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File No. 33-11351
Rule 497(e)
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Stein Roe Growth Opportunities Fund seeks long-term capital
appreciation. Growth Opportunities Fund invests in a
diversified portfolio of common stocks of large, mid-sized,
and small companies that, in the view of the Adviser, have
the ability to generate and sustain earnings growth at an
above-average rate.
Growth Opportunities Fund is a "no-load" fund. There are no
sales or redemption charges, and Growth Opportunities Fund
has no 12b-1 plan. Growth Opportunities Fund is series of
Stein Roe Investment Trust. The Trust is a diversified open-
end management investment company.
This prospectus contains information you should know before
investing in Growth Opportunities Fund. Please read it
carefully and retain it for future reference.
A Statement of Additional Information dated May 9, 1997,
containing more information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference.
This information is available on the Commission's Web site at
http://www.sec.gov. This prospectus is also available
electronically by using Stein Roe's Internet address:
http://www.steinroe. com. You can get a free paper copy of
the prospectus and the Statement of Additional Information by
calling 800-338-2550 or by writing to Stein Roe Funds, Suite
3200, One South Wacker Drive, Chicago, Illinois 60606.
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 May 9, 1997.
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TABLE OF CONTENTS
Page
Summary ....................................2
Fee Table .................................4
The Fund ...................................5
Investment Policies ........................5
Portfolio Investments and Strategies .......6
Investment Restrictions ....................9
Risks and Investment Considerations........10
How to Purchase Shares ....................11
By Check ................................11
By Wire..................................12
By Electronic Transfer ..................12
By Exchange .............................12
Conditions of Purchase ..................13
Purchases Through Third Parties..........13
Purchase Price and Effective Date .......13
How to Redeem Shares ......................13
By Written Request ......................13
By Exchange .............................14
Special Redemption Privileges ...........14
General Redemption Policies .............16
Shareholder Services ......................17
Net Asset Value ...........................19
Distributions and Income Taxes ............19
Investment Return .........................21
Management.................................21
Organization and Description of Shares.....23
Certificate of Authorization...............24
SUMMARY
Stein Roe Growth Opportunities Fund ("Growth Opportunities
Fund") is a series of the Stein Roe Investment Trust, an
open-end diversified management investment company. Growth
Opportunities 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 shares of Growth
Opportunities Fund are not qualified for sale.
Investment Objectives and Policies. Growth Opportunities
Fund seeks long-term capital appreciation. Growth
Opportunities Fund invests in a diversified portfolio of
common stocks of large, mid-sized, and small companies that,
in the view of the Adviser, have the ability to generate and
sustain earnings growth at an above-average rate. Growth
Opportunities Fund's investments include securities of both
established companies that the Adviser believes have
appreciation potential and emerging companies. Investment in
established companies tends to moderate the investment risks
associated with investments in emerging, generally smaller
companies. Growth Opportunities Fund invests a portion of
its assets in the securities of small and mid-
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sized companies. These companies may present greater
opportunities for capital appreciation because of high potential
earnings growth, but also may involve greater risks. Securities
of smaller companies may be subject to greater price volatility
and tend to be less liquid than securities of larger companies.
Small companies, as compared to large companies, may have a
shorter history of operations, may not have as great an ability
to raise additional capital, may have a less diversified product
line making them more susceptible to market pressure, and may have
a smaller public market for their shares. In addition, many
smaller companies are less well known to the investing public
and may not be as widely followed by the investment community.
Growth Opportunities Fund seeks to make investment decisions
based on a long-term growth philosophy; that is, it generally
makes investment decisions on the basis of an individual
company's ability to generate and sustain earnings growth
over the long term, rather than on the basis of the near-term
growth prospects of a particular company or economic sector.
There can be no guarantee that Growth Opportunities Fund will
achieve its investment objective. Please see Investment
Policies and Portfolio Investments and Strategies for further
information.
Investment Risks. Growth Opportunities 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 by investing in a diversified
portfolio of common stocks of large, mid-sized and small
companies.
Since Growth Opportunities Fund may invest in foreign
securities, investors should understand and carefully
consider the risks involved in foreign investing. Investing
in foreign securities involves certain 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 Investment Policies, Portfolio Investments and
Strategies, and Risks and Investment Considerations for
further information.
Purchases. The minimum initial investment for Growth
Opportunities Fund is $2,500, and additional investments must
be at least $100 (only $50 for purchases by electronic
transfer). Lower initial investment minimums apply to IRAs,
UGMAs and automatic investment plans. 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 Growth
Opportunities Fund shares, including the special redemption
privileges, see How to Redeem Shares.
Net Asset Value. The purchase and redemption price of Growth
Opportunities 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.)
