taken only if the Board of Trustees
believes it would be in the best interests of the Fund, the Trust
expects that it would provide shareholders with prior written
notice of any such action unless the resulting delay in the
suspension, limitation, modification, or termination of the
Telephone Exchange Privilege would adversely affect the Fund. If
the Trust were to suspend, limit, modify, or terminate the
Telephone Exchange Privilege, a shareholder expecting to make a
Telephone Exchange might find that an exchange could not be
processed or that there might be a delay in the implementation of
the exchange. (See How to Redeem Shares--By Exchange.) During
periods of volatile economic and market conditions, you may have
difficulty placing your exchange by telephone.
Automatic Exchanges. You may use the Automatic Exchange Privilege
to automatically redeem a fixed amount from your Fund account for
investment in another Stein Roe Fund account on a regular basis.
Telephone Redemption by Wire Privilege. You may use this Privilege to
redeem shares from your account ($1,000 miminum; $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 2:00 p.m., Central time, is deemed received on the
next business day.
GENERAL REDEMPTION POLICIES.
Please read the General
Redemption Policies carefully
You may not cancel or revoke your redemption order once
instructions have been received and accepted. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions. Please telephone
the Trust if you have any questions about requirements for a
redemption before submitting your request. The Trust reserves the
right to require a properly completed Application before making
payment for shares redeemed.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares and may result
in a realized capital gain or loss.
The Trust will generally mail payment for shares redeemed within
seven days after proper instructions are received. However, the
Trust normally intends to pay proceeds of a Telephone Redemption
paid by wire on the next business day. If you attempt to redeem
shares within 15 days after they have been purchased by check or
electronic transfer, the Trust may delay payment of the redemption
proceeds to you until it can verify that payment for the purchase
of those shares has been (or will be) collected. To reduce such
delays, the Trust recommends that your purchase be made by federal
funds wire through your bank.
Generally, you may not use the Exchange Privilege or any Special
Redemption Privilege to redeem shares purchased by check (other
than certified or cashiers' checks) or electronic transfer until
15 days after their date of purchase.
The Trust reserves the right at any time without prior notice to
suspend, limit, modify, or terminate any Privilege or its use in
any manner by any person or class.
Neither the Trust, its transfer agent, nor their respective
officers, trustees, directors, employees, or agents will be
responsible for the authenticity of instructions provided under
the Privileges, nor for any loss, liability, cost or expense for
acting upon instructions furnished thereunder if they reasonably
believe that such instructions are genuine. The Fund employs
procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special Electronic Transfer Redemption Privilege are
genuine. Use of any Special Redemption Privilege or the Special
Electronic Transfer 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.
FUNDS-ON-CALL [REGISTERED] 24-HOUR INFORMATION SERVICE.
Funds-on-Call [registered]
allows you to have 24-hour
access to information
To access the Stein Roe Funds-on-Call [registered] automated
telephone service, just call 800-338-2550 on any touch-tone
telephone and follow the recorded instructions. Funds-on-Call
[registered] provides yields, prices, latest dividends, account
balances, last
transaction, and other information 24 hours a day, seven days a
week.
FUNDS-ON-CALL [REGISTERED] AUTOMATED TELEPHONE TRANSACTIONS.
If you have established the Funds-on-Call [registered] transaction
privilege (Funds-on-Call [registered] Application will be
required), you may initiate Special Investments and Redemptions,
Telephone Exchanges, and Telephone Redemptions by Check 24 hours a day,
seven days a week by calling 800-338-2550 on a touch-tone telephone.
These transactions are subject to the terms and conditions of the
individual privileges. (See How to Purchase Shares and How to Redeem
Shares.)
STEIN ROE COUNSELOR [SERVICE MARK] PROGRAM.
The Stein Roe Counselor [SERVICE MARK] and Stein Roe Counselor
Preferred [SERVICE MARK] programs are professional investment
advisory services available to shareholders. These programs are
designed to provide investment guidance in helping investors to
select a portfolio of Stein Roe Funds. The Stein Roe Counselor
Preferred [SERVICE MARK] program, which automatically adjusts
client portfolios among the Stein Roe Funds, has a fee of up to 1%
of assets.
TAX-SHELTERED RETIREMENT PLAN.
Booklets describing the Individual Retirement Account ("IRA")
program and special forms necessary for establishing it are
available on request. IRAs are available for employed persons and
their non-employed spouses. You may use all of the Stein Roe
Funds, except those investing primarily in tax-exempt securities,
in the plan. Please read the prospectus for each fund in which
you plan to invest before making your investment.
SPECIAL SERVICES.
The Fund offers special
services to meet your needs
The following special services are available to shareholders.
Please call 800-338-2550 or write the Trust for additional
information and forms.
Dividend Purchase Option--to diversify your Fund investments by
having distributions from one Fund account automatically invested
in another Stein Roe Fund account. Before establishing this
option, you should obtain and read carefully the prospectus of the
Stein Roe Fund into which you wish to have your distributions
invested. The account from which distributions are made must be
of sufficient size to allow each distribution to usually be at
least $25.
Automatic Dividend Deposit (electronic transfer)--to have income
dividends and capital gain distributions deposited directly into
your bank checking account.
Telephone Redemption by Check Privilege ($1,000 minimum) and
Telephone Exchange Privilege ($50 minimum)--established
automatically when you open your account unless you decline them
on your Application. (See How to Redeem Shares--Special
Redemption Privileges.)
Telephone Redemption by Wire Privilege--to redeem shares from your
account by phone and have the proceeds transmitted by wire to your
checking account ($1,000 minimum; $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 Fund's net asset
value is calculated daily
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the
Fund is determined as of the close of trading on the New York
Stock Exchange ("NYSE") (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's assets
and liabilities by the number of shares outstanding. Net asset
value will not be determined on days when the NYSE is closed
unless, in the judgment of the Board of Trustees, the net asset
value of the Fund should be determined on any such day, in which
case the determination will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued at its
last sale price on that exchange on the day of valuation or, if
there are no sales that day, at the latest bid quotation. Each
over-the-counter security for which the last sale price on the day
of valuation is available from NASDAQ is valued at that price.
All other over-the-counter securities for which reliable
quotations are available are valued at the latest bid quotation.
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually. The
Fund intends to distribute by the end of each calendar year at
least 98% of any net capital gains realized from the sale of
securities during the twelve-month period ended October 31 in that
year. The Fund intends to distribute any undistributed net
investment income and net realized capital gains in the following
year.
Dividends and capital
gains will be reinvested
automatically unless you
elect another option
All of your income dividends and capital gain distributions will
be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank checking account; (3) applied to
purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment into
the same Fund account normally occurs one business day after the
record date. Investment of distributions into another Stein Roe
Fund account occurs on the payable date. If you choose to receive
your distributions in cash, your distribution check normally will
be mailed approximately 15 days after the record date. The Trust
reserves the right to reinvest the proceeds and future
distributions in additional Fund shares if checks mailed to you
for distributions are returned as undeliverable or are not
presented for payment within six months.
INCOME TAXES.
Fund distributions
will be taxable to you
Your distributions will be taxable to you, under income tax law,
whether received in cash or reinvested in additional shares. For
federal income tax purposes, any distribution that is paid in
January but was declared in the prior calendar year is deemed paid
in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital gain.
Distributions of net long-term capital gain will be taxable to you
as long-term capital gain regardless of the length of time you
have held your shares.
You will be advised annually as to the source of distributions for
tax purposes. If you are not subject to tax on your income, you
may not be required to pay tax on these amounts.
If you realize a loss on the sale or exchange of Fund shares held
for six months or less, your short-term loss is recharacterized as
long-term to the extent of any long-term capital gain
distributions you have received with respect to those shares.
For federal income tax purposes, the Fund is treated as a separate
taxable entity distinct from the other series of the Trust.
This discussion of taxation is not intended to be a full
discussion of income tax laws and their effect on shareholders.
You may wish to consult your own tax advisor. The foregoing
information applies to U.S. shareholders. Foreign shareholders
should consult their tax advisors as to the tax consequences of
ownership of Fund shares.
BACKUP WITHHOLDING.
If you fail to provide
a tax identification number,
you will be subject to
backup withholding
The Trust may be required to withhold federal income tax ("backup
withholding") from certain payments to you, generally redemption
proceeds. Backup withholding may be required if:
- - You fail to furnish your properly certified social security or
other tax identification number;
- - You fail to certify that your tax identification number is
correct or that you are not subject to backup withholding due to
the underreporting of certain income;
- - The Internal Revenue Service informs the Trust that your tax
identification number is incorrect.
These certifications are contained in the Application that you
should complete and return when you open an account. The Fund
must promptly pay to the IRS all amounts withheld. Therefore, it
is usually not possible for the Fund to reimburse you for amounts
withheld. You may, however, claim the amount withheld as a credit
on your federal income tax return.
INVESTMENT RETURN
The Fund's performance is
usually quoted as an average
annual total return, which
is a historical figure and
is not intended to be
indicative of future results
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment of dividends and
capital gains), plus or minus the change in the net asset value
per share for a given period. A total return percentage may be
calculated by dividing the value of a share at the end of the
period (including reinvestment of distributions) by the value of
the share at the beginning of the period and subtracting one.
For a given period, an average annual total return may be
calculated by finding the average annual compounded rate that
would equate a hypothetical $1,000 investment to the ending
redeemable value.
Comparison of the Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. Of course, past performance is not necessarily
indicative of future results.
MANAGEMENT OF THE FUND
TRUSTEES AND ADVISER.
The Board of Trustees
supervises the Fund and
Stein Roe
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and additional
information about the trustees and officers. Stein Roe & Farnham
Incorporated, One South Wacker Drive, Chicago, Illinois 60606, is
responsible for managing the investment portfolio and the business
affairs of the Fund and the Trust, subject to the direction of the
Board. Stein Roe is registered as an investment adviser under the
Investment Advisers Act of 1940.
Stein Roe (and its predecessor) has advised and managed mutual
funds since 1949. Stein Roe is a wholly owned indirect subsidiary
of Liberty Financial Companies, Inc. ("Liberty Financial"), which
in turn is a majority owned indirect subsidiary of Liberty Mutual
Insurance Company.
PORTFOLIO MANAGERS.
The Fund's portfolio is
managed by Erik Gustafson and
David Brady
The portfolio managers of the Fund are Erik P. Gustafson and
David P. Brady, who are vice presidents of Stein Roe and the
Trust. 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. As of December 31, 1995, Messrs. Gustafson
and Brady were responsible for co-managing $554 million and
$42 million in mutual fund assets, respectively.
FEES AND EXPENSES.
Stein Roe receives
fees from the Fund
The Fund's investment advisory agreement with Stein Roe was
replaced on September 1, 1995, with an administrative
agreement and a management agreement. Under the terminated
advisory agreement, the annual fee was .75% of the first $250
million of average net assets, .70% of the next $250 million, and
.60% thereafter. The new fee schedule calls for a management fee
of .60% of the first $500 million, .55% of the next $500 million,
and .50% thereafter; and an administrative fee of .20% of the
first $500 million, .15% of the next $500 million, and .125%
thereafter. For the fiscal year ended September 30, 1995, Stein
Roe reimbursed the Fund $322,803, resulting in a net payment by
Stein Roe of $191,821. Please refer to Fee Table for a description
of the expense limitation.
Because of the Fund's
educational objective,
the Fund's expenses may
be higher
Because the Fund also has as an objective being an educational
experience for investors, the Fund's non-advisory expenses may be
higher than other mutual funds 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 for the Fund. In
doing so, Stein Roe seeks to obtain the best combination of price
and execution, which involves a number of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty Financial, is
the agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The Fund's shares are
offered through Liberty
Securities Corporation
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by Stein Roe,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. Foreign securities are maintained in the custody of foreign
banks and trust companies that are members of the Bank's Global
Custody Network or foreign depositories used by such members.
(See Custodian in the Statement of Additional Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
The Fund is part of a
Massachusetts business trust
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, which provides that each shareholder
shall be deemed to have agreed to be bound by the terms thereof.
The Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the
Trust was unable to meet its obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the Trust is
also believed to be remote, because it would be limited to claims
to which the disclaimer did not apply and to circumstances in
which the other series was unable to meet its obligations.
<PAGE>
[STEIN ROE FUNDS LOGO]
The Stein Roe Funds
Stein Roe Government Reserves Fund
Stein Roe Cash Reserves Fund
Stein Roe Limited Maturity Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Total Return Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
Stein Roe Special Venture Fund
P.O. Box 804058
Chicago, Illinois 60680
800-338-2550
In Chicago, visit our Fund Center
at One South Wacker Drive
Liberty Securities Corporation, Distributor
YI296
<PAGE>
YOUNG INVESTOR FUND
The Fund's objective is long-term capital appreciation. The Fund
invests in securities of companies that affect the lives of
children or teenagers. The Fund is also intended to be a fun,
educational experience for young investors and their parents.
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the STEIN ROE INVESTMENT TRUST, an open-end management investment
company.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
If you have any questions about new Fund accounts, please call
800-403-KIDS (800-403-5437); for existing accounts, shareholders
should call 800-338-2550.
A Statement of Additional Information dated February 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the
Secretary at the address shown on the back cover or by calling the
Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February 1, 1996.
<PAGE>
TABLE OF CONTENTS
Page
Summary .................................2
Fee Table ..............................4
Financial Highlights.....................6
The Fund ................................7
Investment Policies .....................7
Portfolio Investments and Strategies.....8
Investment Restrictions.................10
Risks and Investment Considerations.....11
How to Purchase Shares .................12
By Check ............................13
By Wire .............................13
By Electronic Transfer...............14
By Exchange .........................14
Purchase Price and Effective Date ...14
Conditions of Purchase ..............14
Purchases Through Third Parties......14
How to Redeem Shares ...................15
By Written Request ..................15
By Exchange .........................15
Special Redemption Privileges .......16
General Redemption Policies .........17
Shareholder Services ...................19
Net Asset Value ........................21
Distributions and Income Taxes .........21
Investment Return ......................23
Management of the Fund .................23
Organization and Description of Shares..25
SUMMARY
STEIN ROE YOUNG INVESTOR FUND (the "Fund") is a series of the
Stein Roe Investment Trust, an open-end diversified management
investment company. The Fund is a "no-load" fund. There are no
sales or redemption charges. (See The Fund and Organization and
Description of Shares.) This prospectus is not a solicitation in any
jurisdiction in which the Fund is not registered for sale.
INVESTMENT OBJECTIVES AND POLICIES.
The Fund's investment objective is long-term capital appreciation.
It seeks to achieve its objective by investing primarily in common
stocks and other equity-type securities that Stein Roe believes to
have long-term appreciation potential. The Fund invests primarily
in securities of companies that appeal to or affect the lives of
children or teenagers. It is designed for long-term investors,
particularly children and teenagers.
In addition to the Fund's investment objective and policies, the
Fund also has an educational objective. It seeks to teach
children and teenagers about the Fund, basic economic principles,
and personal finance through a variety of educational materials
prepared and paid for by the Fund.
There can be no guarantee that the Fund will achieve its
investment objective. Please see Investment Policies and
Portfolio Investments and Strategies for further information.
<PAGE>
INVESTMENT RISKS.
The Fund is designed for long-term investors who are willing to
accept the investment risk and volatility of equity-type
securities in general, as well as the specific types of equity
securities emphasized by the Fund. By investing in companies
whose products or services appeal to young investors, the Fund
emphasizes various consumer goods sectors. Since the Fund may
invest in foreign securities, investors should understand and
consider carefully the risks involved in foreign investing.
Investing in foreign securities involves certain considerations
involving both risks and opportunities not typically associated
with investing in U.S. securities. Please see Investment
Policies, Portfolio Investments and Strategies, and Risks and
Investment Considerations for further information.
PURCHASES.
The minimum initial investment for the Fund is $2,500; the minimum
investment for Uniform Gifts/ Transfers to Minors Act accounts is
$1,000. Additional investments must be at least $50. Shares may
be purchased by check, by bank wire, by electronic transfer, or by
exchange from another Stein Roe Fund. For more detailed
information, see How to Purchase Shares.
REDEMPTIONS.
For information on redeeming Fund shares, including the special
redemption privileges, see How to Redeem Shares.
NET ASSET VALUE.
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value is determined as of
the close of trading on the New York Stock Exchange. (For more
detailed information, see Net Asset Value.)
DISTRIBUTIONS.
Dividends are normally declared and paid annually. Distributions
will be reinvested into your Fund account unless you elect to have
them paid in cash, deposited by electronic transfer into your bank
checking account, or invested in another Stein Roe Fund account.
(See Distributions and Income Taxes and Shareholder Services.)
MANAGEMENT AND FEES.
Stein Roe & Farnham Incorporated ("Stein Roe") provides management
and investment advisory services to the Fund. For a description
of Stein Roe and its fees, see Management of the Fund.
If you have any additional questions about the Fund, please feel
free to discuss them with an account representative by calling
800-338-2550.
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None*
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (after expense
reimbursement; as a percentage of average net assets)
Management and Administrative Fees (after
expense reimbursement) None
12b-1 Fees None
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, the Adviser may voluntarily
absorb certain expenses of the Fund. Stein Roe has agreed to
voluntarily waive its management fee and absorb the expenses of
the Fund to the extent that such fees and expenses on an
annualized basis exceed 1.25% of its annual average net assets
from February 1, 1996 through January 31, 1997, subject to earlier
termination by the Adviser on 30 days' notice (previously, Stein
Roe had undertaken to reimburse the Fund for expenses in excess of
0.99%). Any such absorption will temporarily lower the Fund's
overall expense ratio and increase its overall return to
investors. Absent the expense undertaking, Management and
Administrative Fees, Other Expenses, and Total Fund Operating
Expenses would have been 0.76%, 2.11%, and 2.87%, respectively.
(Also see Management of the Fund--Fees and Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts listed for the Fund under Annual Fund Operating
Expenses remain the same in each of the periods; that all income
dividends and capital gain distributions are reinvested in
additional Fund shares; and that, for purposes of management fee
breakpoints, net assets remain at the same level as in the most
recently completed fiscal year.
The figures in the Example are not necessarily indicative of past
or future expenses, and actual expenses may be greater or less
than those shown. Although information such as that shown in the
Example and Fee Table is useful in reviewing the Fund's expenses
and in providing a basis for comparison with other mutual funds,
it should not be used for comparison with other investments using
different assumptions or time periods.
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund on
a per-share basis for the period shown and has been audited by
Arthur Andersen LLP, independent public accountants. The
auditors' report was unqualified. The table should be read in
conjunction with the Fund's financial statements and notes
thereto. The Fund's annual report, which may be obtained from the
Trust without charge upon request, contains additional performance
information.
Period Ended Year Ended
Sept. 30, Sept. 30,
1994 (a) 1995
-------------- ----------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.24
------ -------
Income from investment operations
Net investment income 0.03 0.06
Net realized and unrealized gains on investments 0.21 4.07
Total from investment operations 0.24 4.13
------ -------
Distributions from net investment income -- (0.08)
------ -------
NET ASSET VALUE, END OF PERIOD $10.24 $14.29
------ -------
------ -------
Ratio of net expenses to average net assets (b) *0.99% 0.99%
Ratio of net investment income to average
net assets (c) *1.07% 0.47%
Portfolio turnover rate **12% 55%
Total return **2.40% 40.58%
Net assets, end of period (000 omitted) $8,176 $31,401
________________________________
*Annualized.
**Not annualized.
(a) From commencement of operations on April 29, 1994.
(b) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by the investment adviser, this
ratio would have been 4.58% for the period ended September 30,
1994 and 2.87% for the year ended September 30, 1995.
(c) Computed giving effect to the investment adviser's expense
limitation undertaking.
THE FUND
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 investment
advisory, administrative, and bookkeeping and accounting services
to the Fund. Stein Roe also manages and
provides investment advisory services for several other no-load
mutual funds with different investment objectives, including
equity funds, international funds, taxable and tax-exempt bond
funds, and money market funds. To obtain prospectuses and
other information on any of those mutual funds, please call 800-
338-2550.
INVESTMENT POLICIES
The Fund's investment objective is long-term capital appreciation.
It seeks to achieve its objective by investing primarily in common
stocks and other equity-type securities that, in the opinion of
Stein Roe, have long-term appreciation potential.
Under normal circumstances, at least 65% of the Fund's total
assets will be invested in securities of companies that, in the
opinion of Stein Roe, directly or through one or more
subsidiaries, affect the lives of children or teenagers. Such
companies may include companies that produce products or services
that children or teenagers use, are aware of, or could potentially
have an interest in.
Although the Fund invests primarily in common stocks and other
equity-type securities (such as preferred stocks, securities
convertible into or exchangeable for common stocks, and warrants
or rights to purchase common stocks), it may invest up to 35% of
its total assets in debt securities. The Fund may invest in
securities of smaller emerging companies as well as securities of
well-seasoned companies of any size. Smaller companies, however,
involve higher risks in that they typically have limited product
lines, markets, and financial or management resources. In
addition, the securities of smaller companies may trade less
frequently and have greater price fluctuation than larger
companies, particularly those operating in countries with
developing markets. The Fund may also employ investment
techniques described elsewhere in this prospectus. (See Risks and
Investment Considerations and Fees and Expenses.)
In addition to the Fund's investment objective and policies, the
Fund also has an educational objective. The Fund will seek to
educate its shareholders by providing educational materials
regarding personal finance and investing as well as materials on
the Fund and its portfolio holdings.
PORTFOLIO INVESTMENTS AND STRATEGIES
In pursuing its investment objective, the Fund may invest in debt
securities. A debt security is an obligation of a borrower to
make payments of principal and interest to the holder of the
security. To the extent the Fund invests in debt securities, such
holdings will be subject to interest rate risk and credit risk.
Interest rate risk is the risk that the value of a portfolio will
fluctuate in response to changes in interest rates. Generally,
the debt component of a portfolio will tend to decrease in value
when interest rates rise and increase in value when interest rates
fall. Credit risk is the risk that an issuer will be unable to make principal
and interest payments when due. Investments in debt securities
are limited to those that are rated within the four highest grades
(generally referred to as "investment grade") assigned by a nationally
recognized statistical rating organization. Investments in unrated debt
securities are limited to those deemed to be of comparable quality by
Stein Roe. Securities rated within the fourth highest grade may possess
speculative characteristics. If the rating of a security held by the
Fund is lost or reduced below investment grade, the Fund is not required
to dispose of the security--Stein Roe will, however, consider that
fact in determining whether the Fund should continue to hold the
security. When Stein Roe considers a temporary defensive position
advisable, the Fund may invest without limitation in high-quality
fixed income securities, or hold assets in cash or cash
equivalents.
The Fund may invest up to 25% of its total assets in foreign
securities. (See Risks and Investment Considerations.) In
addition to, or in lieu of, such direct investment, the Fund may
construct a synthetic foreign position by (a) purchasing a debt
instrument denominated in one currency, generally U.S. dollars;
and (b) concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, the Fund may
contract to purchase an amount of foreign currency sufficient to
pay the purchase price of the securities at the settlement date.
Such a contract involves the risk that the value of the foreign
currency may decline relative to the value of the dollar prior to
the settlement date--this risk is in addition to the risk that the
value of the foreign security purchased may decline.
The Fund may make loans of its portfolio securities to broker-
dealers and banks and enter into reverse repurchase agreements
subject to certain restrictions described in the Statement of
Additional Information. The Fund may invest in securities
purchased on a when-issued or delayed-delivery basis. Although
the payment terms of these securities are established at the time
the Fund enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. The Fund will make such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
it is deemed advisable for investment reasons.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional, exchange-traded and non-exchange-traded
options, futures contracts, futures options, forward contracts,
securities collateralized by underlying pools of mortgages or
other receivables, floating rate instruments, and other
instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument or
security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, or an interest rate.
The Fund does not expect to invest more than 5% of its net assets
in any type of Derivative except for options, futures contracts,
and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on Stein Roe's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, the Fund may: (1)
purchase and write both call options and put options on
securities, indexes and foreign currencies; (2) enter into
interest rate, index and foreign currency futures contracts; (3)
write options on such futures contracts; and (4) purchase other
types of forward or investment contracts linked to individual
securities, indexes, or other benchmarks. The Fund may write a
call or put option only if the option is covered. As the writer
of a covered call option, the Fund foregoes, during the option's
life, the opportunity to profit from increases in market value of
the security covering the call option above the sum of the premium
and the exercise price of the call. There can be no assurance
that a liquid market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require low
margin deposits, the use of futures contracts involves a high
degree of leverage and may result in losses in excess of the
amount of the margin deposit.
INVESTMENT RESTRICTIONS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S.Government or repurchase agreements for such securities,
and would not prevent the Fund from investing all of its assets in
shares of another investment company having the identical investment
objective.
The Fund will not invest more than 25% of its total assets (at the
time of investment) in the securities of companies in any one
industry.
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. It may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
The Fund will not borrow money, except as a temporary measure for
extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33 1/3% of
the Fund's total assets (at market). The Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets.
The Fund may invest in repurchase agreements, /1/ provided that
it will not invest more than 5% of its net assets in repurchase
agreements maturing in more than seven days, and any other
illiquid securities. An investment in illiquid securities could
involve relatively greater risks and costs to the Fund.
- -----------------
/1/ A repurchase agreement involves a sale of securities to the
Fund in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, the Fund could experience both losses
and delays in liquidating its collateral.
- ------------------
The investment restrictions described in the first three paragraphs
of this section are fundamental policies and, as such, can be
changed only with the approval of a "majority of the outstanding
voting securities" as defined in the Investment Company Act of
1940. The investment objective is non-fundamental and, as such,
may be changed by the Board of Trustees without shareholder
approval. Any such change may result in the Fund having an
investment objective different from the objective the shareholder
considered appropriate at the time of investment in the Fund. All
of the investment restrictions are set forth in the Statement of
Additional Information.
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 will achieve its objective. The Fund is also designed to be
a fun, educational experience for young investors and their
parents.
While the Fund seeks to reduce risk by investing in a diversified
portfolio, diversification does not eliminate all risk. The Fund
will not, however, invest more than 25% of the total value of its
assets (at the time of investment) in the securities of companies
in any one industry. By investing in companies whose products or
services appeal to young investors, the Fund emphasizes various
consumer goods sectors.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
portfolio securities must be held. Accordingly, the portfolio
turnover rate may vary significantly from year to year, but is not
expected to exceed 100% under normal market conditions. A high
rate of portfolio turnover may result in increased transaction
expenses and the realization of capital gains and losses. (See
Distributions and Income Taxes.) The Fund is not intended to be
an income-producing investment, although it may produce income.
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers, less market liquidity, more market
volatility, less developed and regulated markets, and greater
political instability. In addition, various restrictions by
foreign governments on investments by non-residents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
non-residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER/FEEDER OPTION.
Rather than investing in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other mutual funds managed by Stein Roe for
investment in another investment company having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and to
reduce costs. It is expected that any such investment company
would be managed by Stein Roe in substantially the same manner as
the Fund. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be made
only if the Trustees determine it to be in the best interests of
the Fund and its shareholders.
HOW TO PURCHASE SHARES
You may purchase Fund shares by check, by wire, by electronic
transfer, or by exchange from your account with another Stein Roe
Fund. The initial purchase minimum per Fund account is
$2,500; the minimum for Uniform Gifts/Transfers to Minors Act
accounts is $1,000; the minimum for accounts established under an
automatic investment plan of at least $50 per month (i.e., Regular
Investments or the Automatic Exchange Plan) is $100 through June
30, 1996, after which time it will be $500; and the minimum per
account for Stein Roe IRAs is $500. The initial purchase minimum
is waived for shareholders who participate in the Stein Roe
Counselor [SERVICE MARK] and Stein Roe Counselor Preferred
[SERVICE MARK] programs and for clients of Stein Roe. Subsequent
purchases must be at least $50. (See Shareholder Services.)
BY CHECK.
To make an initial purchase of shares of the Fund by check, please
complete and sign the Application and mail it, together with a
check made payable to Stein Roe Funds, to P.O. Box 804058,
Chicago, Illinois 60680.
You may make subsequent investments by submitting a check along
with either the stub from your Fund account confirmation statement
or a note indicating the amount of the purchase, your account
number, and the name in which your account is registered. Each
individual check submitted for purchase must be at least $50, and
the Trust generally will not accept cash, drafts, third party
checks, or checks drawn on banks outside the United States.
Should an order to purchase shares of the Fund be cancelled
because your check does not clear, you will be responsible for any
resulting loss incurred by the Fund.
BY WIRE.
You also may pay for shares by instructing your bank to wire
federal funds (monies of member banks within the Federal Reserve
System) to the Fund's custodian bank. Your bank may charge you a
fee for sending the wire. If you are opening a new account by
wire transfer, you must first telephone the Trust to request an
account number and furnish your social security or other tax
identification number. Neither the Fund nor the Trust will be
responsible for the consequences of delays, including delays in
the banking or Federal Reserve wire systems. Your bank
must include the full name(s) in which your account is registered
and your Fund account number, and should address its wire as
follows:
State Street Bank and Trust Company
ABA Routing No. 011000028
Boston, Massachusetts
Attention: Custody
Fund No. 7124; Stein Roe Young Investor Fund
Account of (exact name(s) in registration)
Shareholder Account No. ___________
BY ELECTRONIC TRANSFER.
You may also make subsequent investments by an electronic transfer
of funds from your bank checking account. Electronic transfer
allows you to make purchases at your request ("Special
Investments") by calling 800-338-2550 or at pre-scheduled
intervals ("Regular Investments"). (See Shareholder Services.)
Electronic transfer purchases are subject to a $50 minimum and a
$100,000 maximum. You may not open a new account through
electronic transfer. Should an order to purchase shares of the
Fund be cancelled because your electronic transfer does not clear,
you will be responsible for any resulting loss incurred by the
Fund.
BY EXCHANGE.
You may purchase shares by exchange of shares from another Stein
Roe Fund account either by phone (if the Telephone Exchange
Privilege has been established on the account from which the
exchange is being made), by mail, in person, or automatically at
regular intervals (if you have elected Automatic Exchanges).
Restrictions apply; please review the information on the Exchange
Privilege under How to Redeem Shares--By Exchange.
PURCHASE PRICE AND EFFECTIVE DATE.
Each purchase of the Fund's shares is made at the Fund's net asset
value (see Net Asset Value) next determined after receipt of
payment as follows:
A purchase by check or wire transfer is made at the net asset
value next determined after the Fund receives the check or wire
transfer of funds in payment of the purchase.
A purchase by electronic transfer is made at the net asset value
next determined after the Fund receives the electronic transfer
from your bank. A Special Electronic Transfer Investment order
received by telephone on a business day before 2:00 p.m., Central
time, is effective on the next business day.
CONDITIONS OF PURCHASE.
Each purchase order for the Fund must be accepted by an authorized
officer of the Trust in Chicago and is not binding until
accepted and entered on the books of the Fund. Once your purchase
order has been accepted, you may not cancel or revoke it; you may,
however, redeem the shares. The Trust reserves the right not to
accept any purchase order that it determines not to be in the best
interests of the Trust or of the Fund's shareholders. The Trust
also reserves the right to waive or lower its investment minimums
for any reason.
PURCHASES THROUGH THIRD PARTIES.
You may purchase (or redeem) shares through investment dealers,
banks, or other financial institutions. These institutions may
charge for their services or place limitations on the extent to
which you may use the services offered by the Trust. There are no
charges or limitations imposed by the Trust, other than those
described in this prospectus, if shares are purchased (or
redeemed) directly from the Trust.
Some financial institutions that maintain nominee accounts with
the Fund for their clients for whom they hold Fund shares charge
an annual fee of up to 0.25% of the average net assets held in
such accounts for accounting, servicing, and distribution services
they provide with respect to the underlying Fund shares. Such
fees are paid by Stein Roe.
HOW TO REDEEM SHARES
BY WRITTEN REQUEST.
You may redeem all or a portion of your shares of the Fund by
submitting a written request in "good order" to the Trust at P.O.
Box 804058, Chicago, Illinois 60680. A redemption request will be
considered to have been received in good order if the following
conditions are satisfied:
(1) The request must be in writing, and must indicate the number
of shares or dollar amount to be redeemed and identify the
shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The signatures on the written redemption request must be
guaranteed (a signature guarantee is not a notarization, but is a
widely accepted way to protect you and the Fund by verifying your
signature);
(4) The request must include other supporting legal documents as
required from organizations, executors, administrators, trustees,
or others acting on accounts not registered in their names.
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 are
not available to redeem shares held by a tax-sheltered retirement
plan sponsored by the Adviser. (See also General Redemption
Policies.)
Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account
by calling 800-338-2550 or by sending a telegram; new accounts
opened by exchange are subject to the $2,500 initial purchase
minimum. GENERALLY, YOU WILL BE LIMITED TO FOUR TELEPHONE
EXCHANGE ROUND-TRIPS PER YEAR AND THE FUND MAY REFUSE REQUESTS FOR
TELEPHONE EXCHANGES IN EXCESS OF FOUR ROUND-TRIPS (A ROUND-TRIP
BEING THE EXCHANGE OUT OF THE FUND INTO ANOTHER STEIN ROE FUND,
AND THEN BACK TO THE FUND). In addition, the Trust's general
redemption policies apply to 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 miminum; $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 2:00 p.m., Central time, is deemed received on the
next business day.
GENERAL REDEMPTION POLICIES.
You may not cancel or revoke your redemption order once
instructions have been received and accepted. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions. Please telephone
the Trust if you have any questions about requirements for a
redemption before submitting your request. The Trust reserves the
right to require a properly completed Application before making
payment for shares redeemed.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares and may result
in a realized capital gain or loss.
The Trust will generally mail payment for shares redeemed within
seven days after proper instructions are received. However, the
Trust normally intends to pay proceeds of a Telephone Redemption
paid by wire on the next business day. If you attempt to redeem
shares within 15 days after they have been purchased by check or
electronic transfer, the Trust may delay payment of the redemption
proceeds to you until it can verify that payment for the purchase
of those shares has been (or will be) collected. To reduce such
delays, the Trust recommends that your purchase be made by federal
funds wire through your bank.
Generally, you may not use the Exchange Privilege or any Special
Redemption Privilege to redeem shares purchased by check (other
than certified or cashiers' checks) or electronic transfer until
15 days after their date of purchase.
The Trust reserves the right at any time without prior notice to
suspend, limit, modify, or terminate any Privilege or its use in
any manner by any person or class.
Neither the Trust, its transfer agent, nor their respective
officers, trustees, directors, employees, or agents will be
responsible for the authenticity of instructions provided under
the Privileges, nor for any loss, liability, cost or expense for
acting upon instructions furnished thereunder if they reasonably
believe that such instructions are genuine. The Fund employs
procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special Electronic Transfer Redemption Privilege are
genuine. Use of any Special Redemption Privilege or the Special
Electronic Transfer Redemption Privilege authorizes the Fund and its
transfer agent to tape-record all instructions to redeem. In addition,
callers are asked to identify the account number and registration, and
may be required to provide other forms of identification. Written
confirmations of transactions are mailed promptly to the registered
address; a legend on the confirmation requests that the shareholder
review the transactions and inform the Fund immediately if there is a
problem. If the Fund does not follow reasonable procedures for
protecting shareholders against loss on telephone transactions, it
may be liable for any losses due to unauthorized or fraudulent
instructions.
The Trust reserves the right to redeem shares in any account and
send the proceeds to the owner if the shares in the account do not
have a value of at least $1,000. A shareholder would be notified
that his account is below the minimum and would be allowed 30 days
to increase the account before the redemption is processed.
Shares in any account you maintain with the Fund or any of the
other Stein Roe Funds may be redeemed to the extent necessary to
reimburse any Stein Roe Fund for any loss it sustains that is
caused by you (such as losses from uncollected checks and
electronic transfers for the purchase of shares, or any Stein Roe
Fund liability under the Internal Revenue Code provisions on
backup withholding).
SHAREHOLDER SERVICES
REPORTING TO SHAREHOLDERS.
You will receive a confirmation statement reflecting each of your
purchases and redemptions of shares of the Fund. 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] 24-HOUR INFORMATION SERVICE.
To access the Stein Roe Funds-on-Call [registered] automated
telephone service, just call 800-338-2550 on any touch-tone
telephone and follow the recorded instructions. Funds-on-Call
[registered] provides yields, prices, latest dividends, account
balances, last transaction, and other information 24 hours a day,
seven days a week.
FUNDS-ON-CALL [REGISTERED] AUTOMATED TELEPHONE TRANSACTIONS.
If you have established the Funds-on-Call [registered] transaction
privilege (Funds-on-Call [registered] Application will be
required), you may initiate Special Investments and Redemptions,
Telephone Exchanges, and Telephone Redemptions by Check 24 hours a day,
seven days a week by calling 800-338-2550 on a touch-tone telephone.
These transactions are subject to the terms and conditions of the
individual privileges. (See How to Purchase Shares and How to Redeem
Shares.)
STEIN ROE COUNSELOR [SERVICE MARK] PROGRAM.
The Stein Roe Counselor [SERVICE MARK] and Stein Roe Counselor
Preferred [SERVICE MARK] programs are professional investment
advisory services available to shareholders. These programs are
designed to provide investment guidance in helping 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.
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 is determined as of the close of trading on the New York
Stock Exchange ("NYSE") (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's assets
and liabilities by the number of shares outstanding. Net asset
value will not be determined on days when the NYSE is closed
unless, in the judgment of the Board of Trustees, the net asset
value of the Fund should be determined on any such day, in which
case the determination will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued at its
last sale price on that exchange on the day of valuation or, if
there are no sales that day, at the latest bid quotation. Each
over-the-counter security for which the last sale price on the day
of valuation is available from NASDAQ is valued at that price.
All other over-the-counter securities for which reliable
quotations are available are valued at the latest bid quotation.
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually. The
Fund intends to distribute by the end of each calendar year at
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 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.
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 the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and additional
information about the trustees and officers. Stein Roe & Farnham
Incorporated, One South Wacker Drive, Chicago, Illinois 60606, is
responsible for managing the investment portfolio and the business
affairs of the Fund and the Trust, subject to the direction of the
Board. Stein Roe is registered as an investment adviser under the
Investment Advisers Act of 1940.
Stein Roe (and its predecessor) has advised and managed mutual
funds since 1949. Stein Roe is a wholly owned indirect subsidiary
of Liberty Financial Companies, Inc. ("Liberty Financial"), which
in turn is a majority owned indirect subsidiary of Liberty Mutual
Insurance Company.
PORTFOLIO MANAGERS.
The portfolio managers of the Fund are Erik P. Gustafson and
David P. Brady, who are vice presidents of Stein Roe and the
Trust. 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. As of December 31, 1995, Messrs. Gustafson
and Brady were responsible for co-managing $554 million and
$42 million in mutual fund assets, respectively.
FEES AND EXPENSES.
The Fund's investment advisory agreement with Stein Roe was
replaced on September 1, 1995, with an administrative
agreement and a management agreement. Under the terminated
advisory agreement, the annual fee was .75% of the first $250
million of average net assets, .70% of the next $250 million, and
.60% thereafter. The new fee schedule calls for a management fee
of .60% of the first $500 million, .55% of the next $500 million,
and .50% thereafter; and an administrative fee of .20% of the
first $500 million, .15% of the next $500 million, and .125%
thereafter. For the fiscal year ended September 30, 1995, Stein
Roe reimbursed the Fund $322,803, resulting in a net payment by
Stein Roe of $191,821. Please refer to Fee Table for a description
of the expense limitation.
Because 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 for the Fund. In
doing so, Stein Roe seeks to obtain the best combination of price
and execution, which involves a number of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty Financial, is
the agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to the
Trust at P.O. Box 804058, Chicago, Illinois 60680. All
distribution and promotional expenses are paid by Stein Roe,
including payments to the Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. Foreign securities are maintained in the custody of foreign
banks and trust companies that are members of the Bank's Global
Custody Network or foreign depositories used by such members.
(See Custodian in the Statement of Additional Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, which provides that each shareholder
shall be deemed to have agreed to be bound by the terms thereof.
The Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, eight series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, Trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the
Trust was unable to meet its obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the Trust is
also believed to be remote, because it would be limited to claims
to which the disclaimer did not apply and to circumstances in
which the other series was unable to meet its obligations.
<PAGE>
[STEIN ROE FUNDS LOGO]
The Stein Roe Funds
Stein Roe Government Reserves Fund
Stein Roe Cash Reserves Fund
Stein Roe Limited Maturity Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Total Return Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
Stein Roe Special Venture Fund
P.O. Box 804058
Chicago, Illinois 60680
800-338-2550
In Chicago, visit our Fund Center
at One South Wacker Drive
Liberty Securities Corporation, Distributor
YI296
<PAGE>
STEINROE FUNDS LOGO
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE GROWTH & INCOME FUND
(FORMERLY NAMED STEINROE PRIME EQUITIES)
The Fund seeks to provide both growth of capital and current
income.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution
plans ("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or
redemption charges, and the Fund has no 12b-1 plan. The Fund
is a series of the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain
it for future reference.
A Statement of Additional Information dated February 1, 1996
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference.
The Statement of Additional Information and the most recent
financial statements may be obtained without charge by
writing to the Secretary at P.O. Box 804058, Chicago, IL
60680 or by calling 800-322-1130. The Statement of
Additional Information contains information relating to other
series of the Stein Roe Investment Trust that may not be
available as investment vehicles for your defined
contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
...... . Page
Fee Table............................. .2
Financial Highlights.................. .2
The Fund............................. ..3
How the Fund Invests................ ...4
Portfolio Investments and Strategies.. .4
Restrictions on the Fund's Investments 5
Risks and Investment Considerations.. . 6
How to Purchase Shares.............. ...7
How to Redeem Shares .................. 7
Net Asset Value ...................... .7
Distributions and Income Taxes....... ..8
Investment Return................... ...8
Management of the Fund..................9
Organization and Description of Shares.10
For More Information ..................10
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management and Administrative Fees 0.75%
12b-1 Fees None
Other Expenses 0.40%
-----
Total Fund Operating Expenses 1.15%
-----
-----
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end
of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$12 $37 $63 $140
The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will
bear directly or indirectly as an investor in the Fund. The
Fund's transfer agency fees were changed effective May 1,
1995, and changes in management and administrative fees
became effective on September 1, 1995. The above table
illustrates expenses that would have been borne by investors
in the last fiscal year assuming that the fee changes had
been in effect for the entire year. (Also see Management of
the Fund--Fees and Expenses.) For purposes of the Example
above, the figures assume that the percentage amounts listed
for the Fund under Annual Fund Operating Expenses remain the
same in each of the periods; that all income dividends and
capital gain distributions are reinvested in additional Fund
shares; and that, for purposes of management fee breakpoints,
the Fund's net assets remain at the same level as in the most
recently completed fiscal year. The figures in the Example
are not necessarily indicative of past or future expenses,
and actual expenses may be greater or less than those shown.
Although information such as that shown in the Example and
Fee Table is useful in reviewing the Fund's expenses and in
providing a basis for comparison with other mutual funds, it
should not be used for comparison with other investments
using different assumptions or time periods. These examples
do not reflect any charges or expenses related to your
employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the
Fund for the periods shown on a per-share basis and has been
audited by Arthur Andersen LLP, independent public
accountants. All of the auditors' reports were unqualified.
This table should be read in conjunction with the Fund's
financial statements and notes thereto. The Fund's annual
report, which may be obtained from the Trust without charge
upon request, contains additional performance information.
<TABLE>
<CAPTION>
Period Ended
Sept. 30, Years Ended September 30,
1987 (a) 1988 1989 1990 1991 1992 1993 1994 1995
------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.00 $10.49 $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54
------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.05 0.17 0.22 0.26 0.26 0.19 0.17 0.18 0.34
Net realized and
unrealized gains
(losses) on investments 0.47 (1.64) 2.46 (0.85) 2.17 1.49 2.16 0.40 2.56
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.52 (1.47) 2.68 (0.59) 2.43 1.68 2.33 0.58 2.90
------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (0.03) (0.14) (0.22) (0.26) (0.29) (0.18) (0.16) (0.16) (0.20)
Net realized capital
gains -- -- -- -- (0.36) (0.35) (0.76) (0.71) (0.59)
------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.03) (0.14) (0.22) (0.26) (0.65) (0.53) (0.92) (0.87) (0.79)
------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $10.49 $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54 $16.65
------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of net expenses
to average net
assets (b) *1.91% 1.47% 1.24% 1.08% 1.00% 0.97% 0.88% 0.90% 0.96%
Ratio of net investment
income to average net
assets (c) *1.43% 2.03% 2.28% 2.40% 2.27% 1.46% 1.23% 1.18% 1.78%
Portfolio turnover rate 32% 105% 63% 51% 48% 40% 50% 85% 70%
Total return 5.20% (13.90%) 30.63% (5.25%) 24.12% 14.00% 17.98% 4.03% 21.12%
Net assets, end of
period (000 omitted) $22,863 $23,002 $32,562 $43,446 $54,820 $70,724 $100,365 $129,680 $139,539
</TABLE>
*Annualized.
(a)From the commencement of operations on March 23, 1987.
(b)If the Fund had paid all of its expenses and there had
been no reimbursement by the Adviser, this ratio would
have been 2.49% for the period ended September 30, 1987
and 1.09% for the year ended September 30, 1990.
(c)Computed giving effect to the Adviser's expense limitation
undertaking.
__________________________
THE FUND
STEIN ROE GROWTH & INCOME FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own
shares to investors and use the money they receive to invest
in a portfolio of securities such as common stocks. A mutual
fund allows you to pool your money with that of other
investors in order to obtain professional investment
management. Mutual funds generally make it possible for you
to obtain greater diversification of your investments and
simplify your recordkeeping. The Fund does not impose
commissions or charges when shares are purchased or redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate
portfolio of securities and other assets, with its own
investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages
several other no-load mutual funds with different investment
objectives, including equity funds, international funds,
taxable and tax-exempt bond funds, and money market funds.
To obtain prospectuses and other information on opening a
regular account in any of these mutual funds, please call
800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund's investment objective is to provide both growth of
capital and current income. It is designed for investors
seeking a diversified portfolio of securities that offers the
opportunity for long-term growth of capital while also
providing a steady stream of income.
In seeking to meet this objective, the Fund invests primarily
in well-established companies whose common stocks are
believed to have both the potential to appreciate in value
and to pay dividends to shareholders.
Although it may invest in a broad range of securities
(including common stocks, preferred stocks, securities
convertible into or exchangeable for common stocks, and
warrants or rights to purchase common stocks), normally the
Fund will emphasize investments in equity securities of
companies having market capitalizations in excess of $1
billion. Securities of these well-established companies are
believed to be generally less volatile than those of
companies with smaller capitalizations because companies with
larger capitalizations tend to have experienced management;
broad, highly diversified product lines; deep resources; and
easy access to credit.
Further information on portfolio investments and strategies
may be found under Portfolio Investments and Strategies in
this prospectus and in the Statement of Additional
Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest in
debt securities of corporate and governmental issuers.
Investment in debt securities is limited to those that are
rated within the four highest grades (generally referred to
as investment grade). Securities in the fourth highest grade
may possess speculative characteristics, and changes in
economic conditions are more likely to affect the issuer's
capacity to pay interest and repay principal. If the rating
of a security held by the Fund is lost or reduced below
investment grade, the Fund is not required to dispose of the
security--the Adviser will, however, consider that fact in
determining whether the Fund should continue to hold the
security. When the Adviser deems a temporary defensive
position advisable, the Fund may invest, without limitation,
in high-quality fixed income securities, or hold assets in
cash or cash equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than
American Depositary Receipts (ADRs), foreign debt securities
denominated in U.S. dollars, or securities guaranteed by a
U.S. person, the Fund is limited to investing no more than
25% of its total assets in foreign securities. (See Risks
and Investment Considerations.) The Fund may invest in
sponsored and unsponsored ADRs. In addition to, or in lieu
of, such direct investment, the Fund may construct a
synthetic foreign position by (a) purchasing a debt
instrument denominated in one currency, generally U.S.
dollars; and (b) concurrently entering into a forward
contract to deliver a corresponding amount of that currency
in exchange for a different currency on a future date and at
a specified rate of exchange. Because of the availability of
a variety of highly liquid U.S. dollar debt instruments, a
synthetic foreign position utilizing such U.S. dollar
instruments may offer greater liquidity than direct
investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, the Fund
may contract to purchase an amount of foreign currency
sufficient to pay the purchase price of the securities at the
settlement date. Such a contract involves the risk that the
value of the foreign currency may decline relative to the
value of the dollar prior to the settlement date--this risk
is in addition to the risk that the value of the foreign
security purchased may decline. The Fund also may enter into
foreign currency contracts as a hedging technique to limit or
reduce exposure to currency fluctuations. In addition, the
Fund may use options and futures contracts, as described
below, to limit or reduce exposure to currency fluctuations.
As of September 30, 1995, the Fund's holdings of foreign
companies, as a percentage of net assets, were 4.4% (1.5% in
foreign securities and 2.9% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund may invest in securities purchased on a when-issued
or delayed-delivery basis. Although the payment terms of
these securities are established at the time the Fund enters
into the commitment, the securities may be delivered and paid
for a month or more after the date of purchase, when their
value may have changed. The Fund will make such commitments
only with the intention of actually acquiring the securities,
but may sell the securities before settlement date if it is
deemed advisable for investment reasons. The Fund may make
loans of its portfolio securities to broker-dealers and banks
subject to certain restrictions described in the Statement of
Additional Information.
PORTFOLIO TURNOVER
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of
time portfolio securities must be held. The turnover rate
may vary significantly from year to year. A high rate of
portfolio turnover may result in increased transaction
expenses and the realization of capital gains and losses.
(See Distributions and Income Taxes and Management of the
Fund.)
DERIVATIVES.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized
by underlying pools of mortgages or other receivables,
floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each
case, the value of the instrument or security is "derived"
from the performance of an underlying asset or a "benchmark"
such as a security index, an interest rate, or a currency.
The Fund does not expect to invest more than 5% of its net
assets in any type of Derivative except for options, futures
contracts, and futures options.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because they are
more efficient or less costly than direct investment. They
also may be used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and
directions of movements in security prices, interest rates
and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as
well regulated and may be less marketable than exchange-
traded Derivatives. For additional information on
Derivatives, please refer to the Statement of Additional
Information.
In seeking to achieve its desired investment objective,
provide additional revenue, or to hedge against changes in
security prices, interest rates or currency fluctuations, the
Fund may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2)
enter into interest rate, index and foreign currency futures
contracts; (3) write options on such futures contracts; and
(4) purchase other types of forward or investment contracts
linked to individual securities, indexes or other benchmarks.
The Fund may write a call or put option only if the option is
covered. As the writer of a covered call option, the Fund
foregoes, during the option's life, the opportunity to profit
from increases in market value of the security covering the
call option above the sum of the premium and the exercise
price of the call. There can be no assurance that a liquid
market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require
low margin deposits, the use of futures contracts involves a
high degree of leverage and may result in losses in excess of
the amount of the margin deposit.
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only
to 75% of the Fund's portfolio, but does not apply to
securities of the U.S. Government or repurchase agreements
for such securities, and would not prevent the Fund from
investing all of its assets in shares of another investment
company having the identical investment objective.
The Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer. It may, however, invest
all of its assets in shares of another investment company
having the identical investment objective.
The Fund will not borrow money, except as a temporary measure
for extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33
1/3% of the Fund's total assets (at market). The Fund will
not purchase additional securities when its borrowings, less
proceeds receivable from sales of portfolio securities,
exceed 5% of total assets.
The Fund may invest in repurchase agreements,/1/ provided
that the Fund will not invest more than 15% of its net assets
in repurchase agreements maturing in more than seven days,
and any other illiquid securities.
- -----------
/1/ A repurchase agreement involves a sale of securities to
the Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a
specified time. In the event of bankruptcy of the seller,
the Fund could experience both losses and delays in
liquidating its collateral.
- ---------------
The policies summarized in the first three paragraphs under
this section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as
such, can be changed only with the approval of a "majority of
the outstanding voting securities" of the Fund as defined in
the Investment Company Act of 1940. The Fund's investment
objective is non-fundamental and, as such, may be changed by
the Board of Trustees without shareholder approval. Any such
change may result in the Fund having an investment objective
different from the objective the shareholder considered
appropriate at the time of investment in the Fund. All of
the investment restrictions are set forth in the Statement of
Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks.
No investment is suitable for all investors. The Fund is
designed for long-term investors who desire to participate in
the stock market with moderate investment risk while seeking
to limit market volatility. The Fund usually allocates its
investments among a number of different industries rather
than concentrating in a particular industry or group of
industries. It may, however, under abnormal circumstances,
invest up to 25% of net assets in a particular industry or
group of industries. There can be no guarantee that the Fund
will achieve its objective.
Investment in foreign securities may represent a greater
degree of risk (including risk related to exchange rate
fluctuations, tax provisions, exchange and currency controls,
and expropriation of assets) than investment in securities of
domestic issuers. Other risks of foreign investing include
less complete financial information on issuers, less market
liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition
of exchange controls and withholding taxes on dividends, and
seizure or nationalization of investments owned by non-
residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in
the future seek to achieve its investment objective by
pooling its assets with assets of other mutual funds managed
by the Adviser for investment in another investment company
having the same investment objective and substantially the
same investment policies and restrictions as the Fund. The
purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected
that any such investment company would be managed by the
Adviser in substantially the same manner as the Fund.
Shareholders of the Fund will be given at least 30 days'
prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be
made only if the Trustees determine it to be in the best
interests of the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to
purchase shares of the Fund through your employer or
limitations on the amount that may be purchased, please
consult your employer. Shares are sold to eligible defined
contribution plans at the Fund's net asset value (see Net
Asset Value) next determined after receipt of payment by the
Fund.