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Distributions. Dividends are normally declared and paid
annually. Distributions will be reinvested in additional
Growth Opportunities Fund shares unless you elect to have
them paid in cash, deposited by electronic transfer into your
bank account, or invested in shares of another Stein Roe
fund. (See Distributions and Income Taxes and Shareholder
Services.)
Adviser and Fees. Stein Roe & Farnham Incorporated (the
"Adviser") provides administrative, investment management,
and bookkeeping and accounting services to Growth
Opportunities Fund. For a description of the Adviser and its
fees, see Management.
If you have any additional questions about Growth
Opportunities Fund, please feel free to discuss them with a
Stein Roe 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 fee
reimbursement; as a percentage of average
net assets).
Management and Administrative Fees (after fee
reimbursement)...................................0.55%
12b-1 Fees.........................................None
Other Expenses.....................................0.70%
Total Fund Operating Expenses (after fee -----
reimbursement)...................................1.25%
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* There is a $7.00 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
------ -------
$13 $40
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 Growth
Opportunities Fund. Because Growth Opportunities Fund has no
operating history, the information in the table is based upon
an estimate of expenses, assuming net assets of $50 million.
The figures assume that the percentage amounts listed under
Annual Fund Operating Expenses remain the same during each of
the periods and that all income dividends and capital gains
distributions are reinvested in additional shares.
From time to time, the Adviser may voluntarily undertake to
reimburse Growth Opportunities Fund for a portion of its
operating expenses. The Adviser has undertaken to reimburse
Growth Opportunities Fund for its operating expenses to the
extent such expenses exceed 1.25% of its annual average net
assets. This commitment expires on January 31, 1998, subject
to earlier termination by the Adviser on 30 days'
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notice to Growth Opportunities Fund. Absent such reimbursement,
the Management and Administrative Fees and Total Operating
Expenses would be 0.90% and 1.60%, respectively. Any such
reimbursement will lower Growth Opportunities Fund's overall
expense ratio and increase its overall return to investors.
(Also see Management--Fees and Expenses.)
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
Growth Opportunities 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 FUND
The mutual fund offered by this prospectus is Stein Roe
Growth Opportunities Fund ("Growth Opportunities Fund").
Growth Opportunities 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. Growth Opportunities Fund does not impose
commissions or charges when shares are purchased or redeemed.
Growth Opportunities Fund is a series of the Stein Roe
Investment Trust ("Investment 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
management, administrative, and bookkeeping and accounting
services to Growth Opportunities Fund. The Adviser also
manages and provides investment advisory services for several
other mutual funds with different investment objectives,
including other 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 investment objective of Growth Opportunities Fund is
long-term capital appreciation. Growth Opportunities Fund
attempts to achieve its objective by investing in a
diversified portfolio of common stocks of large, mid-sized,
and small companies that, in the view of the Adviser, have
the ability to generate and sustain earnings growth at an
above-average rate.
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Growth Opportunities Fund's investments include securities of
both established companies that the Adviser believes have
appreciation potential and emerging companies. Investment in
established companies tends to moderate the investment risks
associated with investments in emerging, generally smaller,
companies. Growth Opportunities Fund invests a portion of
its assets in the securities of small and mid-sized companies.
These companies may present greater opportunities for capital
appreciation because of high potential earnings growth, but also
may involve greater risks. Securities of smaller companies may be
subject to greater price volatility and tend to be less liquid
than securities of larger companies. Small companies, as compared
to large companies, may have a shorter history of operations, may
not have as great an ability to raise additional capital, may have
a less diversified product line making them more susceptible to
market pressure, and may have a smaller public market for their
shares. 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, Growth Opportunities Fund may invest in all types of equity
securities, including preferred stocks and securities convertible
into common stocks.
Growth Opportunities Fund seeks to make investment decisions
based on a long-term growth philosophy; that is, Growth
Opportunities Fund generally makes investment decisions on
the basis of an individual company's ability to generate and
sustain earnings growth over the long term, rather than on
the basis of the near-term growth prospects of a particular
company or economic sector.
Additional 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,
Growth Opportunities Fund may invest in debt securities of
corporate and governmental issuers. 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 Growth Opportunities Fund is
lost or reduced below investment grade, it is not required to
dispose of the security--the Adviser will, however, consider
that fact in determining whether it should continue to hold
the security. Growth Opportunities 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.
The risks inherent in debt securities depend primarily on the
term and quality of the obligations in the investment
portfolio as well as on market conditions. A decline in the
prevailing levels of interest rates generally increases the
value of debt securities. 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
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possibility of issuer default and bankruptcy. When the
Adviser determines that adverse market or economic
conditions exist and considers a temporary defensive
position advisable, Growth Opportunities Fund 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, Growth Opportunities 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 security, the Adviser will consider
substantially the same criteria that would be considered in
purchasing the underlying stock. Although convertible
securities purchased by Growth Opportunities Fund are
frequently rated investment grade, it also may purchase
unrated securities or securities rated below investment grade
if the securities meet the Adviser's other investment
criteria. Convertible securities rated below investment
grade:
- - Tend to be more sensitive to interest rate and economic
changes;
- - May be obligations of issuers who are less creditworthy
than issuers of higher-quality convertible securities; and
- - May be more thinly traded due to the fact that such
securities are less well known to investors than either
common stock or conventional debt securities.
As a result, the Adviser's own investment research and
analysis tend to be more important than other factors in the
purchase of such securities.
Foreign Securities. Growth Opportunities 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, Growth
Opportunities Fund is limited to investing no more than 25%
of its total assets in foreign securities. (See Risks and
Investment Considerations.) Growth Opportunities Fund may
invest in sponsored or unsponsored ADRs. In addition to, or
in lieu of, such direct investment, Growth Opportunities Fund
may construct a synthetic foreign debt position by (a)
purchasing a debt instrument denominated in one currency,
generally U.S. dollars; and (b) concurrently entering into a
forward contract to deliver a corresponding amount of that
currency in exchange for a different currency on a future
date and at a specified rate of exchange. Because of the
availability of a variety of highly liquid U.S. dollar debt
instruments, a synthetic foreign debt position utilizing such
U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, Growth
Opportunities 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. Growth
Opportunities Fund also may enter into foreign currency
contracts as a hedging technique to limit or reduce exposure
to currency fluctuations. In addition, Growth Opportunities
Fund may use options and futures contracts, as described
below, to limit or reduce exposure to currency fluctuations.
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Lending Portfolio Securities; When-Issued and Delayed-
Delivery Securities. Subject to certain restrictions
described in the Statement of Additional Information, Growth
Opportunities Fund may make loans of its portfolio securities
to broker-dealers and banks. Growth Opportunities 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 Growth Opportunities
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. Growth Opportunities 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 Growth Opportunities 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 portfolio turnover rate may vary
significantly from year to year, but is not expected to
exceed 100% under normal market conditions. At times, Growth
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 Distributions and Income Taxes.) Although it
may produce varying amounts of income, Growth Opportunities
Fund is not intended as an investment for investors seeking
dividend income.
Derivatives. Consistent with its objective, Growth
Opportunities 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. Growth Opportunities
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 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.
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In seeking to achieve its desired investment objective,
provide additional revenue, or hedge against changes in
security prices, interest rates or currency fluctuation,
Growth Opportunities Fund may:
- - Purchase and write both call options and put options on
securities, indexes and foreign currencies;
- - Enter into interest rate, index and foreign currency
futures contracts;
- - Write options on such futures contracts; and
- - Purchase other types of forward or investment contracts
linked to individual securities, indexes or other
benchmarks.
Growth Opportunities Fund may write a call or put option only
if the option is covered. As the writer of a covered call
option, Growth Opportunities 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 Growth Opportunities 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.
Short Sales Against the Box. Growth Opportunities Fund may
sell short securities it owns, or has the right to acquire
without further consideration, a technique called selling
short "against the box." Short sales against the box may
protect Growth Opportunities Fund against the risk of losses
in the value of its portfolio securities because any
unrealized losses with respect to such securities should be
wholly or partly offset by a corresponding gain in the short
position. Any potential gains in such securities, however,
should be wholly or partially offset by a corresponding loss
in the short position. Short sales against the box may be
used to lock in a profit on a security when, for tax reasons
or otherwise, the Adviser does not want to sell the security.
For a more complete explanation, please refer to the
Statement of Additional Information.
INVESTMENT RESTRICTIONS
Growth Opportunities 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 investment portfolio, but does not
apply to securities of the U.S. Government or repurchase
agreements /1/ for such securities, and would not prevent
Growth Opportunities Fund from investing all of its assets in
shares of another investment company having the identical
investment objective.
Growth Opportunities 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.
- -----------
/1/ A repurchase agreement involves a sale of securities to
Growth Opportunities 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,
Growth Opportunities Fund could experience both losses and
delays in liquidating its collateral.
- --------------
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Growth Opportunities Fund may not make loans except that it
may:
- - Purchase money market instruments and enter into repurchase
agreements;
- - Acquire publicly distributed or privately placed debt
securities;
- - Lend portfolio securities under certain conditions; and
- - Participate in an interfund lending program with other
Stein Roe funds and portfolios.
Growth Opportunities Fund may not borrow money, except for
nonleveraging, temporary, or emergency purposes or in
connection with participation in the interfund lending
program. Neither aggregate borrowings (including reverse
repurchase agreements) nor aggregate loans at any one time
may exceed 33 1/3% of the value of total assets. Additional
securities may not be purchased when borrowings, less
proceeds receivable from sales of portfolio securities,
exceed 5% of total assets.