Each purchase order for the Fund must be accepted by an
authorized officer of the Trust in Chicago and is not binding
until accepted and entered on the books of the Fund. Once
your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interest of the Trust or of
the Fund's shareholders.
Shares purchased by reinvestment of dividends will be
confirmed quarterly. All other purchases and redemptions
will be confirmed as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares
of the Fund through your employer's plan, including any
charges that may be imposed by the plan, please consult with
your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or
any portion of your Fund shares and use the proceeds to
purchase shares of any other Stein Roe Fund available through
your employer's defined contribution plan. (An exchange is
commonly referred to as a "transfer.") Before exercising the
Exchange Privilege, you should obtain the prospectus for the
Stein Roe Fund in which you wish to invest and read it
carefully. Contact your plan administrator for instructions
on how to exchange your shares or to obtain prospectuses of
other Stein Roe Funds available through your plan. The Fund
reserves the right to suspend, limit, modify, or terminate
the Exchange Privilege or its use in any manner by any person
or class; shareholders would be notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once
they have been received and accepted by the Trust. The Trust
cannot accept a redemption request that specifies a
particular date or price for redemption or any special
conditions.
The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because
the redemption price you receive depends upon the Fund's net
asset value per share at the time of redemption, it may be
more or less than the price you originally paid for the
shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its
net asset value per share. The net asset value of a share of
the Fund is determined as of the close of trading on the New
York Stock Exchange (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's
assets and liabilities by the number of shares outstanding.
Net asset value will not be determined on days when the
Exchange is closed unless, in the judgment of the Board of
Trustees, the net asset value of the Fund should be
determined on any such day, in which case the determination
will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued
at its last sale price on that exchange on the day of
valuation or, if there are no sales that day, at the latest
bid quotation. Each over-the-counter security for which the
last sale price on the day of valuation is available from
NASDAQ is valued at that price. All other over-the-counter
securities for which reliable quotations are available are
valued at the latest bid quotation.
Long-term straight-debt obligations are valued at a fair
value using a procedure determined in good faith by the Board
of Trustees. Pricing services approved by the Board provide
valuations (some of which may be "readily available market
quotations"). These valuations are reviewed by the Adviser.
If the Adviser believes that a valuation received from the
service does not represent a fair value, it values the
obligation using a method that the Board believes represents
fair value. The Board may approve the use of other pricing
services and any pricing service used may employ electronic
data processing techniques, including a so-called "matrix"
system, to determine valuations. Securities convertible into
stocks are valued at the latest valuation from a principal
market maker. Other assets and securities are valued by a
method that the Board believes represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid each calendar
quarter. However, because the Fund is required to distribute
at least 98% of its net investment income by the end of the
calendar year, an additional dividend may be declared near
year end. The Fund intends to distribute by the end of each
calendar year at least 98% of any net capital gains realized
from the sale of securities during the twelve-month period
ended October 31 in that year. The Fund intends to
distribute any undistributed net investment income and net
realized capital gains in the following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares
of the Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all
other requirements that are necessary for it to be relieved
of federal taxes on income and gain it distributes. The Fund
will distribute substantially all of its ordinary income and
net capital gains on a current basis. Generally, Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by the Fund to employer-
sponsored defined contribution plans that qualify for tax-
exempt treatment under federal income tax laws will not be
taxable. Special tax rules apply to investments through such
plans. You should consult your tax advisor to determine the
suitability of the Fund as an investment through such a plan
and the tax treatment of distributions (including
distributions of amounts attributable through an investment
in the Fund) from such a plan. This section is not intended
to be a full discussion of income tax laws and their effect
on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured
by the distributions received (assuming reinvestment), plus
or minus the change in the net asset value per share for a
given period. A total return percentage may be calculated by
dividing the value of a share at the end of the period
(including reinvestment of distributions) by the value of the
share at the beginning of the period and subtracting one.
For a given period, an average annual total return may be
calculated by finding the average annual compounded rate that
would equate a hypothetical $1,000 investment to the ending
redeemable value.
Comparison of the Fund's total return with alternative
investments should consider differences between the Fund and
the alternative investments, the periods and methods used in
calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return
does not reflect any charges or expenses related to your
employer's plan. Of course, past performance is not
necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement
of Additional Information for the names of and other
information about the trustees and officers. The Fund's
Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
the Fund's investment portfolio and the business affairs of
the Fund and the Trust, subject to the direction of the Board
of Trustees. The Adviser is registered as an investment
adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business
of Stein Roe & Farnham, a partnership that had advised and
managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Financial Companies,
Inc. ("Liberty Financial"), which in turn is a majority owned
indirect subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
Daniel K. Cantor and Robert A. Christensen have been co-
portfolio managers of the Fund since 1995 and 1994,
respectively. Mr. Cantor is a senior vice president of the
Adviser, which he joined in 1985. A chartered financial
analyst, he received a B.A. degree from the University of
Rochester in 1981 and an M.B.A. from the Wharton School of
the University of Pennsylvania in 1985. Mr. Christensen is a
vice-president of the Trust and a senior vice president of
the Adviser, and has been associated with the Adviser since
1962. A chartered investment counselor, he received his B.A.
degree from Vanderbilt University in 1955 and M.B.A. from
Harvard University in 1962. As of December 31, 1995, Messrs.
Cantor and Christensen were responsible for managing $152
million and $872 in mutual fund assets, respectively.
FEES AND EXPENSES.
The investment advisory agreement relating to the Fund was
replaced on September 1, 1995, with an administrative
agreement and a management agreement. Under the terminated
advisory agreement, the annual fee, based on average net
assets, was .75% of the first $250 million, .70% of the next
$250 million, and .60% thereafter. The new contracts call
for a monthly management fee based on an annual rate of .60%
of the first $500 million, .55% of the next $500 million, and
.50% thereafter; and a monthly administrative fee based on an
annual rate of .15% of the first $500 million, .125% of the
next $500 million, and .10% thereafter. For the year ended
September 30, 1995, the fees for the Fund amounted to .60% of
average net assets.
Under a separate agreement with the Trust, the Adviser
provides certain accounting and bookkeeping services to the
Fund, including computation of the Fund's net asset value and
calculation of its net income and capital gains and losses on
disposition of Fund assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for
the Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number
of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of
shares, disbursement of dividends, and maintenance of
shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders.
The Distributor is a wholly owned subsidiary of Liberty
Financial. The business address of the Distributor is 600
Atlantic Avenue, Boston, Massachusetts 02210; however, all
Fund correspondence (including purchase and redemption
orders) should be mailed to the Trust at P.O. Box 804058,
Chicago, Illinois 60680. All distribution and promotional
expenses are paid by the Adviser, including payments to the
Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the
custodian for the Fund. Foreign securities are maintained in
the custody of foreign banks and trust companies that are
members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of
Trust") dated January 8, 1987, which provides that each
shareholder shall be deemed to have agreed to be bound by the
terms thereof. The Declaration of Trust may be amended by a
vote of either the Trust's shareholders or its trustees. The
Trust may issue an unlimited number of shares, in one or more
series as the Board may authorize. Currently, eight series
are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as the Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides
that persons extending credit to, contracting with, or having
any claim against, the Trust or any particular Fund shall
look only to the assets of the Trust or of the respective
Fund for payment under such credit, contract or claim, and
that the shareholders, Trustees and officers of the Trust
shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability
be given in each contract, instrument or undertaking executed
or made on behalf of the Trust. The Declaration of Trust
provides for indemnification of any shareholder against any
loss and expense arising from personal liability solely by
reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of
shareholder liability is believed to be remote, because it
would be limited to circumstances in which the disclaimer was
inoperative and the Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on
account of unsatisfied liability of another Fund of the Trust
is also believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to
circumstances in which the other Fund was unable to meet its
obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-
322-1130 for more information about this Fund.
______________________
<PAGE>
STEINROE FUNDS LOGO
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE INTERNATIONAL FUND
The Fund seeks long-term growth of capital by investing in a
diversified portfolio of foreign securities.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution
plans ("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or
redemption charges, and the Fund has no 12b-1 plan. The Fund
is a series of the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain
it for future reference.
A Statement of Additional Information dated February 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference.
The Statement of Additional Information and the most recent
financial statements may be obtained without charge by
writing to the Secretary at P.O. Box 804058, Chicago, IL
60680 or by calling 800-322-1130.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
...... . Page
Fee Table............................. .2
Financial Highlights.................. .2
The Fund............................. ..3
How the Fund Invests................ ...3
Portfolio Investments and Strategies.. .4
Restrictions on the Fund's Investments 6
Risks and Investment Considerations.. . 7
How to Purchase Shares.............. ...8
How to Redeem Shares .................. 8
Net Asset Value ...................... .9
Distributions and Income Taxes....... ..9
Investment Return................... ..10
Management of the Fund.................10
Organization and Description of Shares.11
For More Information ..................12
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management and Administrative Fees 1.00%
12b-1 Fees None
Other Expenses 0.65%
-----
Total Fund Operating Expenses 1.65%
-----
-----
EXAMPLE. You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return; and (2) redemption
at the end of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$17 $52 $90 $195
The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will
bear directly or indirectly as an investor in the Fund. The
information in the table is based upon actual expenses
incurred in the last fiscal year, except that it has been
adjusted to reflect changes in the Fund's transfer agency
services and fees. From time to time, the Adviser may
voluntarily absorb certain expenses of the Fund. The Adviser
has agreed to voluntarily waive its management fee and absorb
the expenses of the Fund to the extent that such fees and
expenses on an annualized basis exceed 1.65% of its annual
average net assets from May 1, 1995 through January 31, 1997,
subject to earlier termination by the Adviser on 30 days'
notice. Any such absorption will temporarily lower the
Fund's overall expense ratio and increase its overall return
to investors. The Fund's expenses were not limited during
the period since they did not exceed the limitation. (Also
see Management of the Fund--Fees and Expenses.)
For purposes of the Example above, the figures assume that
the percentage amounts listed for the Fund under Annual Fund
Operating Expenses remain the same in each of the periods and
that all income dividends and capital gain distributions are
reinvested in additional Fund shares. The figures in the
Example are not necessarily indicative of past or future
expenses, and actual expenses may be greater or less than
those shown. Although information such as that shown in the
Example and Fee Table is useful in reviewing the Fund's
expenses and in providing a basis for comparison with other
mutual funds, it should not be used for comparison with other
investments using different assumptions or time periods. The
example does not reflect any charges or expenses related to
your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the
Fund for the period shown on a per-share basis and has been
audited by Arthur Andersen LLP, independent public
accountants. All of the auditors' reports were unqualified.
This table should be read in conjunction with the Fund's
financial statements and notes thereto. The Fund's annual
report, which may be obtained from the Trust without charge
upon request, contains additional performance information.
Period Ended Year Ended
Sept. 30, Sept. 30,
1994 (a) 1995
------------ ---------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.61
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.12
Net realized and unrealized gains (losses)
on investments and foreign currency
transactions 0.58 (0.26)
------ ------
Total from investment operations 0.61 (0.14)
------ ------
DISTRIBUTIONS
Net investment income -- (0.05)
Net realized capital gains -- (0.17)
------ ------
Total distributions -- (0.22)
------ ------
NET ASSET VALUE, END OF PERIOD $10.61 $10.25
------ ------
------ ------
Ratio of net expenses to average net assets *1.61% 1.59%
Ratio of net investment income to average
net assets *0.61% 1.41%
Portfolio turnover rate 48% 59%
Total return 6.10% (1.28%)
Net assets, end of period (000 omitted) $74,817 $83,020
- -----------
*Annualized.
(a) From commencement of operations on March 1, 1994.
__________________________
THE FUND
STEIN ROE INTERNATIONAL FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own
shares to investors and use the money they receive to invest
in a portfolio of securities such as common stocks. A mutual
fund allows you to pool your money with that of other
investors in order to obtain professional investment
management. Mutual funds generally make it possible for you
to obtain greater diversification of your investments and
simplify your recordkeeping. The Fund does not impose
commissions or charges when shares are purchased or redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate
portfolio of securities and other assets, with its own
investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages
and provides investment advisory services for several other
no-load mutual funds with different investment objectives,
including equity funds, taxable and tax-exempt bond funds,
and money market funds. To obtain prospectuses and other
information on opening a regular account in any of these
mutual funds, please call 800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund invests as described below. Further information on
portfolio investments and strategies may be found under
Portfolio Investments and Strategies in this prospectus and
in the Statement of Additional Information.
The Fund's investment objective is to seek long-term growth
of capital by investing primarily in a diversified portfolio
of foreign securities. Current income is not a primary
factor in the selection of portfolio securities. The Fund
invests primarily in common stocks and other equity-type
securities (such as preferred stocks, securities convertible
or exchangeable for common stocks, and warrants or rights to
purchase common stocks). The Fund may invest in securities
of smaller emerging companies as well as securities of well-
seasoned companies of any size. Smaller companies, however,
involve higher risks in that they typically have limited
product lines, markets, and financial or management
resources. In addition, the securities of smaller companies
may trade less frequently and have greater price fluctuation
than larger companies, particularly those operating in
countries with developing markets.
The Fund diversifies its investments among several countries
and does not concentrate investments in any particular
industry. In pursuing its objective, the Fund varies the
geographic allocation and types of securities in which it
invests based on the Adviser's continuing evaluation of
economic, market, and political trends throughout the world.
While the Fund has not established limits on geographic asset
distribution, it ordinarily invests in the securities markets
of at least three countries outside the United States,
including but not limited to Western European countries (such
as Belgium, France, Germany, Ireland, Italy, The Netherlands,
the countries of Scandinavia, Spain, Switzerland, and the
United Kingdom); countries in the Pacific Basin (such as
Australia, Hong Kong, Japan, Malaysia, the Philippines,
Singapore, and Thailand); and countries in the Americas (such
as Argentina, Brazil, Chile, and Mexico).
Under normal market conditions, the Fund will invest at least
65% of its total assets (taken at market value) in foreign
securities. If, however, investments in foreign securities
appear to be relatively unattractive in the judgment of the
Adviser because of current or anticipated adverse political
or economic conditions, the Fund may hold cash or invest any
portion of its assets in securities of the U.S. Government
and equity and debt securities of U.S. companies, as a
temporary defensive strategy. To meet liquidity needs, the
Fund may also hold cash in domestic and foreign currencies
and invest in domestic and foreign money market securities
(including repurchase agreements and foreign money market
positions).
In the past, the U.S. Government has from time to time
imposed restrictions, through taxation and otherwise, on
foreign investments by U.S. investors such as the Fund. If
such restrictions should be reinstated, it might become
necessary for the Fund to invest all or substantially all of
its assets in U.S. securities. In such an event, the Fund
would review its investment objective and policies to
determine whether changes are appropriate.
The Fund may purchase foreign securities in the form of
American Depositary Receipts (ADRs), European Depositary
Receipts (EDRs), or other securities representing underlying
shares of foreign issuers. The Fund may invest in sponsored
or unsponsored ADRs. (For a description of ADRs and EDRs,
see the Statement of Additional Information.)
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DERIVATIVES.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, forward contracts,
securities collateralized by underlying pools of mortgages or
other receivables, floating rate instruments, and other
instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument
or security is "derived" from the performance of an
underlying asset or a "benchmark" such as a security index,
an interest rate, or a currency. The Fund does not expect to
invest more than 5% of its net assets in any type of
Derivative except for options, futures contracts, futures
options, and forward contracts.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because they are
more efficient or less costly than direct investment. They
also may be used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and
directions of movements in currency exchange rates, security
prices, interest rates and other market factors affecting the
Derivative itself or the value of the underlying asset or
benchmark. In addition, correlations in the performance of
an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-
counter Derivatives may not be as well regulated and may be
less marketable than exchange-traded Derivatives. For
additional information on Derivatives, please refer to the
Statement of Additional Information.
In seeking to achieve its desired investment objective,
provide additional revenue, or to hedge against changes in
security prices, interest rates or currency fluctuations, the
Fund may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2)
enter into interest rate, index and foreign currency futures
contracts; (3) write options on such futures contracts; and
(4) purchase other types of forward or investment contracts
linked to individual securities, indexes, or other
benchmarks. The Fund may write a call or put option only if
the option is covered. As the writer of a covered call
option, the Fund foregoes, during the option's life, the
opportunity to profit from increases in market value of the
security covering the call option above the sum of the
premium and the exercise price of the call. There can be no
assurance that a liquid market will exist when the Fund seeks
to close out a position. In addition, because futures
positions may require low margin deposits, the use of futures
contracts involves a high degree of leverage and may result
in losses in excess of the amount of the margin deposit.
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest up
to 35% of its total assets in debt securities. Investments
in debt securities are limited to those that are rated within
the four highest grades (generally referred to as "investment
grade") assigned by a nationally recognized statistical
rating organization. Investments in unrated debt securities
are limited to those deemed to be of comparable quality by
the Adviser. Securities in the fourth highest grade may
possess speculative characteristics. If the rating of a
security held by the Fund is lost or reduced below investment
grade, the Fund is not required to dispose of the security--
the Adviser will, however, consider that fact in determining
whether the Fund should continue to hold the security.
SETTLEMENT TRANSACTIONS.
When the Fund enters into a contract for the purchase or
sale of a foreign portfolio security, it usually is required
to settle the purchase transaction in the relevant foreign
currency or receive the proceeds of the sale in that
currency. In either event, the Fund is obliged to acquire or
dispose of an appropriate amount of foreign currency by
selling or buying an equivalent amount of U.S. dollars. At
or near the time of the purchase or sale of the foreign
portfolio security, the Fund may wish to lock in the U.S.
dollar value of a transaction at the exchange rate or rates
then prevailing between the U.S. dollar and the currency in
which the security is denominated. Known as "transaction
hedging," this may be accomplished by purchasing or selling
such foreign securities on a "spot," or cash, basis.
Transaction hedging also may be accomplished on a forward
basis, whereby the Fund purchases or sells a specific amount
of foreign currency, at a price set at the time of the
contract, for receipt or delivery at either a specified date
or at any time within a specified time period. In so doing,
the Fund will attempt to insulate itself against possible
losses and gains resulting from a change in the relationship
between the U.S. dollar and the foreign currency during the
period between the date the security is purchased or sold and
the date on which payment is made or received. Similar
transactions may be entered into by using other currencies if
the Fund seeks to move investments denominated in one
currency to investments denominated in another.
CURRENCY HEDGING.
Most of the Fund's portfolio will be invested in foreign
securities. As a result, in addition to the risk of change
in the market value of portfolio securities, the value of the
portfolio in U.S. dollars is subject to fluctuations in the
exchange rate between the foreign currencies and the U.S.
dollar. When, in the opinion of the Adviser, it is desirable
to limit or reduce exposure in a foreign currency to moderate
potential changes in the U.S. dollar value of the portfolio,
the Fund may enter into a forward currency exchange contract
to sell or buy such foreign currency (or another foreign
currency that acts as a proxy for that currency)--through the
contract, the U.S. dollar value of certain underlying foreign
portfolio securities can be approximately matched by an
equivalent U.S. dollar liability. This technique is known as
"currency hedging." By locking in a rate of exchange,
currency hedging is intended to moderate or reduce the risk
of change in the U.S. dollar value of the Fund's portfolio
only during the period of the forward contract. Forward
contracts usually are entered into with banks and broker-
dealers; are not exchange traded; and while they are usually
less than one year, may be renewed. A default on the
contract would deprive the Fund of unrealized profits or
force the Fund to cover its commitments for purchase or sale
of currency, if any, at the current market price.
Neither type of foreign currency transaction will eliminate
fluctuations in the prices of the Fund's portfolio securities
or prevent loss if the price of such securities should
decline. In addition, such forward currency exchange
contracts will diminish the benefit of the appreciation in
the U.S. dollar value of that foreign currency. (For further
information on forward foreign currency exchange
transactions, see the Statement of Additional Information.)
OTHER TECHNIQUES.
The Fund may invest in securities purchased on a when-issued
or delayed-delivery basis. Although the payment terms of
these securities are established at the time the Fund enters
into the commitment, the securities may be delivered and paid
for a month or more after the date of purchase, when their
value may have changed. The Fund will make such commitments
only with the intention of actually acquiring the securities,
but may sell the securities before settlement date if it is
deemed advisable for investment reasons. The Fund may
utilize spot and forward foreign exchange transactions to
reduce the risk caused by exchange rate fluctuations between
one currency and another when securities are purchased or
sold on a when-issued basis. It may also invest in synthetic
money market instruments. The Fund may invest in repurchase
agreements, provided that it will not invest more than 15% of
its net assets in repurchase agreements maturing in more than
seven days and any other illiquid securities. (See the
Statement of Additional Information.)
PORTFOLIO TURNOVER.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of
time portfolio securities must be held. Accordingly, the
portfolio turnover rate may vary significantly from year to
year, but is not expected to exceed 100% under normal market
conditions. Flexibility of investment and emphasis on
capital appreciation may involve greater portfolio turnover
than that of mutual funds that have the objectives of income
or maintenance of a balanced investment position. A high
rate of portfolio turnover may result in increased
transaction expenses and the realization of capital gains and
losses. (See Distributions and Income Taxes.) The Fund is
not intended to be an income-producing investment.
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only
to 75% of the Fund's portfolio, but does not apply to
securities of the U.S. Government or repurchase agreements
for such securities, and would not prevent the Fund from
investing all of its assets in shares of another investment
company having the identical investment objective.
The Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer. It may, however, invest
all of its assets in shares of another investment company
having the identical investment objective.
The Fund will not borrow money, except as a temporary measure
for extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33
1/3% of the Fund's total assets (at market). The Fund will
not purchase additional securities when its borrowings, less
proceeds receivable from sales of portfolio securities,
exceed 5% of total assets.
The Fund may invest in repurchase agreements, /1/ provided
that the Fund will not invest more than 15% of its net assets
in repurchase agreements maturing in more than seven days,
and any other illiquid securities.
- -------------
/1/ A repurchase agreement involves a sale of securities to
the Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a
specified time. In the event of bankruptcy of the seller,
the Fund could experience both losses and delays in
liquidating its collateral.
- -------------------------
The policies summarized in the first three paragraphs of this
section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as
such, can be changed only with the approval of a "majority of
the outstanding voting securities" of the Fund as defined in
the Investment Company Act of 1940. The Fund's investment
objective is non-fundamental and, as such, may be changed by
the Board of Trustees without shareholder approval. Any such
change may result in the Fund having an investment objective
different from the objective the shareholder considered
appropriate at the time of investment in the Fund. All of
the investment restrictions are set forth in the Statement of
Additional Information.
Nothing in the investment restrictions outlined here shall be
deemed to prohibit the Fund from purchasing the securities of
any issuer pursuant to the exercise of subscription rights
distributed to the Fund by the issuer. No such purchase may
be made if, as a result, the Fund will no longer be a
diversified investment company as defined in the Investment
Company Act of 1940 or if the Fund will fail to meet the
diversification requirements of the Internal Revenue Code.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks.
No investment is suitable for all investors. The Fund is
intended for long-term investors who can accept the risks
entailed in investing in foreign securities. Of course,
there can be no guarantee that the Fund will achieve its
objective.
Although the Fund does not attempt to reduce or limit risk
through wide industry diversification of investment, the Fund
usually allocates its investments among a number of different
industries rather than concentrating in a particular industry
or group of industries. The Fund will, however, not invest
more than 25% of its total assets (at the time of investment)
in the securities of companies in any one industry.
FOREIGN INVESTING.
The Fund provides long-term investors with an opportunity to
invest a portion of their assets in a diversified portfolio
of foreign securities. Non-U.S. investments may be
attractive because they increase diversification, as compared
to a portfolio comprised solely of U.S. investments. In
addition, many foreign economies have, from time to time,
grown faster than the U.S. economy, and the returns on
investments in these countries have exceeded those of similar
U.S. investments--there can be no assurance, however, that
these conditions will continue. International
diversification allows the Fund and an investor to achieve
greater diversification and to take advantage of changes in
foreign economies and market conditions.
Investors should understand and consider carefully the
greater risks involved in foreign investing. Investing in
foreign securities--positions which are generally denominated
in foreign currencies--and utilization of forward foreign
currency exchange contracts involve certain considerations
comprising both risks and opportunities not typically
associated with investing in U.S. securities. These
considerations include: fluctuations in exchange rates of
foreign currencies; possible imposition of exchange control
regulations or currency restrictions that would prevent cash
from being brought back to the United States; less public
information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities
brokers, and issuers of securities; lack of uniform
accounting, auditing, and financial reporting standards; lack
of uniform settlement periods and trading practices; less
liquidity and frequently greater price volatility in foreign
markets than in the United States; possible imposition of
foreign taxes; possible investment in the securities of
companies in developing as well as developed countries; and
sometimes less advantageous legal, operational, and financial
protections applicable to foreign sub-custodial arrangements.
These risks are greater for emerging markets.
Although the Fund will try to invest in companies and
governments of countries having stable political
environments, there is the possibility of expropriation or
confiscatory taxation, seizure or nationalization of foreign
bank deposits or other assets, establishment of exchange
controls, the adoption of foreign government restrictions,
and other adverse political, social or diplomatic
developments that could affect investment in these nations.
The price of securities of small, rapidly growing companies
is expected to fluctuate more widely than the general market
due to the difficulty in assessing financial prospects of
companies developing new products or operating in countries
with developing markets.
The strategy for selecting investments will be based on
various criteria. A company proposed for investment should
have a good market position in a fast-growing segment of the
economy, strong management, preferably a leading position in
its business, prospects of superior financial returns,
ability to self-finance, and securities available for
purchase at a reasonable market valuation. Because of the
foreign domicile of such companies, however, information on
some of the above factors may be difficult, if not
impossible, to obtain.
To the extent portfolio securities are issued by foreign
issuers or denominated in foreign currencies, the Fund's
investment performance is affected by the strength or
weakness of the U.S. dollar against these currencies. If the
dollar falls relative to the Japanese yen, for example, the
dollar value of a yen-denominated stock held in the portfolio
will rise even though the price of the stock remains
unchanged. Conversely, if the dollar rises in value relative
to the yen, the dollar value of the yen-denominated stock
will fall. (See the discussion of portfolio and transaction
hedging under Portfolio Investments and Strategies.)
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in
the future seek to achieve its investment objective by
pooling its assets with assets of other mutual funds managed
by the Adviser for investment in another investment company
having the same investment objective and substantially the
same investment policies and restrictions as the Fund. The
purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected
that any such investment company would be managed by the
Adviser in substantially the same manner as the Fund.
Shareholders of the Fund will be given at least 30 days'
prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be
made only if the Trustees determine it to be in the best
interests of the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to
purchase shares of the Fund through your employer or
limitations on the amount that may be purchased, please
consult your employer. Shares are sold to eligible defined
contribution plans at the Fund's net asset value (see Net
Asset Value) next determined after receipt of payment by the
Fund.
Each purchase order for the Fund must be accepted by an
authorized officer of the Trust in Chicago and is not binding
until accepted and entered on the books of the Fund. Once
your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interest of the Trust or of
the Fund's shareholders.
Shares purchased by reinvestment of dividends will be
confirmed quarterly. All other purchases and redemptions
will be confirmed as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares
of the Fund through your employer's plan, including any
charges that may be imposed by the plan, please consult with
your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or
any portion of your Fund shares and use the proceeds to
purchase shares of any other Stein Roe Fund available through
your employer's defined contribution plan. (An exchange is
commonly referred to as a "transfer.") Before exercising the
Exchange Privilege, you should obtain the prospectus for the
Stein Roe Fund in which you wish to invest and read it
carefully. Contact your plan administrator for instructions
on how to exchange your shares or to obtain prospectuses of
other Stein Roe Funds available through your plan. The Fund
reserves the right to suspend, limit, modify, or terminate
the Exchange Privilege or its use in any manner by any person
or class; shareholders would be notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once
they have been received and accepted by the Trust. The Trust
cannot accept a redemption request that specifies a
particular date or price for redemption or any special
conditions.
The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because
the redemption price you receive depends upon the Fund's net
asset value per share at the time of redemption, it may be
more or less than the price you originally paid for the
shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its
net asset value per share. The net asset value of a share of
the Fund is determined as of the close of trading on the New
York Stock Exchange ("NYSE") (currently 3:00 p.m., Central
time) by dividing the difference between the values of the
Fund's assets and liabilities by the number of shares
outstanding. Net asset value will not be determined on days
when the NYSE is closed unless, in the judgment of the Board
of Trustees, the net asset value of the Fund should be
determined on any such day, in which case the determination
will be made at 3:00 p.m., Central time.
In computing the net asset value of the Fund, the values of
portfolio securities are generally based upon market
quotations. Depending upon local convention or regulation,
these market quotations may be the last sale price, last bid
or asked price, or the mean between the last bid and asked
prices as of, in each case, the close of the appropriate
exchange or other designated time. Trading in securities on
European and Far Eastern securities exchanges and over-the-
counter markets is normally completed at various times before
the close of business on each day on which the NYSE is open.
Trading of these securities may not take place on every NYSE
business day. In addition, trading may take place in various
foreign markets on Saturdays or on other days when the NYSE
is not open and on which the Fund's net asset value is not
calculated. Therefore, such calculation does not take place
contemporaneously with the determination of the prices of
many of the portfolio securities used in such calculation and
the value of the Fund's portfolio may be significantly
affected on days when shares of the Fund may not be purchased
or redeemed.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually.
The Fund intends to distribute by the end of each calendar
year at least 98% of any net capital gains realized from the
sale of securities during the twelve-month period ended
October 31 in that year. The Fund intends to distribute any
undistributed net investment income and net realized capital
gains in the following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares
of the Fund.
U.S. FEDERAL INCOME TAXES.
The Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all
other requirements that are necessary for it to be relieved
of federal taxes on income and gain it distributes. The Fund
will distribute substantially all of its ordinary income and
net capital gains on a current basis. Generally, Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by the Fund to employer-
sponsored defined contribution plans that qualify for tax-
exempt treatment under federal income tax laws will not be
taxable. Special tax rules apply to investments through such
plans. You should consult your tax advisor to determine the
suitability of the Fund as an investment through such a plan
and the tax treatment of distributions (including
distributions of amounts attributable through an investment
in the Fund) from such a plan. This section is not intended
to be a full discussion of income tax laws and their effect
on shareholders.
FOREIGN INCOME TAXES.
Investment income received by the Fund from sources within
foreign countries may be subject to foreign income taxes
withheld at the source. The United States has entered into
tax treaties with many foreign countries that entitle the
Fund to a reduced rate of tax or exemption from tax on such
income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Fund's assets
to be invested within various countries will fluctuate and
the extent to which tax refunds will be recovered is
uncertain. The Fund intends to operate so as to qualify for
treaty-reduced tax rates where applicable.
To the extent that the Fund is liable for foreign income
taxes withheld at the source, the Fund also intends to
operate so as to meet the requirements of the U.S. Internal
Revenue Code to "pass through" to the Fund's shareholders
foreign income taxes paid, but there can be no assurance that
the Fund will be able to do so.
This discussion of U.S. and foreign taxation is not intended
to be a full discussion of income tax laws and their effect
on shareholders. You may wish to consult your own tax
advisor. The foregoing information applies to U.S.
shareholders. Foreign shareholders should consult their tax
advisors as to the tax consequences of ownership of Fund
shares.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured
by the distributions received (assuming reinvestment), plus
or minus the change in the net asset value per share for a
given period. A total return percentage may be calculated by
dividing the value of a share at the end of the period
(including reinvestment of distributions) by the value of the
share at the beginning of the period and subtracting one.
For a given period, an average annual total return may be
calculated by finding the average annual compounded rate that
would equate a hypothetical $1,000 investment to the ending
redeemable value.
Comparison of the Fund's total return with alternative
investments should consider differences between the Fund and
the alternative investments, the periods and methods used in
calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return
does not reflect any charges or expenses related to your
employer's plan. Of course, past performance is not
necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND ADVISERS.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement
of Additional Information for the names of and additional
information about the trustees and officers. The Fund's
Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
the Fund, subject to the direction of the Board of Trustees.
The Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940.
The Adviser was organized in 1986 to succeed to the business
of Stein Roe & Farnham, a partnership that had advised and
managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Financial Companies,
Inc. ("Liberty Financial"), which in turn is a majority owned
indirect subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
Bruno Bertocci and David P. Harris, co-portfolio managers of
the Fund, joined the Adviser in 1995 as senior vice president
and vice president, respectively, to create Stein Roe Global
Capital Management, a dedicated global and international
equity management unit. Messrs. Bertocci and Harris are also
employed by Colonial Management Associates, Inc., a
subsidiary of Liberty Financial, as vice presidents,
effective January, 1996.
Prior to joining the Adviser, Mr. Bertocci was a senior
global equity portfolio manager with Rockefeller & Co.
("Rockefeller") from 1983 to 1995. While at Rockefeller, he
served as portfolio manager for the Fund, when Rockefeller
was the Fund's sub-adviser. Mr. Bertocci managed
Rockefeller's London office from 1987 to 1989 and its Hong
Kong office from 1989 to 1990. Prior to working at
Rockefeller, he served for three years at T. Rowe Price
Associates. Mr. Bertocci is a graduate of Oberlin College
and holds an M.B.A. from Harvard University.
Mr. Harris was a portfolio manager with Rockefeller from 1990
to 1995. After earning a bachelor's degree from the
University of Michigan, he was an actuarial associate for
GEICO before returning to school to earn an M.B.A. from
Cornell University.
FEES AND EXPENSES.
In return for its services, the Adviser receives a monthly
fee from the Fund, computed and accrued daily, at an annual
rate of 1% of average net assets. This fee is higher than
the fees paid by most mutual funds. Please refer to the Fee
Table for a description of the Fund's expense limitation.
Under a separate agreement with the Trust, the Adviser
provides certain accounting and bookkeeping services to the
Fund, including computation of the Fund's net asset value and
calculation of its net income and capital gains and losses on
disposition of Fund assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for
the Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number
of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of
shares, disbursement of dividends, and maintenance of
shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders.
The Distributor is a wholly owned subsidiary of Liberty
Financial. The business address of the Distributor is 600
Atlantic Avenue, Boston, Massachusetts 02210; however, all
Fund correspondence (including purchase and redemption
orders) should be mailed to the Trust at P.O. Box 804058,
Chicago, Illinois 60680. All distribution and promotional
expenses are paid by the Adviser, including payments to the
Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the
custodian for the Fund. Foreign securities are maintained in
the custody of foreign banks and trust companies that are
members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of
Trust") dated January 8, 1987, which provides that each
shareholder shall be deemed to have agreed to be bound by the
terms thereof. The Declaration of Trust may be amended by a
vote of either the Trust's shareholders or its trustees. The
Trust may issue an unlimited number of shares, in one or more
series as the Board may authorize. Currently, eight series
are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as the Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides
that persons extending credit to, contracting with, or having
any claim against, the Trust or any particular series shall
look only to the assets of the Trust or of the respective
series for payment under such credit, contract or claim, and
that the shareholders, Trustees and officers of the Trust
shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability
be given in each contract, instrument or undertaking executed
or made on behalf of the Trust. The Declaration of Trust
provides for indemnification of any shareholder against any
loss and expense arising from personal liability solely by
reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of
shareholder liability is believed to be remote, because it
would be limited to circumstances in which the disclaimer was
inoperative and the Trust was unable to meet its obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the
Trust is also believed to be remote, because it would be
limited to claims to which the disclaimer did not apply and
to circumstances in which the other series was unable to meet
its obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-
322-1130 for more information about this Fund.
_____________
<PAGE>
STEINROE FUNDS LOGO
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE SPECIAL VENTURE FUND
The Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of equity securities of
entrepreneurially managed companies. The Fund emphasizes
investments in financially strong small and medium-sized
companies, based principally on management appraisal and
stock valuation.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution
plans ("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or
redemption charges, and the Fund has no 12b-1 plan. The Fund
is a series of the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain
it for future reference.
A Statement of Additional Information dated February 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference.
The Statement of Additional Information and the most recent
financial statements may be obtained without charge by
writing to the Secretary at P.O. Box 804058, Chicago, IL
60680 or by calling 800-322-1130. The Statement of
Additional Information contains information relating to other
series of the Stein Roe Investment Trust that may not be
available as investment vehicles for your defined
contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
...... . Page
Fee Table............................. .2
Financial Highlights.................. .2
The Fund............................. ..3
How the Fund Invests................ ...3
Portfolio Investments and Strategies.. .4
Restrictions on the Fund's Investments 5
Risks and Investment Considerations.. .6
How to Purchase Shares.............. ...7
How to Redeem Shares .................. 7
Net Asset Value ...................... .8
Distributions and Income Taxes....... ..8
Investment Return................... ...8
Management of the Fund..................9
Organization and Description of Shares.10
For More Information ..................10
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(after expense reimbursement; as a percentage
of average net assets)
Management and Administrative Fees 0.48%
12b-1 Fees None
Other Expenses 0.77%
-----
Total Fund Operating Expenses
(after expense reimbursement) 1.25%
-----
-----
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end
of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$13 $40 $69 $151
The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will
bear directly or indirectly as an investor in a Fund.
Transfer agency fees were changed effective May 1, 1995. The
above table illustrates expenses that would have been borne
by investors in the last fiscal year assuming that the fee
changes had been in effect for the entire year; since the
Fund had less than one year of operation for the reporting
period, expenses have been annualized. From time to time,
the Adviser may voluntarily absorb certain expenses of the
Fund. The Adviser has agreed to voluntarily waive its
management fee and absorb the Fund's expenses to the extent
that such fees and expenses on an annualized basis exceed
1.25% of its annual average net assets through January 31,
1997, subject to earlier termination by the Adviser on 30
days' notice. Any such absorption will temporarily lower the
Fund's overall expense ratio and increase its overall return
to investors. Absent such expense undertaking, Management
and Administrative Fees and Total Fund Operating Expenses for
the Fund would have been 0.90% and 1.67%, respectively.
(Also see Management of the Funds--Fees and Expenses.)
For purposes of the Example above, the figures assume that
the percentage amounts listed for the Fund under Annual Fund
Operating Expenses remain the same in each of the periods and
that all income dividends and capital gain distributions are
reinvested in additional Fund shares. The figures in the
Example are not necessarily indicative of past or future
expenses, and actual expenses may be greater or less than
those shown. Although information such as that shown in the
Example and Fee Table is useful in reviewing the Fund's
expenses and in providing a basis for comparison with other
mutual funds, it should not be used for comparison with other
investments using different assumptions or time periods.
These examples do not reflect any charges or expenses related
to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the
Fund for the period shown on a per-share basis and has been
audited by Arthur Andersen LLP, independent public
accountants. All of the auditors' reports were unqualified.
This table should be read in conjunction with the Fund's
financial statements and notes thereto. The Fund's annual
report, which may be obtained from the Trust without charge
upon request, contains additional performance information.
Period Ended
Sept. 30, 1995 (a)
------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.01
Net realized and unrealized gains on investments 2.67
------
Total from investment operations 2.68
------
DISTRIBUTIONS
Net investment income (0.03)
Net realized capital gains (0.05)
------
Total distributions (0.08)
------
NET ASSET VALUE, END OF PERIOD $12.60
------
------
Ratio of net expenses to average net assets (b) *1.25%
Ratio of net investment income to average net assets (c) *0.12%
Portfolio turnover rate 84%
Total return 26.96%
Net assets, end of period (000 omitted) $60,533
- ------------
*Annualized.
(a) From the commencement of operations on October 17, 1994 .
(b) If the Fund had paid all of its expenses and there had
been no reimbursement by the Adviser, this ratio would
have been 2.87% for the period ended September 30, 1995.
(c) Computed giving effect to the Adviser's expense limitation
undertaking.
__________________________
THE FUND
STEIN ROE SPECIAL VENTURE FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own
shares to investors and use the money they receive to invest
in a portfolio of securities such as common stocks. A mutual
fund allows you to pool your money with that of other
investors in order to obtain professional investment
management. Mutual funds generally make it possible for you
to obtain greater diversification of your investments and
simplify your recordkeeping. The Fund does not impose
commissions or charges when shares are purchased or redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate
portfolio of securities and other assets, with its own
investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages
several other no-load mutual funds with different investment
objectives, including equity funds, international funds,
taxable and tax-exempt bond funds, and money market funds.
To obtain prospectuses and other information on opening a
regular account in any of these mutual funds, please call
800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of common stocks and
other equity-type securities (such as preferred stocks,
securities convertible or exchangeable for common stocks, and
warrants or rights to purchase common stocks) of
entrepreneurially managed companies that the Adviser believes
represent special opportunities. The Fund emphasizes
investments in financially strong small and medium-sized
companies, based principally on management appraisal and
stock valuation. The Adviser considers "small" and "medium-
sized" companies to be those with market capitalizations of
less than $1 billion and $1 to $3 billion, respectively.
In both its initial and ongoing appraisals of a company's
management, the Adviser seeks to know both the principal
owners and senior management and to assess their business
judgment and strategies through personal visits. The Adviser
favors companies whose management has an owner/operator,
risk-averse orientation and a demonstrated ability to create
wealth for investors. Attractive company characteristics
include unit growth, favorable cost structures or competitive
positions, and financial strength that enables management to
execute business strategies under difficult conditions. A
company is attractively valued when its stock can be
purchased at a meaningful discount to the value of the
underlying business. Further information on portfolio
investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the
Statement of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest in
debt securities of corporate and governmental issuers. The
Fund may invest up to 35% of its net assets in debt
securities, but it does not currently intend to invest more
than 5% of its net assets in debt securities rated below
investment grade. The risks inherent in debt securities
depend primarily on the term and quality of the obligations
in the Fund's portfolio as well as on market conditions. A
decline in the prevailing levels of interest rates generally
increases the value of debt securities, while an increase in
rates usually reduces the value of those securities.
Securities that are rated below investment grade are
considered predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal
according to the terms of the obligation and therefore carry
greater investment risk, including the possibility of issuer
default and bankruptcy. When the Adviser determines that
adverse market or economic conditions exist and considers a
temporary defensive position advisable, the Fund may invest
without limitation in high-quality fixed income securities or
hold assets in cash or cash equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than
American Depositary Receipts (ADRs), foreign debt securities
denominated in U.S. dollars, or securities guaranteed by a
U.S. person, the Fund is limited to investing no more than
25% of its total assets in foreign securities. (See Risks
and Investment Considerations.) The Fund may invest in
sponsored and unsponsored ADRs. In addition to, or in lieu
of, such direct investment, a Fund may construct a synthetic
foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars; and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a
different currency on a future date and at a specified rate
of exchange. Because of the availability of a variety of
highly liquid U.S. dollar debt instruments, a synthetic
foreign position utilizing such U.S. dollar instruments may
offer greater liquidity than direct investment in foreign
currency debt instruments. In connection with the purchase
of foreign securities, the Fund may contract to purchase an
amount of foreign currency sufficient to pay the purchase
price of the securities at the settlement date. Such a
contract involves the risk that the value of the foreign
currency may decline relative to the value of the dollar
prior to the settlement date--this risk is in addition to the
risk that the value of the foreign security purchased may
decline. The Fund also may enter into foreign currency
contracts as a hedging technique to limit or reduce exposure
to currency fluctuations. In addition, the Fund may use
options and futures contracts, as described below, to limit
or reduce exposure to currency fluctuations. As of September
30, 1995, the Fund's holdings of foreign companies, as a
percentage of net assets, were 4.9% (4.9% in foreign
securities and none in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund may invest in securities purchased on a when-issued
or delayed-delivery basis. Although the payment terms of
these securities are established at the time the Fund enters
into the commitment, the securities may be delivered and paid
for a month or more after the date of purchase, when their
value may have changed. The Fund will make such commitments
only with the intention of actually acquiring the securities,
but may sell the securities before settlement date if it is
deemed advisable for investment reasons. The Fund may make
loans of its portfolio securities to broker-dealers and banks
subject to certain restrictions described in the Statement of
Additional Information.
PORTFOLIO TURNOVER
Under normal circumstances, the Fund expects to experience
moderate portfolio turnover with an investment time horizon
of three to five years. Although the portfolio turnover rate
is not expected to exceed 100% under normal market
conditions, there are no limitations on the length of time
that portfolio securities must be held. Flexibility of
investment and emphasis on capital appreciation may involve
greater portfolio turnover than that of mutual funds that
have the objectives of income or maintenance of a balanced
investment position. A high rate of portfolio turnover may
result in increased transaction expenses and the realization
of capital gains and losses. (See Distributions and Income
Taxes.) The Fund is not intended to be an income-producing
investment.
DERIVATIVES.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized
by underlying pools of mortgages or other receivables,
floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each
case, the value of the instrument or security is "derived"
from the performance of an underlying asset or a "benchmark"
such as a security index, an interest rate, or a currency.
The Fund does not expect to invest more than 5% of its net
assets in any type of Derivative except for options, futures
contracts, and futures options.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because they are
more efficient or less costly than direct investment. They
also may be used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and
directions of movements in security prices, interest rates
and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as
well regulated and may be less marketable than exchange-
traded Derivatives. For additional information on
Derivatives, please refer to the Statement of Additional
Information.
In seeking to achieve its desired investment objective,
provide additional revenue, or to hedge against changes in
security prices, interest rates or currency fluctuations, the
Fund may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2)
enter into interest rate, index and foreign currency futures
contracts; (3) write options on such futures contracts; and
(4) purchase other types of forward or investment contracts
linked to individual securities, indexes or other benchmarks.
The Fund may write a call or put option only if the option is
covered. As the writer of a covered call option, the Fund
foregoes, during the option's life, the opportunity to profit
from increases in market value of the security covering the
call option above the sum of the premium and the exercise
price of the call. There can be no assurance that a liquid
market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require
low margin deposits, the use of futures contracts involves a
high degree of leverage and may result in losses in excess of
the amount of the margin deposit.
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only
to 75% of the Fund's portfolio, but does not apply to
securities of the U.S. Government or repurchase agreements
for such securities, and would not prevent the Fund from
investing all of its assets in shares of another investment
company having the identical investment objective.
The Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer. It may, however, invest
all of its assets in shares of another investment company
having the identical investment objective.
The Fund will not borrow money, except as a temporary measure
for extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33
1/3% of the Fund's total assets (at market). The Fund will
not purchase additional securities when its borrowings, less
proceeds receivable from sales of portfolio securities,
exceed 5% of total assets.
The Fund may invest in repurchase agreements,/1/ provided
that the Fund will not invest more than 15% of its net assets
in repurchase agreements maturing in more than seven days,
and any other illiquid securities.
- -------------
/1/ A repurchase agreement involves a sale of securities to
the Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a
specified time. In the event of bankruptcy of the seller,
the Fund could experience both losses and delays in
liquidating its collateral.
- --------------
The policies summarized in the first three paragraphs of this
section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as
such, can be changed only with the approval of a "majority of
the outstanding voting securities" of the Fund as defined in
the Investment Company Act of 1940. The Fund's investment
objective is non-fundamental and, as such, may be changed by
the Board of Trustees without shareholder approval. Any such
change may result in the Fund having an investment objective
different from the objective the shareholder considered
appropriate at the time of investment in the Fund. All of
the investment restrictions are set forth in the Statement of
Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks.
No investment is suitable for all investors. The Fund is
designed for long-term investors who want greater return
potential than available from the stock market in general,
and who are willing to tolerate the greater investment risk
and market volatility associated with investments in small
and medium-sized companies. Securities of such companies may
be subject to greater price volatility than securities of
larger companies and tend to have a lower degree of market
liquidity. They also may be more sensitive to changes in
economic and business conditions, and may react differently
than securities of larger companies. In addition, such
companies are less well known to the investing public and may
not be as widely followed by the investment community. There
can be no guarantee that the Fund will achieve its objective.
Debt securities rated in the fourth highest grade may have
some speculative characteristics, and changes in economic
conditions or other circumstances may lead to a weakened
capacity of the issuers of such securities to make principal
and interest payments. Securities rated below investment
grade may possess speculative characteristics, and changes in
economic conditions are more likely to affect the issuer's
capacity to pay interest or repay principal.
Although the Fund does not attempt to reduce or limit risk
through wide industry diversification of investment, the Fund
usually allocates its investments among a number of different
industries rather than concentrating in a particular industry
or group of industries. The Fund will not invest more than
25% of its total assets (at the time of investment) in the
securities of companies in any one industry.
Investment in foreign securities may represent a greater
degree of risk (including risk related to exchange rate
fluctuations, tax provisions, exchange and currency controls,
and expropriation of assets) than investment in securities of
domestic issuers. Other risks of foreign investing include
less complete financial information on issuers, less market
liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition
of exchange controls and withholding taxes on dividends, and
seizure or nationalization of investments owned by non-
residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in
the future seek to achieve its investment objective by
pooling its assets with assets of other mutual funds managed
by the Adviser for investment in another investment company
having the same investment objective and substantially the
same investment policies and restrictions as the Fund. The
purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected
that any such investment company would be managed by the
Adviser in substantially the same manner as the Fund.
Shareholders of the Fund will be given at least 30 days'
prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be
made only if the Trustees determine it to be in the best
interests of the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to
purchase shares of the Fund through your employer or
limitations on the amount that may be purchased, please
consult your employer. Shares are sold to eligible defined
contribution plans at the Fund's net asset value (see Net
Asset Value) next determined after receipt of payment by the
Fund.
Each purchase order for the Fund must be accepted by an
authorized officer of the Trust in Chicago and is not binding
until accepted and entered on the books of the Fund. Once
your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interest of the Trust or of
the Fund's shareholders.
Shares purchased by reinvestment of dividends will be
confirmed quarterly. All other purchases and redemptions
will be confirmed as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares
of the Fund through your employer's plan, including any
charges that may be imposed by the plan, please consult with
your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or
any portion of your Fund shares and use the proceeds to
purchase shares of any other Stein Roe Fund available through
your employer's defined contribution plan. (An exchange is
commonly referred to as a "transfer.") Before exercising the
Exchange Privilege, you should obtain the prospectus for the
Stein Roe Fund in which you wish to invest and read it
carefully. Contact your plan administrator for instructions
on how to exchange your shares or to obtain prospectuses of
other Stein Roe Funds available through your plan. The Fund
reserves the right to suspend, limit, modify, or terminate
the Exchange Privilege or its use in any manner by any person
or class; shareholders would be notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once
they have been received and accepted by the Trust. The Trust
cannot accept a redemption request that specifies a
particular date or price for redemption or any special
conditions.
The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because
the redemption price you receive depends upon the Fund's net
asset value per share at the time of redemption, it may be
more or less than the price you originally paid for the
shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its
net asset value per share. The net asset value of a share of
the Fund is determined as of the close of trading on the New
York Stock Exchange (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's
assets and liabilities by the number of shares outstanding.
Net asset value will not be determined on days when the
Exchange is closed unless, in the judgment of the Board of
Trustees, the net asset value of the Fund should be
determined on any such day, in which case the determination
will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued
at its last sale price on that exchange on the day of
valuation or, if there are no sales that day, at the latest
bid quotation. Each over-the-counter security for which the
last sale price on the day of valuation is available from
NASDAQ is valued at that price. All other over-the-counter
securities for which reliable quotations are available are
valued at the latest bid quotation.
Long-term straight-debt obligations are valued at a fair
value using a procedure determined in good faith by the Board
of Trustees. Pricing services approved by the Board provide
valuations (some of which may be "readily available market
quotations"). These valuations are reviewed by the Adviser.
If the Adviser believes that a valuation received from the
service does not represent a fair value, it values the
obligation using a method that the Board believes represents
fair value. The Board may approve the use of other pricing
services and any pricing service used may employ electronic
data processing techniques, including a so-called "matrix"
system, to determine valuations. Securities convertible into
stocks are valued at the latest valuation from a principal
market maker. Other assets and securities are valued by a
method that the Board believes represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually.
The Fund intends to distribute by the end of each calendar
year at least 98% of any net capital gains realized from the
sale of securities during the twelve-month period ended
October 31 in that year. The Fund intends to distribute any
undistributed net investment income and net realized capital
gains in the following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares
of the Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all
other requirements that are necessary for it to be relieved
of federal taxes on income and gain it distributes. The Fund
will distribute substantially all of its ordinary income and
net capital gains on a current basis. Generally, Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by the Fund to employer-
sponsored defined contribution plans that qualify for tax-
exempt treatment under federal income tax laws will not be
taxable. Special tax rules apply to investments through such
plans. You should consult your tax advisor to determine the
suitability of the Fund as an investment through such a plan
and the tax treatment of distributions (including
distributions of amounts attributable through an investment
in the Fund) from such a plan. This section is not intended
to be a full discussion of income tax laws and their effect
on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured
by the distributions received (assuming reinvestment), plus
or minus the change in the net asset value per share for a
given period. A total return percentage may be calculated by
dividing the value of a share at the end of the period
(including reinvestment of distributions) by the value of the
share at the beginning of the period and subtracting one.
For a given period, an average annual total return may be
calculated by finding the average annual compounded rate that
would equate a hypothetical $1,000 investment to the ending
redeemable value.
Comparison of the Fund's total return with alternative
investments should consider differences between the Fund and
the alternative investments, the periods and methods used in
calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return
does not reflect any charges or expenses related to your
employer's plan. Of course, past performance is not
necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement
of Additional Information for the names of and other
information about the trustees and officers. The Fund's
Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
the Fund's investment portfolio and the business affairs of
the Fund and the Trust, subject to the direction of the Board
of Trustees. The Adviser is registered as an investment
adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business
of Stein Roe & Farnham, a partnership that had advised and
managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Financial Companies,
Inc. ("Liberty Financial"), which in turn is a majority owned
indirect subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
E. Bruce Dunn and Richard B. Peterson have been co-portfolio
managers of the Fund since its inception in 1994. Each is a
vice-president of the Trust and a senior vice president of
the Adviser. Mr. Dunn has been associated with the Adviser
since 1964. He received his A.B. degree from Yale University
in 1956 and his M.B.A. from Harvard University in 1958 and is
a chartered investment counselor. Mr. Peterson, who began
his investment career at Stein Roe & Farnham in 1965 after
graduating with a B.A. from Carleton College in 1962 and the
Woodrow Wilson School at Princeton University in 1964 with a
Masters in Public Administration, rejoined the Adviser in
1991 after 15 years of equity research and portfolio
management experience with State Farm Investment Management
Corporation. As of December 31, 1995, Messrs. Dunn and
Peterson were responsible for co-managing $1.3 billion in
mutual fund assets.