Growth Opportunities Fund may invest in repurchase
agreements, provided that it will not invest more than 15% of
its net assets in illiquid securities, including repurchase
agreements maturing in more than seven days.
The policies summarized in the 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" as defined in the
Investment Company Act of 1940. The investment objective of
Growth Opportunities Fund is non-fundamental and, as such,
may be changed by the Board of Trustees without shareholder
approval, subject, however, to at least 30 days' advance
written notice to shareholders. 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
Opportunities 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
by investing in a diversified portfolio of common stocks of
large, mid-sized and small companies. Of course, there can
be no guarantee that Growth Opportunities Fund will achieve
its objective.
Securities of small and medium-sized companies may be subject
to greater price volatility and tend to be less liquid than
securities of larger companies. Small companies, as compared
to large companies, may have a shorter history of operations,
may not have as great an ability to raise additional capital,
may have a less diversified product line making them
susceptible to market pressure, and may have a smaller public
market for their shares. In addition, many smaller companies
are less well known to the investing public and may not be as
widely followed by the investment community.
<PAGE> 11
Debt securities rated in the fourth highest grade may have
some speculative characteristics, and changes in economic
conditions or other circumstances may lead to a weakened
capacity of the issuers of such securities to make principal
and interest payments. Securities rated below investment
grade may possess speculative characteristics, and changes in
economic conditions are more likely to affect the issuer's
capacity to pay interest or repay principal.
Growth Opportunities Fund generally allocates its investments
among a number of different industries rather than
concentrating in a particular industry or group of
industries. Growth Opportunities Fund, however, will not
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 Investment Policies.)
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 nonresidents may apply, including imposition
of exchange controls and withholding taxes on dividends, and
seizure or nationalization of investments owned by
nonresidents. Foreign investments also tend to involve
higher transaction and custody costs.
Master Fund/Feeder Fund Option. Rather than invest in
securities directly, Growth Opportunities Fund may in the
future seek to achieve its investment objective by pooling
its assets with those of other investment companies for
investment in another investment company having the same
investment objective and substantially the same investment
policies as Growth Opportunities Fund. The purpose of such
an arrangement is to achieve greater operational efficiencies
and to reduce costs. It is expected that the assets of any
such investment company would be managed by the Adviser in
substantially the same manner as Growth Opportunities Fund.
Shareholders of Growth Opportunities Fund will be given at
least 30 days' prior notice of any such investment. Such
investment would be made only if the trustees determine it to
be in the best interests of Growth Opportunities Fund and its
shareholders.
HOW TO PURCHASE SHARES
You may purchase shares of Growth Opportunities Fund 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 Personal Counselor [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
<PAGE> 12
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 Growth
Opportunities Fund by check, please complete and sign the
application and mail it, together with a check made payable
to Stein Roe Mutual Funds, to SteinRoe Services Inc. at P.O.
Box 8900, Boston, Massachusetts 02205. Participants in the
Stein Roe Counselor [service mark] or Personal Counselor
[service mark] programs should send orders to SteinRoe
Services Inc. at P.O. Box 803938, Chicago, Illinois 60680.
You may make subsequent investments by submitting a check
along with either the stub from your Fund account
confirmation statement or a note indicating the amount of the
purchase, your account number, and the name in which your
account is registered. Each individual check submitted for
purchase must be at least $100, and Investment Trust
generally will not accept cash, drafts, third or fourth party
checks, or checks drawn on banks outside the United States.
Should an order to purchase shares of Growth Opportunities
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 Growth Opportunities Fund at the
First National Bank of Boston. Your bank may charge you a
fee for sending the wire. If you are opening a new account
by wire transfer, you must first call 800-338-2550 to
request an account number and furnish your social security or
other tax identification number. Neither Growth
Opportunities Fund nor Investment Trust will be responsible
for the consequences of delays, including delays in the
banking or Federal Reserve wire systems. Your bank must
include the full name(s) in which your account is registered
and your Fund account number, and should address its wire as
follows:
First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Fund No. 20; Stein Roe Growth Opportunities Fund
Account of (exact name(s) in registration)
Shareholder Account No. ________
Participants in the Stein Roe Counselor [service mark] and
Personal Counselor [service mark] programs should address
their wires as follows:
First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Fund No. 20; Stein Roe Growth Opportunities Fund
Account of (exact name(s) in registration)
Counselor Account No. ________
By Electronic Transfer. You also may make subsequent
investments by an electronic transfer of funds from your bank
account. Electronic transfer allows you to make
<PAGE> 13
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 Growth Opportunities Fund be cancelled
because your electronic transfer does not clear, you will be
responsible for any resulting loss incurred by the Fund.
By Exchange. You may purchase shares by exchange of shares
from another Stein Roe fund account either by phone (if the
Telephone Exchange Privilege has been established on the
account from which the exchange is being made), by mail, in
person or automatically at regular intervals (if you have elected the
Automatic Exchange Privilege). Restrictions apply; please
review the information on the Exchange Privilege under How to
Redeem Shares--By Exchange.
Conditions of Purchase. Each purchase order for Growth
Opportunities Fund must be accepted by an authorized officer
of Investment Trust or its authorized agent 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.
Investment Trust reserves the right not to accept any
purchase order that it determines not to be in the best
interests of Investment Trust or of Growth Opportunities
Fund's shareholders. Investment Trust also reserves the
right to waive or lower its investment minimums for any
reason. Investment Trust does not issue certificates for
shares.
Purchases Through Third Parties. You may purchase (or
redeem) shares through certain broker-dealers, banks or other
intermediaries ("Intermediaries"). These Intermediaries may
charge for their services or place limitations on the extent
to which you may use the services offered by Investment
Trust. There are no charges or limitations imposed by
Investment Trust, other than those described in this
prospectus, if shares are purchased (or redeemed) directly
from Investment Trust.
Some Intermediaries that maintain nominee accounts with
Growth Opportunities 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. The Adviser and
Growth Opportunities Fund's transfer agent share in the
expense of these fees, and the Adviser pays all sales and
promotional expenses.
Purchase Price and Effective Date. Each purchase of Growth
Opportunities Fund's shares is made at its net asset value
(see Net Asset Value) next determined after receipt of an
order in good form, including receipt of payment as follows:
A purchase by check or wire transfer is made at the net asset
value next determined after Growth Opportunities 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 Growth Opportunities Fund
receives the electronic transfer from your bank. A Special
<PAGE> 14
Electronic Transfer Investment instruction received by
telephone on a business day before 3:00 p.m., Central time,
is effective on the next business day.
Each purchase of Growth Opportunities Fund shares through an
Intermediary that is an authorized agent of Investment Trust
for the receipt of orders is made at the net asset value next
determined after the receipt of the order by the
Intermediary.
HOW TO REDEEM SHARES
By Written Request. You may redeem all or a portion of your
shares of Growth Opportunities Fund by submitting a written
request in "good order" to SteinRoe Services Inc. at P.O. Box
8900, Boston, Massachusetts 02205. Participants in the Stein
Roe Counselor [service mark] program should send redemption
requests to SteinRoe Services Inc. at P.O. Box 803938,
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 the 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 Growth
Opportunities 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
Investment 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
Growth Opportunities 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 and carefully read the
prospectus for the Stein Roe fund in which you wish to
invest. 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 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 Telephone
Redemption Privileges, check the box(es) under the section
"Telephone Redemption
<PAGE> 15
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 Growth Opportunities Fund may refuse requests
for Telephone Exchanges in excess of four round-trips (a
round-trip being the exchange out of Growth Opportunities
Fund into another Stein Roe fund, and then back to Growth
Opportunities Fund). In addition, Investment Trust's general
redemption policies apply to redemptions of shares by
Telephone Exchange. (See General Redemption Policies.)
Investment 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. Investment Trust believes that use of the Telephone
Exchange Privilege by investors utilizing market-timing
strategies adversely affects Growth Opportunities Fund.
Therefore, Investment Trust generally will not honor requests
for Telephone Exchanges by shareholders identified by it as
"market-timers." Moreover, Investment 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 Growth Opportunities Fund, Investment 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 Growth
Opportunities Fund. If Investment 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
Growth Opportunities 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.
<PAGE> 16
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 $7.00
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 bank account
previously designated by you at a bank that is a member of
the Automated Clearing House. You may also request
electronic transfers at scheduled intervals ("Automatic
Redemptions"--see Shareholder Services). Electronic
transfers are subject to a $50 minimum and a $100,000
maximum. A Special Redemption request received by
telephone after 3:00 p.m., Central time, is deemed received
on the next business day.
General Redemption Policies. You may not cancel or revoke
your redemption order once instructions have been received
and accepted. Investment Trust cannot accept a redemption
request that specifies a particular date or price for
redemption or any special conditions. Please call 800-338-
2550 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.) Investment 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 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.
Investment Trust will generally mail payment for shares
redeemed within seven days after proper instructions are
received. However, Investment 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, Investment 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, Investment Trust
recommends that your purchase be made by federal funds wire
through your bank.
Generally, you may not use any Special Redemption Privilege
to redeem shares purchased by check (other than certified or
cashiers' checks) or electronic transfer until 15 days after
their date of purchase.
Investment 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 Investment 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
<PAGE> 17
instructions furnished thereunder if they reasonably believe that such
instructions are genuine. Growth Opportunities 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 Growth Opportunities 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 Growth Opportunities Fund immediately
if there is a problem. If Growth Opportunities 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.