FEES AND EXPENSES.
In return for its services, pursuant to an investment
advisory agreement with the Trust relating to the Fund, the
Adviser receives a monthly fee from the Fund, computed and
accrued daily, at an annual rate of 0.90 of 1% of average net
assets. This fee is higher than the fees paid by most mutual
funds. The fee for the period ended September 30, 1995, after
the expense limitation referred to under Fee Table, amounted
to 0.48% of average net assets.
Under a separate agreement with the Trust, the Adviser
provides certain accounting and bookkeeping services to the
Fund, including computation of the Fund's net asset value and
calculation of its net income and capital gains and losses on
disposition of Fund assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for
the Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number
of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of
shares, disbursement of dividends, and maintenance of
shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders.
The Distributor is a wholly owned subsidiary of Liberty
Financial. The business address of the Distributor is 600
Atlantic Avenue, Boston, Massachusetts 02210; however, all
Fund correspondence (including purchase and redemption
orders) should be mailed to the Trust at P.O. Box 804058,
Chicago, Illinois 60680. All distribution and promotional
expenses are paid by the Adviser, including payments to the
Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the
custodian for the Fund. Foreign securities are maintained in
the custody of foreign banks and trust companies that are
members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of
Trust") dated January 8, 1987, which provides that each
shareholder shall be deemed to have agreed to be bound by the
terms thereof. The Declaration of Trust may be amended by a
vote of either the Trust's shareholders or its trustees. The
Trust may issue an unlimited number of shares, in one or more
series as the Board may authorize. Currently, eight series
are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as the Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides
that persons extending credit to, contracting with, or having
any claim against, the Trust or any particular Fund shall
look only to the assets of the Trust or of the respective
Fund for payment under such credit, contract or claim, and
that the shareholders, Trustees and officers of the Trust
shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability
be given in each contract, instrument or undertaking executed
or made on behalf of the Trust. The Declaration of Trust
provides for indemnification of any shareholder against any
loss and expense arising from personal liability solely by
reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of
shareholder liability is believed to be remote, because it
would be limited to circumstances in which the disclaimer was
inoperative and the Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on
account of unsatisfied liability of another Fund of the Trust
is also believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to
circumstances in which the other Fund was unable to meet its
obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-
322-1130 for more information about this Fund.
______________________
<PAGE>
STEINROE FUNDS LOGO
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE TOTAL RETURN FUND
The Fund seeks to obtain current income and capital
appreciation in order to achieve maximum total return
consistent with reasonable investment risk through investment
in a combination of equity, convertible, and fixed income
securities.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution
plans ("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or
redemption charges, and the Fund has no 12b-1 plan. The Fund
is a series of the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain
it for future reference.
A Statement of Additional Information dated February 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference.
The Statement of Additional Information and the most recent
financial statements may be obtained without charge by
writing to the Secretary at P.O. Box 804058, Chicago, IL
60680 or by calling 800-322-1130. The Statement of
Additional Information contains information relating to other
series of the Stein Roe Investment Trust that may not be
available as investment vehicles for your defined
contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
...... . Page
Fee Table............................. .2
Financial Highlights.................. .2
The Fund............................. ..3
How the Fund Invests................ ...3
Portfolio Investments and Strategies.. .4
Restrictions on the Fund's Investments 5
Risks and Investment Considerations.. . 6
How to Purchase Shares.............. ...7
How to Redeem Shares .................. 7
Net Asset Value ...................... .7
Distributions and Income Taxes....... ..8
Investment Return................... ...8
Management of the Fund..................9
Organization and Description of Shares.10
For More Information ..................10
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management and Administrative Fees 0.70%
12b-1 Fees None
Other Expenses 0.37%
-----
Total Fund Operating Expenses 1.07%
-----
-----
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end
of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$11 $34 $59 $131
The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will
bear directly or indirectly as an investor in the Fund. The
Fund's transfer agency fees were changed effective May 1,
1995, and changes in management and administrative fees
became effective on September 1, 1995. The above table
illustrates expenses that would have been borne by investors
in the last fiscal year assuming that the fee changes had
been in effect for the entire year. For purposes of the
Example above, the figures assume that the percentage amounts
listed for the Fund under Annual Fund Operating Expenses
remain the same in each of the periods, that all income
dividends and capital gain distributions are reinvested in
additional Fund shares, and that, for purposes of management
fee breakpoints, the Fund's net assets remain at the same
level as in the most recently completed fiscal year. The
figures in the Example are not necessarily indicative of past
or future expenses, and actual expenses may be greater or
less than those shown. Although information such as that
shown in the Example and Fee Table is useful in reviewing the
Fund's expenses and in providing a basis for comparison with
other mutual funds, it should not be used for comparison with
other investments using different assumptions or time
periods. These examples do not reflect any charges or
expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the
Fund for the periods shown on a per-share basis. The
information for periods after December 31, 1987, has been
audited by Arthur Andersen LLP, independent public
accountants. All of the auditors' reports were unqualified.
This table should be read in conjunction with the Fund's
financial statements and notes thereto. The Fund's annual
report, which may be obtained from the Trust without charge
upon request, contains additional performance information.
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $21.37 $25.04 $25.07 $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 1.41 1.33 1.32 0.97 1.37 1.28 1.32 1.31 1.26 1.15 1.33
Net realized and
unrealized gains
(losses) on investments 3.87 2.75 (1.06) 0.45 3.10 (2.92) 4.85 1.48 2.37 (1.06) 2.22
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 5.28 4.08 0.26 1.42 4.47 (1.64) 6.17 2.79 3.63 0.09 3.55
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (1.42) (1.35) (1.63) (0.90) (1.34) (1.36) (1.26) (1.34) (1.30) (1.17) (1.23)
Net realized capital
gains (0.19) (2.70) (1.45) (0.11) (0.38) (0.73) (0.51) (0.62) (1.67) (0.71) (0.28)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (1.61) (4.05) (3.08) (1.01) (1.72) (2.09) (1.77) (1.96) (2.97) (1.88) (1.51)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $25.04 $25.07 $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78 $27.82
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.77% 0.79% 0.80% *0.87% 0.90% 0.88% 0.87% 0.85% 0.81% 0.83% 0.87%
Ratio of net investment
income to average net
assets 6.30% 5.21% 5.12% *5.68% 5.83% 5.36% 5.50% 4.94% 4.69% 4.53% 5.14%
Portfolio turnover rate 100% 108% 86% 85% 93% 75% 71% 59% 53% 29% 45%
Total return 25.78% 17.11% 0.74% 6.51% 20.76% (6.86%) 29.67% 11.13% 14.57% 0.36% 14.49%
Net assets, end of
period (000 omitted) $128,676 $149,831 $140,279 134,225 $144,890 $124,592 $150,689 $173,417 $222,292 $229,274 $228,560
</TABLE>
- --------------
*Annualized.
(a) For the year ended December 31, 1986, the average amount
of debt outstanding for the Fund was $2,222, the average
number of shares outstanding was 5,506,763, and the average
amount of debt outstanding was $0.0004 per share. The Fund
had no borrowings outstanding during any other periods.
__________________________
THE FUND
STEIN ROE TOTAL RETURN FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own
shares to investors and use the money they receive to invest
in a portfolio of securities such as common stocks. A mutual
fund allows you to pool your money with that of other
investors in order to obtain professional investment
management. Mutual funds generally make it possible for you
to obtain greater diversification of your investments and
simplify your recordkeeping. The Fund does not impose
commissions or charges when shares are purchased or redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate
portfolio of securities and other assets, with its own
investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages
several other no-load mutual funds with different investment
objectives, including equity funds, international funds,
taxable and tax-exempt bond funds, and money market funds.
To obtain prospectuses and other information on opening a
regular account in any of these mutual funds, please call
800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund's investment objective is to obtain current income
and capital appreciation in order to achieve maximum total
return consistent with reasonable investment risk through
investment in a combination of equity, fixed income and
convertible securities. The percentages of Fund assets
invested in various types of securities will vary in
accordance with the judgment of the Adviser. There are no
limitations on the amount of the Fund's assets that may be
allocated to the various types of securities. Generally, the
equity portion of the Fund's portfolio will be invested in
common stocks that the Adviser believes to have long-term
growth possibilities. With respect to the fixed income
portion of the portfolio, emphasis is placed on acquiring
investment grade securities. Further information on
portfolio investments and strategies may be found under
Portfolio Investments and Strategies in this prospectus and
in the Statement of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
CONVERTIBLE SECURITIES.
By investing in convertible securities, the Fund obtains the
right to benefit from the capital appreciation potential in
the underlying stock upon exercise of the conversion right,
while earning higher current income than would be available
if the stock were purchased directly. In determining whether
to purchase a convertible, the Adviser will consider
substantially the same criteria that would be considered in
purchasing the underlying stock. Although convertible
securities purchased by the Fund are frequently rated
investment grade, the Fund also may purchase unrated
securities or securities rated below investment grade if the
securities meet the Adviser's other investment criteria.
Convertible securities rated below investment grade: (a) tend
to be more sensitive to interest rate and economic changes;
(b) may be obligations of issuers who are less creditworthy
than issuers of higher quality convertible securities; and
(c) may be more thinly traded due to the fact that such
securities are less well known to investors than either
common stock or conventional debt securities. As a result,
the Adviser's own investment research and analysis tends to
be more important than other factors in the purchase of such
securities.
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest in
debt securities of corporate and governmental issuers.
Investment in debt securities is limited to those that are
rated within the four highest grades (generally referred to
as investment grade). Securities in the fourth highest grade
may possess speculative characteristics, and changes in
economic conditions are more likely to affect the issuer's
capacity to pay interest and repay principal. If the rating
of a security held by the Fund is lost or reduced below
investment grade, the Fund is not required to dispose of the
security--the Adviser will, however, consider that fact in
determining whether the Fund should continue to hold the
security. When the Adviser deems a temporary defensive
position advisable, the Fund may invest, without limitation,
in high-quality fixed income securities, or hold assets in
cash or cash equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than
American Depositary Receipts (ADRs), foreign debt securities
denominated in U.S. dollars, or securities guaranteed by a
U.S. person, the Fund is limited to investing no more than
25% of its total assets in foreign securities. (See Risks
and Investment Considerations.) The Fund may invest in
sponsored or unsponsored ADRs. In addition to, or in lieu
of, such direct investment, a Fund may construct a synthetic
foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars; and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a
different currency on a future date and at a specified rate
of exchange. Because of the availability of a variety of
highly liquid U.S. dollar debt instruments, a synthetic
foreign position utilizing such U.S. dollar instruments may
offer greater liquidity than direct investment in foreign
currency debt instruments. In connection with the purchase
of foreign securities, the Fund may contract to purchase an
amount of foreign currency sufficient to pay the purchase
price of the securities at the settlement date. Such a
contract involves the risk that the value of the foreign
currency may decline relative to the value of the dollar
prior to the settlement date--this risk is in addition to the
risk that the value of the foreign security purchased may
decline. The Fund also may enter into foreign currency
contracts as a hedging technique to limit or reduce its
exposure to currency fluctuations. In addition, the Fund may
use options and futures contracts, as described below, to
limit or reduce exposure to currency fluctuations. As of
September 30, 1995, the Fund's holdings of foreign companies,
as a percentage of net assets, were 5.2% (1.0% in foreign
securities and 4.2% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund may invest in securities purchased on a when-issued
or delayed-delivery basis. Although the payment terms of
these securities are established at the time the Fund enters
into the commitment, the securities may be delivered and paid
for a month or more after the date of purchase, when their
value may have changed. The Fund will make such commitments
only with the intention of actually acquiring the securities,
but may sell the securities before settlement date if it is
deemed advisable for investment reasons. The Fund may make
loans of its portfolio securities to broker-dealers and banks
subject to certain restrictions described in the Statement of
Additional Information.
DERIVATIVES.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized
by underlying pools of mortgages or other receivables,
floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each
case, the value of the instrument or security is "derived"
from the performance of an underlying asset or a "benchmark"
such as a security index, an interest rate, or a currency.
The Fund does not expect to invest more than 5% of its net
assets in any type of Derivative except for options, futures
contracts, and futures options.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because they are
more efficient or less costly than direct investment. They
also may be used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and
directions of movements in security prices, interest rates
and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as
well regulated and may be less marketable than exchange-
traded Derivatives. For additional information on
Derivatives, please refer to the Statement of Additional
Information.
In seeking to achieve its desired investment objective,
provide additional revenue, or to hedge against changes in
security prices, interest rates or currency fluctuations, the
Fund may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2)
enter into interest rate, index and foreign currency futures
contracts; (3) write options on such futures contracts; and
(4) purchase other types of forward or investment contracts
linked to individual securities, indexes or other benchmarks.
The Fund may write a call or put option only if the option is
covered. As the writer of a covered call option, the Fund
foregoes, during the option's life, the opportunity to profit
from increases in market value of the security covering the
call option above the sum of the premium and the exercise
price of the call. There can be no assurance that a liquid
market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require
low margin deposits, the use of futures contracts involves a
high degree of leverage and may result in losses in excess of
the amount of the margin deposit.
PORTFOLIO TURNOVER.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of
time portfolio securities must be held. The turnover rate
may vary significantly from year to year. A high rate of
portfolio turnover may result in increased transaction
expenses and the realization of capital gains and losses.
(See Distributions and Income Taxes and Management of the
Fund.)
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only
to 75% of the Fund's portfolio, but does not apply to
securities of the U.S. Government or repurchase agreements
for such securities, and would not prevent the Fund from
investing all of its assets in shares of another investment
company having the identical investment objective.
The Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer. It may, however, invest
all of its assets in shares of another investment company
having the identical investment objective.
The Fund will not borrow money, except as a temporary measure
for extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33
1/3% of the Fund's total assets (at market). The Fund will
not purchase additional securities when its borrowings, less
proceeds receivable from sales of portfolio securities,
exceed 5% of total assets.
The Fund may invest in repurchase agreements,/1/ provided
that the Fund will not invest more than 15% of its net assets
in repurchase agreements maturing in more than seven days,
and any other illiquid securities.
- ----------------------
/1/ A repurchase agreement involves a sale of securities to
the Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a
specified time. In the event of bankruptcy of the seller,
the Fund could experience both losses and delays in
liquidating its collateral.
- ----------------------
The policies summarized in the first three paragraphs under
this section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as
such, can be changed only with the approval of a "majority of
the outstanding voting securities" of the Fund as defined in
the Investment Company Act of 1940. The Fund's investment
objective is non-fundamental and, as such, may be changed by
the Board of Trustees without shareholder approval. Any such
change may result in the Fund having an investment objective
different from the objective the shareholder considered
appropriate at the time of investment in the Fund. All of
the investment restrictions are set forth in the Statement of
Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
ALL INVESTMENTS, INCLUDING THOSE IN MUTUAL FUNDS, HAVE RISKS.
NO INVESTMENT IS SUITABLE FOR ALL INVESTORS. THE FUND IS
DESIGNED FOR LONG-TERM INVESTORS WHO CAN ACCEPT THE
FLUCTUATIONS IN PORTFOLIO VALUE AND OTHER RISKS ASSOCIATED
WITH SEEKING LONG-TERM CAPITAL APPRECIATION THROUGH
INVESTMENTS IN SECURITIES. The Fund usually allocates its
investments among a number of different industries rather
than concentrating in a particular industry or group of
industries; however, under abnormal circumstances, it may
invest up to 25% of net assets in a particular industry or
group of industries. There can be no guarantee that the Fund
will achieve its objective.
Investment in foreign securities may represent a greater
degree of risk (including risk related to exchange rate
fluctuations, tax provisions, exchange and currency controls,
and expropriation of assets) than investment in securities of
domestic issuers. Other risks of foreign investing include
less complete financial information on issuers, less market
liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition
of exchange controls and withholding taxes on dividends, and
seizure or nationalization of investments owned by non-
residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in
the future seek to achieve its investment objective by
pooling its assets with assets of other mutual funds managed
by the Adviser for investment in another investment company
having the same investment objective and substantially the
same investment policies and restrictions as the Fund. The
purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected
that any such investment company would be managed by the
Adviser in substantially the same manner as the Fund.
Shareholders of the Fund will be given at least 30 days'
prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be
made only if the Trustees determine it to be in the best
interests of the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to
purchase shares of the Fund through your employer or
limitations on the amount that may be purchased, please
consult your employer. Shares are sold to eligible defined
contribution plans at the Fund's net asset value (see Net
Asset Value) next determined after receipt of payment by the
Fund.
Each purchase order for the Fund must be accepted by an
authorized officer of the Trust in Chicago and is not binding
until accepted and entered on the books of the Fund. Once
your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interest of the Trust or of
the Fund's shareholders.
Shares purchased by reinvestment of dividends will be
confirmed quarterly. All other purchases and redemptions
will be confirmed as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares
of the Fund through your employer's plan, including any
charges that may be imposed by the plan, please consult with
your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or
any portion of your Fund shares and use the proceeds to
purchase shares of any other Stein Roe Fund available through
your employer's defined contribution plan. (An exchange is
commonly referred to as a "transfer.") Before exercising the
Exchange Privilege, you should obtain the prospectus for the
Stein Roe Fund in which you wish to invest and read it
carefully. Contact your plan administrator for instructions
on how to exchange your shares or to obtain prospectuses of
other Stein Roe Funds available through your plan. The Fund
reserves the right to suspend, limit, modify, or terminate
the Exchange Privilege or its use in any manner by any person
or class; shareholders would be notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once
they have been received and accepted by the Trust. The Trust
cannot accept a redemption request that specifies a
particular date or price for redemption or any special
conditions.
The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because
the redemption price you receive depends upon the Fund's net
asset value per share at the time of redemption, it may be
more or less than the price you originally paid for the
shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its
net asset value per share. The net asset value of a share of
the Fund is determined as of the close of trading on the New
York Stock Exchange (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's
assets and liabilities by the number of shares outstanding.
Net asset value will not be determined on days when the
Exchange is closed unless, in the judgment of the Board of
Trustees, the net asset value of the Fund should be
determined on any such day, in which case the determination
will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued
at its last sale price on that exchange on the day of
valuation or, if there are no sales that day, at the latest
bid quotation. Each over-the-counter security for which the
last sale price on the day of valuation is available from
NASDAQ is valued at that price. All other over-the-counter
securities for which reliable quotations are available are
valued at the latest bid quotation.
Long-term straight-debt obligations are valued at a fair
value using a procedure determined in good faith by the Board
of Trustees. Pricing services approved by the Board provide
valuations (some of which may be "readily available market
quotations"). These valuations are reviewed by the Adviser.
If the Adviser believes that a valuation received from the
service does not represent a fair value, it values the
obligation using a method that the Board believes represents
fair value. The Board may approve the use of other pricing
services and any pricing service used may employ electronic
data processing techniques, including a so-called "matrix"
system, to determine valuations. Securities convertible into
stocks are valued at the latest valuation from a principal
market maker. Other assets and securities are valued by a
method that the Board believes represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid each calendar
quarter. However, because the Fund is required to distribute
at least 98% of its net investment income by the end of the
calendar year, an additional dividend may be declared near
year end. The Fund intends to distribute by the end of each
calendar year at least 98% of any net capital gains realized
from the sale of securities during the twelve-month period
ended October 31 in that year. The Fund intends to
distribute any undistributed net investment income and net
realized capital gains in the following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares
of the Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all
other requirements that are necessary for it to be relieved
of federal taxes on income and gain it distributes. The Fund
will distribute substantially all of its ordinary income and
net capital gains on a current basis. Generally, Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by the Fund to employer-
sponsored defined contribution plans that qualify for tax-
exempt treatment under federal income tax laws will not be
taxable. Special tax rules apply to investments through such
plans. You should consult your tax advisor to determine the
suitability of the Fund as an investment through such a plan
and the tax treatment of distributions (including
distributions of amounts attributable through an investment
in the Fund) from such a plan. This section is not intended
to be a full discussion of income tax laws and their effect
on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured
by the distributions received (assuming reinvestment), plus
or minus the change in the net asset value per share for a
given period. A total return percentage may be calculated by
dividing the value of a share at the end of the period
(including reinvestment of distributions) by the value of the
share at the beginning of the period and subtracting one.
For a given period, an average annual total return may be
calculated by finding the average annual compounded rate that
would equate a hypothetical $1,000 investment to the ending
redeemable value.
Comparison of the Fund's total return with alternative
investments should consider differences between the Fund and
the alternative investments, the periods and methods used in
calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return
does not reflect any charges or expenses related to your
employer's plan. Of course, past performance is not
necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement
of Additional Information for the names of and other
information about the trustees and officers. The Fund's
Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
the Fund's investment portfolio and the business affairs of
the Fund and the Trust, subject to the direction of the Board
of Trustees. The Adviser is registered as an investment
adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business
of Stein Roe & Farnham, a partnership that had advised and
managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Financial Companies,
Inc. ("Liberty Financial"), which in turn is a majority owned
indirect subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
Robert A. Christensen and Lynn C. Maddox are co-portfolio
managers of the Fund. Mr. Christensen has been portfolio
manager since 1981, and Mr. Maddox became co-portfolio
manager in 1995. Mr. Christensen is a vice-president of the
Trust and a senior vice president of the Adviser, and has
been associated with the Adviser since 1962. A chartered
investment counselor, he received his B.A. degree from
Vanderbilt University in 1955 and M.B.A. from Harvard
University in 1962. Mr. Maddox joined the Adviser in 1971
and is a senior vice president. He received a B.S. from the
Georgia Institute of Technology in 1964 and an M.B.A. from
Indiana University in 1971. As of December 31, 1995, Messrs.
Christensen and Maddox were responsible for co-managing $872
million and $227 million in mutual fund assets, respectively.
William Garrison is associate portfolio manager of the Fund.
Mr. Garrison joined the Adviser in 1989. He received his
A.B. from Princeton University in 1988.
FEES AND EXPENSES.
The investment advisory agreement relating to the Fund was
replaced on September 1, 1995, with an administrative
agreement and a management agreement. Under the terminated
advisory agreement, the annual fee, based on average net
assets, was .625% of the first $100 million and .50% above
that amount. The new contracts call for a monthly management
fee based on an annual rate of .55% of the first $500
million, .50% of the next $500 million, and .45% thereafter;
and a monthly administrative fee based on an annual rate of
.15% of the first $500 million, .125% of the next $500
million, and .10% thereafter. For the year ended September
30, 1995, the fees for the Fund amounted to .57% of average
net assets.
Under a separate agreement with the Trust, the Adviser
provides certain accounting and bookkeeping services to the
Fund, including computation of the Fund's net asset value and
calculation of its net income and capital gains and losses on
disposition of Fund assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for
the Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number
of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of
shares, disbursement of dividends, and maintenance of
shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders.
The Distributor is a wholly owned subsidiary of Liberty
Financial. The business address of the Distributor is 600
Atlantic Avenue, Boston, Massachusetts 02210; however, all
Fund correspondence (including purchase and redemption
orders) should be mailed to the Trust at P.O. Box 804058,
Chicago, Illinois 60680. All distribution and promotional
expenses are paid by the Adviser, including payments to the
Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the
custodian for the Fund. Foreign securities are maintained in
the custody of foreign banks and trust companies that are
members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of
Trust") dated January 8, 1987, which provides that each
shareholder shall be deemed to have agreed to be bound by the
terms thereof. The Declaration of Trust may be amended by a
vote of either the Trust's shareholders or its trustees. The
Trust may issue an unlimited number of shares, in one or more
series as the Board may authorize. Currently, eight series
are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as the Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides
that persons extending credit to, contracting with, or having
any claim against, the Trust or any particular Fund shall
look only to the assets of the Trust or of the respective
Fund for payment under such credit, contract or claim, and
that the shareholders, Trustees and officers of the Trust
shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability
be given in each contract, instrument or undertaking executed
or made on behalf of the Trust. The Declaration of Trust
provides for indemnification of any shareholder against any
loss and expense arising from personal liability solely by
reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of
shareholder liability is believed to be remote, because it
would be limited to circumstances in which the disclaimer was
inoperative and the Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on
account of unsatisfied liability of another Fund of the Trust
is also believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to
circumstances in which the other Fund was unable to meet its
obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-
322-1130 for more information about this Fund.
_________________
<PAGE>
STEINROE FUNDS LOGO
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE GROWTH STOCK FUND
The Fund seeks long-term capital appreciation by investing in
common stock and other equity-type securities.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution
plans ("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or
redemption charges, and the Fund has no 12b-1 plan. The Fund
is a series of the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain
it for future reference.
A Statement of Additional Information dated February 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference.
The Statement of Additional Information and the most recent
financial statements may be obtained without charge by
writing to the Secretary at P.O. Box 804058, Chicago, IL
60680 or by calling 800-322-1130. The Statement of
Additional Information contains information relating to other
series of the Stein Roe Investment Trust that may not be
available as investment vehicles for your defined
contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
...... . Page
Fee Table............................. .2
Financial Highlights.................. .2
The Fund............................. ..3
How the Fund Invests................ ...4
Portfolio Investments and Strategies.. .4
Restrictions on the Fund's Investments 5
Risks and Investment Considerations.. . 6
How to Purchase Shares.............. ...6
How to Redeem Shares .................. 7
Net Asset Value ...................... .7
Distributions and Income Taxes....... ..8
Investment Return................... ...8
Management of the Fund..................8
Organization and Description of Shares. 9
For More Information ..................10
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management and Administrative Fees 0.75%
12b-1 Fees None
Other Expenses 0.33%
-----
Total Fund Operating Expenses 1.08%
-----
-----
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end
of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- ---------
$11 $34 $60 $132
The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will
bear directly or indirectly as an investor in the Fund. The
Fund's transfer agency fees were changed effective May 1,
1995, and changes in management and administrative fees
became effective on September 1, 1995. The above table
illustrates expenses that would have been borne by investors
in the last fiscal year assuming that the fee changes had
been in effect for the entire year. For purposes of the
Example above, the figures assume that the percentage amounts
listed for the Fund under Annual Fund Operating Expenses
remain the same in each of the periods; that all income
dividends and capital gain distributions are reinvested in
additional Fund shares; and that, for purposes of management
fee breakpoints, the Fund's net assets remain at the same
level as in the most recently completed fiscal year. The
figures in the Example are not necessarily indicative of past
or future expenses, and actual expenses may be greater or
less than those shown. Although information such as that
shown in the Example and Fee Table is useful in reviewing the
Fund's expenses and in providing a basis for comparison with
other mutual funds, it should not be used for comparison with
other investments using different assumptions or time
periods. These examples do not reflect any charges or
expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the
Fund for the periods shown on a per-share basis and has been
audited by Arthur Andersen LLP, independent public
accountants. All of the auditors' reports were unqualified.
This table should be read in conjunction with the Fund's
financial statements and notes thereto. The Fund's annual
report, which may be obtained from the Trust without charge
upon request, contains additional performance information.
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $14.04 $17.43 $16.97 $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.31 0.26 0.24 0.19 0.34 0.39 0.33 0.18 0.15 0.13 0.12
Net realized and
unrealized gains (losses)
on investments 3.38 2.75 0.46 (0.11) 4.51 (1.17) 5.90 3.01 1.14 0.41 5.60
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 3.69 3.01 0.70 0.08 4.85 (0.78) 6.23 3.19 1.29 0.54 5.72
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (0.30) (0.25) (0.29) (0.15) (0.34) (0.37) (0.42) (0.16) (0.10) (0.12) (0.15)
Net realized capital gains -- (3.22) (2.71) -- (0.06) -- (0.92) (1.17) (0.95) (1.73) (3.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.30) (3.47) (3.00) (0.15) (0.40) (0.37) (1.34) (1.33) (1.05) (1.85) (3.17)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $17.43 $16.97 $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58 $26.13
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.67% 0.67% 0.65% *0.76% 0.77% 0.73% 0.79% 0.92% 0.93% 0.94% 0.99%
Ratio of net investment
income to average net
assets 1.89% 1.34% 1.25% *1.62% 2.05% 2.03% 1.63% 0.75% 0.59% 0.50% 0.56%
Portfolio turnover rate 114% 137% 143% 84% 47% 40% 34% 23% 29% 27% 36%
Total return 26.35% 16.91% 5.57% 0.54% 33.86% (4.17%) 36.64% 14.37% 5.09% 2.10% 28.18%
Net assets, end
of period (000 omitted) $224,371 $226,604 $232,658 $195,641 $206,476 $206,031 $291,767 $372,758 $373,921 $321,502 $360,336
</TABLE>
- ------------
*Annualized
(a) For the periods indicated below, bank borrowing activity
was as follows:
Debt
outstanding Average debt Average shares Average
at end of outstanding outstanding debt per
Period period (in during period during period during
Ended thousands) (in thousands) (in thousands) period
- ------------ ----------- ------------ -------------- --------
12/31/85 -- 5 13,977 0.0004
9/30/89 -- 124 11,745 0.0106
The Fund had no bank borrowings during any other periods.
__________________________
THE FUND
STEIN ROE GROWTH STOCK FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own
shares to investors and use the money they receive to invest
in a portfolio of securities such as common stocks. A mutual
fund allows you to pool your money with that of other
investors in order to obtain professional investment
management. Mutual funds generally make it possible for you
to obtain greater diversification of your investments and
simplify your recordkeeping. The Fund does not impose
commissions or charges when shares are purchased or redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate
portfolio of securities and other assets, with its own
investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and accounting and
bookkeeping services to the Fund. The Adviser also manages
several other no-load mutual funds with different investment
objectives, including equity funds, international funds,
taxable and tax-exempt bond funds, and money market funds.
To obtain prospectuses and other information on opening a
regular account in any of these mutual funds, please call
800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund's investment objective is long-term capital
appreciation, which it attempts to achieve by normally
investing at least 65% of its total assets in common stock
and other equity-type securities (such as preferred stocks,
securities convertible into or exchangeable for common
stocks, and warrants or rights to purchase common stocks)
that, in the opinion of the Adviser, have long-term
appreciation possibilities.
Further information on portfolio investments and strategies
may be found under Portfolio Investments and Strategies in
this prospectus and in the Statement of Additional
Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest up
to 35% of its total assets in debt securities of corporate
and governmental issuers. Investment in debt securities is
limited to those that are rated within the four highest
grades (generally referred to as investment grade).
Securities in the fourth highest grade may possess
speculative characteristics, and changes in economic
conditions are more likely to affect the issuer's capacity to
pay interest and repay principal. If the rating of a
security held by the Fund is lost or reduced below investment
grade, the Fund is not required to dispose of the security--
the Adviser will, however, consider that fact in determining
whether the Fund should continue to hold the security. When
the Adviser deems a temporary defensive position advisable,
the Fund may invest, without limitation, in high-quality
fixed income securities, or hold assets in cash or cash
equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than
American Depositary Receipts (ADRs), foreign debt securities
denominated in U.S. dollars, or securities guaranteed by a
U.S. person, the Fund is limited to investing no more than
25% of its total assets in foreign securities. (See Risks
and Investment Considerations.) The Fund may invest in
sponsored or unsponsored ADRs. In addition to, or in lieu
of, such direct investment, a Fund may construct a synthetic
foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars; and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a
different currency on a future date and at a specified rate
of exchange. Because of the availability of a variety of
highly liquid U.S. dollar debt instruments, a synthetic
foreign position utilizing such U.S. dollar instruments may
offer greater liquidity than direct investment in foreign
currency debt instruments. In connection with the purchase
of foreign securities, the Fund may contract to purchase an
amount of foreign currency sufficient to pay the purchase
price of the securities at the settlement date. Such a
contract involves the risk that the value of the foreign
currency may decline relative to the value of the dollar
prior to the settlement date--this risk is in addition to the
risk that the value of the foreign security purchased may
decline. The Fund also may enter into foreign currency
contracts as a hedging technique to limit or reduce exposure
to currency fluctuations. In addition, the Fund may use
options and futures contracts, as described below, to limit
or reduce exposure to currency fluctuations. As of September
30, 1995, the Fund's holdings of foreign companies, as a
percentage of net assets, were 6.3% (1.2% in foreign
securities and 5.1% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund may invest in securities purchased on a when-issued
or delayed-delivery basis. Although the payment terms of
these securities are established at the time the Fund enters
into the commitment, the securities may be delivered and paid
for a month or more after the date of purchase, when their
value may have changed. The Fund will make such commitments
only with the intention of actually acquiring the securities,
but may sell the securities before settlement date if it is
deemed advisable for investment reasons. The Fund may make
loans of its portfolio securities to broker-dealers and banks
subject to certain restrictions described in the Statement of
Additional Information.
DERIVATIVES
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized
by underlying pools of mortgages or other receivables,
floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each
case, the value of the instrument or security is "derived"
from the performance of an underlying asset or a "benchmark"
such as a security index, an interest rate, or a currency.
The Fund does not expect to invest more than 5% of its net
assets in any type of Derivative except for options, futures
contracts, and futures options.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because they are
more efficient or less costly than direct investment. They
also may be used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and
directions of movements in security prices, interest rates
and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as
well regulated and may be less marketable than exchange-
traded Derivatives. For additional information on
Derivatives, please refer to the Statement of Additional
Information.
In seeking to achieve its desired investment objective,
provide additional revenue, or to hedge against changes in
security prices, interest rates or currency fluctuations, the
Fund may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2)
enter into interest rate, index and foreign currency futures
contracts; (3) write options on such futures contracts; and
(4) purchase other types of forward or investment contracts
linked to individual securities, indexes or other benchmarks.
The Fund may write a call or put option only if the option is
covered. As the writer of a covered call option, the Fund
foregoes, during the option's life, the opportunity to profit
from increases in market value of the security covering the
call option above the sum of the premium and the exercise
price of the call. There can be no assurance that a liquid
market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require
low margin deposits, the use of futures contracts involves a
high degree of leverage and may result in losses in excess of
the amount of the margin deposit.
PORTFOLIO TURNOVER.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of
time portfolio securities must be held. The turnover rate
may vary significantly from year to year. A high rate of
portfolio turnover may result in increased transaction
expenses and the realization of capital gains and losses.
(See Distributions and Income Taxes and Management of the
Fund.) The Fund is not intended to be an income-producing
investment, although it may produce varying amounts of
income.
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only
to 75% of the Fund's portfolio, but does not apply to
securities of the U.S. Government or repurchase agreements
for such securities, and would not prevent the Fund from
investing all of its assets in shares of another investment
company having the identical investment objective.
The Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer. It may, however, invest
all of its assets in shares of another investment company
having the identical investment objective.
The Fund will not borrow money, except as a temporary measure
for extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33
1/3% of the Fund's total assets (at market). The Fund will
not purchase additional securities when its borrowings, less
proceeds receivable from sales of portfolio securities,
exceed 5% of total assets.
The Fund may invest in repurchase agreements,/1/ provided
that the Fund will not invest more than 15% of its net assets
in repurchase agreements maturing in more than seven days,
and any other illiquid securities.
- ----------------------
/1/ A repurchase agreement involves a sale of securities to
the Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a
specified time. In the event of bankruptcy of the seller,
the Fund could experience both losses and delays in
liquidating its collateral.
- ----------------------
The policies summarized in the first three paragraphs under
this section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as
such, can be changed only with the approval of a "majority of
the outstanding voting securities" of the Fund as defined in
the Investment Company Act of 1940. The Fund's investment
objective is non-fundamental and, as such, may be changed by
the Board of Trustees without shareholder approval. Any such
change may result in the Fund having an investment objective
different from the objective the shareholder considered
appropriate at the time of investment in the Fund. All of
the investment restrictions are set forth in the Statement of
Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks.
No investment is suitable for all investors. The Fund is
designed for long-term investors who desire to participate in
the stock market with more investment risk and volatility
than the stock market in general, but with less investment
risk and volatility than aggressive capital appreciation
funds. The Fund seeks to reduce risk by investing in a
diversified portfolio, but this does not eliminate all risk.
It may, however, under abnormal circumstances, invest up to
25% of net assets in a particular industry or group of
industries. There can be no guarantee that the Fund will
achieve its objective.
Investment in foreign securities may represent a greater
degree of risk (including risk related to exchange rate
fluctuations, tax provisions, exchange and currency controls,
and expropriation of assets) than investment in securities of
domestic issuers. Other risks of foreign investing include
less complete financial information on issuers, less market
liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition
of exchange controls and withholding taxes on dividends, and
seizure or nationalization of investments owned by non-
residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in
the future seek to achieve its investment objective by
pooling its assets with assets of other mutual funds managed
by the Adviser for investment in another investment company
having the same investment objective and substantially the
same investment policies and restrictions as the Fund. The
purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected
that any such investment company would be managed by the
Adviser in substantially the same manner as the Fund.
Shareholders of the Fund will be given at least 30 days'
prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be
made only if the Trustees determine it to be in the best
interests of the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to
purchase shares of the Fund through your employer or
limitations on the amount that may be purchased, please
consult your employer. Shares are sold to eligible defined
contribution plans at the Fund's net asset value (see Net
Asset Value) next determined after receipt of payment by the
Fund.
Each purchase order for the Fund must be accepted by an
authorized officer of the Trust in Chicago and is not binding
until accepted and entered on the books of the Fund. Once
your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interest of the Trust or of
the Fund's shareholders.
Shares purchased by reinvestment of dividends will be
confirmed quarterly. All other purchases and redemptions
will be confirmed as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares
of the Fund through your employer's plan, including any
charges that may be imposed by the plan, please consult with
your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or
any portion of your Fund shares and use the proceeds to
purchase shares of any other Stein Roe Fund available through
your employer's defined contribution plan. (An exchange is
commonly referred to as a "transfer.") Before exercising the
Exchange Privilege, you should obtain the prospectus for the
Stein Roe Fund in which you wish to invest and read it
carefully. Contact your plan administrator for instructions
on how to exchange your shares or to obtain prospectuses of
other Stein Roe Funds available through your plan. The Fund
reserves the right to suspend, limit, modify, or terminate
the Exchange Privilege or its use in any manner by any person
or class; shareholders would be notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once
they have been received and accepted by the Trust. The Trust
cannot accept a redemption request that specifies a
particular date or price for redemption or any special
conditions.
The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because
the redemption price you receive depends upon the Fund's net
asset value per share at the time of redemption, it may be
more or less than the price you originally paid for the
shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its
net asset value per share. The net asset value of a share of
the Fund is determined as of the close of trading on the New
York Stock Exchange (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's
assets and liabilities by the number of shares outstanding.
Net asset value will not be determined on days when the
Exchange is closed unless, in the judgment of the Board of
Trustees, the net asset value of the Fund should be
determined on any such day, in which case the determination
will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued
at its last sale price on that exchange on the day of
valuation or, if there are no sales that day, at the latest
bid quotation. Each over-the-counter security for which the
last sale price on the day of valuation is available from
NASDAQ is valued at that price. All other over-the-counter
securities for which reliable quotations are available are
valued at the latest bid quotation. Other assets and
securities are valued by a method that the Board believes
represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually.
The Fund intends to distribute by the end of each calendar
year at least 98% of any net capital gains realized from the
sale of securities during the twelve-month period ended
October 31 in that year. The Fund intends to distribute any
undistributed net investment income and net realized capital
gains in the following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares
of the Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all
other requirements that are necessary for it to be relieved
of federal taxes on income and gain it distributes. The Fund
will distribute substantially all of its ordinary income and
net capital gains on a current basis. Generally, Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by the Fund to employer-
sponsored defined contribution plans that qualify for tax-
exempt treatment under federal income tax laws will not be
taxable. Special tax rules apply to investments through such
plans. You should consult your tax advisor to determine the
suitability of the Fund as an investment through such a plan
and the tax treatment of distributions (including
distributions of amounts attributable through an investment
in the Fund) from such a plan. This section is not intended
to be a full discussion of income tax laws and their effect
on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured
by the distributions received (assuming reinvestment), plus
or minus the change in the net asset value per share for a
given period. A total return percentage may be calculated by
dividing the value of a share at the end of the period
(including reinvestment of distributions) by the value of the
share at the beginning of the period and subtracting one.
For a given period, an average annual total return may be
calculated by finding the average annual compounded rate that
would equate a hypothetical $1,000 investment to the ending
redeemable value.
Comparison of the Fund's total return with alternative
investments should consider differences between the Fund and
the alternative investments, the periods and methods used in
calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return
does not reflect any charges or expenses related to your
employer's plan. Of course, past performance is not
necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement
of Additional Information for the names of and other
information about the trustees and officers. The Fund's
Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
the Fund's investment portfolio and the business affairs of
the Fund and the Trust, subject to the direction of the Board
of Trustees. The Adviser is registered as an investment
adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business
of Stein Roe & Farnham, a partnership that had advised and
managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Financial Companies,
Inc. ("Liberty Financial"), which in turn is a majority owned
indirect subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
The Fund is managed by Erik P. Gustafson and Harvey B.
Hirschhorn, who became co-managers of the Fund in 1994 and
1995, respectively. Mr. Gustafson is a vice president of the
Adviser, having joined it in 1992. From 1989 to 1992 he was
an attorney with Fowler, White, Burnett, Hurley, Banick &
Strickroot. He holds a B.A. from the University of Virginia
(1985) and M.B.A. and J.D. degrees (1989) from Florida State
University. Mr. Hirschhorn is executive vice president and
director of research services of the Adviser, which he joined
in 1973. He received an A.B. degree from Rutgers College in
1971 and an M.B.A. from the University of Chicago in 1973,
and is a chartered financial analyst. As of December 31,
1995, Messrs. Gustafson and Hirschhorn were responsible for
managing $554 million and $512 million, respectively, in
mutual fund assets.
FEES AND EXPENSES.
The investment advisory agreement relating to the Fund was
replaced on September 1, 1995, with an administrative
agreement and a management agreement. Under the terminated
advisory agreement, the annual fee, based on average net
assets, was .75% of the first $250 million, .70% of the next
$250 million, and .60% thereafter. The new contracts call
for a monthly management fee based on an annual rate of .60%
of the first $500 million, .55% of the next $500 million, and
.50% thereafter; and a monthly administrative fee based on an
annual rate of .15% of the first $500 million, .125% of the
next $500 million, and .10% thereafter. For the year ended
September 30, 1995, the fees for the Fund amounted to .74% of
average net assets.
Under a separate agreement with the Trust, the Adviser
provides certain accounting and bookkeeping services to the
Fund, including computation of the Fund's net asset value and
calculation of its net income and capital gains and losses on
disposition of Fund assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for
the Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number
of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of
shares, disbursement of dividends, and maintenance of
shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders.
The Distributor is a wholly owned subsidiary of Liberty
Financial. The business address of the Distributor is 600
Atlantic Avenue, Boston, Massachusetts 02210; however, all
Fund correspondence (including purchase and redemption
orders) should be mailed to the Trust at P.O. Box 804058,
Chicago, Illinois 60680. All distribution and promotional
expenses are paid by the Adviser, including payments to the
Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the
custodian for the Fund. Foreign securities are maintained in
the custody of foreign banks and trust companies that are
members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of
Trust") dated January 8, 1987, which provides that each
shareholder shall be deemed to have agreed to be bound by the
terms thereof. The Declaration of Trust may be amended by a
vote of either the Trust's shareholders or its trustees. The
Trust may issue an unlimited number of shares, in one or more
series as the Board may authorize. Currently, eight series
are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as the Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides
that persons extending credit to, contracting with, or having
any claim against, the Trust or any particular Fund shall
look only to the assets of the Trust or of the respective
Fund for payment under such credit, contract or claim, and
that the shareholders, Trustees and officers of the Trust
shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability
be given in each contract, instrument or undertaking executed
or made on behalf of the Trust. The Declaration of Trust
provides for indemnification of any shareholder against any
loss and expense arising from personal liability solely by
reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of
shareholder liability is believed to be remote, because it
would be limited to circumstances in which the disclaimer was
inoperative and the Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on
account of unsatisfied liability of another Fund of the Trust
is also believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to
circumstances in which the other Fund was unable to meet its
obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-
322-1130 for more information about this Fund.
______________
<PAGE>
STEINROE FUNDS LOGO
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE CAPITAL OPPORTUNITIES FUND
The Fund seeks long-term capital appreciation by investing in
aggressive growth companies.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution
plans ("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or
redemption charges, and the Fund has no 12b-1 plan. The Fund
is a series of the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain
it for future reference.
A Statement of Additional Information dated February 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference.
The Statement of Additional Information and the most recent
financial statements may be obtained without charge by
writing to the Secretary at P.O. Box 804058, Chicago, IL
60680 or by calling 800-322-1130. The Statement of
Additional Information contains information relating to other
series of the Stein Roe Investment Trust that may not be
available as investment vehicles for your defined
contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
...... . Page
Fee Table............................. .2
Financial Highlights.................. .2
The Fund............................. ..3
How the Fund Invests................ ...4
Portfolio Investments and Strategies.. .4
Restrictions on the Fund's Investments 6
Risks and Investment Considerations.. . 6
How to Purchase Shares.............. ...7
How to Redeem Shares .................. 7
Net Asset Value ...................... .8
Distributions and Income Taxes....... ..8
Investment Return................... ...8
Management of the Fund..................9
Organization and Description of Shares.10
For More Information ..................10
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management and Administrative Fees 0.90%
12b-1 Fees None
Other Expenses 0.35%
-----
Total Fund Operating Expenses 1.25%
-----
-----
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end
of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- ---------
$13 $40 $69 $151
The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will
bear directly or indirectly as an investor in the Fund. The
Fund's transfer agency fees were changed effective May 1,
1995, and changes in management and administrative fees
became effective on September 1, 1995. The above table
illustrates expenses that would have been borne by investors
in the last fiscal year assuming that the fee changes had
been in effect for the entire year. (Also see Management of
the Fund--Fees and Expenses.) For purposes of the Example
above, the figures assume that the percentage amounts listed
for the Fund under Annual Fund Operating Expenses remain the
same in each of the periods; that all income dividends and
capital gain distributions are reinvested in additional Fund
shares; and that, for purposes of management fee breakpoints,
the Fund's net assets remain at the same level as in the most
recently completed fiscal year. The figures in the Example
are not necessarily indicative of past or future expenses,
and actual expenses may be greater or less than those shown.
Although information such as that shown in the Example and
Fee Table is useful in reviewing the Fund's expenses and in
providing a basis for comparison with other mutual funds, it
should not be used for comparison with other investments
using different assumptions or time periods. These examples
do not reflect any charges or expenses related to your
employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the
Fund for the periods shown on a per-share basis and has been
audited by Arthur Andersen LLP, independent public
accountants. All of the auditors' reports were unqualified.
This table should be read in conjunction with the Fund's
financial statements and notes thereto. The Fund's annual
report, which may be obtained from the Trust without charge
upon request, contains additional performance information.
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.69 $11.91 $13.38 $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 15.79
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.10 0.03 0.03 0.03 0.05 0.06 0.11 0.06 0.01 0.02 0.01
Net realized and
unrealized gains
(losses) on investments 2.27 1.97 0.62 0.13 3.86 (4.72) 3.73 0.60 3.91 0.34 5.91
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 2.37 2.00 0.65 0.16 3.91 (4.66) 3.84 0.66 3.92 0.36 5.92
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investment income (0.15) (0.10) (0.05) -- (0.05) (0.06) (0.08) (0.10) (0.04) (0.01) (0.02)
Net realized capital
gains -- (0.43) (3.36) -- (0.06) (2.54) (0.08) -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.15) (0.53) (3.41) -- (0.11) (2.60) (0.16) (0.10) (0.04) (0.01) (0.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $11.91 $13.38 $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 $15.79 $21.69
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.95% 0.95% 0.95% *1.01% 1.09% 1.14% 1.18% 1.06% 1.06% 0.97% 1.05%
Ratio of net investment
income to average
net assets 0.94% 0.19% 0.18% *0.34% 0.42% 0.43% 1.19% 0.42% 0.09% 0.04% 0.08%
Portfolio turnover rate 90% 116% 133% 164% 245% 171% 69% 46% 55% 46% 60%
Total return 24.58% 16.77% 9.38% 1.51% 36.68% (37.51%) 53.51% 5.99% 34.01% 2.31% 37.46%
Net assets, end of
period (000 omitted) $176,099 $191,415 $171,973 $194,160 $272,805 $86,342 $129,711 $118,726 $153,101 $175,687 $242,381
</TABLE>
- ----------
*Annualized
(a) All per share amounts and Average Shares Outstanding
During Period on the debt table reflect a two-for-one
stock split effective August 25, 1995.
(b) For the periods indicated below, bank borrowing activity
was as follows:
Debt
outstanding Average debt Average shares Average
at end of outstanding outstanding debt per
Period period (in during period during period during
Ended thousands) (in thousands) (in thousands) period
- ------------ ----------- ------------ -------------- --------
12/31/85 -- 43 17,050 0.0026
12/31/86 -- 55 13,906 0.0039
12/31/87 -- 292 16,008 0.0183
9/30/88 -- 56 17,206 0.0033
9/30/89 -- 422 16,066 0.0263
9/30/90 200 1,042 15,944 0.0654
The Fund had no bank borrowings during any other periods.
__________________________
THE FUND
STEIN ROE CAPITAL OPPORTUNITIES FUND (the "Fund") is a no-
load, diversified "mutual fund." Mutual funds sell their own
shares to investors and use the money they receive to invest
in a portfolio of securities such as common stocks. A mutual
fund allows you to pool your money with that of other
investors in order to obtain professional investment
management. Mutual funds generally make it possible for you
to obtain greater diversification of your investments and
simplify your recordkeeping. The Fund does not impose
commissions or charges when shares are purchased or redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate
portfolio of securities and other assets, with its own
investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages
several other no-load mutual funds with different investment
objectives, including equity funds, international funds,
taxable and tax-exempt bond funds, and money market funds.
To obtain prospectuses and other information on opening a
regular account in any of these mutual funds, please call
800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund's investment objective is long-term capital
appreciation, which it attempts to achieve by investing in
selected companies that, in the opinion of the Adviser, offer
opportunities for capital appreciation.
The Fund pursues its objective by investing in aggressive
growth companies. An aggressive growth company, in general,
is one that appears to have the ability to increase its
earnings at an above-average rate. These may include
securities of smaller emerging companies as well as
securities of well-seasoned companies of any size that offer
strong earnings growth potential. Such companies may benefit
from new products or services, technological developments, or
changes in management. Securities of smaller companies may
be subject to greater price volatility than securities of
larger companies. In addition, many smaller companies are
less well known to the investing public and may not be as
widely followed by the investment community. Although it
invests primarily in common stocks, the Fund may invest in
all types of equity securities, including preferred stocks
and securities convertible into common stocks. Further
information on portfolio investments and strategies may be
found under Portfolio Investments and Strategies in this
prospectus and in the Statement of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest in
debt securities of corporate and governmental issuers. The
Fund may invest up to 35% of its net assets in debt
securities, but does not expect to invest more than 5% of its
net assets in debt securities that are rated below investment
grade and that, on balance, are considered predominantly
speculative with respect to the issuer's capacity to pay
interest and repay principal according to the terms of the
obligation and, therefore, carry greater investment risk,
including the possibility of issuer default and bankruptcy.
When the Adviser deems a temporary defensive position
advisable, the Fund may invest, without limitation, in high-
quality fixed income securities, or hold assets in cash or
cash equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than
American Depositary Receipts (ADRs), foreign debt securities
denominated in U.S. dollars, or securities guaranteed by a
U.S. person, the Fund is limited to investing no more than
25% of its total assets in foreign securities. (See Risks
and Investment Considerations.) The Fund may invest in
sponsored and unsponsored ADRs. In addition to, or in lieu
of, such direct investment, a Fund may construct a synthetic
foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars; and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a
different currency on a future date and at a specified rate
of exchange. Because of the availability of a variety of
highly liquid U.S. dollar debt instruments, a synthetic
foreign position utilizing such U.S. dollar instruments may
offer greater liquidity than direct investment in foreign
currency debt instruments. In connection with the purchase
of foreign securities, the Fund may contract to purchase an
amount of foreign currency sufficient to pay the purchase
price of the securities at the settlement date. Such a
contract involves the risk that the value of the foreign
currency may decline relative to the value of the dollar
prior to the settlement date--this risk is in addition to the
risk that the value of the foreign security purchased may
decline. The Fund also may enter into foreign currency
contracts as a hedging technique to limit or reduce exposure
to currency fluctuations. In addition, the Fund may use
options and futures contracts, as described below, to limit
or reduce exposure to currency fluctuations. As of September
30, 1995, the Fund's holdings of foreign companies, as a
percentage of net assets, were 2.5% (none in foreign
securities and 2.5% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund may invest in securities purchased on a when-issued
or delayed-delivery basis. Although the payment terms of
these securities are established at the time the Fund enters
into the commitment, the securities may be delivered and paid
for a month or more after the date of purchase, when their
value may have changed. The Fund will make such commitments
only with the intention of actually acquiring the securities,
but may sell the securities before settlement date if it is
deemed advisable for investment reasons. The Fund may make
loans of its portfolio securities to broker-dealers and banks
subject to certain restrictions described in the Statement of
Additional Information.
DERIVATIVES.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized
by underlying pools of mortgages or other receivables,
floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each
case, the value of the instrument or security is "derived"
from the performance of an underlying asset or a "benchmark"
such as a security index, an interest rate, or a currency.