Investment 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 Growth Opportunities
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 Growth Opportunities 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 Stein Roe fund, or through an
automatic investment plan will be confirmed to you quarterly.
In addition, Investment Trust will send you semiannual and
annual reports showing portfolio holdings and will provide
you annually with tax information.
To reduce the volume of mail you receive, only one copy of
certain materials, such as prospectuses and shareholder
reports, will be mailed to your household (same address).
Please call 800-338-2550 if you wish to receive additional
copies free of charge. This policy may not apply if you
purchased shares through an Intermediary.
Funds-on-Call [registered trademark] Automated Telephone
Service. To access Stein Roe Funds-on-Call [registered
trademark], just call 800-338-2550 on any touch-tone
telephone and follow the recorded instructions. Funds-on-
Call [registered trademark] provides yields, prices, latest
dividends, account balances, last transaction and other
information 24 hours a day, seven days a week. You also may
use Funds-on-Call [registered trademark] to make Special
Investments and Redemptions, Telephone Exchanges, and
Telephone Redemptions by Check. These transactions are
subject to the terms and conditions of the individual
privileges. (See How to Purchase Shares and How to Redeem
<PAGE> 18
Shares.) Information regarding your account is available to
you via Funds-on-Call [registered trademark] only after you
follow an activation process the first time you call. Your
account information is protected by a personal identification
number (PIN) that you establish.
Stein Roe Counselor [service mark] Program. The Stein Roe
Counselor [service mark] and Stein Roe Personal Counselor
[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
Personal Counselor [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
Investment Trust for additional information and forms.
Dividend Purchase Option--to diversify your Fund investments
by having distributions from one Stein Roe fund account
automatically invested in another Stein Roe fund account.
Before establishing this option, obtain and carefully read
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 gains distributions deposited
directly into your bank 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 bank account ($1,000 minimum; $100,000 maximum).
<PAGE> 19
Special Redemption Option (electronic transfer)--to redeem
shares at any time and have the proceeds deposited directly
to your bank account ($50 minimum; $100,000 maximum).
Regular Investments (electronic transfer)--to purchase Fund
shares at regular intervals directly from your bank 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 bank 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 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 Growth Opportunities
Fund's shares is its net asset value per share. The net
asset value of a share of Growth Opportunities 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 its 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 Growth Opportunities 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 and securities
convertible into stocks are valued at a fair value using a
procedure determined in good faith by the Board of Trustees.
Pricing services approved by the Board provide valuations
(some of which may be "readily available market quotations").
These valuations are reviewed by the Adviser. If the Adviser
believes that a valuation received from the service does not
represent a fair value, it values the obligation using a
method that the Board believes represents fair value. The
Board may approve the use of other pricing services and any
pricing service used may employ electronic data processing
techniques, including a so-called "matrix"
<PAGE> 20
system, to determine valuations. 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. Growth Opportunities Fund intends to
distribute by the end of each calendar year at least 98% of
any net capital gains realized from the sale of securities
during the 12-month period ended October 31 in that year.
Growth Opportunities 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 gains 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 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.
Investment Trust reserves the right to reinvest the proceeds
and future distributions in additional Growth Opportunities
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 gains. Distributions of net long-term capital gains
will be taxable to you as long-term capital gains 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 gains distributions you have received with respect to
those shares.
For federal income tax purposes, Growth Opportunities Fund is
treated as a separate taxable entity distinct from the other
series of Investment 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
<PAGE> 21
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. Investment 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 Investment 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.
Growth Opportunities Fund must promptly pay to the IRS all
amounts withheld. Therefore, it is usually not possible for
Growth Opportunities 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 Growth Opportunities
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 Growth Opportunities Fund's total return with
alternative investments should consider differences between
Growth Opportunities 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
Trustees and Adviser. The Board of Trustees of Investment
Trust has overall management responsibility for Growth
Opportunities Fund. See the Statement of Additional
Information for the names of and additional information about
the trustees and officers.
The Adviser, Stein Roe & Farnham Incorporated, One South
Wacker Drive, Chicago, Illinois 60606, is responsible for
managing Growth Opportunities 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 and its predecessor have advised and managed
mutual funds since 1949. The Adviser is a wholly owned
indirect
<PAGE> 22
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, Eric S. Maddix and
Arthur J. McQueen have been co-portfolio managers of Growth
Opportunities Fund since its inception in 1997. Ms. Santella
has been portfolio manager of Stein Roe Capital Opportunities
Fund since October 1994, and had been its co-portfolio
manager since March 1991. Ms. Santella, a senior vice
president of the Adviser, joined it in 1979. She received
her B.B.A. from Loyola University (1979) and M.B.A. from the
University of Chicago (1983). Mr. Maddix has been co-
portfolio manager of Stein Roe Capital Opportunities Fund
since 1996. He previously was its associate portfolio
manager. 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 (1986) and his M.B.A. from the
University of Chicago (1992). Mr. McQueen, a senior vice
president of the Adviser, joined it in 1987. He received a
B.S. from Villanova University (1980) and an M.B.A. from the
Wharton School of the University of Pennsylvania (1987).