The Fund does not expect to invest more than 5% of its net
assets in any type of Derivative except for options, futures
contracts, and futures options.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because they are
more efficient or less costly than direct investment. They
also may be used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and
directions of movements in security prices, interest rates
and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as
well regulated and may be less marketable than exchange-
traded Derivatives. For additional information on
Derivatives, please refer to the Statement of Additional
Information.
In seeking to achieve its desired investment objective,
provide additional revenue, or to hedge against changes in
security prices, interest rates or currency fluctuations, the
Fund may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2)
enter into interest rate, index and foreign currency futures
contracts; (3) write options on such futures contracts; and
(4) purchase other types of forward or investment contracts
linked to individual securities, indexes or other benchmarks.
The Fund may write a call or put option only if the option is
covered. As the writer of a covered call option, the Fund
foregoes, during the option's life, the opportunity to profit
from increases in market value of the security covering the
call option above the sum of the premium and the exercise
price of the call. There can be no assurance that a liquid
market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require
low margin deposits, the use of futures contracts involves a
high degree of leverage and may result in losses in excess of
the amount of the margin deposit.
PORTFOLIO TURNOVER.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of
time portfolio securities must be held. The turnover rate
may vary significantly from year to year. At times, the Fund
may invest for short-term capital appreciation. Flexibility
of investment and emphasis on capital appreciation may
involve greater portfolio turnover than that of mutual funds
that have the objectives of income or maintenance of a
balanced investment position. A high rate of portfolio
turnover may result in increased transaction expenses and the
realization of capital gains and losses. (See Financial
Highlights and Distributions and Income Taxes.) The Fund is
not intended to be an income-producing investment, although
it may produce varying amounts of income.
__________________________
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only
to 75% of the Fund's portfolio, but does not apply to
securities of the U.S. Government or repurchase agreements
for such securities, and would not prevent the Fund from
investing all of its assets in shares of another investment
company having the identical investment objective.
The Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer. It may, however, invest
all of its assets in shares of another investment company
having the identical investment objective.
The Fund will not borrow money, except as a temporary measure
for extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33
1/3% of the Fund's total assets (at market). The Fund will
not purchase additional securities when its borrowings, less
proceeds receivable from sales of portfolio securities,
exceed 5% of total assets.
The Fund may invest in repurchase agreements,/1/ provided
that the Fund will not invest more than 15% of its net assets
in repurchase agreements maturing in more than seven days,
and any other illiquid securities.
- ----------------------
/1/ A repurchase agreement involves a sale of securities to
the Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a
specified time. In the event of bankruptcy of the seller,
the Fund could experience both losses and delays in
liquidating its collateral.
- ----------------------
The policies summarized in the first three paragraphs under
this section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as
such, can be changed only with the approval of a "majority of
the outstanding voting securities" of the Fund as defined in
the Investment Company Act of 1940. The Fund's investment
objective is non-fundamental and, as such, may be changed by
the Board of Trustees without shareholder approval. Any such
change may result in the Fund having an investment objective
different from the objective the shareholder considered
appropriate at the time of investment in the Fund. All of
the investment restrictions are set forth in the Statement of
Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks.
No investment is suitable for all investors. The Fund is
designed for long-term investors who can accept the
fluctuations in portfolio value and other risks associated
with seeking long-term capital appreciation through
investments in common stocks. The Fund usually allocates its
investments among a number of different industries rather
than concentrating in a particular industry or group of
industries. It may, however, under abnormal circumstances,
invest up to 25% of net assets in a particular industry or
group of industries. There can be no guarantee that the Fund
will achieve its objective.
Investment in foreign securities may represent a greater
degree of risk (including risk related to exchange rate
fluctuations, tax provisions, exchange and currency controls,
and expropriation of assets) than investment in securities of
domestic issuers. Other risks of foreign investing include
less complete financial information on issuers, less market
liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition
of exchange controls and withholding taxes on dividends, and
seizure or nationalization of investments owned by non-
residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in
the future seek to achieve its investment objective by
pooling its assets with assets of other mutual funds managed
by the Adviser for investment in another investment company
having the same investment objective and substantially the
same investment policies and restrictions as the Fund. The
purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected
that any such investment company would be managed by the
Adviser in substantially the same manner as the Fund.
Shareholders of the Fund will be given at least 30 days'
prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be
made only if the Trustees determine it to be in the best
interests of the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to
purchase shares of the Fund through your employer or
limitations on the amount that may be purchased, please
consult your employer. Shares are sold to eligible defined
contribution plans at the Fund's net asset value (see Net
Asset Value) next determined after receipt of payment by the
Fund.
Each purchase order for the Fund must be accepted by an
authorized officer of the Trust in Chicago and is not binding
until accepted and entered on the books of the Fund. Once
your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interest of the Trust or of
the Fund's shareholders.
Shares purchased by reinvestment of dividends will be
confirmed quarterly. All other purchases and redemptions
will be confirmed as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares
of the Fund through your employer's plan, including any
charges that may be imposed by the plan, please consult with
your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or
any portion of your Fund shares and use the proceeds to
purchase shares of any other Stein Roe Fund available through
your employer's defined contribution plan. (An exchange is
commonly referred to as a "transfer.") Before exercising the
Exchange Privilege, you should obtain the prospectus for the
Stein Roe Fund in which you wish to invest and read it
carefully. Contact your plan administrator for instructions
on how to exchange your shares or to obtain prospectuses of
other Stein Roe Funds available through your plan. The Fund
reserves the right to suspend, limit, modify, or terminate
the Exchange Privilege or its use in any manner by any person
or class; shareholders would be notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once
they have been received and accepted by the Trust. The Trust
cannot accept a redemption request that specifies a
particular date or price for redemption or any special
conditions.
The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because
the redemption price you receive depends upon the Fund's net
asset value per share at the time of redemption, it may be
more or less than the price you originally paid for the
shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its
net asset value per share. The net asset value of a share of
the Fund is determined as of the close of trading on the New
York Stock Exchange (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's
assets and liabilities by the number of shares outstanding.
Net asset value will not be determined on days when the
Exchange is closed unless, in the judgment of the Board of
Trustees, the net asset value of the Fund should be
determined on any such day, in which case the determination
will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued
at its last sale price on that exchange on the day of
valuation or, if there are no sales that day, at the latest
bid quotation. Each over-the-counter security for which the
last sale price on the day of valuation is available from
NASDAQ is valued at that price. All other over-the-counter
securities for which reliable quotations are available are
valued at the latest bid quotation. Other assets and
securities are valued by a method that the Board believes
represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually.
The Fund intends to distribute by the end of each calendar
year at least 98% of any net capital gains realized from the
sale of securities during the twelve-month period ended
October 31 in that year. The Fund intends to distribute any
undistributed net investment income and net realized capital
gains in the following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares
of the Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all
other requirements that are necessary for it to be relieved
of federal taxes on income and gain it distributes. The Fund
will distribute substantially all of its ordinary income and
net capital gains on a current basis. Generally, Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by the Fund to employer-
sponsored defined contribution plans that qualify for tax-
exempt treatment under federal income tax laws will not be
taxable. Special tax rules apply to investments through such
plans. You should consult your tax advisor to determine the
suitability of the Fund as an investment through such a plan
and the tax treatment of distributions (including
distributions of amounts attributable through an investment
in the Fund) from such a plan. This section is not intended
to be a full discussion of income tax laws and their effect
on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured
by the distributions received (assuming reinvestment), plus
or minus the change in the net asset value per share for a
given period. A total return percentage may be calculated by
dividing the value of a share at the end of the period
(including reinvestment of distributions) by the value of the
share at the beginning of the period and subtracting one.
For a given period, an average annual total return may be
calculated by finding the average annual compounded rate that
would equate a hypothetical $1,000 investment to the ending
redeemable value.
Comparison of the Fund's total return with alternative
investments should consider differences between the Fund and
the alternative investments, the periods and methods used in
calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return
does not reflect any charges or expenses related to your
employer's plan. Of course, past performance is not
necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement
of Additional Information for the names of and other
information about the trustees and officers. The Fund's
Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
the Fund's investment portfolio and the business affairs of
the Fund and the Trust, subject to the direction of the Board
of Trustees. The Adviser is registered as an investment
adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business
of Stein Roe & Farnham, a partnership that had advised and
managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Financial Companies,
Inc. ("Liberty Financial"), which in turn is a majority owned
indirect subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
Gloria J. Santella and Eric S. Maddix are co-portfolio
managers of the Fund. Ms. Santella has been portfolio
manager since October, 1994, and had previously been co-
portfolio manager of the Fund since March, 1991. Ms.
Santella is a vice-president of the Trust and a senior vice
president of the Adviser, having been associated with the
Adviser since 1979. She received her B.B.A. from Loyola
University in 1979 and M.B.A. from the University of Chicago
in 1983. As of December 31, 1995, she managed $332 million
in mutual fund assets. Mr. Maddix became co-portfolio
manager of the Fund in 1996; he was previously associate
portfolio manager of the Fund. Mr. Maddix is a vice
president of the Adviser, which he joined in 1987. He
received his B.B.A. degree from Iowa State University in 1986
and his M.B.A. from the University of Chicago in 1992.
FEES AND EXPENSES.
The investment advisory agreement relating to the Fund was
replaced on September 1, 1995, with an administrative
agreement and a management agreement. Under the terminated
advisory agreement, the annual fee was .75% of average net
assets. The new contracts call for a monthly management fee
based on an annual rate of .75% of the first $500 million,
.70% of the next $500 million, .65 of the next $500 million,
and .60% thereafter; and a monthly administrative fee based
on an annual rate of .15% of the first $500 million, .125% of
the next $500 million, .10% of the next $500 million, and
.075% thereafter. The fees paid by the Fund are higher than
those paid by most mutual funds. For the year ended
September 30, 1995, the fees for the Fund amounted to .75% of
average net assets.
Under a separate agreement with the Trust, the Adviser
provides certain accounting and bookkeeping services to the
Fund, including computation of the Fund's net asset value and
calculation of its net income and capital gains and losses on
disposition of Fund assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for
the Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number
of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of
shares, disbursement of dividends, and maintenance of
shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders.
The Distributor is a wholly owned subsidiary of Liberty
Financial. The business address of the Distributor is 600
Atlantic Avenue, Boston, Massachusetts 02210; however, all
Fund correspondence (including purchase and redemption
orders) should be mailed to the Trust at P.O. Box 804058,
Chicago, Illinois 60680. All distribution and promotional
expenses are paid by the Adviser, including payments to the
Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the
custodian for the Fund. Foreign securities are maintained in
the custody of foreign banks and trust companies that are
members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of
Trust") dated January 8, 1987, which provides that each
shareholder shall be deemed to have agreed to be bound by the
terms thereof. The Declaration of Trust may be amended by a
vote of either the Trust's shareholders or its trustees. The
Trust may issue an unlimited number of shares, in one or more
series as the Board may authorize. Currently, eight series
are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as the Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides
that persons extending credit to, contracting with, or having
any claim against, the Trust or any particular Fund shall
look only to the assets of the Trust or of the respective
Fund for payment under such credit, contract or claim, and
that the shareholders, Trustees and officers of the Trust
shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability
be given in each contract, instrument or undertaking executed
or made on behalf of the Trust. The Declaration of Trust
provides for indemnification of any shareholder against any
loss and expense arising from personal liability solely by
reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of
shareholder liability is believed to be remote, because it
would be limited to circumstances in which the disclaimer was
inoperative and the Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on
account of unsatisfied liability of another Fund of the Trust
is also believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to
circumstances in which the other Fund was unable to meet its
obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-
322-1130 for more information about this Fund.
_______________
<PAGE>
STEINROE FUNDS LOGO
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE SPECIAL FUND
The Fund seeks capital appreciation by investing in
securities that are considered to have limited downside risk
relative to their potential for above-average growth,
including securities of undervalued, underfollowed, or out-
of-favor companies.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution
plans ("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or
redemption charges, and the Fund has no 12b-1 plan. The Fund
is a series of the STEIN ROE INVESTMENT TRUST.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain
it for future reference.
A Statement of Additional Information dated February 1, 1996,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference.
The Statement of Additional Information and the most recent
financial statements may be obtained without charge by
writing to the Secretary at P.O. Box 804058, Chicago, IL
60680 or by calling 800-322-1130. The Statement of
Additional Information contains information relating to other
series of the Stein Roe Investment Trust that may not be
available as investment vehicles for your defined
contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 1, 1996
TABLE OF CONTENTS
...... . Page
Fee Table............................. .2
Financial Highlights.................. .2
The Fund............................. ..3
How the Fund Invests................ ...4
Portfolio Investments and Strategies.. .4
Restrictions on the Fund's Investments 6
Risks and Investment Considerations.. . 6
How to Purchase Shares.............. ...7
How to Redeem Shares .................. 7
Net Asset Value ...................... .8
Distributions and Income Taxes....... ..8
Investment Return................... ...8
Management of the Fund..................9
Organization and Description of Shares.10
For More Information ..................10
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management and Administrative Fees 0.84%
12b-1 Fees None
Other Expenses 0.32%
-----
Total Fund Operating Expenses 1.16%
-----
-----
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end
of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$12 $37 $64 $142
The purpose of the Fee Table is to assist you in
understanding the various costs and expenses that you will
bear directly or indirectly as an investor in the Fund. The
Fund's transfer agency fees were changed effective May 1,
1995, and changes in management and administrative fees
became effective on September 1, 1995. The above table
illustrates expenses that would have been borne by investors
in the last fiscal year assuming that the fee changes had
been in effect for the entire year. (Also see Management of
the Fund--Fees and Expenses.) For purposes of the Example
above, the figures assume that the percentage amounts listed
for the Fund under Annual Fund Operating Expenses remain the
same in each of the periods; that all income dividends and
capital gain distributions are reinvested in additional Fund
shares; and that, for purposes of management fee breakpoints,
the Fund's net assets remain at the same level as in the most
recently completed fiscal year. The figures in the Example
are not necessarily indicative of past or future expenses,
and actual expenses may be greater or less than those shown.
Although information such as that shown in the Example and
Fee Table is useful in reviewing the Fund's expenses and in
providing a basis for comparison with other mutual funds, it
should not be used for comparison with other investments
using different assumptions or time periods. These examples
do not reflect any charges or expenses related to your
employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the
Fund for the periods shown on a per-share basis and has been
audited by Arthur Andersen LLP, independent public
accountants. All of the auditors' reports were unqualified.
This table should be read in conjunction with the Fund's
financial statements and notes thereto. The Fund's annual
report, which may be obtained from the Trust without charge
upon request, contains additional performance information.
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept. 30, Years Ended September 30,
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $14.88 $18.41 $16.95 $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.25 0.35 0.23 0.14 0.36 0.42 0.34 0.21 0.17 0.15 0.13
Net realized and
unrealized gains
(losses) on investments 4.01 2.33 0.12 2.16 5.58 (2.10) 4.55 1.50 5.31 0.33 3.05
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 4.26 2.68 0.35 2.30 5.94 (1.68) 4.89 1.71 5.48 0.48 3.18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
DISTRIBUTIONS
Net investmentincome (0.19) (0.34) (0.57) (0.01) (0.21) (0.39) (0.34) (0.37) (0.18) (0.21) (0.15)
Net realized capital
gains (0.54) (3.80) (3.90) -- (0.06) (2.08) (1.32) (0.31) (1.16) (1.77) (1.31)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.73) (4.14) (4.47) (0.01) (0.27) (2.47) (1.66) (0.68) (1.34) (1.98) (1.46)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD $18.41 $16.95 $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54 $25.26
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Ratio of expenses to
average net assets 0.92% 0.92% 0.96% *0.99% 0.96% 1.02% 1.04% 0.99% 0.97% 0.96% 1.02%
Ratio of net
investment income to
average net assets 2.07% 1.75% 1.32% *1.31% 2.12% 2.33% 2.11% 0.99% 0.92% 0.91% 0.56%
Portfolio turnoverrate 96% 116% 103% 42% 85% 70% 50% 40% 42% 58% 41%
Total return 29.41% 14.70% 4.27% 17.94% 40.00% (8.78%) 32.18% 8.96% 27.35% 2.02% 14.60%
Net assets, end of
period (000 omitted) $278,082 $253,693 $187,997 $224,628 $322,056 $361,065 $587,259 $626,080 $1,076,818 $1,243,885 $1,201,469
</TABLE>
- -----------
*Annualized
(a) For the period indicated below, bank borrowing activity
was as follows:
Debt
outstanding Average debt Average shares Average
at end of outstanding outstanding debt per
Period period (in during period during period during
Ended thousands) (in thousands) (in thousands) period
- ------------ ----------- ------------ -------------- --------
12/31/86 -- 203 15,251 0.0133
The Fund had no bank borrowings during any other periods.
__________________________
THE FUND
STEIN ROE SPECIAL FUND (the "Fund") is a no-load, diversified
"mutual fund." Mutual funds sell their own shares to
investors and use the money they receive to invest in a
portfolio of securities such as common stocks. A mutual fund
allows you to pool your money with that of other investors in
order to obtain professional investment management. Mutual
funds generally make it possible for you to obtain greater
diversification of your investments and simplify your
recordkeeping. The Fund does not impose commissions or
charges when shares are purchased or redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate
portfolio of securities and other assets, with its own
investment objectives and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages
several other no-load mutual funds with different investment
objectives, including equity funds, international funds,
taxable and tax-exempt bond funds, and money market funds.
To obtain prospectuses and other information on opening a
regular account in any of these mutual funds, please call
800-338-2550.
__________________________
HOW THE FUND INVESTS
The Fund's investment objective is to invest in securities
selected for capital appreciation. Particular emphasis is
placed on securities that are considered to have limited
downside risk relative to their potential for above-average
growth--including securities of undervalued, underfollowed or
out-of-favor companies, and companies that are low-cost
producers of goods or services, financially strong, or run by
well-respected managers. The Fund may invest in securities
of seasoned, established companies that appear to have
appreciation potential, as well as securities of relatively
small, new companies. In addition, it may invest in
securities with limited marketability; new issues of
securities; securities of companies that, in the Adviser's
opinion, will benefit from management change, new technology,
new product or service development, or change in demand; and
other securities that the Adviser believes have capital
appreciation possibilities. However, the Fund does not
currently intend to invest, nor has it invested in the past
fiscal year, more than 5% of its net assets in any of these
types of securities. Securities of smaller, newer companies
may be subject to greater price volatility than securities of
larger, well-established companies. In addition, many
smaller companies are less well known to the investing public
and may not be as widely followed by the investment
community. Although the Fund invests primarily in common
stocks, it may also invest in other equity-type securities,
including preferred stocks and securities convertible into
equity securities. Further information on portfolio
investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the
Statement of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest in
debt securities of corporate and governmental issuers. The
Fund may invest up to 35% of its net assets in debt
securities, but does not expect to invest more than 5% of its
net assets in debt securities that are rated below investment
grade and that, on balance, are considered predominantly
speculative with respect to the issuer's capacity to pay
interest and repay principal according to the terms of the
obligation and, therefore, carry greater investment risk,
including the possibility of issuer default and bankruptcy.
When the Adviser deems a temporary defensive position
advisable, the Fund may invest, without limitation, in high-
quality fixed income securities, or hold assets in cash or
cash equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than
American Depositary Receipts (ADRs), foreign debt securities
denominated in U.S. dollars, or securities guaranteed by a
U.S. person, the Fund is limited to investing no more than
25% of its total assets in foreign securities. (See Risks
and Investment Considerations.) The Fund may invest in
sponsored and unsponsored ADRs. In addition to, or in lieu
of, such direct investment, a Fund may construct a synthetic
foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars; and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a
different currency on a future date and at a specified rate
of exchange. Because of the availability of a variety of
highly liquid U.S. dollar debt instruments, a synthetic
foreign position utilizing such U.S. dollar instruments may
offer greater liquidity than direct investment in foreign
currency debt instruments. In connection with the purchase
of foreign securities, the Fund may contract to purchase an
amount of foreign currency sufficient to pay the purchase
price of the securities at the settlement date. Such a
contract involves the risk that the value of the foreign
currency may decline relative to the value of the dollar
prior to the settlement date--this risk is in addition to the
risk that the value of the foreign security purchased may
decline. The Fund also may enter into foreign currency
contracts as a hedging technique to limit or reduce exposure
to currency fluctuations. In addition, the Fund may use
options and futures contracts, as described below, to limit
or reduce exposure to currency fluctuations. As of September
30, 1995, the Fund's holdings of foreign companies, as a
percentage of net assets, were 7.5% (6.0% in foreign
securities and 1.5% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund may invest in securities purchased on a when-issued
or delayed-delivery basis. Although the payment terms of
these securities are established at the time the Fund enters
into the commitment, the securities may be delivered and paid
for a month or more after the date of purchase, when their
value may have changed. The Fund will make such commitments
only with the intention of actually acquiring the securities,
but may sell the securities before settlement date if it is
deemed advisable for investment reasons. The Fund may make
loans of its portfolio securities to broker-dealers and banks
subject to certain restrictions described in the Statement of
Additional Information.
DERIVATIVES.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized
by underlying pools of mortgages or other receivables,
floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each
case, the value of the instrument or security is "derived"
from the performance of an underlying asset or a "benchmark"
such as a security index, an interest rate, or a currency.
The Fund does not expect to invest more than 5% of its net
assets in any type of Derivative except for options, futures
contracts, and futures options.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because they are
more efficient or less costly than direct investment. They
also may be used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and
directions of movements in security prices, interest rates
and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as
well regulated and may be less marketable than exchange-
traded Derivatives. For additional information on
Derivatives, please refer to the Statement of Additional
Information.
In seeking to achieve its desired investment objective,
provide additional revenue, or to hedge against changes in
security prices, interest rates or currency fluctuations, the
Fund may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2)
enter into interest rate, index and foreign currency futures
contracts; (3) write options on such futures contracts; and
(4) purchase other types of forward or investment contracts
linked to individual securities, indexes or other benchmarks.
The Fund may write a call or put option only if the option is
covered. As the writer of a covered call option, the Fund
foregoes, during the option's life, the opportunity to profit
from increases in market value of the security covering the
call option above the sum of the premium and the exercise
price of the call. There can be no assurance that a liquid
market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require
low margin deposits, the use of futures contracts involves a
high degree of leverage and may result in losses in excess of
the amount of the margin deposit.
PORTFOLIO TURNOVER.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of
time portfolio securities must be held. The turnover rate
may vary significantly from year to year. At times, the Fund
may invest for short-term capital appreciation. Flexibility
of investment and emphasis on capital appreciation may
involve greater portfolio turnover than that of mutual funds
that have the objectives of income or maintenance of a
balanced investment position. A high rate of portfolio
turnover may result in increased transaction expenses and the
realization of capital gains and losses. (See Financial
Highlights and Distributions and Income Taxes.) The Fund is
not intended to be an income-producing investment, although
it may produce varying amounts of income.
RESTRICTIONS ON THE FUND'S INVESTMENTS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only
to 75% of the Fund's portfolio, but does not apply to
securities of the U.S. Government or repurchase agreements
for such securities, and would not prevent the Fund from
investing all of its assets in shares of another investment
company having the identical investment objective.
The Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer. It may, however, invest
all of its assets in shares of another investment company
having the identical investment objective.
The Fund will not borrow money, except as a temporary measure
for extraordinary or emergency purposes. In such a case, the
aggregate borrowings at any one time--including any reverse
repurchase agreements and dollar rolls--may not exceed 33
1/3% of the Fund's total assets (at market). The Fund will
not purchase additional securities when its borrowings, less
proceeds receivable from sales of portfolio securities,
exceed 5% of total assets.
The Fund may invest in repurchase agreements,/1/ provided
that the Fund will not invest more than 15% of its net assets
in repurchase agreements maturing in more than seven days,
and any other illiquid securities.
- ----------------------
/1/ A repurchase agreement involves a sale of securities to
the Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a
specified time. In the event of bankruptcy of the seller,
the Fund could experience both losses and delays in
liquidating its collateral.
- ----------------------
The policy described in the third paragraph of this section
and the policy with respect to concentration of investments
in any one industry described under Risks and Investment
Considerations are fundamental policies and, as such, can be
changed only with the approval of a "majority of the
outstanding voting securities" of the Fund as defined in the
Investment Company Act of 1940. The Fund's investment
objective is non-fundamental and, as such, may be changed by
the Board of Trustees without shareholder approval. Any such
change may result in the Fund having an investment objective
different from the objective the shareholder considered
appropriate at the time of investment in the Fund. All of
the investment restrictions are set forth in the Statement of
Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks.
No investment is suitable for all investors. The Fund is
designed for long-term investors who desire to participate in
the stock market with more investment risk and volatility
than the stock market in general, but with less investment
risk and volatility than aggressive capital appreciation
funds. The Fund usually allocates its investments among a
number of different industries rather than concentrating in a
particular industry or group of industries. It may, however,
under abnormal circumstances, invest up to 25% of net assets
in a particular industry or group of industries. (See How
the Fund Invests.) There can be no guarantee that the Fund
will achieve its objective.
Investment in foreign securities may represent a greater
degree of risk (including risk related to exchange rate
fluctuations, tax provisions, exchange and currency controls,
and expropriation of assets) than investment in securities of
domestic issuers. Other risks of foreign investing include
less complete financial information on issuers, less market
liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition
of exchange controls and withholding taxes on dividends, and
seizure or nationalization of investments owned by non-
residents. Foreign investments also tend to involve higher
transaction and custody costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in
the future seek to achieve its investment objective by
pooling its assets with assets of other mutual funds managed
by the Adviser for investment in another investment company
having the same investment objective and substantially the
same investment policies and restrictions as the Fund. The
purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected
that any such investment company would be managed by the
Adviser in substantially the same manner as the Fund.
Shareholders of the Fund will be given at least 30 days'
prior notice of any such investment, although they will not
be entitled to vote on the action. Such investment would be
made only if the Trustees determine it to be in the best
interests of the Fund and its shareholders.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to
purchase shares of the Fund through your employer or
limitations on the amount that may be purchased, please
consult your employer. Shares are sold to eligible defined
contribution plans at the Fund's net asset value (see Net
Asset Value) next determined after receipt of payment by the
Fund.
Each purchase order for the Fund must be accepted by an
authorized officer of the Trust in Chicago and is not binding
until accepted and entered on the books of the Fund. Once
your purchase order has been accepted, you may not cancel or
revoke it; you may, however, redeem the shares. The Trust
reserves the right not to accept any purchase order that it
determines not to be in the best interest of the Trust or of
the Fund's shareholders.
Shares purchased by reinvestment of dividends will be
confirmed quarterly. All other purchases and redemptions
will be confirmed as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares
of the Fund through your employer's plan, including any
charges that may be imposed by the plan, please consult with
your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or
any portion of your Fund shares and use the proceeds to
purchase shares of any other Stein Roe Fund available through
your employer's defined contribution plan. (An exchange is
commonly referred to as a "transfer.") Before exercising the
Exchange Privilege, you should obtain the prospectus for the
Stein Roe Fund in which you wish to invest and read it
carefully. Contact your plan administrator for instructions
on how to exchange your shares or to obtain prospectuses of
other Stein Roe Funds available through your plan. The Fund
reserves the right to suspend, limit, modify, or terminate
the Exchange Privilege or its use in any manner by any person
or class; shareholders would be notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once
they have been received and accepted by the Trust. The Trust
cannot accept a redemption request that specifies a
particular date or price for redemption or any special
conditions.
The price at which your redemption order will be executed is
the net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because
the redemption price you receive depends upon the Fund's net
asset value per share at the time of redemption, it may be
more or less than the price you originally paid for the
shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its
net asset value per share. The net asset value of a share of
the Fund is determined as of the close of trading on the New
York Stock Exchange (currently 3:00 p.m., Central time) by
dividing the difference between the values of the Fund's
assets and liabilities by the number of shares outstanding.
Net asset value will not be determined on days when the
Exchange is closed unless, in the judgment of the Board of
Trustees, the net asset value of the Fund should be
determined on any such day, in which case the determination
will be made at 3:00 p.m., Central time.
Each security traded on a national stock exchange is valued
at its last sale price on that exchange on the day of
valuation or, if there are no sales that day, at the latest
bid quotation. Each over-the-counter security for which the
last sale price on the day of valuation is available from
NASDAQ is valued at that price. All other over-the-counter
securities for which reliable quotations are available are
valued at the latest bid quotation. Other assets and
securities are valued by a method that the Board believes
represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually.
The Fund intends to distribute by the end of each calendar
year at least 98% of any net capital gains realized from the
sale of securities during the twelve-month period ended
October 31 in that year. The Fund intends to distribute any
undistributed net investment income and net realized capital
gains in the following year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares
of the Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all
other requirements that are necessary for it to be relieved
of federal taxes on income and gain it distributes. The Fund
will distribute substantially all of its ordinary income and
net capital gains on a current basis. Generally, Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by the Fund to employer-
sponsored defined contribution plans that qualify for tax-
exempt treatment under federal income tax laws will not be
taxable. Special tax rules apply to investments through such
plans. You should consult your tax advisor to determine the
suitability of the Fund as an investment through such a plan
and the tax treatment of distributions (including
distributions of amounts attributable through an investment
in the Fund) from such a plan. This section is not intended
to be a full discussion of income tax laws and their effect
on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured
by the distributions received (assuming reinvestment), plus
or minus the change in the net asset value per share for a
given period. A total return percentage may be calculated by
dividing the value of a share at the end of the period
(including reinvestment of distributions) by the value of the
share at the beginning of the period and subtracting one.
For a given period, an average annual total return may be
calculated by finding the average annual compounded rate that
would equate a hypothetical $1,000 investment to the ending
redeemable value.
Comparison of the Fund's total return with alternative
investments should consider differences between the Fund and
the alternative investments, the periods and methods used in
calculation of the return being compared, and the impact of
taxes on alternative investments. The Fund's total return
does not reflect any charges or expenses related to your
employer's plan. Of course, past performance is not
necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement
of Additional Information for the names of and other
information about the trustees and officers. The Fund's
Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
the Fund's investment portfolio and the business affairs of
the Fund and the Trust, subject to the direction of the Board
of Trustees. The Adviser is registered as an investment
adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business
of Stein Roe & Farnham, a partnership that had advised and
managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Financial Companies,
Inc. ("Liberty Financial"), which in turn is a majority owned
indirect subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
E. Bruce Dunn and Richard B. Peterson have been co-portfolio
managers of the Fund since 1991. Each is a vice-president of
the Trust and a senior vice president of the Adviser. Mr.
Dunn has been associated with the Adviser since 1964. He
received his A.B. degree from Yale University in 1956 and his
M.B.A. from Harvard University in 1958 and is a chartered
investment counselor. Mr. Peterson, who began his investment
career at Stein Roe & Farnham in 1965 after graduating with a
B.A. from Carleton College in 1962 and the Woodrow Wilson
School at Princeton University in 1964 with a Masters in
Public Administration, rejoined the Adviser in 1991 after 15
years of equity research and portfolio management experience
with State Farm Investment Management Corporation. David P.
Brady has been associate portfolio manager of Special Fund
since 1995. A vice president of the Adviser and the Trust,
Mr. Brady joined the Adviser in 1993, and was an equity
investment analyst with State Farm Mutual Automobile
Insurance Company from1986 to 1993. As of December 31, 1995,
Messrs. Dunn and Peterson were responsible for co-managing
$1.3 billion in mutual fund assets.
FEES AND EXPENSES.
The investment advisory agreement relating to the Fund was
replaced on September 1, 1995, with an administrative
agreement and a management agreement. Under the terminated
advisory agreement, the annual fee was .75% of average net
assets. The new contracts call for a monthly management fee
based on an annual rate of .75% of the first $500 million,
.70% of the next $500 million, .65 of the next $500 million,
and .60% thereafter; and a monthly administrative fee based
on an annual rate of .15% of the first $500 million, .125% of
the next $500 million, .10% of the next $500 million, and
.075% thereafter. The fees paid by the Fund are higher than
those paid by most mutual funds. For the year ended
September 30, 1995, the fees for the Fund amounted to .76% of
average net assets.
Under a separate agreement with the Trust, the Adviser
provides certain accounting and bookkeeping services to the
Fund, including computation of the Fund's net asset value and
calculation of its net income and capital gains and losses on
disposition of Fund assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for
the Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number
of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty
Financial, is the agent of the Trust for the transfer of
shares, disbursement of dividends, and maintenance of
shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders.
The Distributor is a wholly owned subsidiary of Liberty
Financial. The business address of the Distributor is 600
Atlantic Avenue, Boston, Massachusetts 02210; however, all
Fund correspondence (including purchase and redemption
orders) should be mailed to the Trust at P.O. Box 804058,
Chicago, Illinois 60680. All distribution and promotional
expenses are paid by the Adviser, including payments to the
Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the
custodian for the Fund. Foreign securities are maintained in
the custody of foreign banks and trust companies that are
members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of
Trust") dated January 8, 1987, which provides that each
shareholder shall be deemed to have agreed to be bound by the
terms thereof. The Declaration of Trust may be amended by a
vote of either the Trust's shareholders or its trustees. The
Trust may issue an unlimited number of shares, in one or more
series as the Board may authorize. Currently, eight series
are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as the Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides
that persons extending credit to, contracting with, or having
any claim against, the Trust or any particular Fund shall
look only to the assets of the Trust or of the respective
Fund for payment under such credit, contract or claim, and
that the shareholders, Trustees and officers of the Trust
shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability
be given in each contract, instrument or undertaking executed
or made on behalf of the Trust. The Declaration of Trust
provides for indemnification of any shareholder against any
loss and expense arising from personal liability solely by
reason of being or having been a shareholder. Thus, the risk
of a shareholder incurring financial loss on account of
shareholder liability is believed to be remote, because it
would be limited to circumstances in which the disclaimer was
inoperative and the Trust was unable to meet its obligations.
The risk of a particular Fund incurring financial loss on
account of unsatisfied liability of another Fund of the Trust
is also believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to
circumstances in which the other Fund was unable to meet its
obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-
322-1130 for more information about this Fund.
________________
<PAGE> 1
Statement of Additional Information Dated February 1, 1996
STEIN ROE INVESTMENT TRUST
P.O. Box 804058, Chicago, Illinois 60680
800-338-2550
GROWTH AND INCOME FUNDS
Stein Roe Growth & Income Fund
Stein Roe Total Return Fund
GROWTH FUNDS
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
The Funds listed above are series of the Stein Roe
Investment Trust (the "Trust"). Each series of the Trust
represents shares of beneficial interest in a separate portfolio
of securities and other assets, with its own objectives and
policies. This Statement of Additional Information is not a
prospectus, but provides additional information that should be
read in conjunction with the Funds' prospectus dated February 1,
1996, and any supplements thereto ("Prospectus"). The Prospectus
may be obtained at no charge by telephoning 800-338-2550.
TABLE OF CONTENTS
General Information and History...............2
Investment Policies...........................3
Growth & Income Fund......................3
Total Return Fund.........................4
Growth Stock Fund.........................4
Special Fund..............................4
Special Venture Fund......................5
Capital Opportunities Fund................5
Portfolio Investments and Strategies..........5
Investment Restrictions......................20
Additional Investment Considerations.........24
Purchases and Redemptions....................24
Management...................................25
Financial Statements.........................29
Principal Shareholders.......................29
Investment Advisory Services.................30
Distributor..................................33
Transfer Agent...............................33
Custodian....................................33
Independent Public Accountants...............33
Portfolio Transactions.......................34
Additional Income Tax Considerations.........34
Investment Performance.......................37
Appendix--Ratings............................43
GENERAL INFORMATION AND HISTORY
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory services and administrative services to the
Funds. Currently eight series of the Trust are authorized and
outstanding.
As used herein, "Growth & Income Fund," "Total Return Fund,"
"Growth Stock Fund," "Special Fund," "Special Venture Fund," and
"Capital Opportunities Fund" refer to the series of the Trust
designated Stein Roe Growth & Income Fund, Stein Roe Total Return
Fund, Stein Roe Growth Stock Fund, Stein Roe Special Fund, Stein
Roe Special Venture Fund, and Stein Roe Capital Opportunities
Fund, respectively, and are referred to collectively as the
"Funds." Prior to February 1, 1996, Stein Roe Growth & Income
Fund was named SteinRoe Prime Equities, Stein Roe Total Return
Fund was named SteinRoe Total Return Fund, Stein Roe Growth Stock
Fund was named SteinRoe Growth Stock Fund, Stein Roe Special Fund
was named SteinRoe Special Fund, Stein Roe Special Venture Fund
was named SteinRoe Special Venture Fund, and Stein Roe Capital
Opportunities Fund was named SteinRoe Capital Opportunities Fund.
Growth Stock Fund was named SteinRoe Stock Fund prior to February
1, 1995. The name of the Trust was changed on February 1, 1996
from SteinRoe Investment Trust to Stein Roe Investment Trust.
Each share of a series is entitled to participate pro rata
in any dividends and other distributions declared by the Board on
shares of that series, and all shares of a series have equal
rights in the event of liquidation of that series.
Each whole share (or fractional share) outstanding on the
record date established in accordance with the By-Laws shall be
entitled to a number of votes on any matter on which it is
entitled to vote equal to the net asset value of the share (or
fractional share) in United States dollars determined at the
close of business on the record date (for example, a share having
a net asset value of $10.50 would be entitled to 10.5 votes). As
a business trust, the Trust is not required to hold annual
shareholder meetings. However, special meetings may be called
for purposes such as electing or removing trustees, changing
fundamental policies, or approving an investment advisory
contract. If requested to do so by the holders of at least 10%
of the Trust's outstanding shares, the Trust will call a special
meeting for the purpose of voting upon the question of removal of
a trustee or trustees and will assist in the communications with
other shareholders as if the Trust were subject to Section 16(c)
of the Investment Company Act of 1940. All shares of all series
of the Trust are voted together in the election of trustees. On
any other matter submitted to a vote of shareholders, shares are
voted in the aggregate and not by individual series, except that
shares are voted by individual series when required by the
Investment Company Act of 1940 or other applicable law, or when
the Board of Trustees determines that the matter affects only the
interests of one or more series, in which case shareholders of
the unaffected series are not entitled to vote on such matters.
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND
STRUCTURE
Each Fund may in the future seek to achieve its objective by
pooling its assets with assets of other mutual funds managed by
the Adviser for investment in another mutual fund having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. The Adviser is expected to manage any such mutual
fund in which a Fund would invest. Such investment would be
subject to determination by the Trustees that it was in the best
interests of the Fund and its shareholders, and shareholders
would receive advance notice of any such change.
INVESTMENT POLICIES
In pursuing its respective objective, each Fund will invest
as described below and may employ the investment techniques
described in its Prospectus and elsewhere in this Statement of
Additional Information. Investments and strategies that are
common to two or more Funds are described under Portfolio
Investments and Strategies. Each Fund's investment objective is
a non-fundamental policy and may be changed by the Board of
Trustees without the approval of a "majority of the outstanding
voting securities" /1/ of that Fund.
- -----------------
/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.
- -----------------
GROWTH & INCOME FUND
This Fund's investment objective is to provide both growth
of capital and current income. It is designed for investors
seeking a diversified portfolio of securities that offers the
opportunity for long-term growth of capital while also providing
a steady stream of income.
In seeking to meet this objective, the Fund invests
primarily in well-established companies whose common stocks are
believed to have both the potential to appreciate in value and to
pay dividends to shareholders.
Although it may invest in a broad range of securities
(including common stocks, preferred stocks, securities
convertible into or exchangeable for common stocks, and warrants
or rights to purchase common stocks), normally the Fund will
emphasize investments in equity securities of companies having
market capitalizations in excess of $1 billion. Securities of
these well-established companies are believed to be generally
less volatile than those of companies with smaller
capitalizations because companies with larger capitalizations
tend to have experienced management; broad, highly diversified
product lines; deep resources; and easy access to credit.
TOTAL RETURN FUND
This Fund's investment objective is to obtain current income
and capital appreciation in order to achieve maximum total return
consistent with reasonable investment risk, in the opinion of the
Adviser, through investment in a combination of equity, fixed
income and convertible securities. The percentages of Fund
assets invested in various types of securities will vary in
accordance with the judgment of the Adviser. There are no
limitations on the amount of the Fund's assets which may be
allocated to the various types of securities. Generally, the
equity portion of the Fund's portfolio will be invested in common
stocks that the Adviser believes have long-term growth
possibilities. With respect to the fixed income portion of the
portfolio, emphasis is placed on acquiring investment grade
securities.
GROWTH STOCK FUND
This Fund's investment objective is long-term capital
appreciation, which it attempts to achieve by normally investing
at least 65% of its total assets in common stocks and other equity-type
securities (such as preferred stocks, securities convertible into or
exchangeable for common stocks, and warrants or rights to purchase
common stocks) that, in the opinion of the Adviser, have long-term
appreciation possibilities.
SPECIAL FUND
This Fund's investment objective is to invest in securities
selected for possible capital appreciation. Particular emphasis
is placed on securities that are considered to have limited
downside risk relative to their potential for above-average
growth, including securities of undervalued, underfollowed or
out-of-favor companies, and companies that are low-cost producers
of goods or services, financially strong or run by well-respected
managers. The Fund may invest more than 5% of its net assets in
securities of seasoned, established companies that appear to have
appreciation potential, as well as securities of relatively
small, new companies. In addition, it may invest in securities
with limited marketability, new issues of securities, securities
of companies that, in the Adviser's opinion, will benefit from
management change, new technology, new product or service
development or change in demand, and other securities that the
Adviser believes have capital appreciation possibilities;
however, the Fund does not currently intend to invest, nor has it
invested in the past fiscal year, more than 5% of its net assets
in any of these types of securities. Securities of smaller,
newer companies may be subject to greater price volatility than
securities of larger more well-established companies. In
addition, many smaller companies are less well known to the
investing public and may not be as widely followed by the
investment community. Although the Fund will invest primarily in
common stocks, it may also invest in other equity-type securities,
including preferred stocks and securities convertible into equity
securities.
SPECIAL VENTURE FUND
The Fund seeks long-term capital appreciation by investing
primarily in a diversified portfolio of common stocks and other
equity-type securities (such as preferred stocks, securities
convertible or exchangeable for common stocks, and warrants or
rights to purchase common stocks) of entrepreneurially managed
companies that the Adviser believes represent special
opportunities. The Fund emphasizes investments in financially
strong small and medium-sized companies based principally on
management appraisal and stock valuation. The Adviser considers
"small" and "medium-sized" companies to be those with market
capitalizations of less than $1 billion and $1 to $3 billion,
respectively.
In both its initial and ongoing appraisals of a company's
management, the Adviser seeks to know both the principal owners
and senior management and to assess their business judgment and
strategies through personal visits. The Adviser favors companies
whose management has an owner/operator, risk-averse orientation
and a demonstrated ability to create wealth for investors.
Attractive company characteristics include unit growth, favorable
cost structures or competitive positions, and financial strength
that enables management to execute business strategies under
difficult conditions. A company is attractively valued when its
stock can be purchased at a meaningful discount to the value of
the underlying business.
CAPITAL OPPORTUNITIES FUND
This Fund's investment objective is long-term capital
appreciation, which it attempts to achieve by investing in
selected companies that, in the opinion of the Adviser, offer
opportunities for capital appreciation.
The Fund pursues its objective by investing in aggressive
growth companies. An aggressive growth company, in general, is
one that appears to have the ability to increase its earnings at
an above-average rate. These may include securities of smaller
emerging companies as well as securities of well-seasoned
companies of any size that offer strong earnings growth
potential. Such companies may benefit from new products or
services, technological developments, or changes in management.
Securities of smaller companies may be subject to greater price
volatility than securities of larger companies. In addition,
many smaller companies are less well known to the investing
public and may not be as widely followed by the investment
community. Although it invests primarily in common stocks, the
Fund may invest in all types of equity securities, including preferred
stocks and securities convertible into common stocks.
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES
In pursuing its investment objective, each Fund may invest
in debt securities of corporate and governmental issuers. The
risks inherent in debt securities depend primarily on the term
and quality of the obligations in a Fund's portfolio as well as
on market conditions. A decline in the prevailing levels of
interest rates generally increases the value of debt securities,
while an increase in rates usually reduces the value of those
securities.
Investments in debt securities by Growth & Income Fund,
Total Return Fund, and Growth Stock Fund are limited to those
that are within the four highest grades (generally referred to as
"investment grade") assigned by a nationally recognized statistical
rating organization or, if unrated, deemed to be of comparable
quality by the Adviser. Special Venture Fund, Capital Opportunities
Fund, and Special Fund may invest up to 35% of their net assets in
debt securities, but do not expect to invest more than 5% of their
net assets in debt securities that are rated below investment grade.
Securities in the fourth highest grade may possess
speculative characteristics, and changes in economic conditions
are more likely to affect the issuer's capacity to pay interest
and repay principal. If the rating of a security held by a Fund
is lost or reduced below investment grade, the Fund is not
required to dispose of the security, but the Adviser will
consider that fact in determining whether that Fund should
continue to hold the security.
Securities that are rated below investment grade are
considered predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal according to the
terms of the obligation and therefore carry greater investment
risk, including the possibility of issuer default and bankruptcy.
When the Adviser determines that adverse market or economic
conditions exist and considers a temporary defensive position
advisable, the Funds may invest without limitation in high-
quality fixed income securities or hold assets in cash or cash
equivalents.
DERIVATIVES
Consistent with its objective, each Fund may invest in a
broad array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized by
underlying pools of mortgages or other receivables, floating rate
instruments, and other instruments that securitize assets of
various types ("Derivatives"). In each case,
the value of the instrument or security is "derived" from the
performance of an underlying asset or a "benchmark" such as a
security index, an interest rate, or a currency.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because it is more
efficient or less costly than direct investment that cannot be
readily established directly due to portfolio size, cash
availability, or other factors. They also may be used in an
effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and directions
of movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be
well established. Finally, privately negotiated and over-the-
counter Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives.
No Fund currently intends to invest, nor has any Fund during
its past fiscal year invested, more than 5% of its net assets in
any type of Derivative, except for options, futures contracts,
and futures options. (See Options and Futures in this Statement
of Additional Information.)
Some mortgage-backed debt securities are of the "modified
pass-through type," which means the interest and principal
payments on mortgages in the pool are "passed through" to
investors. During periods of declining interest rates, there is
increased likelihood that mortgages will be prepaid, with a
resulting loss of the full-term benefit of any premium paid by
the Fund on purchase of such securities; in addition, the
proceeds of prepayment would likely be invested at lower interest
rates.
Mortgage-backed securities provide either a pro rata
interest in underlying mortgages or an interest in collateralized
mortgage obligations ("CMOs") that represent a right to interest
and/or principal payments from an underlying mortgage pool. CMOs
are not guaranteed by either the U.S. Government or by its
agencies or instrumentalities, and are usually issued in multiple
classes each of which has different payment rights, prepayment
risks, and yield characteristics. Mortgage-backed securities
involve the risk of prepayment on the underlying mortgages at a
faster or slower rate than the established schedule. Prepayments
generally increase with falling interest rates and decrease with
rising rates but they also are influenced by economic, social,
and market factors. If mortgages are pre-paid during periods of
declining interest rates, there would be a resulting loss of the
full-term benefit of any premium paid by the Fund on purchase of
the CMO, and the proceeds of prepayment would likely be invested
at lower interest rates.
Non-mortgage asset-backed securities usually have less
prepayment risk than mortgage-backed securities, but have the
risk that the collateral will not be available to support
payments on the underlying loans that finance payments on the
securities themselves.
Floating rate instruments provide for periodic adjustments
in coupon interest rates that are automatically reset based on
changes in amount and direction of specified market interest
rates. In addition, the adjusted duration of some of these
instruments may be materially shorter than their stated
maturities. To the extent such instruments are subject to
lifetime or periodic interest rate caps or floors, such
instruments may experience greater price volatility than debt
instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and
refers to the approximate percentage change in price for a 100
basis point change in yield. For example, if interest rates
decrease by 100 basis points, a market price of a security with
an adjusted duration of 2 would increase by approximately 2%.
CONVERTIBLE SECURITIES
By investing in convertible securities, a Fund obtains the
right to benefit from the capital appreciation potential in the
underlying stock upon exercise of the conversion right, while
earning higher current income than would be available if the
stock were purchased directly. In determining whether to
purchase a convertible, the Adviser will consider substantially
the same criteria that would be considered in purchasing the
underlying stock. While convertible securities purchased by a
Fund are frequently rated investment grade, the Funds also may
purchase unrated securities or securities rated below investment
grade if the securities meet the Adviser's other investment
criteria. Convertible securities rated below investment grade
(a) tend to be more sensitive to interest rate and economic
changes, (b) may be obligations of issuers who are less
creditworthy than issuers of higher quality convertible
securities, and (c) may be more thinly traded due to such
securities being less well known to investors than either common
stock or conventional debt securities. As a result, the
Adviser's own investment research and analysis tends to be more
important in the purchase of such securities than other factors.
DEFENSIVE INVESTMENTS
When the Adviser considers a temporary defensive position
advisable, each Fund may invest, without limitation, in high-
quality fixed income securities or hold assets in cash or cash
equivalents.
FOREIGN SECURITIES
Each Fund may invest up to 25% of its total assets in
foreign securities, which may entail a greater degree of risk
(including risks relating to exchange rate fluctuations, tax
provisions, or expropriation of assets) than does investment in
securities of domestic issuers. For this purpose, foreign
securities do not include American Depositary Receipts (ADRs) or
securities guaranteed by a United States person. ADRs are
receipts typically issued by an American bank or trust company
evidencing ownership of the underlying securities. The Funds may
invest in sponsored or unsponsored ADRs. In the case of an
unsponsored ADR, a Fund is likely to bear its proportionate share
of the expenses of the depository and it may have greater
difficulty in receiving shareholder communications than it would
have with a sponsored ADR. No Fund intends to invest, nor during
the past fiscal year has any Fund invested, more than 5% of its
net assets in unsponsored ADRs.
As of September 30, 1995, the Funds' holdings of foreign
companies, as a percentage of net assets, were as follows:
Growth & Income Fund, 4.4% (1.5% in foreign securities and 2.9%
in ADRs), Total Return Fund, 5.2% (1.0% in foreign securities and
4.2% in ADRs), Growth Stock Fund, 6.3% (1.2% in foreign
securities and 5.1% in ADRs), Special Fund, 7.5% (6.0% in foreign
securities and 1.5% in ADRs); Special Venture Fund, 4.9% (4.9% in
foreign securities and none in ADRs); and Capital Opportunities
Fund, 2.5% (none in foreign securities and 2.5% in ADRs).
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, a Fund's
investment performance is affected by the strength or weakness of
the U.S. dollar against these currencies. For example, if the
dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise
even though the price of the stock remains unchanged.
Conversely, if the dollar rises in value relative to the yen, the
dollar value of the yen-denominated stock will fall. (See
discussion of transaction hedging and portfolio hedging under
Currency Exchange Transactions.)
Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities,
positions in which are generally denominated in foreign
currencies, and utilization of forward foreign currency exchange
contracts involve certain considerations comprising both risks
and opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and issuers of securities; lack of uniform accounting, auditing,
and financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment
in securities of companies in developing as well as developed
countries; and sometimes less advantageous legal, operational,
and financial protections applicable to foreign sub-custodial
arrangements.
Although the Funds will try to invest in companies and
governments of countries having stable political environments,
there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of
foreign government restrictions, or other adverse political,
social or diplomatic developments that could affect investment in
these nations.
Currency Exchange Transactions. Currency exchange
transactions may be conducted either on a spot (i.e., cash) basis
at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market or through forward currency
exchange contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency
at a specified future date (or within a specified time period)
and price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not
exchange traded, and are usually for less than one year, but may
be renewed.
Forward currency transactions may involve currencies of the
different countries in which the Funds may invest, and serve as
hedges against possible variations in the exchange rate between
these currencies. Currency transactions are limited to
transaction hedging and portfolio hedging involving either
specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward contracts with respect
to specific receivables or payables of a Fund accruing in
connection with the purchase and sale of its portfolio
securities. Portfolio hedging is the use of forward contracts
with respect to portfolio security positions denominated or
quoted in a particular currency. Portfolio hedging allows the
Adviser to limit or reduce exposure in a foreign currency by
entering into a forward contract to sell or buy such foreign
currency (or another foreign currency that acts as a proxy for
that currency) so that the U.S. dollar value of certain
underlying foreign portfolio securities can be approximately
matched by an equivalent U.S. dollar liability. A Fund may not
engage in portfolio hedging with respect to the currency of a
particular country to an extent greater than the aggregate market
value (at the time of making such sale) of the securities held in
its portfolio denominated or quoted in that particular currency,
except that a Fund may hedge all or part of its foreign currency
exposure through the use of a basket of currencies or a proxy
currency where such currencies or currency act as an effective
proxy for other currencies. In such a case, a Fund may enter
into a forward contract where the amount of the foreign currency
to be sold exceeds the value of the securities denominated in
such currency. The use of this basket hedging technique may be
more efficient and economical than entering into separate forward
contracts for each currency held in a Fund. A Fund may not
engage in "speculative" currency exchange transactions.
At the maturity of a forward contract to deliver a
particular currency, a Fund may either sell the portfolio
security related to such contract and make delivery of the
currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual
obligation to deliver the currency by purchasing an offsetting
contract with the same currency trader obligating it to purchase
on the same maturity date the same amount of the currency.
It is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of a
forward contract. Accordingly, it may be necessary for a Fund to
purchase additional currency on the spot market (and bear the
expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver
and if a decision is made to sell the security and make delivery
of the currency. Conversely, it may be necessary to sell on the
spot market some of the currency received upon the sale of the
portfolio security if its market value exceeds the amount of
currency a Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to
the extent that there has been movement in forward contract
prices. If a Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period
between a Fund's entering into a forward contract for the sale of
a currency and the date it enters into an offsetting contract for
the purchase of the currency, the Fund will realize a gain to the
extent the price of the currency it has agreed to sell exceeds
the price of the currency it has agreed to purchase. Should
forward prices increase, a Fund will suffer a loss to the extent
the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell. A default on the
contract would deprive the Fund of unrealized profits or force
the Fund to cover its commitments for purchase or sale of
currency, if any, at the current market price.