Fees and Expenses. The Adviser is entitled to receive a
monthly administrative fee from Growth Opportunities Fund,
computed and accrued daily, at an annual rate of .15% of the
first $500 million of average net assets, .125% of the next
$500 million , .10% of the next $500 million, and .075%
thereafter; and a monthly management fee, computed and
accrued daily, at an annual rate of .75% of the first $500
million of average net assets, .70% of the next $500 million,
.65% of the next $500 million, and .60% thereafter. However,
as noted above under Fee Table, the Adviser may voluntarily
undertake to reimburse Growth Opportunities Fund for a
portion of its operating expenses.
The Adviser provides office space and executive and other
personnel to Investment Trust. All expenses of Growth
Opportunities Fund (other than those paid by the Adviser),
including, but not limited to, printing and postage charges,
securities registration fees, custodian and transfer agency
fees, legal and auditing fees, compensation of trustees not
affiliated with the Adviser, and expenses incidental to its
organization, are paid out of the assets of Growth
Opportunities Fund.
Under a separate agreement with Investment Trust, the Adviser
provides certain accounting and bookkeeping services to
Growth Opportunities Fund, including computation of net asset
value and calculation of net income and capital gains and
losses on disposition of assets.
Portfolio Transactions. The Adviser places the orders for
the purchase and sale of portfolio securities and options and
futures transactions. 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 Investment Trust for the
transfer of shares, disbursement of dividends, and
maintenance of shareholder accounting records.
<PAGE> 23
Distributor. The shares of Growth Opportunities Fund are
offered for sale through Liberty Securities Corporation
("Distributor") without any sales commissions or charges to
Growth Opportunities Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty
Financial. The business address of the Distributor is 600
Atlantic Avenue, Boston, Massachusetts 02210; however, all
Fund correspondence (including purchase and redemption
orders) should be mailed to SteinRoe Services Inc. at P.O.
Box 8900, Boston, Massachusetts 02205. Participants in the
Stein Roe Counselor [service mark] program should send orders
to SteinRoe Services Inc. at P.O. Box 803938, 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 Growth Opportunities 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
Investment 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 Investment Trust's shareholders or its
trustees. Investment Trust may issue an unlimited number of
shares, in one or more series as the Board may authorize.
Currently, 10 series are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as Investment 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, Investment Trust or any particular series
shall look only to the assets of Investment Trust or of the
respective series for payment under such credit, contract or
claim, and that the shareholders, trustees and officers of
Investment 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 Investment
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
Investment 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
Investment Trust also is believed to be remote, because it
would be limited to claims to which the disclaimer did not
apply and to circumstances in which the other series was
unable to meet its obligations.
<PAGE> 24
Stein Roe Mutual Funds
Certificate of Authorization
for use by corporations and associations only
Corporations or associations 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 a Stein Roe
account representative at 800-338-2550 .
The undersigned hereby certifies that he is the duly elected
Secretary of ________________________________ (the "Corporation")
(name of Corporation/Association)
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 By-laws 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> 25
The Stein Roe Funds
Stein Roe Government Reserves Fund
Stein Roe Cash Reserves Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe High Yield Fund
Stein Roe Municipal Money Market Fund
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Balanced Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Young Investor Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
Stein Roe Growth Opportunities Fund
Stein Roe International Fund
Stein Roe Emerging Markets Fund
Stein Roe Mutual Funds
P. O. Box 8900
Boston, Massachusetts 02205-8900
Financial Advisors call: 1-800-322-0593
Shareholders call 1-800-338-2550
http://www.steinroe.com
In Chicago, visit our Fund Center at One South Wacker Drive,
Suite 3200
Liberty Securities Corporation, Distributor
Member, SIPC
<PAGE>
<PAGE> 1
Statement of Additional Information Dated May 9, 1997
STEIN ROE INVESTMENT TRUST
Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
800-338-2550
Stein Roe Growth Opportunities Fund
This Statement of Additional Information is not a
prospectus, but provides additional information that should
be read in conjunction with Growth Opportunities Fund's
prospectus dated May 9, 1997, 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..................3
Investment Restrictions..............................19
Additional Investment Considerations.................22
Purchases and Redemptions............................23
Management...........................................24
Principal Shareholders...............................28
Investment Advisory Services.........................28
Distributor..........................................30
Transfer Agent.......................................31
Custodian............................................31
Independent Public Accountants.......................32
Portfolio Transactions...............................32
Additional Income Tax Considerations.................34
Investment Performance...............................35
Appendix--Ratings....................................38
<PAGE> 2
GENERAL INFORMATION AND HISTORY
Stein Roe Growth Opportunities Fund ("Growth
Opportunities Fund") is a separate series of Stein Roe
Investment Trust ("Investment Trust"). The name of
Investment Trust was changed on February 1, 1996, to separate
"SteinRoe" into two words.