Hedging against a decline in the value of a currency does
not eliminate fluctuations in the prices of portfolio securities
or prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for a Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it
anticipates. The cost to a Fund of engaging in currency exchange
transactions varies with such factors as the currency involved,
the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually
conducted on a principal basis, no fees or commissions are
involved.
LENDING OF PORTFOLIO SECURITIES
Subject to restriction (5) under Investment Restrictions in
this Statement of Additional Information, each Fund may lend its
portfolio securities to broker-dealers and banks. Any such loan
must be continuously secured by collateral in cash or cash
equivalents maintained on a current basis in an amount at least
equal to the market value of the securities loaned by the Fund.
The Fund would continue to receive the equivalent of the interest
or dividends paid by the issuer on the securities loaned, and
would also receive an additional return that may be in the form
of a fixed fee or a percentage of the collateral. The Fund would
have the right to call the loan and obtain the securities loaned
at any time on notice of not more than five business days. The
Fund would not have the right to vote the securities during the
existence of the loan but would call the loan to permit voting of
the securities if, in the Adviser's judgment, a material event
requiring a shareholder vote would otherwise occur before the
loan was repaid. In the event of bankruptcy or other default of
the borrower, the Fund could experience both delays in
liquidating the loan collateral or recovering the loaned
securities and losses, including (a) possible decline in the
value of the collateral or in the value of the securities loaned
during the period while the Fund seeks to enforce its rights
thereto, (b) possible subnormal levels of income and lack of
access to income during this period, and (c) expenses of
enforcing its rights. No Fund loaned portfolio securities during
the fiscal year ended September 30, 1995 nor does it currently
intend to loan more than 5% of its net assets.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE
AGREEMENTS
Each Fund may purchase securities on a when-issued or
delayed-delivery basis. Although the payment and interest terms
of these securities are established at the time a Fund enters
into the commitment, the securities may be delivered and paid for
a month or more after the date of purchase, when their value may
have changed. The Funds make such commitments only with the
intention of actually acquiring the securities, but may sell the
securities before settlement date if the Adviser deems it
advisable for investment reasons. No Fund had during its last
fiscal year, nor does any Fund currently intend to have,
commitments to purchase when-issued securities in excess of 5% of
its net assets.
Each Fund may enter into reverse repurchase agreements with
banks and securities dealers. A reverse repurchase agreement is
a repurchase agreement in which a Fund is the seller of, rather
than the investor in, securities and agrees to repurchase them at
an agreed-upon time and price. Use of a reverse repurchase
agreement may be preferable to a regular sale and later
repurchase of securities because it avoids certain market risks
and transaction costs. No Fund entered into reverse repurchase
agreements during the fiscal year ended September 30, 1995.
At the time a Fund enters into a binding obligation to
purchase securities on a when-issued basis or enters into a
reverse repurchase agreement, liquid assets (cash, U.S.
Government securities or other "high-grade" debt obligations) of
the Fund having a value at least as great as the purchase price
of the securities to be purchased will be segregated on the books
of the Fund and held by the custodian throughout the period of
the obligation. The use of these investment strategies, as well
as borrowing under a line of credit as described below, may
increase net asset value fluctuation.
SHORT SALES
Each Fund may make short sales "against the box." In a
short sale, the Fund sells a borrowed security and is required to
return the identical security to the lender. A short sale
"against the box" involves the sale of a security with respect to
which the Fund already owns an equivalent security in kind and
amount. A short sale "against the box" enables a Fund to obtain
the current market price of a security which it desires to sell
but is unavailable for settlement.
RULE 144A SECURITIES
Each Fund may purchase securities that have been privately
placed but that are eligible for purchase and sale under Rule
144A under the 1933 Act. That Rule permits certain qualified
institutional buyers, such as the Fund, to trade in privately
placed securities that have not been registered for sale under
the 1933 Act. The Adviser, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the Fund's restriction of
investing no more than 15% of its net assets in illiquid
securities. A determination of whether a Rule 144A security is
liquid or not is a question of fact. In making this determination,
the Adviser will consider the trading markets for the specific
security, taking into account the unregistered nature of a Rule
144A security. In addition, the Adviser could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential
purchasers, (3) dealer undertakings to make a market, and (4) nature
of the security and of marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the
mechanics of transfer). The liquidity of Rule 144A securities would
be monitored and if, as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, the Fund's
holdings of illiquid securities would be reviewed to determine what,
if any, steps are required to assure that the Fund does not invest
more than 15% of its assets in illiquid securities. Investing in
Rule 144A securities could have the effect of increasing the amount
of a Fund's assets invested in illiquid securities if qualified
institutional buyers are unwilling to purchase such securities.
No Fund expects to invest as much as 5% of its total assets in
Rule 144A securities that have not been deemed to be liquid by
the Adviser. (See restriction (n) under Investment Restrictions.)
LINE OF CREDIT
Subject to restriction (6) under Investment Restrictions in
this Statement of Additional Information, each Fund may establish
and maintain a line of credit with a major bank in order to
permit borrowing on a temporary basis to meet share redemption
requests in circumstances in which temporary borrowing may be
preferable to liquidation of portfolio securities.
PORTFOLIO TURNOVER
Although the Funds do not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
that portfolio securities must be held. At times, Special Fund
and Capital Opportunities Fund may invest for short-term capital
appreciation. Portfolio turnover can occur for a number of
reasons such as general conditions in the securities markets,
more favorable investment opportunities in other securities, or
other factors relating to the desirability of holding or changing
a portfolio investment. Because of the Funds' flexibility of
investment and emphasis on growth of capital, they may have
greater portfolio turnover than that of mutual funds that have
primary objectives of income or maintenance of a balanced
investment position. The future turnover rate may vary greatly
from year to year. A high rate of portfolio turnover in a Fund,
if it should occur, would result in increased transaction
expenses, which must be borne by that Fund. High portfolio
turnover may also result in the realization of capital gains or
losses and, to the extent net short-term capital gains are
realized, any distributions resulting from such gains will be
considered ordinary income for federal income tax purposes. (See
Risks and Investment Considerations and Distributions and Income
Taxes in the Prospectus, and Additional Income Tax Considerations
in this Statement of Additional Information.)
OPTIONS ON SECURITIES AND INDEXES
Each Fund may purchase and sell put options and call options
on securities, indexes or foreign currencies in standardized
contracts traded on recognized securities exchanges, boards of
trade, or similar entities, or quoted on NASDAQ. Each Fund may
purchase agreements, sometimes called cash puts, that may
accompany the purchase of a new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives
the purchaser (holder) of the option, in return for a premium,
the right to buy from (call) or sell to (put) the seller (writer)
of the option the security underlying the option (or the cash
value of the index) at a specified exercise price at any time
during the term of the option (normally not exceeding nine
months). The writer of an option on an individual security or on
a foreign currency has the obligation upon exercise of the option
to deliver the underlying security or foreign currency upon
payment of the exercise price or to pay the exercise price upon
delivery of the underlying security or foreign currency. Upon
exercise, the writer of an option on an index is obligated to pay
the difference between the cash value of the index and the
exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect specified facets
of a particular financial or securities market, a specific group
of financial instruments or securities, or certain economic
indicators.)
A Fund will write call options and put options only if they
are "covered." For example, in the case of a call option on a
security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or,
if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by
its custodian) upon conversion or exchange of other securities
held in its portfolio.
If an option written by a Fund expires, the Fund realizes a
capital gain equal to the premium received at the time the option
was written. If an option purchased by a Fund expires, the Fund
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option
may be closed out by an offsetting purchase or sale of an option
of the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when a Fund desires.
A Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to
purchase the option, the Fund will realize a capital gain or, if
it is less, the Fund will realize a capital loss. The principal
factors affecting the market value of a put or a call option
include supply and demand, interest rates, the current market
price of the underlying security or index in relation
to the exercise price of the option, the volatility of the
underlying security or index, and the time remaining until the
expiration date.
A put or call option purchased by a Fund is an asset of the
Fund, valued initially at the premium paid for the option. The
premium received for an option written by a Fund is recorded as a
deferred credit. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange
or no closing price is available, at the mean between the last
bid and asked prices.
Risks Associated with Options on Securities and Indexes.
There are several risks associated with transactions in options.
For example, there are significant differences between the
securities markets, the currency markets, and the options markets
that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use
options involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree
because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist
when a Fund seeks to close out an option position. If a Fund
were unable to close out an option that it had purchased on a
security, it would have to exercise the option in order to
realize any profit or the option would expire and become
worthless. If a Fund were unable to close out a covered call
option that it had written on a security, it would not be able to
sell the underlying security until the option expired. As the
writer of a covered call option on a security, a Fund foregoes,
during the option's life, the opportunity to profit from
increases in the market value of the security covering the call
option above the sum of the premium and the exercise price of the
call.
If trading were suspended in an option purchased or written
by a Fund, the Fund would not be able to close out the option.
If restrictions on exercise were imposed, the Fund might be
unable to exercise an option it has purchased.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each Fund may use interest rate futures contracts, index
futures contracts, and foreign currency futures contracts. An
interest rate, index or foreign currency futures contract
provides for the future sale by one party and purchase by another
party of a specified quantity of a financial instrument or the
cash value of an index /2/ at a specified price and time. A
public market exists in futures contracts covering a number of
indexes (including, but not limited to: the Standard & Poor's 500
Index, the Value Line Composite Index, and the New York Stock
Exchange Composite Index) as well as
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/2/ A futures contract on an index is an agreement pursuant to
which two parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at
the close of the last trading day of the contract and the price
at which the index contract was originally written. Although the
value of a securities index is a function of the value of certain
specified securities, no physical delivery of those securities is
made.
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financial instruments (including, but not limited to: U.S.
Treasury bonds, U.S. Treasury notes, Eurodollar certificates of
deposit, and foreign currencies). Other index and financial
instrument futures contracts are available and it is expected
that additional futures contracts will be developed and traded.
The Funds may purchase and write call and put futures
options. Futures options possess many of the same
characteristics as options on securities, indexes and foreign
currencies (discussed above). A futures option gives the holder
the right, in return for the premium paid, to assume a long
position (call) or short position (put) in a futures contract at
a specified exercise price at any time during the period of the
option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned
the opposite short position. In the case of a put option, the
opposite is true. A Fund might, for example, use futures
contracts to hedge against or gain exposure to fluctuations in
the general level of stock prices, anticipated changes in
interest rates or currency fluctuations that might adversely
affect either the value of the Fund's securities or the price of
the securities that the Fund intends to purchase. Although other
techniques could be used to reduce or increase that Fund's
exposure to stock price, interest rate and currency fluctuations,
the Fund may be able to achieve its exposure more effectively and
perhaps at a lower cost by using futures contracts and futures
options.
Each Fund will only enter into futures contracts and futures
options that are standardized and traded on an exchange, board of
trade, or similar entity, or quoted on an automated quotation
system.
The success of any futures transaction depends on the
Adviser correctly predicting changes in the level and direction
of stock prices, interest rates, currency exchange rates and
other factors. Should those predictions be incorrect, a Fund's
return might have been better had the transaction not been
attempted; however, in the absence of the ability to use futures
contracts, the Adviser might have taken portfolio actions in
anticipation of the same market movements with similar investment
results but, presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by a
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the
broker ("initial margin"). The margin required for a futures
contract is set by the exchange on which the contract is traded
and may be modified during the term of the contract. The initial
margin is in the nature of a performance bond or good faith
deposit on the futures contract, which is returned to the Fund
upon termination of the contract, assuming all contractual
obligations have been satisfied. A Fund expects to earn interest
income on its initial margin deposits. A futures contract held
by a Fund is valued daily at the official settlement price of the
exchange on which it is traded. Each day the Fund pays or
receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known
as "marking-to-market." Variation margin paid or received by a
Fund does not represent a borrowing or loan by the Fund but is
instead settlement between the Fund and the broker of the
amount one would owe the other if the futures contract had
expired at the close of the previous day. In computing daily net
asset value, each Fund will mark-to-market its open futures
positions.
Each Fund is also required to deposit and maintain margin
with respect to put and call options on futures contracts written
by it. Such margin deposits will vary depending on the nature of
the underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying securities, usually these obligations
are closed out prior to delivery by offsetting purchases or sales
of matching futures contracts (same exchange, underlying security
or index, and delivery month). If an offsetting purchase price
is less than the original sale price, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund
realizes a capital loss. Conversely, if an offsetting sale price
is more than the original purchase price, the Fund engaging in
the transaction realizes a capital gain, or if it is less, the
Fund realizes a capital loss. The transaction costs must also be
included in these calculations.
RISKS ASSOCIATED WITH FUTURES
There are several risks associated with the use of futures
contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in
the futures contract. In trying to increase or reduce market
exposure, there can be no guarantee that there will be a
correlation between price movements in the futures contract and
in the portfolio exposure sought. In addition, there are
significant differences between the securities and futures
markets that could result in an imperfect correlation between the
markets, causing a given transaction not to achieve its
objectives. The degree of imperfection of correlation depends on
circumstances such as: variations in speculative market demand
for futures, futures options and the related securities,
including technical influences in futures and futures options
trading and differences between the securities market and the
securities underlying the standard contracts available for
trading. For example, in the case of index futures contracts,
the composition of the index, including the issuers and the
weighting of each issue, may differ from the composition of the
Fund's portfolio, and, in the case of interest rate futures
contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures contract
may differ from the financial instruments held in the Fund's
portfolio. A decision as to whether, when and how to use futures
contracts involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree
because of market behavior or unexpected stock price or interest
rate trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit governs
only price movements during a particular trading day and therefore
does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses. Stock
index futures contracts are not normally subject to such daily
price change limitations.
There can be no assurance that a liquid market will exist at
a time when a Fund seeks to close out a futures or futures option
position. The Fund would be exposed to possible loss on the
position during the interval of inability to close, and would
continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed
above are relatively new instruments without a significant
trading history. As a result, there can be no assurance that an
active secondary market will develop or continue to exist.
LIMITATIONS ON OPTIONS AND FUTURES
If other options, futures contracts, or futures options of
types other than those described herein are traded in the future,
each Fund may also use those investment vehicles, provided the
Board of Trustees determines that their use is consistent with
the Fund's investment objective.
A Fund will not enter into a futures contract or purchase an
option thereon if, immediately thereafter, the initial margin
deposits for futures contracts held by that Fund plus premiums
paid by it for open futures option positions, less the amount by
which any such positions are "in-the-money," /3/ would exceed 5%
of the Fund's total assets.
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/3/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
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When purchasing a futures contract or writing a put option
on a futures contract, a Fund must maintain with its custodian
(or broker, if legally permitted) cash or cash equivalents
(including any margin) equal to the market value of such
contract. When writing a call option on a futures contract, the
Fund similarly will maintain with its custodian cash or cash
equivalents (including any margin) equal to the amount by which
such option is in-the-money until the option expires or is closed
out by the Fund.
A Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical
relative volatility of the relationship between the portfolio and
the positions. For this purpose, to the extent the Fund has written
call options on specific securities in its portfolio, the value
of those securities will be deducted from the current market
value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," each Fund will use commodity futures or commodity
options contracts solely for bona fide hedging purposes within
the meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of 1.3(z), the
aggregate initial margin and premiums required to establish such
positions will not exceed 5% of the fair market value of the
assets of a Fund, after taking into account unrealized profits
and unrealized losses on any such contracts it has entered into
[in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount (as defined in Section
190.01(x) of the Commission Regulations) may be excluded in
computing such 5%].
As long as a Fund continues to sell its shares in certain
states, the Fund's options and futures transactions will also be
subject to certain non-fundamental investment restrictions set
forth under Investment Restrictions in this Statement of
Additional Information.
TAXATION OF OPTIONS AND FUTURES
If a Fund exercises a call or put option that it holds, the
premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the
security sold (put). For cash settlement options and futures
options exercised by a Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
If a call or put option written by a Fund is exercised, the
premium is included in the proceeds of the sale of the underlying
security (call) or reduces the cost basis of the security
purchased (put). For cash settlement options and futures options
written by a Fund, the difference between the cash paid at
exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by a Fund was in-the-
money at the time it was written and the security covering the
option was held for more than the long-term holding period prior
to the writing of the option, any loss realized as a result of a
closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
If a Fund writes an equity call option /4/ other than a
"qualified covered call option," as defined in the Internal
Revenue Code, any loss on such option transaction, to
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/4/ An equity option is defined to mean any option to buy or sell
stock, and any other option the value of which is determined by
reference to an index of stocks of the type that is ineligible to
be traded on a commodity futures exchange (e.g., an option
contract on a sub-index based on the price of nine hotel-casino
stocks). The definition of equity option excludes options on
broad-based stock indexes (such as the Standard & Poor's 500
index).
- ----------------------
the extent it does not exceed the unrealized gains on the
securities covering the option, may be subject to deferral until
the securities covering the option have been sold.
A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If a
Fund delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities.
For federal income tax purposes, a Fund generally is
required to recognize as income for each taxable year its net
unrealized gains and losses as of the end of the year on futures,
futures options and non-equity options positions ("year-end mark-
to-market"). Generally, any gain or loss recognized with respect
to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and
40% short-term, without regard to the holding periods of the
contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options
positions, the related securities and certain successor positions
thereto) may be deferred to a later taxable year. Sale of
futures contracts or writing of call options (or futures call
options) or buying put options (or futures put options) that are
intended to hedge against a change in the value of securities
held by a Fund: (1) will affect the holding period of the hedged
securities; and (2) may cause unrealized gain or loss on such
securities to be recognized upon entry into the hedge.
If a Fund were to enter into a short index future, short
index futures option or short index option position and the
Fund's portfolio were deemed to "mimic" the performance of the
index underlying such contract, the option or futures contract
position and the Fund's stock positions would be deemed to be
positions in a mixed straddle, subject to the above-mentioned
loss deferral rules.
In order for a Fund to continue to qualify for federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). In addition,
gains realized on the sale or other disposition of securities
held for less than three months must be limited to less than 30%
of the Fund's annual gross income. Any net gain realized from
futures (or futures options) contracts will be considered gain
from the sale of securities and therefore be qualifying income
for purposes of the 90% requirement. In order to avoid realizing
excessive gains on securities held less than three months, the
Fund may be required to defer the closing out of certain
positions beyond the time when it would otherwise be advantageous
to do so.
Each Fund distributes to shareholders annually any net
capital gains that have been recognized for federal income tax
purposes (including year-end mark-to-market gains) on options
and futures transactions. Such distributions are combined with
distributions of capital gains realized on the Fund's other
investments, and shareholders are advised of the nature of the
payments.
INVESTMENT RESTRICTIONS
Each Fund operates under the following investment
restrictions. A Fund may not:
(1) with respect to 75% of its total assets, invest more
than 5% of its total assets, taken at market value at the time of
a particular purchase, in the securities of a single issuer,
except for securities issued or guaranteed by the Government of
the U.S. or any of its agencies or instrumentalities or
repurchase agreements for such securities, and except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(2) acquire more than 10%, taken at the time of a particular
purchase, of the outstanding voting securities of any one issuer,
except that all or substantially all of the assets of the Fund
may be invested in another registered investment company having
the same investment objective and substantially similar
investment policies as the Fund;
(3) act as an underwriter of securities, except insofar as
it may be deemed an underwriter for purposes of the Securities
Act of 1933 on disposition of securities acquired subject to
legal or contractual restrictions on resale, except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate or
interests therein), commodities, or commodity contracts, except
that it may enter into (a) futures and options on futures and (b)
forward contracts;
(5) make loans, but this restriction shall not prevent the
Fund from (a) buying a part of an issue of bonds, debentures, or
other obligations which are publicly distributed, or from
investing up to an aggregate of 15% of its total assets (taken at
market value at the time of each purchase) in parts of issues of
bonds, debentures or other obligations of a type privately placed
with financial institutions, (b) investing in repurchase
agreements, /5/ or (c) lending portfolio securities, provided
that it may not lend
- ---------------------------
/5/ A repurchase agreement involves the sale of securities to the
Fund, with the concurrent agreement of the seller to repurchase
the securities at the same price plus an amount representing
interest at an agreed-upon interest rate, within a specified
time, usually less than one week, but, on occasion, at a later
time. Repurchase agreements entered into by the Fund will be
fully collateralized and will be marked-to-market daily. In the
event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in
liquidating the underlying securities and losses, including: (a)
possible decline in the value of the collateral during the period
while the Fund seeks to enforce its rights thereto; (b) possible
subnormal levels of income and lack of access to income during
this period; and (c) expenses of enforcing its rights.
- ---------------------------
securities if, as a result, the aggregate value of all securities
loaned would exceed 33% of its total assets (taken at market
value at the time of such loan) [the Funds have not lent
portfolio securities during the past year];
(6) borrow, except that it may (a) borrow up to 33 1/3% of
its total assets, taken at market value at the time of such
borrowing, as a temporary measure for extraordinary or emergency
purposes, but not to increase portfolio income (the total of
reverse repurchase agreements and such borrowings will not exceed
33 1/3% of its total assets, and the Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of its
total assets) and (b) enter into transactions in options,
futures, and options on futures;
(7) invest in a security if more than 25% of its total
assets (taken at market value at the time of a particular
purchase) would be invested in the securities of issuers in any
particular industry, except that this restriction does not apply
to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, and except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund; or
(8) issue any senior security except to the extent permitted
under the Investment Company Act of 1940.
The above restrictions (other than bracketed portions
thereof and, in the case of Special Fund, other than 1 and 2) are
fundamental policies and may not be changed without the approval
of a "majority of the outstanding voting securities" as defined
above. Each Fund and, in the case of Special Fund, together with
restrictions 1 and 2 above, is also subject to the following non-
fundamental restrictions and policies, which may be changed by
the Board of Trustees. None of the following restrictions shall
prevent a Fund from investing all or substantially all of its
assets in another investment company having the same investment
objective and substantially the same investment policies as the
Fund. A Fund may not:
(a) invest in any of the following: (i) interests in oil,
gas, or other mineral leases or exploration or development
programs (except readily marketable securities, including but not
limited to master limited partnership interests, that may
represent indirect interests in oil, gas, or other mineral
exploration or development programs); (ii) puts, calls,
straddles, spreads, or any combination thereof (except that the
Fund may enter into transactions in options, futures, and options
on futures); (iii) shares of other open-end investment companies,
except in connection with a merger, consolidation, acquisition,
or reorganization; and (iv) limited partnerships in real estate
unless they are readily marketable;
(b) invest in companies for the purpose of exercising
control or management;
(c) purchase more than 3% of the stock of another investment
company or purchase stock of other investment companies equal to
more than 5% of the Fund's total assets (valued at time of
purchase) in the case of any one other investment company and 10%
of such assets (valued at time of purchase) in the case of all
other investment companies in the aggregate; any such purchases
are to be made in the open market where no profit to a sponsor or
dealer results from the purchase, other than the customary
broker's commission, except for securities acquired as part of a
merger, consolidation or acquisition of assets;
(d) purchase or hold securities of an issuer if 5% of the
securities of such issuer are owned by those officers, trustees,
or directors of the Trust or of its investment adviser, who each
own beneficially more than 1/2 of 1% of the securities of that
issuer;
(e) mortgage, pledge, or hypothecate its assets, except as
may be necessary in connection with permitted borrowings or in
connection with options, futures, and options on futures;
(f) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in
warrants that are not listed on the New York or American stock
exchange;
(g) write an option on a security unless the option is
issued by the Options Clearing Corporation, an exchange, or
similar entity;
(h) invest more than 25% of its total assets (valued at time
of purchase) in securities of foreign issuers (other than
securities represented by American Depositary Receipts (ADRs) or
securities guaranteed by a U.S. person);
(i) buy or sell an option on a security, a futures contract,
or an option on a futures contract unless the option, the futures
contract, or the option on the futures contract is offered
through the facilities of a recognized securities association or
listed on a recognized exchange or similar entity;
(j) purchase a put or call option if the aggregate premiums
paid for all put and call options exceed 20% of its net assets
(less the amount by which any such positions are in-the-money),
excluding put and call options purchased as closing transactions;
(k) purchase securities on margin (except for use of short-
term credits as are necessary for the clearance of transactions),
or sell securities short unless (i) the Fund owns or has the
right to obtain securities equivalent in kind and amount to those
sold short at no added cost or (ii) the securities sold are "when
issued" or "when distributed" securities which the Fund expects
to receive in a recapitalization, reorganization, or other
exchange for securities the Fund contemporaneously owns or has
the right to obtain and provided that transactions in options,
futures, and options on futures are not treated as short sales;
(l) invest more than 5% of its total assets (taken at
market value at the time of a particular investment) in
securities of issuers (other than issuers of federal agency
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;
or
(o) invest more than 15% of its net assets (taken at market
value at the time of a particular investment) in illiquid
securities, including repurchase agreements maturing in more than
seven days.
ADDITIONAL INVESTMENT CONSIDERATIONS
The Adviser seeks to provide superior long-term investment
results through a disciplined, research-intensive approach to
investment selection and prudent risk management. It has worked
to build wealth for generations by being guided by three primary
objectives which it believes are the foundation of a successful
investment program. These objectives are preservation of
capital, limited volatility through managed risk, and consistent
above-average returns. Because every investor's needs are
different, Stein Roe mutual funds are designed to accommodate
different investment objectives, risk tolerance levels, and time
horizons. In selecting a mutual fund, investors should ask the
following questions:
What are my investment goals?
It is important to a choose a fund that has investment objectives
compatible with your investment goal.
What is my investment time frame?
If you have a short investment time frame (e.g., less than three
years), a mutual fund that seeks to provide a stable share price,
such as a money market fund, or one that seeks capital
preservation as one of its objectives may be appropriate. If you
have a longer investment time frame, you may seek to maximize
your investment returns by investing in a mutual fund that offers
greater yield or appreciation potential in exchange for greater
investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks
which will vary depending on investment objective and security
type. However, mutual funds seek to reduce risk through
professional investment management and portfolio diversification.
In general, equity mutual funds emphasize long-term capital
appreciation and tend to have more volatile net asset values than
bond or money market mutual funds. Although there is no
guarantee that they will be able to maintain a stable net asset
value of $1.00 per share, money market funds emphasize safety of
principal and liquidity, but tend to offer lower income potential
than bond funds. Bond funds tend to offer higher income
potential than money market funds but tend to have greater risk
of principal and yield volatility.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus
under the headings How to Purchase Shares, How to Redeem Shares,
Net Asset Value, and Shareholder Services, and that information
is incorporated herein by reference. The Prospectus discloses
that you may purchase (or redeem) shares through investment
dealers, banks, or other institutions. It is the responsibility
of any such institution to establish procedures insuring the
prompt transmission to the Trust of any such purchase order. The
state of Texas has asked that the Trust disclose in its Statement
of Additional Information, as a reminder to any such bank or
institution, that it must be registered as a securities dealer in
Texas.
Each Fund's net asset value is determined on days on which
the New York Stock Exchange (the "NYSE") is open for trading.
The NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in February, Good Friday, the last
Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or
Sunday, the NYSE will be closed on the preceding Friday or the
following Monday, respectively. Net asset value will not be
determined on days when the NYSE is closed unless, in the
judgment of the Board of Trustees, net asset value of a Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time.
The Trust intends to pay all redemptions in cash and is
obligated to redeem shares solely in cash up to the lesser of
$250,000 or one percent of the net assets of the Trust during any
90-day period for any one shareholder. However, redemptions in
excess of such limit may be paid wholly or partly by a
distribution in kind of securities. If redemptions were made in
kind, the redeeming shareholders might incur transaction costs in
selling the securities received in the redemptions.
Due to the relatively high cost of maintaining smaller
accounts, the Trust reserves the right to redeem shares in any
account for their then-current value (which will be promptly paid
to the investor) if at any time the shares in the account do not
have a value of at least $1,000. An investor will be notified
that the value of his account is less than that minimum and
allowed at least 30 days to bring the value of the account up to
at least $1,000 before the redemption is processed. The
Agreement and Declaration of Trust also authorizes the Trust to
redeem shares under certain other circumstances as may be
specified by the Board of Trustees.
The Trust reserves the right to suspend or postpone
redemptions of shares of any Fund during any period when: (a)
trading on the NYSE is restricted, as determined by the
Securities and Exchange Commission, or the NYSE is closed for
other than customary weekend and holiday closings; (b) the
Securities and Exchange Commission has by order permitted such
suspension; or (c) an emergency, as determined by the Securities
and Exchange Commission, exists, making disposal of portfolio
securities or valuation of net assets of such Fund not reasonably
practicable.
MANAGEMENT
The following table sets forth certain information with
respect to the trustees and officers of the Trust:
<TABLE>
<CAPTION>
Position(s) held
Name Age with the Trust Principal occupation(s) during past five years
- -------------------- -- ------------------------ -----------------------------------------------
<S> <C> <C> <C>
Gary A. Anetsberger 40 Senior Vice-President Vice-President of Stein Roe & Farnham Incorporated (the
"Adviser")
Timothy K. Armour 47 President; Trustee President of the Mutual Funds division of the Adviser and
(1)(2) Director of the Adviser since June, 1992; senior vice
president and director of marketing of Citibank Illinois
prior thereto
Jilaine Hummel Bauer 40 Executive Vice-President; General Counsel and Secretary of the Adviser since November,
Secretary 1995; senior vice president of the Adviser since April, 1992;
vice president of the Adviser, prior thereto
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) 75 Trustee Chairman Emeritus of A. T. Kearney, Inc. (international
management consultants)
William W. Boyd (3) 70 Trustee Chairman and Director of Sterling Plumbing Group, Inc.
(manufacturer of plumbing products) since 1992; chairman,
president, and chief executive officer of Sterling Plumbing
Corporation prior thereto
David P. Brady 31 Vice-President Vice President of the Adviser since November, 1995; portfolio
manager for the Adviser since 1993; equity investment analyst.
State Farm Mutual Automobile Insurance Company prior thereto
Thomas W. Butch 39 Vice-President Senior Vice President of the Adviser since September, 1994;
first vice president, corporate communications, of Mellon
Bank Corporation prior thereto
N. Bruce Callow 50 Executive Vice-President President of the Investment Counsel division of the Adviser
since June, 1994; senior vice president of trust and
financial services for The Northern Trust prior thereto
Daniel K. Cantor 36 Vice-President Senior Vice President of the Adviser
Robert A. Christensen 62 Vice-President Senior Vice President of the Adviser
Lindsay Cook (1) 43 Trustee Senior Vice President of Liberty Financial Companies, Inc.
(the indirect parent of the Adviser)
E. Bruce Dunn 61 Vice-President Senior Vice President of the Adviser
Erik P. Gustafson 32 Vice-President Vice President of the Adviser since May, 1994; associate of
the Adviser from April, 1992 to May, 1994; associate
attorney with Fowler White Burnett Hurley Banick &
Strickroot prior thereto
David P. Harris 31 Vice-President Vice President of Colonial Management Associates, Inc. since
January, 1996;vice president of the Adviser since May, 1995;
global equity portfolio manager with Rockefeller & Co. prior
thereto
Philip D. Hausken 37 Vice-President Vice President of the Adviser since November, 1994, corporate
counsel for the Adviser since July, 1994;
assistant regional director, midwest regional office of the
Securities and Exchange Commission prior thereto
Harvey B. Hirschhorn 46 Vice-President Executive Vice President, Chief Economist & Investment
Strategist, and Director of Research Services of the Adviser
Stephen P. Lautz 38 Vice-President Vice President of the Adviser since May, 1994; associate of
the Adviser prior thereto
Eric S. Maddix 32 Vice-President Vice President of the Adviser since November, 1995;
portfolio manager for the Adviser since 1987
Lynn C. Maddox 55 Vice-President Senior Vice President of the Adviser
Anne E. Marcel 38 Vice-President Manager, Mutual Fund Sales & Services of the Adviser since
October, 1994; supervisor of the Counselor Department of the
Adviser from October, 1992 to October, 1994; vice president
of Selected Financial Services from May, 1990 to March, 1992
Francis W. Morley (3) 75 Trustee Chairman of Employer Plan Administrators and Consultants Co.
(designer, administrator, and communicator of employee
benefit plans)
Charles R. Nelson (3) 53 Trustee Professor, Department of Economics of the University of
Washington
Nicolette D. Parrish 46 Vice-President; Senior Compliance Administrator and Assistant Secretary for
Assistant Secretary for the Adviser since November, 1995; senior legal assistant
for the Adviser prior thereto
Richard B. Peterson 55 Vice-President Senior Vice President of the Adviser since June, 1991;
officer of State Farm Investment Management Corporation prior
thereto
Sharon R. Robertson 34 Controller Accounting Manager for the Adviser's Mutual Funds division
Janet B. Rysz 40 Assistant Secretary Assistant Secretary of the Adviser
Gloria J. Santella 38 Vice-President Senior Vice President of the Adviser since November, 1995;
vice president of the Adviser from January, 1992 to November,
1995; associate of the Adviser prior thereto
Thomas P. Sorbo 35 Vice-President Senior Vice President of the Adviser since January, 1994;
vice president of the Adviser from September, 1992 to
December, 1993; associate of Travelers Insurance Company
prior thereto
Gordon R. Worley 76 Trustee Private investor
(2) (3)
Hans P. Ziegler 54 Executive Vice-President Chief Executive Officer of the Adviser since May, 1994;
president of the Investment Counsel division of the Adviser
from July, 1993 to June, 1994; president and chief executive
officer, Pitcairn Financial Management Group prior thereto
Margaret O. Zwick 29 Treasurer Compliance Manager for the Adviser's Mutual Funds division
since August 1995; compliance accountant, January 1995 to
July 1995; section manager, January 1994 to January 1995;
supervisor, February 1990 to December 1993
</TABLE>
_________________________
(1) Trustee who is an "interested person" of the Trust and of
the Adviser, as defined in the Investment Company Act of
1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope
and results of the audit.
Certain of the trustees and officers of the Trust are
trustees or officers of other investment companies managed by the
Adviser. Ms. Bauer and Mr. Cook are vice presidents of the
Fund's distributor, Liberty Securities Corporation. The address
of Mr. Block is 11 Woodley Road, Winnetka, Illinois 60093; that
of Mr. Boyd is 2900 Golf Road, Rolling Meadows, Illinois 60008;
that of Mr. Cook is 600 Atlantic Avenue, Boston, Massachusetts
02210; that of Mr. Morley is 20 North Wacker Drive, Suite 2275,
Chicago, Illinois 60606; that of Mr. Nelson is Department of
Economics, University of Washington, Seattle, Washington 98195;
that of Mr. Worley is 1407 Clinton Place, River Forest, Illinois
60305; that of Messrs. Bertocci, Cantor, and Harris is 1330
Avenue of the Americas, New York, New York 10019; and that of the
other officers is One South Wacker Drive, Chicago, Illinois
60606..
Officers and trustees affiliated with the Adviser serve
without any compensation from the Trust. In compensation for
their services to the Trust, trustees who are not "interested
persons" of the Trust or the Adviser are paid an annual retainer
of $8,000 (divided equally among the Funds of the Trust) plus an
attendance fee from each Fund for each meeting of the Board or
committee thereof attended at which business for that Fund is
conducted. The attendance fees (other than for a Nominating
Committee meeting) are based on each Fund's net assets as of the
preceding December 31. For a Fund with net assets of less than
$251 million, the fee is $200 per meeting; with $251 million to
$500 million, $350; with $501 million to $750 million, $500; with
$750 million to $1 billion, $650; and with over $1 billion in net
assets, $800. Each non-interested trustee also receives an
aggregate of $500 for attending each meeting of the Nominating
Committee. The Trust has no retirement or pension plans. The
following table sets forth compensation paid by the Trust during
the fiscal year ended September 30, 1995 to each of the trustees:
Aggregate Total Compensation Paid
Compensation to Trustees from the Trust
Name of from the and the Stein Roe Fund
Trustee* Trust Complex**
------------ ------------ ---------------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Alfred F. Kugel -0- -0-
Kenneth L. Block $26,800 $66,400
William W. Boyd 22,050 58,650
Francis W. Morley 26,200 66,000
Charles R. Nelson 28,550 68,350
Gordon R. Worley 26,200 66,000
_______________
* Messrs. Armour, Boyd, and Cook were elected trustees of
the Trust on January 17, 1995. Mr. Kugel was an
affiliated trustee through January 17, 1995.
** During this period, the Stein Roe Fund Complex consisted of
the six series of Stein Roe Income Trust, four series of
Stein Roe Municipal Trust, eight series of Stein Roe
Investment Trust, and one series of SR&F Base Trust.
FINANCIAL STATEMENTS
Please refer to the Funds' September 30, 1995 Financial
Statements (balance sheets and schedules of investments as of
September 30, 1995 and the statements of operations, changes in
net assets, and notes thereto) and the report of independent
public accountants contained in the September 30, 1995 Annual
Report of the Funds. The Financial Statements and the report of
independent public accountants (but no other material from the
Annual Report) are incorporated herein by reference. The Annual
Report may be obtained at no charge by telephoning 800-338-2550.
PRINCIPAL SHAREHOLDERS
As of October 31, 1995, the only persons known by the Trust
to own of record or "beneficially" 5% or more of the outstanding
shares of a Fund within the definition of that term as contained
in Rule 13d-3 under the Securities Exchange Act of 1934 were as
follows:
APPROXIMATE
PERCENTAGE OF
OUTSTANDING
NAME AND ADDRESS FUND SHARES HELD
- ----------------- ------------- ------------
First Bank National Growth & Income Fund 17.0%
Association* Total Return Fund 20.1
410 N. Michigan Avenue Growth Stock Fund 18.2
Chicago, IL 60611 Special Fund 17.3
Capital Opportunities Fund 18.9
Charles Schwab & Co., Inc.* Growth & Income Fund 19.7
Attn: Mutual Fund Dept. Total Return Fund 11.6
101 Montgomery Street Special Fund 17.7
San Francisco, CA 94104 Capital Opportunities Fund 18.3
___________________
*Shares held of record, but not beneficially.
The following table shows shares of the Funds held by the
categories of persons indicated, and in each case the approximate
percentage of outstanding shares represented:
CLIENTS OF THE
ADVISER IN THEIR TRUSTEES AND
CLIENT ACCOUNTS OFFICERS
AS OF 10/31/95 AS OF 10/31/95
--------------- ----------------
SHARES SHARES
HELD PERCENT HELD PERCENT
------ ------- ------- --------
Growth & Income Fund 1,630,338 19.5% 30,603 **
Total Return Fund 607,786 7.5 13,657 **
Growth Stock Fund 1,057,067 7.7 50,587 **
Special Fund 5,774,609 12.4 169,317 **
Special Venture Fund 3,617,364 73.6 38,143 **
Capital Opportunities
Fund 1,312,559 11.6 97,609 **
______________
*The Adviser may have discretionary authority over such shares
and, accordingly, they could be deemed to be owned
"beneficially" by the Adviser under Rule 13d-3. However, the
Adviser disclaims actual beneficial ownership of such shares.
**Represents less than 1% of the outstanding shares.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated, investment adviser to the
Funds, is a wholly owned subsidiary of SteinRoe Services Inc.
("SSI"), the Funds' transfer agent, which is a wholly owned
subsidiary of Liberty Financial Companies, Inc. ("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 the Adviser 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 the
Adviser's Mutual Funds division; Mr. Callow is President of the
Adviser's Investment Counsel division; and Mr. Ziegler is Chief
Executive Officer of the Adviser. The business address of 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.
The Adviser and its predecessor have been providing
investment advisory services since 1932. The Adviser acts as
investment adviser to wealthy individuals, trustees, pension and
profit sharing plans, charitable organizations, and other
institutional investors. As of September 30, 1995, the Adviser
managed over $22.9 billion in assets: over $5.5 billion in
equities and over $17.4 billion in fixed income securities
(including $2.3 billion in municipal securities). The $22.9
billion in managed assets included over $5.7 billion held by
open-end mutual funds managed by the Adviser (approximately 21%
of the mutual fund assets were held by clients of the Adviser).
These mutual funds were owned by over 148,000 shareholders.
The $5.7 billion in mutual fund assets included over $570
million in over 33,000 IRA accounts. In managing those assets,
the Adviser utilizes a proprietary computer-based information
system that maintains and regularly updates information for
approximately 6,500 companies. The Adviser also monitors over
1,400 issues via a proprietary credit analysis system. At
September 30, 1995, the Adviser employed 17 research analysts
and 36 account managers. The average investment-related
experience of these individuals was 20 years.
Stein Roe Counselor [SERVICE MARK] and Stein Roe Counselor
Preferred [SERVICE MARK] are professional investment advisory
services offered to Fund shareholders. Each is designed to help
shareholders construct Fund investment portfolios to suit their
individual needs. Based on information shareholders provide
about their financial circumstances, goals, and objectives in
response to a questionnaire, the Adviser's investment
professionals create customized portfolio recommendations for
investments in the Funds and other mutual funds managed by the
Adviser. Shareholders participating in Stein Roe Counselor
[SERVICE MARK] are free to self direct their investments while
considering the Adviser's recommendations; shareholders
participating in Stein Roe Counselor Preferred [SERVICE MARK]
enjoy the added benefit of having the Adviser implement portfolio
recommendations automatically for a fee of 1% or less, depending
on the size of their portfolios. In addition to reviewing
shareholders' circumstances, goals, and objectives periodically
and updating portfolio recommendations to reflect any changes,
the shareholders who participate in these programs are assigned a
dedicated Counselor [SERVICE MARK] representative. Other
distinctive services include specially designed account
statements with portfolio performance and transaction data,
newsletters, and regular investment, economic, and market
updates. A $50,000 minimum investment is required to participate
in either program.
Please refer to the description of the Adviser, advisory
agreements, management agreement, administrative agreement, fees,
expense limitations, and transfer agency services under Fee Table
and Management of the Funds in the Prospectus, which is
incorporated herein by reference. Except for Special Venture
Fund, each Fund's shareholders voted to replace its investment
advisory agreement with a management agreement and an
administrative agreement effective September 1, 1995. The table
below shows gross fees paid by the Funds for the three most
recent fiscal years and any expense reimbursements to them by the
Adviser:
YEAR YEAR YEAR
TYPE OF ENDED ENDED ENDED
FUND PAYMENT 9/30/95 9/30/94 9/30/93
- ------------------- ------------- --------- ---------- ----------
Growth & Income Fund Advisory fee $ 680,210 $ 688,242 $ 498,157
Administrative
and management
fee 84,030 N/A N/A
Total Return Fund Advisory fee 1,131,735 1,262,296 1,097,007
Administrative
and management
fee 131,565 N/A N/A
Growth Stock Fund Advisory fee 2,177,363 2,544,530 2,850,075
Administrative
and management
fee 219,495 N/A N/A
Special Fund Advisory fee 8,268,281 8,804,952 6,238,784
Administrative
and management
fee 841,041 N/A N/A
Special Venture Fund Advisory fee 295,409 N/A N/A
Reimbursement 127,482 N/A N/A
Capital Opportuni- Advisory fee 1,303,175 1,240,569 949,563
ties Fund Administrative
and management
fee 175,449 N/A N/A
The Adviser provides office space and executive and other
personnel to the Funds, and bears any sales or promotional
expenses. Each Fund pays all expenses other than those paid by
the Adviser, including but not limited to printing and postage
charges and securities registration and custodian fees and
expenses incidental to its organization.
The investment advisory agreement relating to Special
Venture Fund and the administrative agreement relating to the
other Funds provide that the Adviser shall reimburse the Fund to
the extent that total annual expenses of the Fund (including fees
paid to the Adviser, but excluding taxes, interest, commissions
and other normal charges incident to the purchase and sale of
portfolio securities, and expenses of litigation to the extent
permitted under applicable state law) exceed the applicable
limits prescribed by any state in which shares of the Fund are
being offered for sale to the public; provided, however, the
Adviser is not required to reimburse a Fund an amount in excess
of the management fee from the Fund for such year. The Trust
believes that currently the most restrictive state limit on
mutual fund expenses is that of California, which limit currently
is 2 1/2% of the first $30 million of average net assets, 2% of
the next $70 million, and 1 1/2% thereafter. In addition, in the
interest of further limiting expenses of a Fund, the Adviser may
voluntarily waive its management fee and/or absorb certain
expenses for a Fund, as described under Fee Table in the
Prospectus. Any such reimbursement will enhance the yield of
such Fund.
The advisory agreement and management agreement provide that
neither the Adviser, nor any of its directors, officers,
stockholders (or partners of stockholders), agents, or employees
shall have any liability to the Trust or any shareholder of the
Trust for any error of judgment, mistake of law or any loss
arising out of any investment, or for any other act or omission
in the performance by the Adviser of its duties under the
agreement, except for liability resulting from willful
misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by
it of its obligations and duties under the agreement.
Any expenses that are attributable solely to the
organization, operation, or business of a Fund shall be paid
solely out of that Fund's assets. Any expenses incurred by the
Trust that are not solely attributable to a particular Fund are
apportioned in such manner as the Adviser determines is fair and
appropriate, unless otherwise specified by the Board of Trustees.
BOOKKEEPING AND ACCOUNTING AGREEMENT
Pursuant to a separate agreement with the Trust, the Adviser
receives a fee for performing certain bookkeeping and accounting
services for each Fund. For these services, the Adviser receives
an annual fee of $25,000 per Fund plus .0025 of 1% of average net
assets over $50 million. During the fiscal year ended September
30, 1995, the Adviser received aggregate fees of $162,677 from
the Trust for services performed under this Agreement.
DISTRIBUTOR
Shares of each Fund are distributed by Liberty Securities
Corporation ("LSC") under a Distribution Agreement as described
under Management of the Funds in the Prospectus, which is
incorporated herein by reference. The Distribution Agreement
continues in effect from year to year, provided such continuance
is approved annually (i) by a majority of the trustees or by a
majority of the outstanding voting securities of the Trust, and
(ii) by a majority of the trustees who are not parties to the
Agreement or interested persons of any such party. The Trust has
agreed to pay all expenses in connection with registration of its
shares with the Securities and Exchange Commission and auditing
and filing fees in connection with registration of its shares
under the various state blue sky laws and assumes the cost of
preparation of prospectuses and other expenses. The Adviser
bears all sales and promotional expenses, including payments to
LSC for the sales of Fund shares. The Adviser also makes
payments to other broker-dealers, banks, and other institutions
for the sales of Fund shares of 0.20% of the annual average value
of accounts of such shares.
As agent, LSC offers shares of each Fund to investors in
states where the shares are qualified for sale, at net asset
value, without sales commissions or other sales load to the
investor. In addition, no sales commission or "12b-1" payment is
paid by any Fund. LSC offers the Funds' shares only on a best-
efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for the Trust,
as described under Management of the Funds in the Prospectus.
For performing these services, SSI receives from each Fund a fee
based on an annual rate of .22 of 1% of the Fund's average net
assets. Prior to May 1, 1995, SSI received the following
payments from each Fund: (1) a fee of $4.00 for each new account
opened; (2) monthly payments of $1.063 per open shareholder
account; (3) payments of $0.367 per closed shareholder account
for each month through June of the calendar year following the
year in which the account is closed; (4) $0.3025 per shareholder
account for each dividend paid; and (5) $1.415 for each
shareholder-initiated transaction. The Trust believes the
charges by SSI to the Funds are comparable to those of other
companies performing similar services. (See Investment Advisory
Services.)
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian
for the Trust. It is responsible for holding all securities and
cash of the Funds, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering
expenses of the Funds, and performing other administrative
duties, all as directed by authorized persons. The custodian
does not exercise any supervisory function in such matters as
purchase and sale of portfolio securities, payment of dividends,
or payment of expenses of the Funds.
Portfolio securities purchased in the U.S. are maintained in
the custody of the Bank or of other domestic banks or
depositories. Portfolio securities purchased outside of the U.S.
are maintained in the custody of foreign banks and trust
companies that are members of the Bank's Global Custody Network
and foreign depositories ("foreign sub-custodians"). Each of the
domestic and foreign custodial institutions holding portfolio
securities has been approved by the Board of Trustees in
accordance with regulations under the Investment Company Act of
1940.
The Board of Trustees reviews, at least annually, whether it
is in the best interest of each Fund and its shareholders to
maintain Fund assets in each of the countries in which the Fund
invests with particular foreign sub-custodians in such countries,
pursuant to contracts between such respective foreign sub-
custodians and the Bank. The review includes an assessment of
the risks of holding Fund assets in any such country (including
risks of expropriation or imposition of exchange controls), the
operational capability and reliability of each such foreign sub-
custodian, and the impact of local laws on each such custody
arrangement. The Board of Trustees is aided in its review by the
Bank, which has assembled the network of foreign sub-custodians
utilized by the Funds, as well as by the Adviser and counsel.
However, with respect to foreign sub-custodians, there can be no
assurance that a Fund, and the value of its shares, will not be
adversely affected by acts of foreign governments, financial or
operational difficulties of the foreign sub-custodians,
difficulties and costs of obtaining jurisdiction over, or
enforcing judgments against, the foreign sub-custodians, or
application of foreign law to a Fund's foreign sub-custodial
arrangements. Accordingly, an investor should recognize that the
non-investment risks involved in holding assets abroad are
greater than those associated with investing in the United
States.
The Funds may invest in obligations of the custodian and may
purchase or sell securities from or to the custodian.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Trust are Arthur
Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603.
The accountants audit and report on the Funds' annual financial
statements, review certain regulatory reports and the Funds'
federal income tax returns, and perform other professional
accounting, auditing, tax and advisory services when engaged to
do so by the Trust.
PORTFOLIO TRANSACTIONS
The Adviser places the orders for the purchase and sale of
each Fund's portfolio securities and options and futures
contracts. The Adviser's overriding objective in effecting
portfolio transactions is to seek to obtain the best combination
of price and execution. The best net price, giving effect to
brokerage commissions, if any, and other transaction costs,
normally is an important factor in this decision, but a number of
other judgmental factors may also enter into the decision. These
include: the Adviser's knowledge of negotiated commission rates
currently available and other current transaction costs; the
nature of the security being traded; the size of the transaction;
the desired timing of the trade; the activity existing and
expected in the market for the particular security;
confidentiality; the execution, clearance and settlement
capabilities of the broker or dealer selected and others which
are considered; the Adviser's knowledge of the financial
stability of the broker or dealer selected and such other brokers
or dealers; and the Adviser's knowledge of actual or apparent
operational problems of any broker or dealer. Recognizing the
value of these factors, a Fund may pay a brokerage commission in
excess of that which another broker or dealer may have charged
for effecting the same transaction. Evaluations of the
reasonableness of brokerage commissions, based on the foregoing
factors, are made on an ongoing basis by the Adviser's staff
while effecting portfolio transactions. The general level of
brokerage commissions paid is reviewed by the Adviser, and
reports are made annually to the Board of Trustees.
With respect to issues of securities involving brokerage
commissions, when more than one broker or dealer is believed to
be capable of providing the best combination of price and
execution with respect to a particular portfolio transaction for
a Fund, the Adviser often selects a broker or dealer that has
furnished it with research products or services such as research
reports, subscriptions to financial publications and research
compilations, compilations of securities prices, earnings,
dividends, and similar data, and computer data bases, quotation
equipment and services, research-oriented computer software and
services, and services of economic and other consultants.
Selection of brokers or dealers is not made pursuant to an
agreement or understanding with any of the brokers or dealers;
however, the Adviser uses an internal allocation procedure to
identify those brokers or dealers who provide it with research
products or services and the amount of research products or
services they provide, and endeavors to direct sufficient
commissions generated by its clients' accounts in the aggregate,
including the Funds, to such brokers or dealers to ensure the
continued receipt of research products or services the Adviser
feels are useful. In certain instances, the Adviser receives
from brokers and dealers products or services that are
used both as investment research and for administrative,
marketing, or other non-research purposes. In such instances,
the Adviser makes a good faith effort to determine the relative
proportions of such products or services which may be considered
as investment research. The portion of the costs of such
products or services attributable to research usage may be
defrayed by the Adviser (without prior agreement or
understanding, as noted above) through brokerage commissions
generated by transactions by clients (including the Funds), while
the portions of the costs attributable to non-research usage of
such products or services is paid by the Adviser in cash. No
person acting on behalf of a Fund is authorized, in recognition
of the value of research products or services, to pay a
commission in excess of that which another broker or dealer might
have charged for effecting the same transaction. Research
products or services furnished by brokers and dealers may be used
in servicing any or all of the clients of the Adviser and not all
such research products or services are used in connection with
the management of the Funds.
With respect to a Fund's purchases and sales of portfolio
securities transacted with a broker or dealer on a net basis, the
Adviser may also consider the part, if any, played by the broker
or dealer in bringing the security involved to the Adviser's
attention, including investment research related to the security
and provided to the Fund.
The table below shows information on brokerage commissions
paid by the Funds:
<TABLE>
<CAPTION>
GROWTH & TOTAL GROWTH SPECIAL CAPITAL
INCOME RETURN STOCK SPECIAL VENTURE OPPORTUNITIES
FUND FUND FUND FUND FUND FUND
--------- -------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total amount of
brokerage commissions
paid during fiscal
year ended 9/30/95 $ 249,668 $ 123,109 $ 311,583 $ ,728,795 $ 137,260 $ 226,682
Amount of commissions
paid to brokers or
dealers who supplied
research services to
the Adviser 228,248 123,109 301,411 1,581,227 109,997 213,242
Total dollar amount
involved in such
transactions 119,706,805 65,285,929 201,679,220 734,581,006 40,345,000 97,106,560
Amount of commissions
paid to brokers or
dealers that were
allocated to such
brokers or dealers
by the Fund's portfolio
manager because of
research services
provided to the Fund 34,338 27,050 97,685 373,980 15,421 65,281
Total dollar amount
involved in such
transactions 17,360,000 18,050,000 55,816,000 216,728,000 6,414,000 34,322,000
Total amount of
brokerage commissions
paid during fiscal
year ended 9/30/94 260,263 85,902 275,659 1,915,383 N/A 176,246
Total amount of
brokerage commissions
paid during fiscal year
ended 9/30/93 132,301 169,445 264,423 1,091,659 N/A 145,280
</TABLE>
The Trust has arranged for its custodian to act as a
soliciting dealer to accept any fees available to the custodian
as a soliciting dealer in connection with any tender offer for
Fund portfolio securities. The custodian will credit any such
fees received against its custodial fees. In addition, the Board
of Trustees has reviewed the legal developments pertaining to and
the practicability of attempting to recapture underwriting
discounts or selling concessions when portfolio securities are
purchased in underwritten offerings. However, the Board has been
advised by counsel that recapture by a mutual fund currently is
not permitted under the Rules of Fair Practice of the National
Association of Securities Dealers.
ADDITIONAL INCOME TAX CONSIDERATIONS
Each Fund intends to comply with the special provisions of
the Internal Revenue Code that relieve it of federal income tax
to the extent of its net investment income and capital gains
currently distributed to shareholders.
Because dividend and capital gain distributions reduce net
asset value, a shareholder who purchases shares shortly before a
record date will, in effect, receive a return of a portion of his
investment in such distribution. The distribution would
nonetheless be taxable to him, even if the net asset value of
shares were reduced below his cost. However, for federal income
tax purposes the shareholder's original cost would continue as
his tax basis.
Each Fund expects that less than 100% of its dividends will
qualify for the deduction for dividends received by corporate
shareholders.
To the extent a Fund invests in foreign securities, it may
be subject to withholding and other taxes imposed by foreign
countries. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Investors may be
entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in
the Code. Specifically, if more than 50% of the Fund's total
assets at the close of any fiscal year consist of stock or
securities of foreign corporations, the Fund may file an election
with the Internal Revenue Service pursuant to which shareholders
of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their
pro rata shares of foreign income taxes paid by the Fund even
though not actually received, (ii) treat such respective pro rata
shares as foreign income taxes paid by them, and (iii) deduct
such pro rata shares in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to
applicable limitations, against their United States income taxes.
Shareholders who do not itemize deductions for federal income tax
purposes will not, however, be able to deduct their pro rata
portion of foreign taxes paid by the Fund, although such
shareholders will be required to include their share of such
taxes in gross income. Shareholders who claim a foreign tax
credit may be required to treat a portion of dividends received
from the Fund as separate category income for purposes of
computing the limitations on the foreign tax credit available to
such shareholders. Tax-exempt shareholders will not ordinarily
benefit from this election relating to foreign taxes. Each year,
the Fund will notify shareholders of the amount of (i) each
shareholder's pro rata share of foreign income taxes paid by
the Fund and (ii) the portion of Fund dividends which represents
income from each foreign country, if the Fund qualifies to pass
along such credit.
INVESTMENT PERFORMANCE
A Fund may quote certain total return figures from time to
time. A "Total Return" on a per share basis is the amount of
dividends distributed per share plus or minus the change in the
net asset value per share for a period. A "Total Return
Percentage" may be calculated by dividing the value of a share at
the end of a period by the value of the share at the beginning of
the period and subtracting one. For a given period, an "Average
Annual Total Return" may be computed by finding the average
annual compounded rate that would equate a hypothetical initial
amount invested of $1,000 to the ending redeemable value.
Average Annual Total Return is computed as follows:
n
ERV = P(1+T)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the end
of the period (or fractional portion thereof).
For example, for a $1,000 investment in a Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at September 30, 1995 were:
TOTAL TOTAL RETURN AVERAGE ANNUAL
RETURN RETURN PERCENTAGE TOTAL RETURN
------- ----------------- -------------
Growth & Income Fund
1 year $1,211 21.12% 21.12%
5 years 2,104 110.36 16.04
Life of Fund* 2,358 135.83 10.60
Total Return Fund
1 year 1,145 14.49 14.49
5 years 1,897 89.70 13.66
10 years 2,993 199.26 11.58
Growth Stock Fund
1 year 1,282 28.18 28.18
5 years 2,149 114.94 16.54
10 years 3,946 294.61 14.71
Special Fund
1 year 1,146 14.60 14.60
5 years 2,145 114.46 16.48
10 years 4,507 350.72 16.25
Special Venture Fund
Life of Fund* 1,270 26.96 N/A
Capital Opportunities Fund
1 year 1,375 37.46 37.46
5 years 3,066 206.63 25.12
10 years 3,984 298.42 14.82
______________________________________
*Life of Fund is from its date of public offering: 3/23/87 for
Growth & Income Fund and 10/17/94 for Special Venture Fund.
Investment performance figures assume reinvestment of all
dividends and distributions and do not take into account any
federal, state, or local income taxes which shareholders must pay
on a current basis. They are not necessarily indicative of
future results. The performance of a Fund is a result of
conditions in the securities markets, portfolio management, and
operating expenses. Although investment performance information
is useful in reviewing a Fund's performance and in providing some
basis for comparison with other investment alternatives, it
should not be used for comparison with other investments using
different reinvestment assumptions or time periods.
In advertising and sales literature, a Fund may compare its
performance with that of other mutual funds, indexes or averages
of other mutual funds, indexes of related financial assets or
data, and other competing investment and deposit products
available from or through other financial institutions. The
composition of these indexes or averages differs from that of the
Funds. Comparison of a Fund to an alternative investment should
be made with consideration of differences in features and
expected performance.
All of the indexes and averages noted below will be obtained
from the indicated sources or reporting services, which the Funds
believe to be generally accurate. A Fund may also note its
mention or recognition in newspapers, magazines, or other media
from time to time. However, the Funds assume no responsibility
for the accuracy of such data. Newspapers and magazines which
might mention the Funds include, but are not limited to, the
following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Barron's
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
Crain's Chicago Business
Consumer Reports
Consumer Digest
Financial World
Forbes
Fortune
Fund Action
Gourmet
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Los Angeles Times
Money
Mutual Fund Letter
Mutual Fund News Service
Mutual Fund Values (Morningstar)
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
The San Francisco Chronicle
Smart Money
Smithsonian
Stanger's Investment Adviser
Time
Travel & Leisure
United Mutual Fund Selector
USA Today
U.S. News and World Report
The Wall Street Journal
Working Women
Worth
Your Money
All of the Funds may compare their performance to the
Consumer Price Index (All Urban), a widely recognized measure of
inflation.
Each Fund's performance may be compared to the following
indexes or averages:
Dow-Jones Industrial Average New York Stock Exchange Composite
Index
Standard & Poor's 500 Stock Index American Stock Exchange Composite
Index
Standard & Poor's 400 Industrials NASDAQ Composite
Wilshire 5000 NASDAQ Industrials
(These indexes are widely (These indexes generally reflect the
recognized indicators of general performance of stocks traded in the
U.S. stock market results.) indicated markets.)
In addition, the Funds may compare performance as indicated
below:
<TABLE>
<CAPTION>
BENCHMARK FUND(S)
<S> <C>
Value Line Index Capital Opportunities Fund,
(Widely recognized indicator of the Special Fund, Special Venture Fund
performance of small- and medium-sized
company stocks)
Lipper Capital Appreciation Fund Average Capital Opportunities Fund
Lipper Equity Funds Average All
Lipper Equity Income Funds Average Growth & Income Fund, Total Return Fund
Lipper General Equity Funds Average All
Lipper Growth & Income Funds Average Growth & Income Fund, Total Return Fund
Lipper Growth & Income Fund Index Growth & Income Fund, Total Return Fund
Lipper Growth Fund Index Growth & Income Fund, Growth Stock Fund, Special Fund,
Special Venture Fund, Capital Opportunities Fund,
Lipper Growth Funds Average Special Fund, Special Venture Fund, Growth Stock Fund
ICD Aggressive Growth and Long-Term
Growth Funds Average Growth & Income Fund, Growth Stock Fund, Special Fund,
Special Venture Fund, Capital Opportunities Fund
ICD Aggressive Growth Fund Large Index Capital Opportunities Fund, Special Fund, Special Venture
Fund
ICD Aggressive Growth Fund Small Index Capital Opportunities Fund, Special Fund, Special Venture
Fund
ICD Aggressive Growth Funds Average Special Fund, Special Venture Fund, Capital Opportunities
Fund
ICD All Equity Funds Average Growth Stock Fund, Special Fund, Special Venture Fund,
Capital Opportunities Fund
ICD Balanced Funds Average Growth & Income Fund, Total Return Fund
ICD Balance Funds Index Total Return Fund
ICD Both Equity Funds Average Growth & Income Fund, Total Return Fund
ICD General Equity Average* All
ICD Growth & Income Funds Average Growth & Income Fund, Total Return Fund
ICD Growth & Income Funds Index Growth & Income Fund, Total Return Fund
ICD Long-Term Growth Funds Average Growth & Income Fund, Capital Opportunities Fund, Growth
Stock Fund, Special Fund, Special Venture Fund
ICD Long-Term Growth Funds Index Growth & Income Fund, Capital Opportunities Fund, Growth
Stock Fund, Special Fund, Special Venture Fund
ICD Total Return Funds Average Growth & Income Fund, Total Return Fund
ICD Total Return Funds Index Total Return Fund
Morningstar Aggressive Growth Average Capital Opportunities Fund
Morningstar All Equity Funds Average Growth Stock Fund, Special Fund, Special Venture Fund,
Capital Opportunities Fund
Morningstar Equity Fund Average All
Morningstar Equity Income Average Total Return Fund
Morningstar Balanced Average Total Return Fund
Morningstar Both Equity Funds Average Growth & Income Fund, Total Return Fund
Morningstar General Equity Average** All
Morningstar Growth and Income Average Growth & Income Fund, Total Return Fund
Morningstar Growth Average Growth & Income Fund, Special Fund, Special Venture Fund,
Growth Stock Fund
Morningstar Hybrid Fund Average All
Morningstar U.S. Diversified Average All
*Includes ICD Aggressive Growth,
Growth & Income, Long-Term Growth,
and Total Return averages.
**Includes Morningstar Aggressive Growth,
Growth, Balanced, Equity Income, and
Growth & Income averages.
</TABLE>
The ICD Indexes reflect the unweighted average total return
of the largest twenty funds within their respective category as
calculated and published by ICD.
The Lipper averages are unweighted averages of total return
performance as classified, calculated, and published by Lipper.
Lipper Growth Fund index reflects the net asset value weighted
total return of the largest thirty growth funds and thirty growth
and income funds, respectively, as calculated and published by
Lipper.
The Lipper, ICD, and Morningstar averages are unweighted
averages of total return performance of mutual funds as
classified, calculated, and published by these independent
services that monitor the performance of mutual funds. The Funds
may also use comparative performance as computed in a ranking by
Lipper or category averages and rankings provided by another
independent service. Should Lipper or another service reclassify
a Fund to a different category or develop (and place a Fund into)
a new category, that Fund may compare its performance or ranking
with those of other funds in the newly assigned category, as
published by the service.
A Fund may also cite its rating, recognition, or other
mention by Morningstar or any other entity. Morningstar's rating
system is based on risk-adjusted total return performance and is
expressed in a star-rating format. The risk-adjusted number is
computed by subtracting a Fund's risk score (which is a function
of the Fund's monthly returns less the 3-month T-bill return)
from the Fund's load-adjusted total return score. This numerical
score is then translated into rating categories, with the top 10%
labeled five star, the next 22.5% labeled four star, the next 35%
labeled three star, the next 22.5% labeled two star, and the
bottom 10% one star. A high rating reflects either above-average
returns or below-average risk, or both.
Of course, past performance is not indicative of future
results.
________________
To illustrate the historical returns on various types of
financial assets, the Funds may use historical data provided by
Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based
investment firm. Ibbotson constructs (or obtains) very long-term
(since 1926) total return data (including, for example, total
return indexes, total return percentages, average annual total
returns and standard deviations of such returns) for the
following asset types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
_____________________
A Fund may also use hypothetical returns to be used as an
example in a mix of asset allocation strategies. One such
example is reflected in the chart below, which shows the effect
of tax deferral on a hypothetical investment. This chart assumes
that an investor invested $2,000 a year on January 1, for any
specified period, in both a Tax-Deferred Investment and a
Taxable Investment, that both investments earn either 6%, 8%
or 10% compounded annually, and that the investor withdrew the
entire amount at the end of the period. (A tax rate of 39.6%
is applied annually to the Taxable Investment and on the
withdrawal of earnings on the Tax-Deferred Investment.)
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
INTEREST RATE 6% 8% 10% 6% 8% 10%
Compounding
Years Tax-Deferred Investment Taxable Investment
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 150,484 82,067 97,780 117,014
20 62,943 75,543 91,947 59,362 68,109 78,351
15 41,684 47,304 54,099 40,358 44,675 49,514
10 24,797 26,820 29,098 24,453 26,165 28,006
5 11,178 11,613 12,072 11,141 11,546 11,965
1 2,072 2,096 2,121 2,072 2,096 2,121
Dollar Cost Averaging. Dollar cost averaging is an
investment strategy that requires investing a fixed amount of
money in Fund shares at set intervals. This allows you to
purchase more shares when prices are low and fewer shares when
prices are high. Over time, this tends to lower your average
cost per share.
Like any investment strategy, dollar cost averaging can't
guarantee a profit or protect against losses in a steadily
declining market. Dollar cost averaging involves uninterrupted
investing regardless of share price and therefore may not be
appropriate for every investor.
From time to time, a Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe Counselor
[SERVICE MARK] and the Stein Roe Counselor Preferred [SERVICE
MARK] programs and asset allocation and other investment
strategies.
APPENDIX--RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's
opinion as to the credit quality of the security being rated.
However, the ratings are general and are not absolute standards
of quality or guarantees as to the creditworthiness of an issuer.
Consequently, the Adviser believes that the quality of debt
securities in which a Fund invests should be continuously
reviewed and that individual analysts give different weightings
to the various factors involved in credit analysis. A rating is
not a recommendation to purchase, sell or hold a security because
it does not take into account market value or suitability for a
particular investor. When a security has received a rating from
more than one service, each rating should be evaluated
independently. Ratings are based on current information
furnished by the issuer or obtained by the rating services from
other sources which they consider reliable. Ratings may be
changed, suspended or withdrawn as a result of changes in or
unavailability of such information, or for other reasons.
The following is a description of the characteristics of
ratings of corporate debt securities used by Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").
RATINGS BY MOODY'S
AAA. Bonds rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or an exceptionally stable margin and
principal is secure. Although the various protective elements
are likely to change, such changes as can be visualized are more
unlikely to impair the fundamentally strong position of such
bonds.
AA. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa
bonds.
A. Bonds rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA. Bonds rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
BA. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics
of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
CAA. Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
CA. Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in
each generic rating classification from Aa through B in its
corporate bond rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
RATINGS BY S&P
AAA. Debt rated AAA has the highest rating. Capacity to
pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from the highest rated
issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than for debt in higher rated
categories.
BB, B, CCC, CC, AND C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance
with the terms of the obligation. BB indicates the lowest degree
of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no
interest is being paid.
D. Debt rated D is in default, and payment of interest
and/or repayment of principal is in arrears. The D rating is
also used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
NOTES:
The ratings from AA to CCC may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the
major rating categories. Foreign debt is rated on the same basis
as domestic debt measuring the creditworthiness of the issuer;
ratings of foreign debt do not take into account currency
exchange and related uncertainties.
The "r" is attached to highlight derivative, hybrid, and certain
other obligations that S&P believes may experience high
volatility or high variability in expected returns due to non-
credit risks. Examples of such obligations are: securities whose
principal or interest return is indexed to equities, commodities,
or currencies; certain swaps and options; and interest only and
principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will
exhibit no volatility or variability in total return.
<PAGE> 1
Statement of Additional Information Dated February 1, 1996
STEIN ROE INVESTMENT TRUST
P.O. Box 804058, Chicago, Illinois 60680
800-338-2550
STEIN ROE INTERNATIONAL FUND
The Stein Roe International Fund is a series of the Stein
Roe Investment Trust (the "Trust"). Each series of the Trust
represents shares of beneficial interest in a separate portfolio
of securities and other assets, with its own objectives and
policies. This Statement of Additional Information is not a
prospectus, but provides additional information that should be
read in conjunction with the Fund's prospectus dated February 1,
1996, and any supplements thereto ("Prospectus"). The Prospectus
may be obtained at no charge by telephoning 800-338-2550.
TABLE OF CONTENTS
Page
General Information and History................2
Investment Policies............................3
Portfolio Investments and Strategies...........4
Investment Restrictions.......................18
Additional Investment Considerations..........21
Purchases and Redemptions.....................22
Management....................................23
Financial Statements..........................27
Principal Shareholders........................27
Investment Advisory Services..................27
Distributor...................................30
Transfer Agent................................30
Custodian.....................................30
Independent Public Accountants................31
Portfolio Transactions........................31
Additional Income Tax Considerations..........33
Investment Performance........................34
Appendix--Ratings.............................39
GENERAL INFORMATION AND HISTORY
As used herein, "the Fund" refers to the series of the Trust
designated Stein Roe International Fund. Currently eight series
are authorized and outstanding. On February 1, 1996, the name of
the Trust was changed from SteinRoe Investment Trust to Stein Roe
Investment Trust and the name of the Fund was changed from
SteinRoe International Fund to Stein Roe International Fund.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory and administrative services to the Fund
through its Global Capital Management division.
Each share of a series is entitled to participate pro rata
in any dividends and other distributions declared by the Board on
shares of that series, and all shares of a series have equal
rights in the event of liquidation of that series.
Each whole share (or fractional share) outstanding on the
record date established in accordance with the By-Laws shall be
entitled to a number of votes on any matter on which it is
entitled to vote equal to the net asset value of the share (or
fractional share) in United States dollars determined at the
close of business on the record date (for example, a share having
a net asset value of $10.50 would be entitled to 10.5 votes). As
a business trust, the Trust is not required to hold annual
shareholder meetings. However, special meetings may be called
for purposes such as electing or removing trustees, changing
fundamental policies, or approving an investment advisory
contract. If requested to do so by the holders of at least 10%
of the Trust's outstanding shares, the Trust will call a special
meeting for the purpose of voting upon the question of removal of
a trustee or trustees and will assist in the communications with
other shareholders as if the Trust were subject to Section 16(c)
of the Investment Company Act of 1940. All shares of all series
of the Trust are voted together in the election of trustees. On
any other matter submitted to a vote of shareholders, shares are
voted in the aggregate and not by individual series, except that
shares are voted by individual series when required by the
Investment Company Act of 1940 or other applicable law, or when
the Board of Trustees determines that the matter affects only the
interests of one or more series, in which case shareholders of
the unaffected series are not entitled to vote on such matters.
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND
STRUCTURE
The Fund may in the future seek to achieve its objective by
pooling its assets with assets of other mutual funds managed by
the Adviser for investment in another mutual fund having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. The Adviser is expected to manage any such mutual
fund in which a Fund would invest. Such investment would be
subject to determination by the Trustees that it was in the best
interests of the Fund and its shareholders, and shareholders
would receive advance notice of any such change.
INVESTMENT POLICIES
In pursuing its objective, the Fund will invest as described
below and may employ the investment techniques described in the
Prospectus and under Portfolio Investments and Strategies in this
Statement of Additional Information. The Fund's investment
objective is non-fundamental and may be changed by the Board of
Trustees without the approval of a "majority of the outstanding
voting securities" /1/ of the Fund. In pursuing its investment
objective, the Fund may invest in debt securities. Investments
in debt securities are limited to those that are within the four
highest grades assigned by a nationally recognized statistical
rating organization or, if unrated, deemed to be of comparable
quality by the Adviser (referred to as "investment grade"). If
the rating of a security held by the Fund is lost or reduced, the
Fund is not required to sell the security, but the Adviser will
consider such fact in determining whether the Fund should
continue to hold the security.
- --------------------
/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.
- --------------------
The Fund's investment objective is to seek long-term growth
of capital by investing primarily in a diversified portfolio of
foreign securities. Current income is not a primary factor in
the selection of portfolio securities. The Fund invests
primarily in common stocks and other equity-type securities (such
as preferred stocks, securities convertible or exchangeable for
common stocks, and warrants or rights to purchase common stocks).
The Fund may invest in securities of smaller emerging companies
as well as securities of well-seasoned companies of any size.
Smaller companies, however, involve higher risks in that they
typically have limited product lines, markets, and financial or
management resources. In addition, the securities of smaller
companies may trade less frequently and have greater price
fluctuation than larger companies, particularly those operating
in countries with developing markets.
The Fund diversifies its investments among several countries
and does not concentrate investments in any particular industry.
In pursuing its objective, the Fund varies the geographic
allocation and types of securities in which it invests based on
the Adviser's continuing evaluation of economic, market, and
political trends throughout the world. While the Fund has not
established limits on geographic asset distribution, it
ordinarily invests in the securities markets of at least three
countries outside the United States, including but not limited to
Western European countries (such as Belgium, France, Germany,
Ireland, Italy, The Netherlands, the countries of Scandinavia,
Spain, Switzerland, and the United Kingdom); countries in the
Pacific Basin (such as Australia, Hong Kong, Japan, Malaysia, the
Philippines, Singapore, and Thailand); and countries in the
Americas (such as Argentina, Brazil, Chile, and Mexico).
Under normal market conditions, the Fund will invest at
least 65% of its total assets (taken at market value) in foreign
securities. If, however, investments in foreign
securities appear to be relatively unattractive in the judgment
of the Adviser because of current or anticipated adverse
political or economic conditions, the Fund may hold cash or
invest any portion of its assets in securities of the U.S.
Government and equity and debt securities of U.S. companies, as a
temporary defensive strategy. To meet liquidity needs, the Fund
may also hold cash in domestic and foreign currencies and invest
in domestic and foreign money market securities (including
repurchase agreements and "synthetic" foreign money market
positions).
In the past, the U.S. Government has from time to time
imposed restrictions, through taxation and otherwise, on foreign
investments by U.S. investors such as the Fund. If such
restrictions should be reinstated, it might become necessary for
the Fund to invest all or substantially all of its assets in U.S.
securities. In such an event, the Fund would review its
investment objective and policies to determine whether changes
are appropriate.
PORTFOLIO INVESTMENTS AND STRATEGIES
DERIVATIVES
Consistent with its objective, the Fund may invest in a
broad array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, forward contracts, securities
collateralized by underlying pools of mortgages or other
receivables, floating rate instruments, and other instruments
that securitize assets of various types ("Derivatives"). In each
case, the value of the instrument or security is "derived" from
the performance of an underlying asset or a "benchmark" such as a
security index, an interest rate, or a currency.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because it is more
efficient or less costly than direct investment that cannot be
readily established directly due to portfolio size, cash
availability, or other factors. They also may be used in an
effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and directions
of movements in currency exchange rates, security prices,
interest rates and other market factors affecting the Derivative
itself or the value of the underlying asset or benchmark. In
addition, correlations in the performance of an underlying asset
to a Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as well
regulated and may be less marketable than exchange-traded
Derivatives.
The Fund does not currently intend to invest more than 5% of
its net assets in any type of Derivative, except for options,
futures contracts, futures options, and forward contracts. (See
discussion of options and futures below.)
DEFENSIVE INVESTMENTS
When the Adviser considers a temporary defensive position
advisable, the Fund may invest, without limitation, in high-
quality fixed income securities or hold assets in cash or cash
equivalents.
FOREIGN SECURITIES
The Fund invests primarily in foreign securities, which may
entail a greater degree of risk (including risks relating to
exchange rate fluctuations, tax provisions, or expropriation of
assets) than does investment in securities of domestic issuers.
The Fund may also purchase foreign securities in the form of
American Depositary Receipts (ADRs), European Depositary Receipts
(EDRs), or other securities representing underlying shares of
foreign issuers. Positions in these securities are not
necessarily denominated in the same currency as the common stocks
into which they may be converted. ADRs are receipts typically
issued by an American bank or trust company evidencing ownership
of the underlying securities. EDRs are European receipts
evidencing a similar arrangement. Generally, ADRs, in registered
form, are designed for the U.S. securities markets and EDRs, in
bearer form, are designed for use in European securities markets.
The Fund may invest in sponsored or unsponsored ADRs. In the
case of an unsponsored ADR, the Fund is likely to bear its
proportionate share of the expenses of the depository and it may
have greater difficulty in receiving shareholder communications
than it would have with a sponsored ADR.
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, the Fund's
investment performance is affected by the strength or weakness of
the U.S. dollar against these currencies. For example, if the
dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise
even though the price of the stock remains unchanged.
Conversely, if the dollar rises in value relative to the yen, the
dollar value of the yen-denominated stock will fall. (See
discussion of transaction hedging and portfolio hedging under
Currency Exchange Transactions.)
Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities,
positions in which are generally denominated in foreign
currencies, and utilization of forward foreign currency exchange
contracts involve certain considerations comprising both risks
and opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and issuers of securities; lack of uniform accounting, auditing,
and financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment
in securities of companies in developing as well as developed
countries; and sometimes less advantageous legal, operational,
and financial protections applicable to foreign sub-custodial
arrangements.
Although the Fund will try to invest in companies and
governments of countries having stable political environments,
there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of
foreign government restrictions, or other adverse political,
social or diplomatic developments that could affect investment in
these nations.
Currency Exchange Transactions. Currency exchange
transactions may be conducted either on a spot (i.e., cash) basis
at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market or through forward currency exchange
contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency
at a specified future date (or within a specified time period)
and price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not
exchange traded, and are usually for less than one year, but may
be renewed.
Forward currency transactions may involve currencies of the
different countries in which the Fund may invest, and serve as
hedges against possible variations in the exchange rate between
these currencies. The Fund's currency transactions are limited
to transaction hedging and portfolio hedging involving either
specific transactions or portfolio positions, except to the
extent described below under "Synthetic Foreign Money Market
Positions." Transaction hedging is the purchase or sale of
forward contracts with respect to specific receivables or
payables of the Fund accruing in connection with the purchase and
sale of its portfolio securities. Portfolio hedging is the use
of forward contracts with respect to portfolio security positions
denominated or quoted in a particular currency. Portfolio
hedging allows the Adviser to limit or reduce exposure in a
foreign currency by entering into a forward contract to sell or
buy such foreign currency (or another foreign currency that acts
as a proxy for that currency) so that the U.S. dollar value of
certain underlying foreign portfolio securities can be
approximately matched by an equivalent U.S. dollar liability.
The Fund may not engage in portfolio hedging with respect to the
currency of a particular country to an extent greater than the
aggregate market value (at the time of making such sale) of the
securities held in its portfolio denominated or quoted in that
particular currency, except that the Fund may hedge all or part
of its foreign currency exposure through the use of a basket of
currencies or a proxy currency where such currencies or currency
act as an effective proxy for other currencies. In such a case,
the Fund may enter into a forward contract where the amount of
the foreign currency to be sold exceeds the value of the
securities denominated in such currency. The use of this basket
hedging technique may be more efficient and economical than
entering into separate forward contracts for each currency held
in the Fund. The Fund may not engage in "speculative" currency
exchange transactions.
At the maturity of a forward contract to deliver a
particular currency, the Fund may either sell the portfolio
security related to such contract and make delivery of the
currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual
obligation to deliver the currency by purchasing an offsetting
contract with the same currency trader obligating it to purchase
on the same maturity date the same amount of the currency.
It is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of a
forward contract. Accordingly, it may be necessary for the Fund
to purchase additional currency on the spot market (and bear the
expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver
and if a decision is made to sell the security and make delivery
of the currency. Conversely, it may be necessary to sell on the
spot market some of the currency received upon the sale of the
portfolio security if its market value exceeds the amount of
currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to
the extent that there has been movement in forward contract
prices. If the Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale
of a currency and the date it enters into an offsetting contract
for the purchase of the currency, the Fund will realize a gain to
the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Fund will suffer a loss to
the extent the price of the currency it has agreed to purchase
exceeds the price of the currency it has agreed to sell. A
default on the contract would deprive the Fund of unrealized
profits or force the Fund to cover its commitments for purchase
or sale of currency, if any, at the current market price.
Hedging against a decline in the value of a currency does
not eliminate fluctuations in the prices of portfolio securities
or prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it
anticipates. The cost to the Fund of engaging in currency
exchange transactions varies with such factors as the currency
involved, the length of the contract period, and prevailing
market conditions. Since currency exchange transactions are
usually conducted on a principal basis, no fees or commissions
are involved.
Synthetic Foreign Money Market Positions. The Fund may
invest in money market instruments denominated in foreign
currencies. In addition to, or in lieu of, such direct
investment, the Fund may construct a synthetic foreign money
market position by (a) purchasing a money market instrument
denominated in one currency, generally U.S. dollars, and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
For example, a synthetic money market position in Japanese yen
could be constructed by purchasing a U.S. dollar money market
instrument, and entering concurrently into a forward contract to
deliver a corresponding amount of U.S. dollars in exchange for
Japanese yen on a specified date and at a specified rate of
exchange. Because of the availability of a variety of highly
liquid short-term U.S. dollar money market instruments, a
synthetic money market position utilizing such U.S. dollar
instruments may offer greater liquidity than direct investment in
foreign currency money market instruments. The result of a
direct investment in a foreign currency and a concurrent
construction of a synthetic position in such foreign currency, in
terms of both income yield and gain or loss from changes in
currency exchange rates, in general should be similar, but would
not be identical because the components of the alternative
investments would not be identical. Except to the extent a
synthetic foreign money market position consists of a money
market instrument denominated in a foreign currency, the
synthetic foreign money market position shall not be deemed a
"foreign security" for purposes of the policy that, under normal
conditions, the Fund will invest at least 65% of its total assets
in foreign securities.
LENDING OF PORTFOLIO SECURITIES
Subject to restriction (5) under Investment Restrictions in
this Statement of Additional Information, the Fund may lend its
portfolio securities to broker-dealers and banks. Any such loan
must be continuously secured by collateral in cash or cash
equivalents maintained on a current basis in an amount at least
equal to the market value of the securities loaned by the Fund.
The Fund would continue to receive the equivalent of the interest
or dividends paid by the issuer on the securities loaned, and
would also receive an additional return that may be in the form
of a fixed fee or a percentage of the collateral. The Fund would
have the right to call the loan and obtain the securities loaned
at any time on notice of not more than five business days. The
Fund would not have the right to vote the securities during the
existence of the loan but would call the loan to permit voting of
the securities if, in the Adviser's judgment, a material event
requiring a shareholder vote would otherwise occur before the
loan was repaid. In the event of bankruptcy or other default of
the borrower, the Fund could experience both delays in
liquidating the loan collateral or recovering the loaned
securities and losses, including (a) possible decline in the
value of the collateral or in the value of the securities loaned
during the period while the Fund seeks to enforce its rights
thereto, (b) possible subnormal levels of income and lack of
access to income during this period, and (c) expenses of
enforcing its rights.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements, provided that
it will not invest more than 15% of net assets in repurchase
agreements maturing in more than seven days and any other
illiquid securities. A repurchase agreement is a sale of
securities to the Fund in which the seller agrees to repurchase
the securities at a higher price, which includes an amount
representing interest on the purchase price, within a specified
time. In the event of bankruptcy of the seller, the Fund could
experience both losses and delays in liquidating its collateral.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE
AGREEMENTS
The Fund may purchase securities on a when-issued or
delayed-delivery basis. Although the payment and interest terms
of these securities are established at the time the Fund enters
into the commitment, the securities may be delivered and paid for
a month or more after the date of purchase, when their value may
have changed. The Fund makes such commitments only with the
intention of actually acquiring the securities, but may sell the
securities before settlement date if the Adviser deems it
advisable for investment reasons. The Fund may utilize spot and
forward foreign currency exchange transactions to reduce the risk
inherent in fluctuations in the exchange rate between one
currency and another when securities are purchased or sold on a
when-issued or delayed-delivery basis.
The Fund may enter into reverse repurchase agreements with
banks and securities dealers. A reverse repurchase agreement is
a repurchase agreement in which the Fund is the seller of, rather
than the investor in, securities and agrees to repurchase them at
an agreed-upon time and price. Use of a reverse repurchase
agreement may be preferable to a regular sale and later
repurchase of securities because it avoids certain market risks
and transaction costs.
At the time the Fund enters into a binding obligation to
purchase securities on a when-issued basis or enters into a
reverse repurchase agreement, liquid assets (cash, U.S.
Government securities or other "high-grade" debt obligations) of
the Fund having a value at least as great as the purchase price
of the securities to be purchased will be segregated on the books
of the Fund and held by the custodian throughout the period of
the obligation. The use of these investment strategies, as well
as borrowing under a line of credit as described below, may
increase net asset value fluctuation.
CONVERTIBLE SECURITIES
By investing in convertible securities, the Fund obtains the
right to benefit from the capital appreciation potential in the
underlying stock upon exercise of the conversion right, while
earning higher current income than would be available if the
stock were purchased directly. In determining whether to
purchase a convertible, the Adviser will consider substantially
the same criteria that would be considered in purchasing the
underlying stock. While convertible securities purchased by the
Fund are frequently rated investment grade, the Fund also may
purchase unrated securities or securities rated below investment
grade if the securities meet the Adviser's other investment
criteria. Convertible securities rated below investment grade
(a) tend to be more sensitive to interest rate and economic
changes, (b) may be obligations of issuers who are less
creditworthy than issuers of higher quality convertible
securities, and (c) may be more thinly traded due to such
securities being less well known to investors than either common
stock or conventional debt securities. As a result, the
Adviser's own investment research and analysis tends to be more
important in the purchase of such securities than other factors.
SHORT SALES
The Fund may make short sales "against the box." In a short
sale, the Fund sells a borrowed security and is required to
return the identical security to the lender. A short sale
"against the box" involves the sale of a security with respect to
which the Fund already owns an equivalent security in kind and
amount. A short sale "against the box" enables the Fund to
obtain the current market price of a security which it desires to
sell but is unavailable for settlement.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately
placed but that are eligible for purchase and sale under Rule
144A under the 1933 Act. That Rule permits certain qualified
institutional buyers, such as the Fund, to trade in privately
placed securities that have not been registered for sale under
the 1933 Act. The Adviser, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the Fund's restriction of
investing no more than 15% of its net assets in illiquid
securities. A determination of whether a Rule 144A security is
liquid or not is a question of fact. In making this
determination, the Adviser will consider the trading markets for
the specific security, taking into account the unregistered
nature of a Rule 144A security. In addition, the Adviser could
consider the (1) frequency of trades and quotes, (2) number of
dealers and potential purchasers, (3) dealer undertakings to make
a market, and (4) nature of the security and of marketplace
trades (e.g., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer). The
liquidity of Rule 144A securities would be monitored and, if as a
result of changed conditions, it is determined that a Rule 144A
security is no longer liquid, the Fund's holdings of illiquid
securities would be reviewed to determine what, if any, steps are
required to assure that the Fund does not invest more than 15% of
its assets in illiquid securities. Investing in Rule 144A
securities could have the effect of increasing the amount of the
Fund's assets invested in illiquid securities if qualified
institutional buyers are unwilling to purchase such securities.
The Fund does not expect to invest as much as 5% of its total
assets in Rule 144A securities that have not been deemed to be
liquid by the Adviser. (See restriction (m) under Investment
Restrictions.)
LINE OF CREDIT
Subject to restriction (6) under Investment Restrictions in
this Statement of Additional Information, the Fund may establish
and maintain a line of credit with a major bank in order to
permit borrowing on a temporary basis to meet share redemption
requests in circumstances in which temporary borrowing may be
preferable to liquidation of portfolio securities.
PORTFOLIO TURNOVER
Although the Fund does not purchase securities with a view
to rapid turnover, there are no limitations on the length of time
that portfolio securities must be held.
Portfolio turnover can occur for a number of reasons such as
general conditions in the securities markets, more favorable
investment opportunities in other securities, or other factors
relating to the desirability of holding or changing a portfolio
investment. Because of the Fund's flexibility of investment and
emphasis on growth of capital, it may have greater portfolio
turnover than that of mutual funds that have primary objectives
of income or maintenance of a balanced investment position. The
future turnover rate may vary greatly from year to year. A high
rate of portfolio turnover in the Fund, if it should occur, would
result in increased transaction expense, which must be borne by
the Fund. High portfolio turnover may also result in the
realization of capital gains or losses and, to the extent net
short-term capital gains are realized, any distributions
resulting from such gains will be considered ordinary income for
federal income tax purposes. (See Risks and Investment
Considerations and Distributions and Income Taxes in the
Prospectus, and Additional Income Tax Considerations in this
Statement of Additional Information.)
OPTIONS ON SECURITIES AND INDEXES
The Fund may purchase and sell put options and call options
on securities, indexes or foreign currencies in standardized
contracts traded on recognized securities exchanges, boards of
trade, or similar entities, or quoted on NASDAQ. The Fund may
purchase agreements, sometimes called cash puts, that may
accompany the purchase of a new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives
the purchaser (holder) of the option, in return for a premium,
the right to buy from (call) or sell to (put) the seller (writer)
of the option the security underlying the option (or the cash
value of the index) at a specified exercise price at any time
during the term of the option (normally not exceeding nine
months). The writer of an option on an individual security or on
a foreign currency has the obligation upon exercise of the option
to deliver the underlying security or foreign currency upon
payment of the exercise price or to pay the exercise price upon
delivery of the underlying security or foreign currency. Upon
exercise, the writer of an option on an index is obligated to pay
the difference between the cash value of the index and the
exercise price multiplied by the specified multiplier for the
index option. (An index is designed to reflect specified facets
of a particular financial or securities market, a specific group
of financial instruments or securities, or certain economic
indicators.)
The Fund will write call options and put options only if
they are "covered." For example, in the case of a call option on
a security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or,
if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by
its custodian) upon conversion or exchange of other securities
held in its portfolio.
If an option written by the Fund expires, the Fund realizes
a capital gain equal to the premium received at the time the
option was written. If an option purchased by the Fund expires,
the Fund realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option
may be closed out by an offsetting purchase or sale of an option
of the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to
purchase the option, the Fund will realize a capital gain or, if
it is less, the Fund will realize a capital loss. The principal
factors affecting the market value of a put or a call option
include supply and demand, interest rates, the current market
price of the underlying security or index in relation to the
exercise price of the option, the volatility of the underlying
security or index, and the time remaining until the expiration
date.
A put or call option purchased by the Fund is an asset of
the Fund, valued initially at the premium paid for the option.
The premium received for an option written by the Fund is
recorded as a deferred credit. The value of an option purchased
or written is marked-to-market daily and is valued at the closing
price on the exchange on which it is traded or, if not traded on
an exchange or no closing price is available, at the mean between
the last bid and asked prices.
Risks Associated with Options. There are several risks
associated with transactions in options. For example, there are
significant differences between the securities markets, the
currency markets, and the options markets that could result in an
imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or
unexpected events.
There can be no assurance that a liquid market will exist
when the Fund seeks to close out an option position. If the Fund
were unable to close out an option that it had purchased on a
security, it would have to exercise the option in order to
realize any profit or the option would expire and become
worthless. If the Fund were unable to close out a covered call
option that it had written on a security, it would not be able to
sell the underlying security until the option expired. As the
writer of a covered call option on a security, the Fund foregoes,
during the option's life, the opportunity to profit from
increases in the market value of the security covering the call
option above the sum of the premium and the exercise price of the
call.
If trading were suspended in an option purchased or written
by the Fund, the Fund would not be able to close out the option.
If restrictions on exercise were imposed, the Fund might be
unable to exercise an option it has purchased.
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.
- --------------------
/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.
- --------------------
The Fund may purchase and write call and put futures
options. Futures options possess many of the same
characteristics as options on securities, indexes and foreign
currencies (discussed above). A futures option gives the holder
the right, in return for the premium paid, to assume a long
position (call) or short position (put) in a futures contract at
a specified exercise price at any time during the period of the
option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned
the opposite short position. In the case of a put option, the
opposite is true. The Fund might, for example, use futures
contracts to hedge against or gain exposure to fluctuations in
the general level of stock prices, anticipated changes in
interest rates or currency fluctuations that might adversely
affect either the value of the Fund's securities or the price of
the securities that the Fund intends to purchase. Although other
techniques could be used to reduce or increase the Fund's
exposure to stock price, interest rate and currency fluctuations,
the Fund may be able to achieve its exposure more effectively and
perhaps at a lower cost by using futures contracts and futures
options.
The Fund will only enter into futures contracts and futures
options that are standardized and traded on an exchange, board of
trade, or similar entity, or quoted on an automated quotation
system.
The success of any futures transaction depends on the
Adviser correctly predicting changes in the level and direction
of stock prices, interest rates, currency exchange rates and
other factors. Should those predictions be incorrect, the Fund's
return might have been better had the transaction not been
attempted; however, in the absence of the ability to use futures
contracts, the Adviser might have taken portfolio actions in
anticipation of the same market movements with similar investment
results but, presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by the
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the
broker ("initial margin"). The margin required for a futures
contract is set by the exchange on which the contract is traded
and may be modified during the term of the contract. The initial
margin is in the nature of a performance bond or good faith
deposit on the futures contract, which is returned to the Fund
upon termination of the contract, assuming all contractual
obligations have been satisfied. The Fund expects to earn
interest income on its initial margin deposits. A futures
contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day
the Fund pays or receives cash, called "variation margin," equal
to the daily change in value of the futures contract. This
process is known as "marking-to-market." Variation margin paid
or received by the Fund does not represent a borrowing or loan by
the Fund but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures
contract had expired at the close of the previous day. In
computing daily net asset value, the Fund will mark-to-market its
open futures positions.
The Fund is also required to deposit and maintain margin
with respect to put and call options on futures contracts written
by it. Such margin deposits will vary depending on the nature of
the underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying securities, usually these obligations
are closed out prior to delivery by offsetting purchases or sales
of matching futures contracts (same exchange, underlying security
or index, and delivery month). If an offsetting purchase price
is less than the original sale price, the Fund 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 markets and the
securities underlying the standard contracts available for
trading. For example, in the case of index futures contracts,
the composition of the index, including the issuers and the
weighting of each issue, may differ from the composition of the
Fund's portfolio, and, in the case of interest rate futures
contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures contract
may differ from the financial instruments held in the Fund's
portfolio. A decision as to whether, when and how to use futures
contracts involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree
because of market behavior or unexpected stock price or interest
rate trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit
governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may
work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily
limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial
losses. Stock index futures contracts are not normally subject
to such daily price change limitations.
There can be no assurance that a liquid market will exist at
a time when the Fund seeks to close out a futures or futures
option position. The Fund would be exposed to possible loss on
the position during the interval of inability to close, and would
continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed
above are relatively new instruments without a significant
trading history. As a result, there can be no assurance that an
active secondary market will develop or continue to exist.
LIMITATIONS ON OPTIONS AND FUTURES
If other options, futures contracts, or futures options of
types other than those described herein are traded in the future,
the Fund may also use those investment vehicles, provided the
Board of Trustees determines that their use is consistent with
the Fund's investment objective.
The Fund will not enter into a futures contract or purchase
an option thereon if, immediately thereafter, the initial margin
deposits for futures contracts held by the Fund plus premiums
paid by it for open futures option positions, less the amount by
which any such positions are "in-the-money," /3/ would exceed 5%
of the Fund's total assets.
- ----------------------
/3/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
- ----------------------
When purchasing a futures contract or writing a put option
on a futures contract, the Fund must maintain with its custodian
(or broker, if legally permitted) cash or cash equivalents
(including any margin) equal to the market value of such
contract. When writing a call option on a futures contract, the
Fund similarly will maintain with its custodian cash or cash
equivalents (including any margin) equal to the amount by which
such option is in-the-money until the option expires or is closed
out by the Fund.
The Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical
relative volatility of the relationship between the portfolio and
the positions. For this purpose, to the extent the Fund has
written call options on specific securities in its portfolio, the
value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," the Fund will use commodity futures or commodity
options contracts solely for bona fide hedging purposes within
the meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of 1.3(z), the
aggregate initial margin and premiums required to establish such
positions will not exceed 5% of the fair market value of the
assets of the Fund, after taking into account unrealized profits
and unrealized losses on any such contracts it has entered into
[in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount (as defined in Section
190.01(x) of the Commission Regulations) may be excluded in
computing such 5%].
As long as the Fund continues to sell its shares in certain
states, the Fund's options and futures transactions will also be
subject to certain non-fundamental investment restrictions set
forth under Investment Restrictions in this Statement of
Additional Information.
TAXATION OF OPTIONS AND FUTURES
If the Fund exercises a call or put option that it holds,
the premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the
security sold (put). For cash settlement options and futures
options exercised by the Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
If a call or put option written by the Fund is exercised,
the premium is included in the proceeds of the sale of the
underlying security (call) or reduces the cost basis of the
security purchased (put). For cash settlement options and
futures options written by the Fund, the difference between the
cash paid at exercise and the premium received is a capital gain
or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by the Fund was in-
the-money at the time it was written and the security covering
the option was held for more than the long-term holding period
prior to the writing of the option, any loss realized as a result
of a closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
If the Fund writes an equity call option other /4/ than a
"qualified covered call option," as defined in the Internal
Revenue Code, any loss on such option transaction, to the extent
it does not exceed the unrealized gains on the securities
covering the option, may be subject to deferral until the
securities covering the option have been sold.
- ------------------
/4/ An equity option is defined to mean any option to buy or sell
stock, and any other option the value of which is determined by
reference to an index of stocks of the type that is ineligible to
be traded on a commodity futures exchange (e.g., an option
contract on a sub-index based on the price of nine hotel-casino
stocks). The definition of equity option excludes options on
broad-based stock indexes (such as the Standard & Poor's 500
index).
- ------------------
A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If the
Fund delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities.
For federal income tax purposes, the Fund generally is
required to recognize as income for each taxable year its net
unrealized gains and losses as of the end of the year on futures,
futures options and non-equity options positions ("year-end mark-
to-market"). Generally, any gain or loss recognized with respect
to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and
40% short-term, without regard to the holding periods of the
contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options
positions, the related securities and certain successor positions
thereto) may be deferred to a later taxable year. Sale of
futures contracts or writing of call options (or futures call
options) or buying put options (or futures put options) that are
intended to hedge against a change in the value of securities
held by the Fund: (1) will affect the holding period of the
hedged securities; and (2) may cause unrealized gain or loss on
such securities to be recognized upon entry into the hedge.
If the Fund were to enter into a short index future, short
index futures option or short index option position and the
Fund's portfolio were deemed to "mimic" the performance of the
index underlying such contract, the option or futures contract
position and the Fund's stock positions would be deemed to be
positions in a mixed straddle, subject to the above-mentioned
loss deferral rules.
In order for the Fund to continue to qualify for federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). In addition,
gains realized on the sale or other disposition of securities
held for less than three months must be limited to less than 30%
of the Fund's annual gross income. Any net gain realized from
futures (or futures options) contracts will be considered gain
from the sale of securities and therefore be qualifying income
for purposes of the 90% requirement. In order to avoid realizing
excessive gains on securities held less than three months, the
Fund may be required to defer the closing out of certain
positions beyond the time when it would otherwise be advantageous
to do so.
The Fund distributes to shareholders annually any net
capital gains that have been recognized for federal income tax
purposes (including year-end mark-to-market gains) on options and
futures transactions. Such distributions are combined with
distributions of capital gains realized on the Fund's other
investments, and shareholders are advised of the nature of the
payments.
INVESTMENT RESTRICTIONS
The Fund operates under the following investment
restrictions. The Fund may not:
(1) with respect to 75% of its total assets, invest more
than 5% of its total assets, taken at market value at the time of
a particular purchase, in the securities of a single issuer,
except for securities issued or guaranteed by the government of
the U.S., or any of its agencies or instrumentalities or
repurchase agreements for such securities and except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(2) acquire more than 10%, taken at the time of a particular
purchase, of the outstanding voting securities of any one issuer,
except that all or substantially all of the assets of the Fund
may be invested in another registered investment company having
the same investment objective and substantially similar
investment policies as the Fund;
(3) act as an underwriter of securities, except insofar as
it may be deemed an underwriter for purposes of the Securities
Act of 1933 on disposition of securities acquired subject to
legal or contractual restrictions on resale, except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate or
interests therein), commodities, or commodity contracts, except
that it may enter into (a) futures and options on futures and (b)
forward contracts;
(5) make loans, but this restriction shall not prevent the
Fund from (a) buying a part of an issue of bonds, debentures, or
other obligations which are publicly distributed, or from
investing up to an aggregate of 15% of its total assets (taken at
market value at the time of each purchase) in parts of issues of
bonds, debentures or other obligations of a type privately placed
with financial institutions, (b) investing in repurchase
agreements,/5/ or (c) lending portfolio securities, provided that
it may not lend securities if, as a result, the aggregate value
of all securities loaned would exceed 33% of its total assets
(taken at market value at the time of such loan);
(6) borrow, except that it may (a) borrow up to 33 1/3% of
its total assets, taken at market value at the time of such
borrowing, as a temporary measure for extraordinary or emergency
purposes, but not to increase portfolio income (the total of
reverse repurchase agreements and such borrowings will not exceed
33 1/3% of its total assets, and the Fund will not purchase
additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of its
total assets) and (b) enter into transactions in options,
futures, and options on futures;
(7) invest in a security if more than 25% of its total
assets (taken at market value at the time of a particular
purchase) would be invested in the securities of issuers in any
particular industry,/6/ except that this restriction does not
apply to securities issued or guaranteed by the U.S. Government
or its agencies or instrumentalities and except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund; or
- ------------------------
/5/ A repurchase agreement involves the sale of securities to the
Fund, with the concurrent agreement of the seller to repurchase
the securities at the same price plus an amount representing
interest at an agreed-upon interest rate, within a specified
time, usually less than one week, but, on occasion, at a later
time. Repurchase agreements entered into by the Fund will be
fully collateralized and will be marked-to-market daily. In the
event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in
liquidating the underlying securities and losses, including: (a)
possible decline in the value of the collateral during the period
while the Fund seeks to enforce its rights thereto; (b) possible
subnormal levels of income and lack of access to income during
this period; and (c) expenses of enforcing its rights.
/6/ For purposes of this investment restriction, the Fund uses
industry classifications contained in Morgan Stanley Capital
International Perspective, which is published by Morgan Stanley,
an international investment banking and brokerage firm.
- ------------------------
(8) issue any senior security except to the extent permitted
under the Investment Company Act of 1940.
The above restrictions are fundamental policies and may not
be changed without the approval of a "majority of the outstanding
voting securities," as defined above. The Fund is also subject
to the following non-fundamental restrictions and policies, which
may be changed by the Board of Trustees. None of the following
restrictions shall prevent the Fund from investing all or
substantially all of its assets in another investment company
having the same investment objective and substantially the same
investment policies as the Fund. The Fund may not:
(a) invest in any of the following: (i) interests in oil,
gas, or other mineral leases or exploration or development
programs (except readily marketable securities, including but not
limited to master limited partnership interests, that may
represent indirect interests in oil, gas, or other mineral
exploration or development programs); (ii) puts, calls,
straddles, spreads, or any combination thereof (except that the
Fund may enter into transactions in options, futures, and options
on futures); (iii) shares of other open-end investment companies,
except in connection with a merger, consolidation, acquisition,
or reorganization; and (iv) limited partnerships in real estate
unless they are readily marketable;
(b) invest in companies for the purpose of exercising
control or management;
(c) purchase more than 3% of the stock of another investment
company or purchase stock of other investment companies equal to
more than 5% of the Fund's total assets (valued at time of
purchase) in the case of any one other investment company and 10%
of such assets (valued at time of purchase) in the case of all
other investment companies in the aggregate; any such purchases
are to be made in the open market where no profit to a sponsor or
dealer results from the purchase, other than the customary
broker's commission, except for securities acquired as part of a
merger, consolidation or acquisition of assets;
(d) purchase or hold securities of an issuer if 5% of the
securities of such issuer are owned by those officers, trustees,
or directors of the Trust or of its investment adviser, who each
own beneficially more than 1/2 of 1% of the securities of that
issuer;
(e) mortgage, pledge, or hypothecate its assets, except as
may be necessary in connection with permitted borrowings or in
connection with options, futures, and options on futures;
(f) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in
warrants that are not listed on the New York or American stock
exchange or a recognized foreign exchange;
(g) write an option on a security unless the option is
issued by the Options Clearing Corporation, an exchange, or
similar entity;
(h) buy or sell an option on a security, a futures contract,
or an option on a futures contract unless the option, the futures
contract, or the option on the futures contract is offered
through the facilities of a recognized securities association or
listed on a recognized exchange or similar entity;
(i) purchase a put or call option if the aggregate premiums
paid for all put and call options exceed 20% of its net assets
(less the amount by which any such positions are in-the-money),
excluding put and call options purchased as closing transactions;
(j) purchase securities on margin (except for use of short-
term credits as are necessary for the clearance of transactions),
or sell securities short unless (i) the Fund owns or has the
right to obtain securities equivalent in kind and amount to those
sold short at no added cost or (ii) the securities sold are "when
issued" or "when distributed" securities which the Fund expects
to receive in a recapitalization, reorganization, or other
exchange for securities the Fund contemporaneously owns or has
the right to obtain and provided that transactions in options,
futures, and options on futures are not treated as short sales;
(k) invest more than 5% of its total assets (taken at
market value at the time of a particular investment) in
securities of issuers (other than issuers of federal agency
obligations or securities issued or guaranteed by any foreign
country or asset-backed securities) that, together with any
predecessors or unconditional guarantors, have been in continuous
operation for less than three years ("unseasoned issuers");
(l) invest more than 10% of its total assets (taken at
market value at the time of a particular investment) in
restricted securities, other than securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933;
(m) invest more than 15% of its total assets (taken at
market value at the time of a particular investment) in
restricted securities and securities of unseasoned issuers;
(n) invest more than 15% of its net assets (taken at market
value at the time of a particular investment) in illiquid
securities, including repurchase agreements maturing in more than
seven days.
Notwithstanding the foregoing investment restrictions, the
Fund may purchase securities pursuant to the exercise of
subscription rights, subject to the condition that such purchase
will not result in the Fund's ceasing to be a diversified
investment company. Far Eastern and European corporations
frequently issue additional capital stock by means of
subscription rights offerings to existing shareholders at a price
substantially below the market price of the shares. The failure
to exercise such rights would result in the Fund's interest in
the issuing company being diluted. The market for such rights is
not well developed in all cases and, accordingly, the Fund may
not always realize full value on the sale of rights. The
exception applies in cases where the limits set forth in the
investment restrictions would otherwise be exceeded by exercising
rights or would have already been exceeded as a result of
fluctuations in the market value of the Fund's portfolio
securities with the result that the Fund would be forced either
to sell securities at a time when it might not otherwise have
done so, to forego exercising the rights.
ADDITIONAL INVESTMENT CONSIDERATIONS
The Adviser seeks to provide superior long-term investment
results through a disciplined, research-intensive approach to
investment selection and prudent risk management. It has worked
to build wealth for generations by being guided by three primary
objectives which it believes are the foundation of a successful
investment program. These objectives are preservation of
capital, limited volatility through managed risk, and consistent
above-average returns. Because every investor's needs are
different, Stein Roe mutual funds are designed to accommodate
different investment objectives, risk tolerance levels, and time
horizons. In selecting a mutual fund, investors should ask the
following questions:
What are my investment goals?
It is important to a choose a fund that has investment objectives
compatible with your investment goal.
What is my investment time frame?
If you have a short investment time frame (e.g., less than three
years), a mutual fund that seeks to provide a stable share price,
such as a money market fund, or one that seeks capital
preservation as one of its objectives may be appropriate. If you
have a longer investment time frame, you may seek to maximize
your investment returns by investing in a mutual fund that offers
greater yield or appreciation potential in exchange for greater
investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks
which will vary depending on investment objective and security
type. However, mutual funds seek to reduce risk through
professional investment management and portfolio diversification.
In general, equity mutual funds emphasize long-term capital
appreciation and tend to have more volatile net asset values than
bond or money market mutual funds. Although there is no
guarantee that they will be able to maintain a stable net asset
value of $1.00 per share, money market funds emphasize safety of
principal and liquidity, but tend to offer lower income potential
than bond funds. Bond funds tend to offer higher income
potential than money market funds but tend to have greater risk
of principal and yield volatility.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus
under the headings How to Purchase Shares, How to Redeem Shares,
Net Asset Value, and Shareholder Services, and that information
is incorporated herein by reference. The Prospectus discloses
that you may purchase (or redeem) shares through investment
dealers, banks, or other institutions. It is the responsibility
of any such institution to establish procedures insuring the
prompt transmission to the Trust of any such purchase order. The
state of Texas has asked that the Trust disclose in its Statement
of Additional Information, as a reminder to any such bank or
institution, that it must be registered as a securities dealer in
Texas.
The Fund's net asset value is determined on days on which
the New York Stock Exchange (the "NYSE") is open for trading.
The NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in February, Good Friday, the last
Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or
Sunday, the NYSE will be closed on the preceding Friday or the
following Monday, respectively. Net asset value will not be
determined on days when the NYSE is closed unless, in the
judgment of the Board of Trustees, net asset value of the Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time.
The Trust intends to pay all redemptions in cash and is
obligated to redeem shares solely in cash up to the lesser of
$250,000 or one percent of the net assets of the Trust during any
90-day period for any one shareholder. However, redemptions in
excess of such limit may be paid wholly or partly by a
distribution in kind of securities. If redemptions were made in
kind, the redeeming shareholders might incur transaction costs in
selling the securities received in the redemptions.
Due to the relatively high cost of maintaining smaller
accounts, the Trust reserves the right to redeem shares in any
account for their then-current value (which will be promptly paid
to the investor) if at any time the shares in the account do not
have a value of at least $1,000. An investor will be notified
that the value of his account is less than that minimum and
allowed at least 30 days to bring the value of the account up to
at least $1,000 before the redemption is processed. The
Agreement and Declaration of Trust also authorizes the Trust to
redeem shares under certain other circumstances as may be
specified by the Board of Trustees.
The Trust reserves the right to suspend or postpone
redemptions of shares of the Fund during any period when: (a)
trading on the NYSE is restricted, as determined by the
Securities and Exchange Commission, or the NYSE is closed for
other than customary weekend and holiday closings; (b) the
Securities and Exchange Commission has by order permitted such
suspension; or (c) an emergency, as determined by the Securities
and Exchange Commission, exists, making disposal of portfolio
securities or valuation of net assets of the Fund not reasonably
practicable.
MANAGEMENT
The following table sets forth certain information with
respect to the trustees and officers of the Trust:
<TABLE>
<CAPTION>
Position(s) held
Name Age with the Trust Principal occupation(s) during past five years
- -------------------- -- ------------------------ -----------------------------------------------
<S> <C> <C> <C>
Gary A. Anetsberger 40 Senior Vice-President Vice-President of Stein Roe & Farnham Incorporated (the
"Adviser")
Timothy K. Armour 47 President; Trustee President of the Mutual Funds division of the Adviser and
(1)(2) Director of the Adviser since June, 1992; senior vice
president and director of marketing of Citibank Illinois
prior thereto
Jilaine Hummel Bauer 40 Executive Vice-President; General Counsel and Secretary of the Adviser since November,
Secretary 1995; senior vice president of the Adviser since April, 1992;
vice president of the Adviser, prior thereto
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) 75 Trustee Chairman Emeritus of A. T. Kearney, Inc. (international
management consultants)
William W. Boyd (3) 70 Trustee Chairman and Director of Sterling Plumbing Group, Inc.
(manufacturer of plumbing products) since 1992; chairman,
president, and chief executive officer of Sterling Plumbing
Corporation prior thereto
David P. Brady 31 Vice-President Vice President of the Adviser since November, 1995; portfolio
manager for the Adviser since 1993; equity investment analyst.
State Farm Mutual Automobile Insurance Company prior thereto
Thomas W. Butch 39 Vice-President Senior Vice President of the Adviser since September, 1994;
first vice president, corporate communications, of Mellon
Bank Corporation prior thereto
N. Bruce Callow 50 Executive Vice-President President of the Investment Counsel division of the Adviser
since June, 1994; senior vice president of trust and
financial services for The Northern Trust prior thereto
Daniel K. Cantor 36 Vice-President Senior Vice President of the Adviser
Robert A. Christensen 62 Vice-President Senior Vice President of the Adviser
Lindsay Cook (1) 43 Trustee Senior Vice President of Liberty Financial Companies, Inc.
(the indirect parent of the Adviser)
E. Bruce Dunn 61 Vice-President Senior Vice President of the Adviser
Erik P. Gustafson 32 Vice-President Vice President of the Adviser since May, 1994; associate of
the Adviser from April, 1992 to May, 1994; associate
attorney with Fowler White Burnett Hurley Banick &
Strickroot prior thereto
David P. Harris 31 Vice-President Vice President of Colonial Management Associates, Inc. since
January, 1996;vice president of the Adviser since May, 1995;
global equity portfolio manager with Rockefeller & Co. prior
thereto
Philip D. Hausken 37 Vice-President Vice President of the Adviser since November, 1994, corporate
counsel for the Adviser since July, 1994;
assistant regional director, midwest regional office of the
Securities and Exchange Commission prior thereto
Harvey B. Hirschhorn 46 Vice-President Executive Vice President, Chief Economist & Investment
Strategist, and Director of Research Services of the Adviser
Stephen P. Lautz 38 Vice-President Vice President of the Adviser since May, 1994; associate of
the Adviser prior thereto
Eric S. Maddix 32 Vice-President Vice President of the Adviser since November, 1995;
portfolio manager for the Adviser since 1987
Lynn C. Maddox 55 Vice-President Senior Vice President of the Adviser
Anne E. Marcel 38 Vice-President Manager, Mutual Fund Sales & Services of the Adviser since
October, 1994; supervisor of the Counselor Department of the
Adviser from October, 1992 to October, 1994; vice president
of Selected Financial Services from May, 1990 to March, 1992
Francis W. Morley (3) 75 Trustee Chairman of Employer Plan Administrators and Consultants Co.
(designer, administrator, and communicator of employee
benefit plans)
Charles R. Nelson (3) 53 Trustee Professor, Department of Economics of the University of
Washington
Nicolette D. Parrish 46 Vice-President; Senior Compliance Administrator and Assistant Secretary for
Assistant Secretary for the Adviser since November, 1995; senior legal assistant
for the Adviser prior thereto
Richard B. Peterson 55 Vice-President Senior Vice President of the Adviser since June, 1991;
officer of State Farm Investment Management Corporation prior
thereto
Sharon R. Robertson 34 Controller Accounting Manager for the Adviser's Mutual Funds division
Janet B. Rysz 40 Assistant Secretary Assistant Secretary of the Adviser
Gloria J. Santella 38 Vice-President Senior Vice President of the Adviser since November, 1995;
vice president of the Adviser from January, 1992 to November,
1995; associate of the Adviser prior thereto
Thomas P. Sorbo 35 Vice-President Senior Vice President of the Adviser since January, 1994;
vice president of the Adviser from September, 1992 to
December, 1993; associate of Travelers Insurance Company
prior thereto
Gordon R. Worley 76 Trustee Private investor
(2) (3)
Hans P. Ziegler 54 Executive Vice-President Chief Executive Officer of the Adviser since May, 1994;
president of the Investment Counsel division of the Adviser
from July, 1993 to June, 1994; president and chief executive
officer, Pitcairn Financial Management Group prior thereto
Margaret O. Zwick 29 Treasurer Compliance Manager for the Adviser's Mutual Funds division
since August 1995; compliance accountant, January 1995 to
July 1995; section manager, January 1994 to January 1995;
supervisor, February 1990 to December 1993
</TABLE>
______________________________
(1) Trustee who is an "interested person" of the Trust and of the
Adviser, as defined in the Investment Company Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope
and results of the audit.
Certain of the trustees and officers of the Trust are
trustees or officers of other investment companies managed by the
Adviser. Ms. Bauer and Mr. Cook are vice presidents of the
Fund's distributor, Liberty Securities Corporation. The address
of Mr. Block is 11 Woodley Road, Winnetka, Illinois 60093; that
of Mr. Boyd is 2900 Golf Road, Rolling Meadows, Illinois 60008;
that of Mr. Cook is 600 Atlantic Avenue, Boston, Massachusetts
02210; that of Mr. Morley is 20 North Wacker Drive, Suite 2275,
Chicago, Illinois 60606; that of Mr. Nelson is Department of
Economics, University of Washington, Seattle, Washington 98195;
that of Mr. Worley is 1407 Clinton Place, River Forest, Illinois
60305; that of Messrs. Bertocci, Cantor, and Harris is 1330
Avenue of the Americas, New York, New York 10019; and that of the
other officers is One South Wacker Drive, Chicago, Illinois
60606..
Officers and trustees affiliated with the Adviser serve
without any compensation from the Trust. In compensation for
their services to the Trust, trustees who are not "interested
persons" of the Trust or the Adviser are paid an annual retainer
of $8,000 (divided equally among the Funds of the Trust) plus an
attendance fee from each Fund for each meeting of the Board or
committee thereof attended at which business for that Fund is
conducted. The attendance fees (other than for a Nominating
Committee meeting) are based on each Fund's net assets as of the
preceding December 31. For a Fund with net assets of less than
$251 million, the fee is $200 per meeting; with $251 million to
$500 million, $350; with $501 million to $750 million, $500; with
$750 million to $1 billion, $650; and with over $1 billion in net
assets, $800. Each non-interested trustee also receives an
aggregate of $500 for attending each meeting of the Nominating
Committee. The Trust has no retirement or pension plans. The
following table sets forth compensation paid by the Trust during
the fiscal year ended September 30, 1995 to each of the trustees:
Aggregate Total Compensation Paid
Compensation to Trustees from the Trust
Name of from the and the Stein Roe Fund
Trustee* Trust Complex**
------------ ------------ ---------------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Alfred F. Kugel -0- -0-
Kenneth L. Block $26,800 $66,400
William W. Boyd 22,050 58,650
Francis W. Morley 26,200 66,000
Charles R. Nelson 28,550 68,350
Gordon R. Worley 26,200 66,000
_______________
* Messrs. Armour, Boyd, and Cook were elected trustees of
the Trust on January 17, 1995. Mr. Kugel was an
affiliated trustee through January 17, 1995.
** During this period, the Stein Roe Fund Complex consisted of
the six series of Stein Roe Income Trust, four series of
Stein Roe Municipal Trust, eight series of Stein Roe
Investment Trust, and one series of SR&F Base Trust.
FINANCIAL STATEMENTS
Please refer to the Fund's September 30, 1995 Financial
Statements (balance sheets and schedules of investments as of
September 30, 1995 and the statements of operations, changes in
net assets, and notes thereto) and the report of independent
public accountants contained in the September 30, 1995 Annual
Report. The Financial Statements and the report of independent
public accountants (but no other material from the Annual Report)
are incorporated herein by reference. The Annual Report may be
obtained at no charge by telephoning 800-338-2550.
PRINCIPAL SHAREHOLDERS
As of October 31, 1995 the only person known by the Trust to
own of record or "beneficially" 5% or more of the outstanding
shares of the Fund within the definition of that term as
contained in Rule 13d-3 under the Securities Exchange Act of 1934
was as follows:
Approximate Percentage of
Name and Address Outstanding Shares Held
-------------------------------- -------------------------
First Bank National Association* 6.7%
410 N. Michigan Avenue
Chicago, IL 60611
___________________
*Shares held of record, but not beneficially.
The following table shows shares of the Fund held by the
categories of persons indicated, and in each case the approximate
percentage of outstanding shares represented:
CLIENTS OF THE
ADVISER IN THEIR TRUSTEES AND
CLIENT ACCOUNTS OFFICERS
AS OF 10/31/95 AS OF 10/31/95
--------------- ----------------
SHARES SHARES
HELD PERCENT HELD PERCENT
------ ------- ------- --------
5,978,569 71.9% 66,299 **
______________
*The Adviser may have discretionary authority over such shares
and, accordingly, they could be deemed to be owned
"beneficially" by the Adviser under Rule 13d-3. However, the
Adviser disclaims actual beneficial ownership of such shares.
**Represents less than 1% of the outstanding shares.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated, investment adviser to the
Funds, is a wholly owned subsidiary of SteinRoe Services Inc.
("SSI"), the Funds' transfer agent, which is a wholly owned
subsidiary of Liberty Financial Companies, Inc. ("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 the Adviser 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 the
Adviser's Mutual Funds division; Mr. Callow is President of the
Adviser's Investment Counsel division; and Mr. Ziegler is Chief
Executive Officer of the Adviser. The business address of 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.
The Adviser and its predecessor have been providing
investment advisory services since 1932. The Adviser acts as
investment adviser to wealthy individuals, trustees, pension and
profit sharing plans, charitable organizations, and other
institutional investors. As of September 30, 1995, the Adviser
managed over $22.9 billion in assets: over $5.5 billion in
equities and over $17.4 billion in fixed income securities
(including $2.3 billion in municipal securities). The $22.9
billion in managed assets included over $5.7 billion held by
open-end mutual funds managed by the Adviser (approximately 21%
of the mutual fund assets were held by clients of the Adviser).
These mutual funds were owned by over 148,000 shareholders. The
$5.7 billion in mutual fund assets included over $570 million in
over 33,000 IRA accounts. In managing those assets, the Adviser
utilizes a proprietary computer-based information system that
maintains and regularly updates information for approximately
6,500 companies. The Adviser also monitors over 1,400 issues via
a proprietary credit analysis system. At September 30, 1995, the
Adviser employed 17 research analysts and 36 account managers.
The average investment-related experience of these individuals
was 20 years.
Stein Roe Counselor [SERVICE MARK] and Stein Roe Counselor
Preferred [SERVICE MARK] are professional investment advisory
services offered to Fund shareholders. Each is designed to help
shareholders construct Fund investment portfolios to suit their
individual needs. Based on information shareholders provide
about their financial circumstances, goals, and objectives in
response to a questionnaire, the Adviser's investment
professionals create customized portfolio recommendations for
investments in the Fund and other mutual funds managed by the
Adviser. Shareholders participating in Stein Roe Counselor
[SERVICE MARK] are free to self direct their investments while
considering the Adviser's recommendations; shareholders
participating in Stein Roe Counselor Preferred [SERVICE MARK]
enjoy the added benefit of having the Adviser implement portfolio
recommendations automatically for a fee of 1% or less, depending
on the size of their portfolios. In addition to reviewing
shareholders' circumstances, goals, and objectives periodically
and updating portfolio recommendations to reflect any changes,
the shareholders who participate in these programs are assigned a
dedicated Counselor [SERVICE MARK] representative. Other
distinctive services include specially designed account
statements with portfolio performance and transaction data,
newsletters, and regular investment, economic, and market
updates. A $50,000 minimum investment is required to participate
in either program.
Please refer to the description of the Adviser, advisory
agreement, advisory fee, expense limitation, and transfer agency
services under Fee Table and Management of the Fund in the
Prospectus, which is incorporated herein by reference. The
Adviser received payments in advisory fees from the Fund of
$343,107 for the period from the Fund's inception on March 1,
1994 through September 30, 1994, and $736,882 for the fiscal year
ended September 30, 1995.
The Adviser provides office space and executive and other
personnel to the Fund and bears any sales or promotional
expenses. The Fund pays all expenses other than those paid by
the Adviser, including but not limited to printing and postage
charges and securities registration and custodian fees and
expenses incidental to its organization.
The investment advisory agreement provides that the Adviser
shall reimburse the Fund to the extent that total annual expenses
of the Fund (including fees paid to the Adviser, but excluding
taxes, interest, brokers' commissions and other normal charges
incident to the purchase and sale of portfolio securities and
expenses of litigation to the extent permitted under applicable
state law) exceed the applicable limits prescribed by any state
in which shares of the Fund are being offered for sale to the
public; provided, however, that the Adviser shall not be required
to reimburse the Fund an amount in excess of the management fee
from the Fund for such year. The Trust believes that currently
the most restrictive state limit on mutual fund expenses is that
of California, which limit currently is 2 1/2% of the first $30
million of average net assets, 2% of the next $70 million, and 1
1/2% thereafter. In addition, in the interest of further
limiting expenses of the Fund, the Adviser may voluntarily waive
its management fee and/or absorb certain expenses for the Fund,
as described under Fee Table in the Prospectus. Any such
reimbursement will enhance the yield of the Fund.
The advisory agreement also provides that neither the
Adviser nor any of its directors, officers, stockholders (or
partners of stockholders), agents, or employees shall have any
liability to the Trust or any shareholder of the Trust for any
error of judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance
by the Adviser of its duties under the agreement, except for
liability resulting from willful misfeasance, bad faith or gross
negligence on their part in the performance of its duties or from
reckless disregard by it of its obligations and duties under the
agreement.
Any expenses that are attributable solely to the
organization, operation, or business of the Fund shall be paid
solely out of the Fund's assets. Any expenses incurred by the
Trust that are not solely attributable to a particular series are
apportioned in such manner as the Adviser determines is fair and
appropriate, unless otherwise specified by the Board of Trustees.
BOOKKEEPING AND ACCOUNTING AGREEMENT
Pursuant to a separate agreement with the Trust, the Adviser
receives a fee for performing certain bookkeeping and accounting
services for the Fund. For these services, the Adviser receives
an annual fee of $25,000 per Fund plus .0025 of 1% of average net
assets over $50 million. During the fiscal year ended September
30, 1995, the Adviser received aggregate fees of $162,677 from
the Trust for services performed under this Agreement.
DISTRIBUTOR
Shares of the Fund are distributed by Liberty Securities
Corporation ("LSC") under a Distribution Agreement as described
under Management of the Fund in the Prospectus, which is
incorporated herein by reference. The Distribution Agreement
continues in effect from year to year, provided such continuance
is approved annually (i) by a majority of the trustees or by a
majority of the outstanding voting securities of the Trust, and
(ii) by a majority of the trustees who are not parties to the
Agreement or interested persons of any such party. The Trust has
agreed to pay all expenses in connection with registration of its
shares with the Securities and Exchange Commission and auditing
and filing fees in connection with registration of its shares
under the various state blue sky laws and assumes the cost of
preparation of prospectuses and other expenses. The Adviser
bears all sales and promotional expenses, including payments to
LSC for the sales of Fund shares. The Adviser also makes
payments to other broker-dealers, banks, and other institutions
for the sales of Fund shares of 0.20% of the annual average value
of accounts of such shares.
As agent, LSC offers shares of the Fund to investors in
states where the shares are qualified for sale, at net asset
value, without sales commissions or other sales load to the
investor. In addition, no sales commission or "12b-1" payment is
paid by the Fund. LSC offers the Fund's shares only on a best-
efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for the Trust,
as described under Management of the Fund in the Prospectus. For
performing these services, SSI receives from the Fund a fee based
on an annual rate of .22 of 1% of average net assets. Prior to
May 1, 1995, SSI received the following payments from the Fund:
(1) a fee of $4.00 for each new account opened; (2) monthly
payments of $1.063 per open shareholder account; (3) payments of
$0.367 per closed shareholder account for each month through June
of the calendar year following the year in which the account is
closed; (4) $0.3025 per shareholder account for each dividend
paid; and (5) $1.415 for each shareholder-initiated transaction.
The Trust believes the charges by SSI to the Fund are comparable
to those of other companies performing similar services. (See
Investment Advisory Services.)
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian
for the Trust. It is responsible for holding all securities and
cash of the Fund, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering
expenses of the Fund, and performing other administrative duties,
all as directed by authorized persons. The custodian does not
exercise any supervisory function in such matters as purchase and
sale of portfolio securities, payment of dividends, or payment of
expenses of the Fund.
Portfolio securities purchased in the U.S. are maintained in
the custody of the Bank or of other domestic banks or
depositories. Portfolio securities purchased outside of the U.S.
are maintained in the custody of foreign banks and trust
companies that are members of the Bank's Global Custody Network
and foreign depositories ("foreign sub-custodians"). Each of the
domestic and foreign custodial institutions holding portfolio
securities has been approved by the Board of Trustees in
accordance with regulations under the Investment Company Act of
1940.
The Board of Trustees reviews, at least annually, whether it
is in the best interest of the Fund and its shareholders to
maintain Fund assets in each of the countries in which the Fund
invests with particular foreign sub-custodians in such countries,
pursuant to contracts between such respective foreign sub-
custodians and the Bank. The review includes an assessment of
the risks of holding Fund assets in any such country (including
risks of expropriation or imposition of exchange controls), the
operational capability and reliability of each such foreign sub-
custodian, and the impact of local laws on each such custody
arrangement. The Board of Trustees is aided in its review by the
Bank, which has assembled the network of foreign sub-custodians
utilized by the Fund, as well as by the Adviser and counsel.
However, with respect to foreign sub-custodians, there can be no
assurance that the Fund, and the value of its shares, will not be
adversely affected by acts of foreign governments, financial or
operational difficulties of the foreign sub-custodians,
difficulties and costs of obtaining jurisdiction over, or
enforcing judgments against, the foreign sub-custodians, or
application of foreign law to the Fund's foreign sub-custodial
arrangements. Accordingly, an investor should recognize that the
non-investment risks involved in holding assets abroad are
greater than those associated with investing in the United
States.
The Fund may invest in obligations of the custodian and may
purchase or sell securities from or to the custodian.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Trust are Arthur
Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603.
The accountants audit and report on the Fund's annual financial
statements, review certain regulatory reports and the Fund's
federal income tax returns, and perform other professional
accounting, auditing, tax and advisory services when engaged to
do so by the Trust.
PORTFOLIO TRANSACTIONS
The Adviser places the orders for the purchase and sale of
the Fund's portfolio securities and options and futures
contracts. The Adviser's overriding objective in effecting
portfolio transactions is to seek to obtain the best combination
of price and execution. The best net price, giving effect to
brokerage commissions, if any, and other transaction costs,
normally is an important factor in this decision, but a number of
other judgmental factors may also enter into the decision. These
include: the Adviser's knowledge of negotiated commission rates
currently available and other current transaction costs; the
nature of the security being traded; the size of the transaction;
the desired timing of the trade; the activity existing and
expected in the market for the particular security;
confidentiality; the execution, clearance and settlement
capabilities of the broker or dealer selected and others which
are considered; the Adviser's knowledge of the financial
stability of the broker or dealer selected and such other brokers
or dealers; and the Adviser's knowledge of actual or apparent
operational problems of any broker or dealer. Recognizing the
value of these factors, the Fund may pay a brokerage commission
in excess of that which another broker or dealer may have charged
for effecting the same transaction. Evaluations of the
reasonableness of brokerage commissions, based on the foregoing
factors, are made on an ongoing basis by the Adviser's staff
while effecting portfolio transactions. The general level of
brokerage commissions paid is reviewed by the Adviser, and
reports are made annually to the Board of Trustees.
With respect to issues of securities involving brokerage
commissions, when more than one broker or dealer is believed to
be capable of providing the best combination of price and
execution with respect to a particular portfolio transaction for
the Fund, the Adviser often selects a broker or dealer that has
furnished it with research products or services such as research
reports, subscriptions to financial publications and research
compilations, compilations of securities prices, earnings,
dividends, and similar data, and computer data bases, quotation
equipment and services, research-oriented computer software and
services, and services of economic and other consultants.
Selection of brokers or dealers is not made pursuant to an
agreement or understanding with any of the brokers or dealers;
however, the Adviser uses an internal allocation procedure to
identify those brokers or dealers who provide it with research
products or services and the amount of research products or
services they provide, and endeavors to direct sufficient
commissions generated by its clients' accounts in the aggregate,
including the Fund, to such brokers or dealers to ensure the
continued receipt of research products or services the Adviser
feels are useful. In certain instances, the Adviser may receive
from brokers and dealers products or services that are used both
as investment research and for administrative, marketing, or
other non-research purposes. In such instances, the Adviser will
make a good faith effort to determine the relative proportions of
such products or services which may be considered as investment
research. The portion of the costs of such products or services
attributable to research usage may be defrayed by the Adviser
(without prior agreement or understanding, as noted above)
through brokerage commissions generated by transactions by
clients (including the Fund), while the portions of the costs
attributable to non-research usage of such products or services
is paid by the Adviser in cash. No person acting on behalf of
the Fund is authorized, in recognition of the value of research
products or services, to pay a commission in excess of that which
another broker or dealer might have charged for effecting the
same transaction. Research products or services furnished by
brokers and dealers may be used in servicing any or all of the
clients of the Adviser and not all such research products or
services are used in connection with the management of the Fund.
With respect to the Fund's purchases and sales of portfolio
securities transacted with a broker or dealer on a net basis, the
Adviser may also consider the part, if any, played by the broker
or dealer in bringing the security involved to the Adviser's
attention, including investment research related to the security
and provided to the Fund.
The table below shows information on brokerage commissions
paid by the Fund:
Total amount of brokerage commissions paid
during fiscal year ended 9/30/95 $280,432
Amount of commissions paid to brokers or dealers
who supplied research services to the Adviser 225,164
Total dollar amount involved in such transactions 62,481,766
Amount of commissions paid to brokers or dealers
that were allocated to such brokers or dealers by
the Fund's portfolio manager because of research
services provided to the Fund N/A
Total dollar amount involved in such transactions N/A
Total amount of brokerage commissions paid during
period ended 9/30/94 $ 145,832
The Trust has arranged for its custodian to act as a
soliciting dealer to accept any fees available to the custodian
as a soliciting dealer in connection with any tender offer for
Fund portfolio securities. The custodian will credit any such
fees received against its custodial fees. In addition, the Board
of Trustees has reviewed the legal developments pertaining to and
the practicability of attempting to recapture underwriting
discounts or selling concessions when portfolio securities are
purchased in underwritten offerings. The Board of Trustees has
been advised by counsel that recapture in foreign securities
underwritings is permitted and has directed the Adviser to
attempt to recapture to the extent consistent with best price and
execution.
ADDITIONAL INCOME TAX CONSIDERATIONS
The Fund intends to comply with the special provisions of
the Internal Revenue Code that relieve it of federal income tax
to the extent of its net investment income and capital gains
currently distributed to shareholders.
Because dividend and capital gain distributions reduce net
asset value, a shareholder who purchases shares shortly before a
record date will, in effect, receive a return of a portion of his
investment in such distribution. The distribution would
nonetheless be taxable to him, even if the net asset value of
shares were reduced below his cost. However, for federal income
tax purposes the shareholder's original cost would continue as
his tax basis.
The Fund expects that less than 100% of its dividends will
qualify for the deduction for dividends received by corporate
shareholders.
To the extent the Fund invests in foreign securities, it may
be subject to withholding and other taxes imposed by foreign
countries. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Investors may be
entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in
the Code. Specifically, if more than 50% of the Fund's total
assets at the close of any fiscal year consist of stock or
securities of foreign corporations, the Fund may file an
election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to (i) include in
ordinary gross income (in addition to taxable dividends actually
received) their pro rata shares of foreign income taxes paid
by the Fund even though not actually received, (ii) treat such
respective pro rata shares as foreign income taxes paid by them,
and (iii) deduct such pro rata shares in computing their taxable
incomes, or, alternatively, use them as foreign tax credits,
subject to applicable limitations, against their United States
income taxes. Shareholders who do not itemize deductions for
federal income tax purposes will not, however, be able to deduct
their pro rata portion of foreign taxes paid by the Fund,
although such shareholders will be required to include their
share of such taxes in gross income. Shareholders who claim
a foreign tax credit may be required to treat a portion of
dividends received from the Fund as separate category income
for purposes of computing the limitations on the foreign tax
credit available to such shareholders. Tax-exempt shareholders
will not ordinarily benefit from this election relating to
foreign taxes. Each year, the Fund will notify shareholders
of the amount of (i) each shareholder's pro rata share of foreign
income taxes paid by the Fund and (ii) the portion of Fund
dividends which represents income from each foreign country,
if the Fund qualifies to pass along such credit.
PASSIVE FOREIGN INVESTMENT COMPANIES. The Fund may purchase
the securities of certain foreign investment funds or trusts
called passive foreign investment companies ("PFICs"). In
addition to bearing their proportionate share of the Fund's
expenses (management fees and operating expenses), shareholders
will also indirectly bear similar expenses of PFICs. Capital
gains on the sale of PFIC holdings will be deemed to be ordinary
income regardless of how long the Fund holds its investment. In
addition, the Fund may be subject to corporate income tax and an
interest charge on certain dividends and capital gains earned
from PFICs, regardless of whether such income and gains are
distributed to shareholders.
In accordance with tax regulations, the Fund intends to
treat PFICs as sold on the last day of the Fund's fiscal year and
recognize any gains for tax purposes at that time; losses will
not be recognized. Such gains will be considered ordinary income
which the Fund will be required to distribute even though it has
not sold the security and received cash to pay such
distributions.
INVESTMENT PERFORMANCE
The Fund may quote certain total return figures from time to
time. A "Total Return" on a per share basis is the amount of
dividends distributed per share plus or minus the change in the
net asset value per share for a period. A "Total Return
Percentage" may be calculated by dividing the value of a share at
the end of a period by the value of the share at the beginning of
the period and subtracting one. For a given period, an "Average
Annual Total Return" may be computed by finding the average
annual compounded rate that would equate a hypothetical initial
amount invested of $1,000 to the ending redeemable value.
Average Annual Total Return is computed as follows:
n
ERV = P(1+T)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the end
of the period (or fractional portion thereof).
For example, for a $1,000 investment in the Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at September 30, 1995 were:
TOTAL TOTAL RETURN AVERAGE ANNUAL
RETURN RETURN PERCENTAGE TOTAL RETURN
------- ----------------- -------------
1 year $ 987 (1.28%) (1.28%)
*Life of Fund 1,048 4.75 2.98
________________________
*Life of Fund is from its date of public offering,
3/1/94.
Investment performance figures assume reinvestment of all
dividends and distributions and do not take into account any
federal, state, or local income taxes which shareholders must pay
on a current basis. They are not necessarily indicative of
future results. The performance of the Fund is a result of
conditions in the securities markets, portfolio management, and
operating expenses. Although investment performance information
is useful in reviewing the Fund's performance and in providing
some basis for comparison with other investment alternatives, it
should not be used for comparison with other investments using
different reinvestment assumptions or time periods.
In advertising and sales literature, the Fund may compare
its performance with that of other mutual funds, indexes or
averages of other mutual funds, indexes of related financial
assets or data, and other competing investment and deposit
products available from or through other financial institutions.
The composition of these indexes or averages differs from that of
the Fund. Comparison of the Fund to an alternative investment
should be made with consideration of differences in features and
expected performance.
All of the indexes and averages noted below will be obtained
from the indicated sources or reporting services, which the Fund
believes to be generally accurate. The Fund may also note its
mention or recognition in newspapers, magazines, or other media
from time to time. However, the Fund assumes no responsibility
for the accuracy of such data. Newspapers and magazines which
might mention the Fund include, but are not limited to, the
following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Barron's
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
Crain's Chicago Business
Consumer Reports
Consumer Digest
Financial World
Forbes
Fortune
Fund Action
Gourmet
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Los Angeles Times
Money
Mutual Fund Letter
Mutual Fund News Service
Mutual Fund Values (Morningstar)
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
The San Francisco Chronicle
Smart Money
Smithsonian
Stanger's Investment Adviser
Time
Travel & Leisure
United Mutual Fund Selector
USA Today
U.S. News and World Report
The Wall Street Journal
Working Women
Worth
Your Money
The Fund may compare its performance to the Consumer Price
Index (All Urban), a widely recognized measure of inflation.
The Fund's performance may be compared to the following
indexes or averages:
Dow-Jones Industrial Average New York Stock Exchange Composite
Index
Standard & Poor's 500 Stock Index American Stock Exchange Composite
Index
Standard & Poor's 400 Industrials NASDAQ Composite
Wilshire 5000 NASDAQ Industrials
(These indexes are widely (These indexes generally reflect the
recognized indicators of general performance of stocks traded in the
U.S. stock market results.) indicated markets.)
EAFE Index
Financial Times Actuaries World Index (Ex-U.S.)
Morgan Stanley Capital International World Index
(These indexes are widely recognized indicators of the
international markets)
In addition, the Fund may compare performance to the indices
indicated below:
Lipper International & Global Funds Average
Lipper General Equity Funds Average
Lipper Equity Funds Average
Lipper International Fund Index
(The Lipper averages are unweighted averages of total return
performance as classified, calculated, and published by
Lipper.)
ICD International Equity Funds Average
ICD All Equity Funds Average
ICD General Equity Average*
ICD Global Equity Funds Average
ICD International Equity and Global Equity Funds Average
ICD Foreign Securities Index
Morningstar International Stock Average
Morningstar U.S. Diversified Average
Morningstar Equity Fund Average
Morningstar Hybrid Fund Average
Morningstar All Equity Funds Average
Morningstar General Equity Average**
*Includes ICD Aggressive Growth, Growth & Income, Long-Term
Growth, and Total Return Averages.
**Includes Morningstar Aggressive Growth, Growth, Balanced,
Equity Income, and Growth & Income Averages.
The ICD Indexes reflect the unweighted average total return
of the largest twenty funds within their respective category as
calculated and published by ICD.
The Lipper International Fund index reflects the net asset
value weighted return of the ten largest international funds.
The Lipper, ICD, and Morningstar averages are unweighted
averages of total return performance of mutual funds as
classified, calculated, and published by these independent
services that monitor the performance of mutual funds. The Fund
may also use comparative performance as computed in a ranking by
Lipper or category averages and rankings provided by another
independent service. Should Lipper or another service reclassify
the Fund to a different category or develop (and place the Fund
into) a new category, the Fund may compare its performance or
ranking with those of other funds in the newly assigned category,
as published by the service.
The Fund may also cite its rating, recognition, or other
mention by Morningstar or any other entity. Morningstar's rating
system is based on risk-adjusted total return performance and is
expressed in a star-rating format. The risk-adjusted number is
computed by subtracting the Fund's risk score (which is a
function of the Fund's monthly returns less the 3-month T-bill
return) from the Fund's load-adjusted total return score. This
numerical score is then translated into rating categories, with
the top 10% labeled five star, the next 22.5% labeled four star,
the next 35% labeled three star, the next 22.5% labeled two star,
and the bottom 10% one star. A high rating reflects either
above-average returns or below-average risk, or both.
Of course, past performance is not indicative of future
results.
________________
To illustrate the historical returns on various types of
financial assets, the Fund may use historical data provided by
Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based
investment firm. Ibbotson constructs (or obtains) very long-term
(since 1926) total return data (including, for example, total
return indexes, total return percentages, average annual total
returns and standard deviations of such returns) for the
following asset types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
The Fund may also use hypothetical returns to be used as an
example in a mix of asset allocation strategies. One such
example is reflected in the chart below, which shows the effect
of tax deferral on a hypothetical investment. This chart assumes
that an investor invested $2,000 a year on January 1, for any
specified period, in both a Tax-Deferred Investment and a Taxable
Investment, that both investments earn either 6%, 8% or 10%
compounded annually, and that the investor withdrew the entire
amount at the end of the period. (A tax rate of 39.6% is applied
annually to the Taxable Investment and on the withdrawal of
earnings on the Tax-Deferred Investment.)
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
INTEREST RATE 6% 8% 10% 6% 8% 10%
Compounding
Years Tax-Deferred Investment Taxable Investment
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 150,484 82,067 97,780 117,014
20 62,943 75,543 91,947 59,362 68,109 78,351
15 41,684 47,304 54,099 40,358 44,675 49,514
10 24,797 26,820 29,098 24,453 26,165 28,006
5 11,178 11,613 12,072 11,141 11,546 11,965
1 2,072 2,096 2,121 2,072 2,096 2,121
Dollar Cost Averaging. Dollar cost averaging is an
investment strategy that requires investing a fixed amount of
money in Fund shares at set intervals. This allows you to
purchase more shares when prices are low and fewer shares when
prices are high. Over time, this tends to lower your average
cost per share.
Like any investment strategy, dollar cost averaging can't
guarantee a profit or protect against losses in a steadily
declining market. Dollar cost averaging involves uninterrupted
investing regardless of share price and therefore may not be
appropriate for every investor.
From time to time, the Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe Counselor
[SERVICE MARK] and the Stein Roe Counselor Preferred [SERVICE
MARK] programs and asset allocation and other investment
strategies.
APPENDIX--RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's
opinion as to the credit quality of the security being rated.
However, the ratings are general and are not absolute standards
of quality or guarantees as to the creditworthiness of an issuer.
Consequently, the Adviser believes that the quality of debt
securities in which the Fund invests should be continuously
reviewed and that individual analysts give different weightings
to the various factors involved in credit analysis. A rating is
not a recommendation to purchase, sell or hold a security because
it does not take into account market value or suitability for a
particular investor. When a security has received a rating from
more than one service, each rating should be evaluated
independently. Ratings are based on current information
furnished by the issuer or obtained by the rating services from
other sources which they consider reliable. Ratings may be
changed, suspended or withdrawn as a result of changes in or
unavailability of such information, or for other reasons.
The following is a description of the characteristics of
ratings of corporate debt securities used by Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").
RATINGS BY MOODY'S
AAA. Bonds rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or an exceptionally stable margin and
principal is secure. Although the various protective elements
are likely to change, such changes as can be visualized are more
unlikely to impair the fundamentally strong position of such
bonds.
AA. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa
bonds.
A. Bonds rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA. Bonds rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
BA. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics
of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
CAA. Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
CA. Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in
each generic rating classification from Aa through B in its
corporate bond rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
RATINGS BY S&P
AAA. Debt rated AAA has the highest rating. Capacity to
pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from the highest rated
issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than for debt in higher rated
categories.
BB, B, CCC, CC, AND C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance
with the terms of the obligation. BB indicates the lowest
degree of speculation and C the highest degree of speculation.
While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no
interest is being paid.
D. Debt rated D is in default, and payment of interest
and/or repayment of principal is in arrears. The D rating is
also used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
NOTES:
The ratings from AA to CCC may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the
major rating categories. Foreign debt is rated on the same basis
as domestic debt measuring the creditworthiness of the issuer;
ratings of foreign debt do not take into account currency
exchange and related uncertainties.
The "r" is attached to highlight derivative, hybrid, and certain
other obligations that S&P believes may experience high
volatility or high variability in expected returns due to non-
credit risks. Examples of such obligations are: securities whose
principal or interest return is indexed to equities, commodities,
or currencies; certain swaps and options; and interest only and
principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will
exhibit no volatility or variability in total return.
_________________
<PAGE> 1
Statement of Additional Information Dated February 1, 1996
STEIN ROE INVESTMENT TRUST
P.O. Box 804058, Chicago, Illinois 60680
800-338-2550
STEIN ROE YOUNG INVESTOR FUND
Stein Roe Young Investor Fund is a series of the Stein Roe
Investment Trust (the "Trust"). Each series of the Trust
represents shares of beneficial interest in a separate portfolio
of securities and other assets, with its own objectives and
policies. This Statement of Additional Information is not a
prospectus, but provides additional information that should be
read in conjunction with the Fund's prospectus dated February 1,
1996, and any supplements thereto ("Prospectus"). The Prospectus
may be obtained at no charge by telephoning 800-403-KIDS (800-
403-5437).
TABLE OF CONTENTS
Page
General Information and History.................2
Investment Policies.............................3
Portfolio Investments and Strategies............3
Investment Restrictions........................17
Additional Investment Considerations...........20
Purchases and Redemptions......................21
Management.....................................22
Financial Statements...........................25
Principal Shareholders.........................25
Investment Advisory Services...................26
Distributor....................................28
Transfer Agent.................................29
Custodian......................................29
Independent Public Accountants.................30
Portfolio Transactions.........................30
Additional Income Tax Considerations...........32
Investment Performance.........................33
Appendix--Ratings..............................37
GENERAL INFORMATION AND HISTORY
As used herein, the "Fund" refers to the series of the Stein
Roe Investment Trust (the "Trust") designated Stein Roe Young
Investor Fund. On February 1, 1996, the name of the Trust was
changed from SteinRoe Investment Trust to Stein Roe Investment
Trust and the name of the Fund was changed from SteinRoe Young
Investor Fund to Stein Roe Young Investor Fund.
Stein Roe & Farnham Incorporated ("Stein Roe") is investment
adviser and provides administrative services to the Fund.
Currently, eight series of the Trust are authorized and
outstanding. Each share of a series is entitled to participate
pro rata in any dividends and other distributions declared by the
Board on shares of that series, and all shares of a series have
equal rights in the event of liquidation of that series.
Each whole share (or fractional share) outstanding on the
record date established in accordance with the By-Laws shall be
entitled to a number of votes on any matter on which it is
entitled to vote equal to the net asset value of the share (or
fractional share) in United States dollars determined at the
close of business on the record date (for example, a share having
a net asset value of $10.50 would be entitled to 10.5 votes). As
a business trust, the Trust is not required to hold annual
shareholder meetings. However, special meetings may be called
for purposes such as electing or removing trustees, changing
fundamental policies, or approving an investment advisory
contract. If requested to do so by the holders of at least 10%
of the Trust's outstanding shares, the Trust will call a special
meeting for the purpose of voting upon the question of removal of
a trustee or trustees and will assist in the communications with
other shareholders as if the Trust were subject to Section 16(c)
of the Investment Company Act of 1940. All shares of all series
of the Trust are voted together in the election of trustees. On
any other matter submitted to a vote of shareholders, shares are
voted in the aggregate and not by individual series, except that
shares are voted by individual series when required by the
Investment Company Act of 1940 or other applicable law, or when
the Board of Trustees determines that the matter affects only the
interests of one or more series, in which case shareholders of
the unaffected series are not entitled to vote on such matters.
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND
STRUCTURE
The Fund may in the future seek to achieve its objective by
pooling its assets with assets of other mutual funds managed by
Stein Roe for investment in another mutual fund having the same
investment objective and substantially the same investment
policies and restrictions as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. Stein Roe is expected to manage any such mutual
fund in which the Fund would invest. Such investment would be
subject to determination by the Trustees that it was in the best
interests of the Fund and its shareholders, and shareholders
would receive advance notice of any such change.
INVESTMENT POLICIES
In pursuing its objective, the Fund will invest as described
below and may employ the investment techniques described in the
Prospectus and under Portfolio Investments and Strategies in this
Statement of Additional Information. The Fund's investment
objective is a non-fundamental policy and may be changed by the
Board of Trustees without the approval of a "majority of the
outstanding voting securities" /1/ of the Fund.
- -----------------
/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.
- -----------------
The Fund's investment objective is long-term capital
appreciation. It seeks to achieve its objective by investing
primarily in common stocks and other equity-type securities that,
in the opinion of Stein Roe, have long-term appreciation
potential.
Under normal circumstances, at least 65% of the Fund's total
assets will be invested in securities of companies that, in the
opinion of Stein Roe, directly or through one or more
subsidiaries, affect the lives of children or teenagers. Such
companies may include companies that produce products or services
that children or teenagers use, are aware of, or could
potentially have an interest in.
Although the Fund invests primarily in common stocks and
other equity-type securities (such as preferred stocks,
securities convertible into or exchangeable for common stocks,
and warrants or rights to purchase common stocks), it may invest
up to 35% of its total assets in debt securities. The Fund may
also employ investment techniques described elsewhere in this
Statement of Additional Information. (See Portfolio Investments
and Strategies.)
In addition to the Fund's investment objective and policies,
the Fund also has an educational objective. The Fund will seek
to educate its shareholders by providing educational materials
regarding investing as well as materials on the Fund and its
portfolio holdings.
PORTFOLIO INVESTMENTS AND STRATEGIES
DEFENSIVE INVESTMENTS
When Stein Roe considers a temporary defensive position
advisable, the Fund may invest, without limitation, in high-
quality fixed income securities or hold assets in cash or cash
equivalents.
DERIVATIVES
Consistent with its objective, the Fund may invest in a
broad array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized by
underlying pools of mortgages or other receivables, floating rate
instruments, and other instruments that securitize assets of
various types ("Derivatives"). In each case, the value of the
instrument or security is "derived" from the performance of an
underlying asset or a "benchmark" such as a security index, an
interest rate, or a currency.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because it is more
efficient or less costly than direct investment that cannot be
readily established directly due to portfolio size, cash
availability, or other factors. They also may be used in an
effort to enhance portfolio returns.
The successful use of Derivatives depends on Stein Roe's
ability to correctly predict changes in the levels and directions
of movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be
well established. Finally, privately negotiated and over-the-
counter Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives.
The Fund currently does not intend to invest, nor has it
during its past fiscal year invested, more than 5% of its net
assets in any type of Derivative, except for options, futures
contracts, and futures options. (See Options and Futures in this
Statement of Additional Information.)
Some mortgage-backed debt securities are of the "modified
pass-through type," which means the interest and principal
payments on mortgages in the pool are "passed through" to
investors. During periods of declining interest rates, there is
increased likelihood that mortgages will be prepaid, with a
resulting loss of the full-term benefit of any premium paid by
the Fund on purchase of such securities; in addition, the
proceeds of prepayment would likely be invested at lower interest
rates.
Mortgage-backed securities provide either a pro rata
interest in underlying mortgages or an interest in collateralized
mortgage obligations ("CMOs") that represent a right to interest
and/or principal payments from an underlying mortgage pool. CMOs
are not guaranteed by either the U.S. Government or by its
agencies or instrumentalities, and are usually issued in multiple
classes each of which has different payment rights, prepayment
risks, and yield characteristics. Mortgage-backed securities
involve the risk of prepayment on the underlying mortgages at a
faster or slower rate than the established schedule. Prepayments
generally increase with falling interest rates and decrease with
rising rates but they also are influenced by economic, social,
and market factors. If mortgages are pre-paid during periods of
declining interest rates, there would be a resulting loss of the
full-term benefit of any premium paid by the Fund on purchase of the
CMO, and the proceeds of prepayment would likely be invested at
lower interest rates.
Non-mortgage asset-backed securities usually have less
prepayment risk than mortgage-backed securities, but have the
risk that the collateral will not be available to support
payments on the underlying loans that finance payments on the
securities themselves.
Floating rate instruments provide for periodic adjustments
in coupon interest rates that are automatically reset based on
changes in amount and direction of specified market interest
rates. In addition, the adjusted duration of some of these
instruments may be materially shorter than their stated
maturities. To the extent such instruments are subject to
lifetime or periodic interest rate caps or floors, such
instruments may experience greater price volatility than debt
instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and
refers to the approximate percentage change in price for a 100
basis point change in yield. For example, if interest rates
decrease by 100 basis points, a market price of a security with
an adjusted duration of 2 would increase by approximately 2%.
FOREIGN SECURITIES
The Fund may invest up to 25% of its total assets in foreign
securities, which may entail a greater degree of risk (including
risks relating to exchange rate fluctuations, tax provisions, or
expropriation of assets) than does investment in securities of
domestic issuers. For this purpose, foreign securities do not
include American Depositary Receipts (ADRs) or securities
guaranteed by a United States person. ADRs are receipts
typically issued by an American bank or trust company evidencing
ownership of the underlying securities. The Fund may invest in
sponsored or unsponsored ADRs. In the case of an unsponsored
ADR, the Fund is likely to bear its proportionate share of the
expenses of the depository and it may have greater difficulty in
receiving shareholder communications than it would have with a
sponsored ADR. As of September 30, 1995, the Fund held 1.75% of
its net assets in foreign companies (none in foreign securities
and 1.75% in ADRs).
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, the Fund's
investment performance is affected by the strength or weakness of
the U.S. dollar against these currencies. For example, if the
dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise
even though the price of the stock remains unchanged.
Conversely, if the dollar rises in value relative to the yen, the
dollar value of the yen-denominated stock will fall. (See
discussion of transaction hedging and portfolio hedging under
Currency Exchange Transactions.)
Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities,
positions in which are generally denominated in foreign
currencies, and utilization of forward foreign currency exchange
contracts involve certain considerations comprising both risks
and opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that
would prevent cash from being brought back to the United States;
less public information with respect to issuers of securities;
less governmental supervision of stock exchanges, securities
brokers, and issuers of securities; lack of uniform accounting,
auditing, and financial reporting standards; lack of uniform
settlement periods and trading practices; less liquidity and
frequently greater price volatility in foreign markets than
in the United States; possible imposition of foreign taxes;
possible investment in securities of companies in developing
as well as developed countries; and sometimes less advantageous
legal, operational, and financial protections applicable to
foreign sub-custodial arrangements.
Although the Fund will try to invest in companies and
governments of countries having stable political environments,
there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of
foreign government restrictions, or other adverse political,
social or diplomatic developments that could affect investment in
these nations.
Currency Exchange Transactions. Currency exchange
transactions may be conducted either on a spot (i.e., cash) basis
at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market or through forward currency exchange
contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency
at a specified future date (or within a specified time period)
and price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not
exchange traded, and are usually for less than one year, but may
be renewed.
Forward currency transactions may involve currencies of the
different countries in which the Fund may invest, and serve as
hedges against possible variations in the exchange rate between
these currencies. Currency transactions are limited to
transaction hedging. Transaction hedging is the purchase or sale
of forward contracts with respect to specific receivables or
payables of the Fund accruing in connection with the purchase and
sale of its portfolio securities. The Fund may not engage in
portfolio hedging with respect to the currency of a particular
country to an extent greater than the aggregate market value (at
the time of making such sale) of the securities held in its
portfolio denominated or quoted in that particular currency,
except that the Fund may hedge all or part of its foreign
currency exposure through the use of a basket of currencies or a
proxy currency where such currencies or currency act as an
effective proxy for other currencies. In such a case, the Fund
may enter into a forward contract where the amount of the foreign
currency to be sold exceeds the value of the securities
denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into
separate forward contracts for each currency held in the Fund.
The Fund may not engage in "speculative" currency exchange
transactions.
At the maturity of a forward contract to deliver a
particular currency, the Fund may either sell the portfolio
security related to such contract and make delivery of the
currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual
obligation to deliver the currency by purchasing an offsetting
contract with the same currency trader obligating it to purchase
on the same maturity date the same amount of the currency.
It is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of a
forward contract. Accordingly, it may be necessary for the Fund
to purchase additional currency on the spot market (and bear the
expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver
and if a decision is made to sell the security and make delivery
of the currency. Conversely, it may be necessary to sell on the
spot market some of the currency received upon the sale of the
portfolio security if its market value exceeds the amount of
currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to
the extent that there has been movement in forward contract
prices. If the Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period
between the Fund's entering into a forward contract for the sale
of a currency and the date it enters into an offsetting contract
for the purchase of the currency, the Fund will realize a gain to
the extent the price of the currency it has agreed to sell
exceeds the price of the currency it has agreed to purchase.
Should forward prices increase, the Fund will suffer a loss to
the extent the price of the currency it has agreed to purchase
exceeds the price of the currency it has agreed to sell. A
default on the contract would deprive the Fund of unrealized
profits or force the Fund to cover its commitments for purchase
or sale of currency, if any, at the current market price.
Hedging against a decline in the value of a currency does
not eliminate fluctuations in the prices of portfolio securities
or prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it
anticipates. The cost to the Fund of engaging in currency
exchange transactions varies with such factors as the currency
involved, the length of the contract period, and prevailing
market conditions. Since currency exchange transactions are
usually conducted on a principal basis, no fees or commissions
are involved.
LENDING OF FUND SECURITIES
Subject to restriction (5) under Investment Restrictions in
this Statement of Additional Information, the Fund may lend its
portfolio securities to broker-dealers and banks. Any such loan
must be continuously secured by collateral in cash or cash
equivalents maintained on a current basis in an amount at least
equal to the market value of the securities loaned by the Fund.
Cash collateral for securities loaned will be invested in liquid
high-grade debt securities. The Fund would continue to receive the
equivalent of the interest or dividends paid by the issuer on the
securities loaned, and would also receive an additional return that
may be in the form of a fixed fee or a percentage of the collateral.
The Fund would have the right to call the loan and obtain the
securities loaned at any time on notice of not more than five
business days. The Fund would not have the right to vote the
securities during the existence of the loan but would call the
loan to permit voting of the securities if, in Stein Roe's judgment,
a material event requiring a shareholder vote would otherwise
occur before the loan was repaid. In the event of bankruptcy
or other default of the borrower, the Fund could experience
both delays in liquidating the loan collateral or recovering
the loaned securities and losses, including (a) possible decline
in the value of the collateral or in the value of the securities
loaned during the period while the Fund seeks to enforce its
rights thereto, (b) possible subnormal levels of income and
lack of access to income during this period, and (c) expenses
of enforcing its rights. The Fund did not lend any of its
securities during the fiscal year ended September 30, 1995.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE
AGREEMENTS
The Fund may purchase securities on a when-issued or
delayed-delivery basis. Although the payment and interest terms
of these securities are established at the time the Fund enters
into the commitment, the securities may be delivered and paid for
a month or more after the date of purchase, when their value may
have changed. The Fund makes such commitments only with the
intention of actually acquiring the securities, but may sell the
securities before settlement date if Stein Roe deems it advisable
for investment reasons. During the fiscal year ended September
30, 1995, the Fund did not make any commitments to purchase when-
issued securities in excess of 5% of its assets.
The Fund may enter into reverse repurchase agreements with
banks and securities dealers. A reverse repurchase agreement is
a repurchase agreement in which the Fund is the seller of, rather
than the investor in, securities and agrees to repurchase them at
an agreed-upon time and price. Use of a reverse repurchase
agreement may be preferable to a regular sale and later
repurchase of securities because it avoids certain market risks
and transaction costs. The Fund did not enter into any reverse
repurchase agreements during the fiscal year ended September 30,
1995.
At the time the Fund enters into a binding obligation to
purchase securities on a when-issued basis or enters into a
reverse repurchase agreement, liquid assets (cash, U.S.
Government securities or other "high-grade" debt obligations) of
the Fund having a value at least as great as the purchase price
of the securities to be purchased will be segregated on the books
of the Fund and held by the custodian throughout the period of
the obligation. The use of these investment strategies, as well
as borrowing under a line of credit as described below, may
increase net asset value fluctuation.
SHORT SALES
The Fund may make short sales "against the box." In a short
sale, the Fund sells a borrowed security and is required to
return the identical security to the lender. A short sale
"against the box" involves the sale of a security with respect to
which the Fund already owns an equivalent security in kind and
amount. A short sale "against the box" enables the Fund to
obtain the current market price of a security which it desires to
sell but is unavailable for settlement.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately
placed but that are eligible for purchase and sale under Rule
144A under the 1933 Act. That Rule permits certain qualified
institutional buyers, such as the Fund, to trade in privately
placed securities that have not been registered for sale under
the 1933 Act. Stein Roe, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the Fund's restriction of
investing no more than 15% of its net assets in illiquid
securities. A determination of whether a Rule 144A security is
liquid or not is a question of fact. In making this
determination, Stein Roe will consider the trading markets for
the specific security, taking into account the unregistered
nature of a Rule 144A security. In addition, Stein Roe could
consider the (1) frequency of trades and quotes, (2) number of
dealers and potential purchasers, (3) dealer undertakings to make
a market, and (4) nature of the security and of marketplace
trades (e.g., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer). The
liquidity of Rule 144A securities would be monitored and, if as a
result of changed conditions, it is determined that a Rule 144A
security is no longer liquid, the Fund's holdings of illiquid
securities would be reviewed to determine what, if any, steps are
required to assure that the Fund does not invest more than 5% of
its assets in illiquid securities. Investing in Rule 144A
securities could have the effect of increasing the amount of the
Fund's assets invested in illiquid securities if qualified
institutional buyers are unwilling to purchase such securities.
The Fund does not expect to invest as much as 5% of its total
assets in Rule 144A securities that have not been deemed liquid
by Stein Roe. (See restriction (m) under Investment
Restrictions.)
LINE OF CREDIT
Subject to restriction (6) under Investment Restrictions in
this Statement of Additional Information, the Fund may establish
and maintain a line of credit with a major bank in order to
permit borrowing on a temporary basis to meet share redemption
requests in circumstances in which temporary borrowing may be
preferable to liquidation of portfolio securities.
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.
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.
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.
- ---------------
/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.
- --------------
The Fund may purchase and write call and put futures
options. Futures options possess many of the same
characteristics as options on securities, indexes and foreign
currencies (discussed above). A futures option gives the holder
the right, in return for the premium paid, to assume a long
position (call) or short position (put) in a futures contract at
a specified exercise price at any time during the period of the
option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned
the opposite short position. In the case of a put option, the
opposite is true. The Fund might, for example, use futures
contracts to hedge against or gain exposure to fluctuations in
the general level of stock prices, anticipated changes in
interest rates or currency fluctuations that might adversely
affect either the value of the Fund's securities or the price of
the securities that the Fund intends to purchase. Although other
techniques could be used to reduce or increase the Fund's
exposure to stock price, interest rate, and currency
fluctuations, the Fund may be able to achieve its exposure more
effectively and perhaps at a lower cost by using futures
contracts and futures options.
The Fund will only enter into futures contracts and futures
options that are standardized and traded on an exchange, board of
trade, or similar entity, or quoted on an automated quotation
system.
The success of any futures transaction depends on Stein Roe
correctly predicting changes in the level and direction of stock
prices, interest rates, currency exchange rates and other
factors. Should those predictions be incorrect, the Fund's
return might have been better had the transaction not been
attempted; however, in the absence of the ability to use futures
contracts, Stein Roe might have taken portfolio actions in
anticipation of the same market movements with similar investment
results but, presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by the
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the
broker ("initial margin"). The margin required for a futures
contract is set by the exchange on which the contract is traded
and may be modified during the term of the contract. The initial
margin is in the nature of a performance bond or good faith
deposit on the futures contract, which is returned to the Fund
upon termination of the contract, assuming all contractual
obligations have been satisfied. The Fund expects to earn
interest income on its initial margin deposits. A futures
contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day
the Fund pays or receives cash, called "variation margin," equal
to the daily change in value of the futures contract. This
process is known as "marking-to-market." Variation margin paid
or received by the Fund does not represent a borrowing or loan by
the Fund but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures
contract had expired at the close of the previous day. In
computing daily net asset value, the Fund will mark-to-market its
open futures positions.
The Fund is also required to deposit and maintain margin
with respect to put and call options on futures contracts written
by it. Such margin deposits will vary depending on the nature of
the underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying securities, usually these obligations
are closed out prior to delivery by offsetting purchases or sales
of matching futures contracts (same exchange, underlying security
or index, and delivery month). If an offsetting purchase price
is less than the original sale price, the Fund 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 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.
- ------------------
/3/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
- ------------------
When purchasing a futures contract or writing a put option
on a futures contract, the Fund must maintain with its custodian
(or broker, if legally permitted) cash or cash equivalents
(including any margin) equal to the market value of such
contract. When writing a call option on a futures contract, the
Fund similarly will maintain with its custodian cash or cash
equivalents (including any margin) equal to the amount by which
such option is in-the-money until the option expires or is closed
out by the Fund.
The Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical
relative volatility of the relationship between the portfolio and
the positions. For this purpose, to the extent the Fund has
written call options on specific securities in its portfolio, the
value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," the Fund will use commodity futures or commodity
options contracts solely for bona fide hedging purposes within
the meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of 1.3(z), the
aggregate initial margin and premiums required to establish such
positions will not exceed 5% of the fair market value of the
assets of the Fund, after taking into account unrealized profits
and unrealized losses on any such contracts it has entered into
[in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount (as defined in Section
190.01(x) of the Commission Regulations) may be excluded in
computing such 5%].
As long as the Fund continues to sell its shares in certain
states, the Fund's options and futures transactions will also be
subject to certain non-fundamental investment restrictions set
forth under Investment Restrictions in this Statement of
Additional Information.
TAXATION OF OPTIONS AND FUTURES
If the Fund exercises a call or put option that it holds,
the premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the
security sold (put). For cash settlement options and futures
options exercised by the Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
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.
- ---------------
/4/ An equity option is defined to mean any option to buy or sell
stock, and any other option the value of which is determined by
reference to an index of stocks of the type that is ineligible to
be traded on a commodity futures exchange (e.g., an option
contract on a sub-index based on the price of nine hotel-casino
stocks). The definition of equity option excludes options on
broad-based stock indexes (such as the Standard & Poor's 500
index).
- ----------------
A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If the
Fund delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities.
For federal income tax purposes, the Fund generally is
required to recognize as income for each taxable year its net
unrealized gains and losses as of the end of the year on futures,
futures options and non-equity options positions ("year-end mark-
to-market"). Generally, any gain or loss recognized with respect
to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and
40% short-term, without regard to the holding periods of the
contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options positions,
the related securities and certain successor positions thereto) may
be deferred to a later taxable year. Sale of futures contracts or
writing of call options (or futures call options) or buying put
options (or futures put options) that are intended to hedge against
a change in the value of securities held by the Fund: (1) will affect
the holding period of the hedged securities; and (2) may cause
unrealized gain or loss on such securities to be recognized upon
entry into the hedge.
If the Fund were to enter into a short index future, short
index futures option or short index option position and the
Fund's portfolio were deemed to "mimic" the performance of the
index underlying such contract, the option or futures contract
position and the Fund's stock positions would be deemed to be
positions in a mixed straddle, subject to the above-mentioned
loss deferral rules.
In order for the Fund to continue to qualify for federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). In addition,
gains realized on the sale or other disposition of securities
held for less than three months must be limited to less than 30%
of the Fund's annual gross income. Any net gain realized from
futures (or futures options) contracts will be considered gain
from the sale of securities and therefore be qualifying income
for purposes of the 90% requirement. In order to avoid realizing
excessive gains on securities held less than three months, the
Fund may be required to defer the closing out of certain
positions beyond the time when it would otherwise be advantageous
to do so.
The Fund distributes to shareholders annually any net
capital gains that have been recognized for federal income tax
purposes (including year-end mark-to-market gains) on options and
futures transactions. Such distributions are combined with
distributions of capital gains realized on other investments, and
shareholders are advised of the nature of the payments.
INVESTMENT RESTRICTIONS
The Fund operates under the following investment
restrictions. The Fund may not:
(1) with respect to 75% of its total assets, invest more
than 5% of its total assets, taken at market value at the time of
a particular purchase, in the securities of a single issuer,
except for securities issued or guaranteed by the Government of
the U.S. or any of its agencies or instrumentalities or
repurchase agreements for such securities and that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(2) acquire more than 10%, taken at the time of a particular
purchase, of the outstanding voting securities of any one issuer,
except that all or substantially all of the assets of the Fund may
be invested in another registered investment company having the
same investment objective and substantially similar investment
policies as the Fund;
(3) act as an underwriter of securities, except insofar as
it may be deemed an underwriter for purposes of the Securities
Act of 1933 on disposition of securities acquired subject to
legal or contractual restrictions on resale, except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate or
interests therein), commodities, or commodity contracts, except
that it may enter into (a) futures and options on futures and (b)
forward contracts for the purpose of facilitating payment for a
foreign security;
(5) make loans, but this restriction shall not prevent it
from (a) buying a part of an issue of bonds, debentures, or other
obligations which are publicly distributed, or from investing up
to an aggregate of 15% of its total assets (taken at market value
at the time of each purchase) in parts of issues of bonds,
debentures or other obligations of a type privately placed with
financial institutions, (b) investing in repurchase agreements,
/5/ or (c) lending portfolio securities, provided that it may not
lend securities if, as a result, the aggregate value of all
securities loaned would exceed 33% of its total assets (taken at
market value at the time of such loan);
- ----------------------
/5/ A repurchase agreement involves the sale of securities to the
Fund, with the concurrent agreement of the seller to repurchase
the securities at the same price plus an amount representing
interest at an agreed-upon interest rate, within a specified
time, usually less than one week, but, on occasion, at a later
time. Repurchase agreements entered into by the Fund will be
fully collateralized and will be marked-to-market daily. In the
event of a bankruptcy or other default of a seller of a
repurchase agreement, the Fund could experience both delays in
liquidating the underlying securities and losses, including: (a)
possible decline in the value of the collateral during the period
while the Fund seeks to enforce its rights thereto; (b) possible
subnormal levels of income and lack of access to income during
this period; and (c) expenses of enforcing its rights.
- ---------------------
(6) borrow, except that it may (a) borrow up to 33 1/3% of
its total assets, taken at market value at the time of such
borrowing, as a temporary measure for extraordinary or emergency
purposes, but not to increase portfolio income (the total of
reverse repurchase agreements and such borrowings will not exceed
33 1/3% of its total assets, and it will not purchase additional
securities when its borrowings, less proceeds receivable from
sales of portfolio securities, exceed 5% of its total assets) and
(b) enter into transactions in options, futures, and options on
futures;
(7) invest in a security if more than 25% of its total
assets (taken at market value at the time of a particular
purchase) would be invested in the securities of issuers in any
particular industry, except that this restriction does not apply
to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities and that all or substantially all
of the assets of the Fund may be invested in another registered
investment company having the same investment objective and
substantially similar investment policies as the Fund; or
(8) issue any senior security except to the extent permitted
under the Investment Company Act of 1940.
The above restrictions are fundamental policies and may not
be changed without the approval of a "majority of the outstanding
voting securities," as defined above. The Fund is also subject
to the following non-fundamental restrictions and policies, which
may be changed by the Board of Trustees. None of the following
restrictions shall prevent the Fund from investing all or
substantially all of its assets in another investment company
having the same investment objective and substantially the same
investment policies as the Fund. The Fund may not:
(a) invest in any of the following: (i) interests in oil,
gas, or other mineral leases or exploration or development
programs (except readily marketable securities, including but not
limited to master limited partnership interests, that may
represent indirect interests in oil, gas, or other mineral
exploration or development programs); (ii) puts, calls,
straddles, spreads, or any combination thereof (except that it
may enter into transactions in options, futures, and options on
futures); (iii) shares of other open-end investment companies,
except in connection with a merger, consolidation, acquisition,
or reorganization; and (iv) limited partnerships in real estate
unless they are readily marketable;
(b) invest in companies for the purpose of exercising
control or management;
(c) purchase more than 3% of the stock of another investment
company or purchase stock of other investment companies equal to
more than 5% of its total assets (valued at time of purchase) in
the case of any one other investment company and 10% of such
assets (valued at time of purchase) in the case of all other
investment companies in the aggregate; any such purchases are to
be made in the open market where no profit to a sponsor or dealer
results from the purchase, other than the customary broker's
commission, except for securities acquired as part of a merger,
consolidation or acquisition of assets;
(d) purchase or hold securities of an issuer if 5% of the
securities of such issuer are owned by those officers, trustees,
or directors of the Trust or of its investment adviser, who each
own beneficially more than 1/2 of 1% of the securities of that
issuer;
(e) mortgage, pledge, or hypothecate its assets, except as
may be necessary in connection with permitted borrowings or in
connection with options, futures, and options on futures;
(f) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in
warrants that are not listed on the New York or American stock
exchange;
(g) write an option on a security unless the option is
issued by the Options Clearing Corporation, an exchange, or
similar entity;
(h) invest more than 25% of its total assets (valued at time
of purchase) in securities of foreign issuers (other than
securities represented by American Depositary Receipts (ADRs) or
securities guaranteed by a U.S. person);
(i) buy or sell an option on a security, a futures contract,
or an option on a futures contract unless the option, the futures
contract, or the option on the futures contract is offered
through the facilities of a recognized securities association or
listed on a recognized exchange or similar entity;
(j) purchase a put or call option if the aggregate premiums
paid for all put and call options exceed 20% of its net assets
(less the amount by which any such positions are in-the-money),
excluding put and call options purchased as closing transactions;
(k) purchase securities on margin (except for use of short-
term credits as are necessary for the clearance of transactions),
or sell securities short unless (i) the Fund owns or has the
right to obtain securities equivalent in kind and amount to those
sold short at no added cost or (ii) the securities sold are "when
issued" or "when distributed" securities which the Fund expects
to receive in a recapitalization, reorganization, or other
exchange for securities the Fund contemporaneously owns or has
the right to obtain and provided that transactions in options,
futures, and options on futures are not treated as short sales;
(l) invest more than 5% of its total assets (taken at
market value at the time of a particular investment) in
securities of issuers (other than issuers of federal agency
obligations or securities issued or guaranteed by any foreign
country or asset-backed securities) that, together with any
predecessors or unconditional guarantors, have been in continuous
operation for less than three years ("unseasoned issuers");
(m) invest more than 5% of its total assets (taken at
market value at the time of a particular investment) in
restricted securities, other than securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933;
(n) invest more than 15% of its total assets (taken at
market value at the time of a particular investment) in
restricted securities 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 objectives, risk tolerance levels, and time
horizons. In selecting a mutual fund, investors should ask the
following questions:
What are my investment goals?
It is important to a choose a fund that has investment objectives
compatible with your investment goal.
What is my investment time frame?
If you have a short investment time frame (e.g., less than three
years), a mutual fund that seeks to provide a stable share price,
such as a money market fund, or one that seeks capital
preservation as one of its objectives may be appropriate. If you
have a longer investment time frame, you may seek to maximize
your investment returns by investing in a mutual fund that offers
greater yield or appreciation potential in exchange for greater
investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks
which will vary depending on investment objective and security
type. However, mutual funds seek to reduce risk through
professional investment management and portfolio diversification.
In general, equity mutual funds emphasize long-term capital
appreciation and tend to have more volatile net asset values than
bond or money market mutual funds. Although there is no
guarantee that they will be able to maintain a stable net asset
value of $1.00 per share, money market funds emphasize safety of
principal and liquidity, but tend to offer lower income potential
than bond funds. Bond funds tend to offer higher income
potential than money market funds but tend to have greater risk
of principal and yield volatility.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus
under the headings How to Purchase Shares, How to Redeem Shares,
Net Asset Value, and Shareholder Services, and that information
is incorporated herein by reference. The Prospectus discloses
that you may purchase (or redeem) shares through investment
dealers, banks, or other institutions. It is the responsibility
of any such institution to establish procedures insuring the
prompt transmission to the Trust of any such purchase order. The
state of Texas has asked that the Trust disclose in its Statement
of Additional Information, as a reminder to any such bank or
institution, that it must be registered as a securities dealer in
Texas.
The Fund's net asset value is determined on days on which
the New York Stock Exchange (the "NYSE") is open for trading.
The NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in February, Good Friday, the last
Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or
Sunday, the NYSE will be closed on the preceding Friday or the
following Monday, respectively. Net asset value will not be
determined on days when the NYSE is closed unless, in the
judgment of the Board of Trustees, net asset value of the Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time.
The Trust intends to pay all redemptions in cash and is
obligated to redeem shares solely in cash up to the lesser of
$250,000 or one percent of the net assets of the Trust during any
90-day period for any one shareholder. However, redemptions in
excess of such limit may be paid wholly or partly by a
distribution in kind of securities. If redemptions were made in
kind, the redeeming shareholders might incur transaction costs in
selling the securities received in the redemptions.
Due to the relatively high cost of maintaining smaller
accounts, the Trust reserves the right to redeem shares in any
account for their then-current value (which will be promptly paid
to the investor) if at any time the shares in the account do not
have a value of at least $1,000. An investor will be notified
that the value of his account is less than that minimum and
allowed at least 30 days to bring the value of the account up to
at least $1,000 before the redemption is processed. The
Agreement and Declaration of Trust also authorizes the Trust to
redeem shares under certain other circumstances as may be
specified by the Board of Trustees.
The Trust reserves the right to suspend or postpone
redemptions of shares of the Fund during any period when: (a)
trading on the NYSE is restricted, as determined by the
Securities and Exchange Commission, or the NYSE is closed for
other than customary weekend and holiday closings; (b) the
Securities and Exchange Commission has by order permitted such
suspension; or (c) an emergency, as determined by the Securities
and Exchange Commission, exists, making disposal of portfolio
securities or valuation of net assets of the Fund not reasonably
practicable.
MANAGEMENT
The following table sets forth certain information with
respect to the trustees and officers:
<TABLE>
<CAPTION>
Position(s) held
Name Age with the Trust Principal occupation(s) during past five years
- -------------------- -- ------------------------ -----------------------------------------------
<S> <C> <C> <C>
Gary A. Anetsberger 40 Senior Vice-President Vice-President of Stein Roe & Farnham Incorporated (the
"Adviser")
Timothy K. Armour 47 President; Trustee President of the Mutual Funds division of the Adviser and
(1)(2) Director of the Adviser since June, 1992; senior vice
president and director of marketing of Citibank Illinois
prior thereto
Jilaine Hummel Bauer 40 Executive Vice-President; General Counsel and Secretary of the Adviser since November,
Secretary 1995; senior vice president of the Adviser since April, 1992;
vice president of the Adviser, prior thereto
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) 75 Trustee Chairman Emeritus of A. T. Kearney, Inc. (international
management consultants)
William W. Boyd (3) 70 Trustee Chairman and Director of Sterling Plumbing Group, Inc.
(manufacturer of plumbing products) since 1992; chairman,
president, and chief executive officer of Sterling Plumbing
Corporation prior thereto
David P. Brady 31 Vice-President Vice President of the Adviser since November, 1995; portfolio
manager for the Adviser since 1993; equity investment analyst.
State Farm Mutual Automobile Insurance Company prior thereto
Thomas W. Butch 39 Vice-President Senior Vice President of the Adviser since September, 1994;
first vice president, corporate communications, of Mellon
Bank Corporation prior thereto
N. Bruce Callow 50 Executive Vice-President President of the Investment Counsel division of the Adviser
since June, 1994; senior vice president of trust and
financial services for The Northern Trust prior thereto
Daniel K. Cantor 36 Vice-President Senior Vice President of the Adviser
Robert A. Christensen 62 Vice-President Senior Vice President of the Adviser
Lindsay Cook (1) 43 Trustee Senior Vice President of Liberty Financial Companies, Inc.
(the indirect parent of the Adviser)
E. Bruce Dunn 61 Vice-President Senior Vice President of the Adviser
Erik P. Gustafson 32 Vice-President Vice President of the Adviser since May, 1994; associate of
the Adviser from April, 1992 to May, 1994; associate
attorney with Fowler White Burnett Hurley Banick &
Strickroot prior thereto
David P. Harris 31 Vice-President Vice President of Colonial Management Associates, Inc. since
January, 1996;vice president of the Adviser since May, 1995;
global equity portfolio manager with Rockefeller & Co. prior
thereto
Philip D. Hausken 37 Vice-President Vice President of the Adviser since November, 1994, corporate
counsel for the Adviser since July, 1994;
assistant regional director, midwest regional office of the
Securities and Exchange Commission prior thereto
Harvey B. Hirschhorn 46 Vice-President Executive Vice President, Chief Economist & Investment
Strategist, and Director of Research Services of the Adviser
Stephen P. Lautz 38 Vice-President Vice President of the Adviser since May, 1994; associate of
the Adviser prior thereto
Eric S. Maddix 32 Vice-President Vice President of the Adviser since November, 1995;
portfolio manager for the Adviser since 1987
Lynn C. Maddox 55 Vice-President Senior Vice President of the Adviser
Anne E. Marcel 38 Vice-President Manager, Mutual Fund Sales & Services of the Adviser since
October, 1994; supervisor of the Counselor Department of the
Adviser from October, 1992 to October, 1994; vice president
of Selected Financial Services from May, 1990 to March, 1992
Francis W. Morley (3) 75 Trustee Chairman of Employer Plan Administrators and Consultants Co.
(designer, administrator, and communicator of employee
benefit plans)
Charles R. Nelson (3) 53 Trustee Professor, Department of Economics of the University of
Washington
Nicolette D. Parrish 46 Vice-President; Senior Compliance Administrator and Assistant Secretary for
Assistant Secretary for the Adviser since November, 1995; senior legal assistant
for the Adviser prior thereto
Richard B. Peterson 55 Vice-President Senior Vice President of the Adviser since June, 1991;
officer of State Farm Investment Management Corporation prior
thereto
Sharon R. Robertson 34 Controller Accounting Manager for the Adviser's Mutual Funds division
Janet B. Rysz 40 Assistant Secretary Assistant Secretary of the Adviser
Gloria J. Santella 38 Vice-President Senior Vice President of the Adviser since November, 1995;
vice president of the Adviser from January, 1992 to November,
1995; associate of the Adviser prior thereto
Thomas P. Sorbo 35 Vice-President Senior Vice President of the Adviser since January, 1994;
vice president of the Adviser from September, 1992 to
December, 1993; associate of Travelers Insurance Company
prior thereto
Gordon R. Worley 76 Trustee Private investor
(2) (3)
Hans P. Ziegler 54 Executive Vice-President Chief Executive Officer of the Adviser since May, 1994;
president of the Investment Counsel division of the Adviser
from July, 1993 to June, 1994; president and chief executive
officer, Pitcairn Financial Management Group prior thereto
Margaret O. Zwick 29 Treasurer Compliance Manager for the Adviser's Mutual Funds division
since August 1995; compliance accountant, January 1995 to
July 1995; section manager, January 1994 to January 1995;
supervisor, February 1990 to December 1993
</TABLE>
____________________
(1) Trustee who is an "interested person" of the Trust and of
Stein Roe, as defined in the Investment Company Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3 Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope
and results of the audit.
Certain of the trustees and officers of the Trust are
trustees or officers of other investment companies managed by
Stein Roe. Ms. Bauer and Mr. Cook are vice presidents of the
Fund's distributor, Liberty Securities Corporation. The address
of Mr. Block is 11 Woodley Road, Winnetka, Illinois 60093; that
of Mr. Boyd is 2900 Golf Road, Rolling Meadows, Illinois 60008;
that of Mr. Cook is 600 Atlantic Avenue, Boston, Massachusetts
02210; that of Mr. Morley is 20 North Wacker Drive, Suite 2275,
Chicago, Illinois 60606; that of Mr. Nelson is Department of
Economics, University of Washington, Seattle, Washington 98195;
that of Mr. Worley is 1407 Clinton Place, River Forest, Illinois
60305; that of Messrs. Bertocci, Cantor, and Harris is 1330
Avenue of the Americas, New York, New York 10019; and that of the
other officers is One South Wacker Drive, Chicago, Illinois
60606.
Officers and trustees affiliated with Stein Roe serve
without any compensation from the Trust. In compensation for
their services to the Trust, trustees who are not "interested
persons" of the Trust or Stein Roe are paid an annual retainer of
$8,000 (divided equally among the Funds of the Trust) plus an
attendance fee from each Fund for each meeting of the Board or
committee thereof attended at which business for that Fund is
conducted. The attendance fees (other than for a Nominating
Committee meeting) are based on each Fund's net assets as of the
preceding December 31. For a Fund with net assets of less than
$251 million, the fee is $200 per meeting; with $251 million to
$500 million, $350; with $501 million to $750 million, $500; with
$750 million to $1 billion, $650; and with over $1 billion in net
assets, $800. Each non-interested trustee also receives an
aggregate of $500 for attending each meeting of the Nominating
Committee. The Trust has no retirement or pension plans. The
following table sets forth compensation paid by the Trust during
the fiscal year ended September 30, 1995 to each of the trustees:
Aggregate Total Compensation Paid
Compensation to Trustees from the Trust
Name of from the and the Stein Roe Fund
Trustee* Trust Complex**
------------ ------------ ---------------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Alfred F. Kugel -0- -0-
Kenneth L. Block $26,800 $66,400
William W. Boyd 22,050 58,650
Francis W. Morley 26,200 66,000
Charles R. Nelson 28,550 68,350
Gordon R. Worley 26,200 66,000
_______________
* Messrs. Armour, Boyd, and Cook were elected trustees of
the Trust on January 17, 1995. Mr. Kugel was an
affiliated trustee through January 17, 1995.
** During this period, the Stein Roe Fund Complex consisted of
the six series of Stein Roe Income Trust, four series of
Stein Roe Municipal Trust, eight series of Stein Roe
Investment Trust, and one series of SR&F Base Trust.
FINANCIAL STATEMENTS
Please refer to the Fund's September 30, 1995 Financial
Statements (balance sheets and schedules of investments as of
September 30, 1995 and the statements of operations, changes in
net assets, and notes thereto) and the report of independent
public accountants contained in the September 30, 1995 Annual
Report. The Financial Statements and the report of independent
public accountants (but no other material from the Annual Report)
are incorporated herein by reference. The Annual Report may be
obtained at no charge by telephoning 800-338-2550.
PRINCIPAL SHAREHOLDERS
As of October 31, 1995, the only person known by the Trust
to own of record or "beneficially" 5% or more of the outstanding
shares of the Fund within the definition of that term as
contained in Rule 13d-3 under the Securities Exchange Act of 1934
was as follows:
Approximate Percentage of
Name and Address Outstanding Shares Held
- ------------------------------ ---------------------------
Keyport Life Insurance Company 16.98%
125 High Street
Boston, MA 02110
The following table shows shares of the Fund held by the
categories of persons indicated, and in each case the approximate
percentage of outstanding shares represented:
CLIENTS OF THE
ADVISER IN THEIR TRUSTEES AND
CLIENT ACCOUNTS OFFICERS
AS OF 10/31/95 AS OF 10/31/95
--------------- ----------------
SHARES SHARES
HELD PERCENT HELD PERCENT
------ ------- ------- --------
3,836 ** 614 **
______________
*Stein Roe may have discretionary authority over such shares
and, accordingly, they could be deemed to be owned
"beneficially" by Stein Roe under Rule 13d-3. However, Stein
Roe disclaims actual beneficial ownership of such shares.
**Represents less than 1% of the outstanding shares.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated, investment adviser to the
Funds, is a wholly owned subsidiary of SteinRoe Services Inc.
("SSI"), the Funds' transfer agent, which is a wholly owned
subsidiary of Liberty Financial Companies, Inc. ("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 the Adviser 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 the
Adviser's Mutual Funds division; Mr. Callow is President of the
Adviser's Investment Counsel division; and Mr. Ziegler is Chief
Executive Officer of the Adviser. The business address of 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. Based on information shareholders provide
about their financial circumstances, goals, and objectives in
response to a questionnaire, Stein Roe's investment professionals
create customized portfolio recommendations for investments in
the Fund and other mutual funds managed by Stein Roe.
Shareholders participating in Stein Roe Counselor [SERVICE MARK]
are free to self direct their investments while considering Stein
Roe's recommendations; shareholders participating in Stein Roe
Counselor Preferred [SERVICE MARK] enjoy the added benefit of
having Stein Roe implement portfolio recommendations
automatically for a fee of 1% or less, depending on the size of
their portfolios. In addition to reviewing shareholders'
circumstances, goals, and objectives periodically and updating
portfolio recommendations to reflect any changes, the
shareholders who participate in these programs are assigned a
dedicated Counselor [SERVICE MARK] representative. Other
distinctive services include specially designed account
statements with portfolio performance and transaction data,
newsletters, and regular investment, economic, and market
updates. A $50,000 minimum investment is required to participate
in either program. Other similar programs with different fee
structures may be offered through affiliates of Stein Roe.
Please refer to the description of Stein Roe, the advisory
agreement, management agreement, administrative agreement, fees,
expense limitations, and transfer agency services under
Management of the Fund in the Prospectus, which is incorporated
herein by reference. From the Fund's inception on April 29, 1994
through September 30, 1994, pursuant to the expense undertaking,
Stein Roe reimbursed the Fund $82,109, resulting in a net payment
by Stein Roe of $64,954. For the fiscal year ended September 30,
1995, Stein Roe reimbursed the Fund $322,803, resulting in a net
payment by Stein Roe of $191,821.
Stein Roe provides office space and executive and other
personnel to the Fund and bears any sales or promotional
expenses. The Fund pays all expenses other than those paid by
Stein Roe, including but not limited to printing and postage
charges and securities registration and custodian fees and
expenses incidental to its organization.
The administrative agreement provides that Stein Roe shall
reimburse the Fund to the extent that total annual expenses of
the Fund (including fees paid to Stein Roe, but excluding taxes,
interest, brokers' commissions and other normal charges incident
to the purchase and sale of portfolio securities, and expenses of
litigation to the extent permitted under applicable state law)
exceed the applicable limits prescribed by any state in which
shares of the Fund are being offered for sale to the public;
provided, however, that Stein Roe is not required to reimburse
the Fund an amount in excess of the management fee from the Fund
for such year. The Trust believes that currently the most
restrictive state limit on mutual fund expenses is that of
California, which limit currently is 2 1/2% of the first $30
million of average net assets, 2% of the next $70 million, and 1
1/2% thereafter. In addition, in the interest of further
limiting expenses of the Fund, 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.
The management agreement provides that neither Stein Roe,
nor any of its directors, officers, stockholders (or partners of
stockholders), agents, or employees shall have any liability to
the Trust or any shareholder of the Trust for any error of
judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance
by Stein Roe of its duties under the agreement, except for
liability resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under the
agreement.
Any expenses that are attributable solely to the
organization, operation, or business of the Fund shall be paid
solely out of the Fund's assets. Any expenses incurred by the
Trust that are not solely attributable to a particular series are
apportioned in such manner as Stein Roe determines is fair and
appropriate, unless otherwise specified by the Board of Trustees.
BOOKKEEPING AND ACCOUNTING AGREEMENT
Pursuant to a separate agreement with the Trust, Stein Roe
receives a fee for performing certain bookkeeping and accounting
services for the Fund. For these services, Stein Roe receives an
annual fee of $25,000 per Fund plus .0025 of 1% of average net
assets over $50 million. During the fiscal year ended September
30, 1995, Stein Roe received aggregate fees of $162,677 from
the 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 Trust has
agreed to pay all expenses in connection with registration of its
shares with the Securities and Exchange Commission and auditing
and filing fees in connection with registration of its shares
under the various state blue sky laws and assumes the cost of
preparation of prospectuses and other expenses. Stein Roe bears
all sales and promotional expenses, including payments to LSC for
the sales of Fund shares. Stein Roe also makes payments to other
broker-dealers, banks, and other institutions for the sales of
Fund shares of 0.20% of the annual average value of accounts of
such shares.
As agent, LSC offers shares of the Fund to investors in
states where the shares are qualified for sale, at net asset
value, without sales commissions or other sales load to the
investor. In addition, no sales commission or "12b-1" payment is
paid by the Fund. LSC offers the Fund's shares only on a best-
efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for the Trust,
as described under Management of the Fund in the Prospectus. For
performing these services, SSI receives from the Fund a fee based
on an annual rate of .22 of 1% of average net assets. Prior to
May 1, 1995, SSI received the following payments from the Fund:
(1) a fee of $4.00 for each new account opened; (2) monthly
payments of $1.063 per open shareholder account; (3) payments of
$0.367 per closed shareholder account for each month through June
of the calendar year following the year in which the account is
closed; (4) $0.3025 per shareholder account for each dividend
paid; and (5) $1.415 for each shareholder-initiated transaction.
The Trust believes the charges by SSI to the Fund are comparable
to those of other companies performing similar services. (See
Investment Advisory Services.)
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian
for the Trust. It is responsible for holding all securities and
cash of the Fund, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering
expenses of the Fund, and performing other administrative duties,
all as directed by authorized persons. The custodian does not
exercise any supervisory function in such matters as purchase and
sale of portfolio securities, payment of dividends, or payment of
expenses of the Fund .
Portfolio securities purchased in the U.S. are maintained in
the custody of the Bank or of other domestic banks or
depositories. Portfolio securities purchased outside of the U.S.
are maintained in the custody of foreign banks and trust
companies that are members of the Bank's Global Custody Network,
and foreign depositories ("foreign sub-custodians"). Each of the
domestic and foreign custodial institutions holding portfolio
securities has been approved by the Board of Trustees in
accordance with regulations under the Investment Company Act of
1940.
The Board of Trustees reviews, at least annually, whether it
is in the best interest of the Fund and its shareholders for the
Fund to maintain assets in each of the countries in which it
invests with particular foreign sub-custodians in such countries,
pursuant to contracts between such respective foreign sub-
custodians and the Bank. The review includes an assessment of
the risks of holding assets in any such country (including risks
of expropriation or imposition of exchange controls), the
operational capability and reliability of each such foreign sub-
custodian, and the impact of local laws on each such custody
arrangement. The Board of Trustees is aided in its review by the
Bank, which has assembled the network of foreign sub-custodians
utilized, as well as by Stein Roe and counsel. However, with
respect to foreign sub-custodians, there can be no assurance that
the Fund, and the value of its shares, will not be adversely
affected by acts of foreign governments, financial or operational
difficulties of the foreign sub-custodians, difficulties and
costs of obtaining jurisdiction over, or enforcing judgments
against, the foreign sub-custodians, or application of foreign
law to the Fund's foreign sub-custodial arrangements.
Accordingly, an investor should recognize that the non-investment
risks involved in holding assets abroad are greater than those
associated with investing in the United States.
The Fund may invest in obligations of the custodian and may
purchase or sell securities from or to the custodian.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Trust are Arthur
Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603.
The accountants audit and report on the Fund's annual financial
statements, review certain regulatory reports and the Fund's
federal income tax returns, and perform other professional
accounting, auditing, tax and advisory services when engaged to
do so by the Trust.
PORTFOLIO TRANSACTIONS
Stein Roe places the orders for the purchase and sale of the
Fund's portfolio securities and options and futures contracts.
Stein Roe's overriding objective in effecting portfolio
transactions is to seek to obtain the best combination of price
and execution. The best net price, giving effect to brokerage
commissions, if any, and other transaction costs, normally is an
important factor in this decision, but a number of other
judgmental factors may also enter into the decision. These
include: Stein Roe's knowledge of negotiated commission rates
currently available and other current transaction costs; the
nature of the security being traded; the size of the transaction;
the desired timing of the trade; the activity existing and
expected in the market for the particular security;
confidentiality; the execution, clearance and settlement
capabilities of the broker or dealer selected and others which
are considered; Stein Roe's knowledge of the financial stability
of the broker or dealer selected and such other brokers or
dealers; and Stein Roe's knowledge of actual or apparent
operational problems of any broker or dealer. Recognizing the
value of these factors, the Fund may pay a brokerage commission
in excess of that which another broker or dealer may have charged
for effecting the same transaction. Evaluations of the
reasonableness of brokerage commissions, based on the foregoing
factors, are made on an ongoing basis by Stein Roe's staff while
effecting portfolio transactions. The general level of brokerage
commissions paid is reviewed by Stein Roe, and reports are made
annually to the Board of Trustees.
With respect to issues of securities involving brokerage
commissions, when more than one broker or dealer is believed to
be capable of providing the best combination of price and
execution with respect to a particular portfolio transaction for
the Fund, Stein Roe often selects a broker or dealer that has
furnished it with research products or services such as research
reports, subscriptions to financial publications and research
compilations, compilations of securities prices, earnings,
dividends, and similar data, and computer data bases, quotation
equipment and services, research-oriented computer software and
services, and services of economic and other consultants.
Selection of brokers or dealers is not made pursuant to an
agreement or understanding with any of the brokers or dealers;
however, Stein Roe uses an internal allocation procedure to
identify those brokers or dealers who provide it with research
products or services and the amount of research products or
services they provide, and endeavors to direct sufficient
commissions generated by its clients' accounts in the aggregate,
including the Fund, to such brokers or dealers to ensure the
continued receipt of research products or services Stein Roe
feels are useful. In certain instances, Stein Roe receives from
brokers and dealers products or services that are used both as
investment research and for administrative, marketing, or other
non-research purposes. In such instances, Stein Roe makes a good
faith effort to determine the relative proportions of such
products or services which may be considered as investment
research. The portion of the costs of such products or services
attributable to research usage may be defrayed by Stein Roe
(without prior agreement or understanding, as noted above)
through brokerage commissions generated by transactions by
clients (including the Fund), while the portions of the costs
attributable to non-research usage of such products or services
is paid by Stein Roe in cash. No person acting on behalf of the
Fund is authorized, in recognition of the value of research
products or services, to pay a commission in excess of that which
another broker or dealer might have charged for effecting the
same transaction. Research products or services furnished by
brokers and dealers may be used in servicing any or all of the
clients of Stein Roe and not all such research products or
services are used in connection with the management of the Fund.
With respect to the Fund's purchases and sales of portfolio
securities transacted with a broker or dealer on a net basis,
Stein Roe may also consider the part, if any, played by the
broker or dealer in bringing the security involved to Stein
Roe's attention, including investment research related to the
security and provided to the Fund.
The table below shows information on brokerage commissions
paid by the Fund:
Total amount of brokerage commissions paid during
fiscal year ended 9/30/95 $ 38,043
Amount of commissions paid to brokers or dealers
who supplied research services to Stein Roe 24,428
Total dollar amount involved in such transactions 11,129,502
Amount of commissions paid to brokers or dealers
that were allocated to such brokers or dealers
by the Fund's portfolio manager because of
research services provided to the Fund 6,379
Total dollar amount involved in such transactions 2,973,000
Total amount of brokerage commissions paid during
period ended 9/30/94 13,680
The Trust has arranged for its custodian to act as a
soliciting dealer to accept any fees available to the custodian
as a soliciting dealer in connection with any tender offer for
portfolio securities. The custodian will credit any such fees
received against its custodial fees. In addition, the Board of
Trustees has reviewed the legal developments pertaining to and
the practicability of attempting to recapture underwriting
discounts or selling concessions when portfolio securities are
purchased in underwritten offerings. However, the Board has been
advised by counsel that recapture by a mutual fund currently is
not permitted under the Rules of Fair Practice of the National
Association of Securities Dealers.
ADDITIONAL INCOME TAX CONSIDERATIONS
The Fund intends to comply with the special provisions of
Subchapter M of the Internal Revenue Code that relieve it of
federal income tax to the extent of its net investment income and
capital gains currently distributed to shareholders.
Because dividend and capital gain distributions reduce net
asset value, a shareholder who purchases shares shortly before a
record date will, in effect, receive a return of a portion of his
investment in such distribution. The distribution would
nonetheless be taxable to him, even if the net asset value of
shares were reduced below his cost. However, for federal income
tax purposes the shareholder's original cost would continue as
his tax basis.
The Fund expects that less than 100% of its dividends will
qualify for the deduction for dividends received by corporate
shareholders.
To the extent the Fund invests in foreign securities, it may
be subject to withholding and other taxes imposed by foreign
countries. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Investors may be
entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in
the Code. Specifically, if more than 50% of the Fund's total
assets at the close of any fiscal year consist of stock or
securities of foreign corporations, the Fund may file an election
with the Internal Revenue Service pursuant to which shareholders
of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their
pro rata shares of foreign income taxes paid by the Fund even though
not actually received, (ii) treat such respective pro rata shares
as foreign income taxes paid by them, and (iii) deduct such pro rata
shares in computing their taxable incomes, or, alternatively, use
them as foreign tax credits, subject to applicable limitations, against
their United States income taxes. Shareholders who do not itemize
deductions for federal income tax purposes will not, however, be able
to deduct their pro rata portion of foreign taxes paid by the Fund,
although such shareholders will be required to include their share
of such taxes in gross income. Shareholders who claim a foreign tax
credit may be required to treat a portion of dividends received from
the Fund as separate category income for purposes of computing the
limitations on the foreign tax credit available to such shareholders.
Tax-exempt shareholders will not ordinarily benefit from this
election relating to foreign taxes. Each year, the Fund will
notify shareholders of the amount of (i) each shareholder's pro
rata share of foreign income taxes paid by the Fund and (ii) the
portion of Fund dividends which represents income from each foreign
country, if the Fund qualifies to pass along such credit.
INVESTMENT PERFORMANCE
The Fund may quote certain total return figures from time to
time. A "Total Return" on a per share basis is the amount of
dividends distributed per share plus or minus the change in the
net asset value per share for a period. A "Total Return
Percentage" may be calculated by dividing the value of a share at
the end of a period by the value of the share at the beginning of
the period and subtracting one. For a given period, an "Average
Annual Total Return" may be computed by finding the average
annual compounded rate that would equate a hypothetical initial
amount invested of $1,000 to the ending redeemable value.
Average Annual Total Return is computed as follows:
n
ERV = P(1+T)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the end
of the period (or fractional portion thereof).
For example, for a $1,000 investment in the Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at September 30, 1995 were:
TOTAL TOTAL RETURN AVERAGE ANNUAL
RETURN RETURN PERCENTAGE TOTAL RETURN
------- ----------------- -------------
1 year $1,406 40.58% 40.58%
*Life of Fund 1,440 43.96 29.33
________________________
*Life of Fund is from its date of public offering, 4/29/94.
Investment performance figures assume reinvestment of all
dividends and distributions and do not take into account any
federal, state, or local income taxes which shareholders must pay
on a current basis. They are not necessarily indicative of
future results. The performance of the Fund is a result of
conditions in the securities markets, portfolio management, and
operating expenses. Although investment performance information
is useful in reviewing the Fund's performance and in providing
some basis for comparison with other investment alternatives, it
should not be used for comparison with other investments using
different reinvestment assumptions or time periods.
In advertising and sales literature, the Fund may compare
its performance with that of other mutual funds, indexes or
averages of other mutual funds, indexes of related financial
assets or data, and other competing investment and deposit
products available from or through other financial institutions.
The composition of these indexes or averages differs from that of
the Fund. Comparison of the Fund to an alternative investment
should be made with consideration of differences in features and
expected performance.
All of the indexes and averages noted below will be obtained
from the indicated sources or reporting services, which the Fund
believes to be generally accurate. The Fund may also note its
mention or recognition in newspapers, magazines, or other media
from time to time. However, the Fund assumes no responsibility
for the accuracy of such data. Newspapers and magazines which
might mention the Fund include, but are not limited to, the
following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Barron's
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
Crain's Chicago Business
Consumer Reports
Consumer Digest
Financial World
Forbes
Fortune
Fund Action
Gourmet
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Los Angeles Times
Money
Mutual Fund Letter
Mutual Fund News Service
Mutual Fund Values (Morningstar)
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
The San Francisco Chronicle
Smart Money
Smithsonian
Stanger's Investment Adviser
Time
Travel & Leisure
United Mutual Fund Selector
USA Today
U.S. News and World Report
The Wall Street Journal
Working Women
Worth
Your Money
The Fund may compare its performance to the Consumer Price
Index (All Urban), a widely recognized measure of inflation.
The Fund's performance may be compared to the following
indexes or averages:
Dow-Jones Industrial Average New York Stock Exchange Composite
Index
Standard & Poor's 500 Stock Index American Stock Exchange Composite
Index
Standard & Poor's 400 Industrials NASDAQ Composite
Wilshire 5000 NASDAQ Industrials
(These indexes are widely (These indexes generally reflect the
recognized indicators of general performance of stocks traded in the
U.S. stock market results.) indicated markets.)
In addition, the Fund may compare performance with the
following indexes:
Lipper Equity Funds Average
Lipper General Equity Funds Average
Lipper Growth Fund Index
Lipper Growth Funds Average
ICD Aggressive Growth and Long-Term Growth Funds Average
ICD All Equity Funds Average
ICD General Equity Average*
ICD Long-Term Growth Funds Average
ICD Long-Term Growth Funds Index
Morningstar All Equity Funds Average
Morningstar Equity Fund Average
Morningstar General Equity Average**
Morningstar Growth Average
Morningstar Hybrid Fund Average
Morningstar U.S. Diversified Average
*Includes ICD Aggressive Growth, Growth & Income, Long-Term
Growth, and Total Return averages
**Includes Morningstar Aggressive Growth, Growth, Balanced,
Equity Income, and Growth & Income averages
The ICD Indexes reflect the unweighted average total return
of the largest twenty funds within their respective category as
calculated and published by ICD.
The Lipper averages are unweighted averages of total return
performance as classified, calculated, and published by Lipper.
Lipper Growth Fund index reflects the net asset value weighted
total return of the largest thirty growth funds and thirty growth
and income funds, respectively, as calculated and published by
Lipper.
The Lipper, ICD, and Morningstar averages are unweighted
averages of total return performance of mutual funds as
classified, calculated, and published by these independent
services that monitor the performance of mutual funds. The Fund
may also use comparative performance as computed in a ranking by
Lipper or category averages and rankings provided by another
independent service. Should Lipper or another service reclassify
the Fund to a different category or develop (and place the Fund
into) a new category, the Fund may compare its performance or
ranking with those of other funds in the newly assigned
category, as published by the service.
The Fund may also cite its rating, recognition, or other
mention by Morningstar or any other entity. Morningstar's rating
system is based on risk-adjusted total return performance and is
expressed in a star-rating format. The risk-adjusted number is
computed by subtracting the Fund's risk score (which is a
function of the Fund's monthly returns less the 3-month T-bill
return) from the Fund's load-adjusted total return score. This
numerical score is then translated into rating categories, with
the top 10% labeled five star, the next 22.5% labeled four star,
the next 35% labeled three star, the next 22.5% labeled two star,
and the bottom 10% one star. A high rating reflects either
above-average returns or below-average risk, or both.
Of course, past performance is not indicative of future
results.
_________________
To illustrate the historical returns on various types of
financial assets, the Fund may use historical data provided by
Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based
investment firm. Ibbotson constructs (or obtains) very long-term
(since 1926) total return data (including, for example, total
return indexes, total return percentages, average annual total
returns and standard deviations of such returns) for the
following asset types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
________________
The Fund may also use hypothetical returns to be used as an
example in a mix of asset allocation strategies. One such
example is reflected in the chart below, which shows the effect
of tax deferral on a hypothetical investment. This chart assumes
that an investor invested $2,000 a year on January 1, for any
specified period, in both a Tax-Deferred Investment and a Taxable
Investment, that both investments earn either 6%, 8% or 10%
compounded annually, and that the investor withdrew the entire
amount at the end of the period. (A tax rate of 39.6% is applied
annually to the Taxable Investment and on the withdrawal of
earnings on the Tax-Deferred Investment.)
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
INTEREST RATE 6% 8% 10% 6% 8% 10%
Compounding
Years Tax-Deferred Investment Taxable Investment
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 150,484 82,067 97,780 117,014
20 62,943 75,543 91,947 59,362 68,109 78,351
15 41,684 47,304 54,099 40,358 44,675 49,514
10 24,797 26,820 29,098 24,453 26,165 28,006
5 11,178 11,613 12,072 11,141 11,546 11,965
1 2,072 2,096 2,121 2,072 2,096 2,121
Dollar Cost Averaging. Dollar cost averaging is an
investment strategy that requires investing a fixed amount of
money in Fund shares at set intervals. This allows you to
purchase more shares when prices are low and fewer shares when
prices are high. Over time, this tends to lower your average
cost per share.
Like any investment strategy, dollar cost averaging can't
guarantee a profit or protect against losses in a steadily
declining market. Dollar cost averaging involves uninterrupted
investing regardless of share price and therefore may not be
appropriate for every investor.
From time to time, the Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe Counselor
[SERVICE MARK] and the Stein Roe Counselor Preferred [SERVICE
MARK] programs and asset allocation and other investment
strategies.
APPENDIX--RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's
opinion as to the credit quality of the security being rated.
However, the ratings are general and are not absolute standards
of quality or guarantees as to the creditworthiness of an issuer.
Consequently, Stein Roe believes that the quality of debt
securities in which the Fund invests should be continuously
reviewed and that individual analysts give different weightings
to the various factors involved in credit analysis. A rating is
not a recommendation to purchase, sell or hold a security because
it does not take into account market value or suitability for a
particular investor. When a security has received a rating from
more than one service, each rating should be evaluated
independently. Ratings are based on current information
furnished by the issuer or obtained by the rating services from
other sources which they consider reliable. Ratings may be
changed, suspended or withdrawn as a result of changes in or
unavailability of such information, or for other reasons.
The following is a description of the characteristics of
ratings of corporate debt securities used by Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").
RATINGS BY MOODY'S
AAA. Bonds rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or an exceptionally stable margin and
principal is secure. Although the various protective elements
are likely to change, such changes as can be visualized are more
unlikely to impair the fundamentally strong position of such
bonds.
AA. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa
bonds.
A. Bonds rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate, but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA. Bonds rated Baa are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
BA. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics
of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
CAA. Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of
danger with respect to principal or interest.
CA. Bonds which are rated Ca represent obligations which
are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in
each generic rating classification from Aa through B in its
corporate bond rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
RATINGS BY S&P
AAA. Debt rated AAA has the highest rating. Capacity to
pay interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from the highest rated
issues only in small degree.
A. Debt rated A has a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than for debt in higher rated
categories.
BB, B, CCC, CC, AND C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect
to capacity to pay interest and repay principal in accordance
with the terms of the obligation. BB indicates the lowest degree
of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no
interest is being paid.
D. Debt rated D is in default, and payment of interest
and/or repayment of principal is in arrears. The D rating is
also used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
NOTES:
The ratings from AA to CCC may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the
major rating categories. Foreign debt is rated on the same basis
as domestic debt measuring the creditworthiness of the issuer;
ratings of foreign debt do not take into account currency
exchange and related uncertainties.
The "r" is attached to highlight derivative, hybrid, and certain
other obligations that S&P believes may experience high
volatility or high variability in expected returns due to non-
credit risks. Examples of such obligations are: securities whose
principal or interest return is indexed to equities, commodities,
or currencies; certain swaps and options; and interest only and
principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will
exhibit no volatility or variability in total return.
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