As of the date of this Statement of Additional
Information, ten series of Investment Trust are authorized
and outstanding. Each share of a series, without par value,
is entitled to participate pro rata in any dividends and
other distributions declared by the Board on shares of that
series, and all shares of a series have equal rights in the
event of liquidation of that series. Each whole share (or
fractional share) outstanding on the record date established
in accordance with the By-Laws shall be entitled to a number
of votes on any matter on which it is entitled to vote equal
to the net asset value of the share (or fractional share) in
United States dollars determined at the close of business on
the record date (for example, a share having a net asset
value of $10.50 would be entitled to 10.5 votes). As a
business trust, Investment Trust is not required to hold
annual shareholder meetings. However, special meetings may
be called for purposes such as electing or removing trustees,
changing fundamental policies, or approving an investment
advisory contract. If requested to do so by the holders of
at least 10% of its outstanding shares, Investment Trust will
call a special meeting for the purpose of voting upon the
question of removal of a trustee or trustees and will assist
in the communications with other shareholders as if
Investment Trust were subject to Section 16(c) of the
Investment Company Act of 1940. All shares of all series of
Investment Trust are voted together in the election of
trustees. On any other matter submitted to a vote of
shareholders, shares are voted in the aggregate and not by
individual series, except that shares are voted by individual
series when required by the Investment Company Act of 1940 or
other applicable law, or when the Board of Trustees
determines that the matter affects only the interests of one
or more series, in which case shareholders of the unaffected
series are not entitled to vote on such matters.
Stein Roe & Farnham Incorporated (the "Adviser")
provides investment management, administrative, and
accounting and recordkeeping services to Growth Opportunities
Fund.
Special Considerations Regarding Master Fund/Feeder Fund
Structure
Rather than invest in securities directly, Growth
Opportunities Fund may in the future act as a "feeder fund;"
that is, it would seek to achieve its objective by pooling
its assets with those of other investment companies for
investment in a "master fund" having the same investment
objective and substantially the same investment policies as
the feeder funds. 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 the Fund would invest. Such investment would be
subject to determination by the Board of Trustees that it was
in the best interests of the Fund and its shareholders, and
shareholders would receive advance notice of any such change.
<PAGE> 3
INVESTMENT POLICIES
The investment objective of Growth Opportunities Fund is
long-term capital appreciation. Growth Opportunities Fund
attempts to achieve its objective by investing in a
diversified portfolio of common stocks of large, mid-sized,
and small companies that, in the view of the Adviser, have
the ability to generate and sustain earnings growth at an
above-average rate.
Growth Opportunities Fund's investments include
securities of both established companies that the Adviser
believes have appreciation potential and emerging companies.
Investment in established companies tends to moderate the
investment risks associated with investing in emerging,
generally smaller companies. Growth Opportunities Fund
invests a portion of its assets in the securities of small
and mid-sized companies. These companies may present greater
opportunities for capital appreciation because of high
potential earnings growth, but also may involve greater
risks. Securities of smaller companies may be subject to
greater price volatility and tend to be less liquid than
securities of larger companies. Small companies, as compared
to large companies, may have a shorter history of operations,
may not have as great an ability to raise additional capital,
may have a less diversified product line making them
susceptible to market pressure, and may have a smaller public
market for their shares. 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, Growth Opportunities Fund
may invest in all types of equity securities, including
preferred stocks and securities convertible into common
stocks.
Growth Opportunities may employ the investment
techniques Portfolio Investments and Strategies. The
investment objective is a non-fundamental policy and may be
changed by the Board of Trustees without the approval of a
"majority of the outstanding voting securities."/1/
PORTFOLIO INVESTMENTS AND STRATEGIES
Debt Securities
In pursuing its investment objective, Growth
Opportunities 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 its investment portfolio as well as on market
conditions. A decline in the prevailing levels of interest
rates generally increases the value of debt securities, while
an increase in rates usually reduces the value of those
securities.
- --------------
/1/ A "majority of the outstanding voting securities" means
the approval of the lesser of (i) 67% or more of the shares
at a meeting if the holders of more than 50% of the
outstanding shares are present or represented by proxy or
(ii) more than 50% of the outstanding shares.
- --------------
<PAGE> 4
Growth Opportunities 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.
Securities in the fourth highest grade may possess
speculative characteristics, and changes in economic
conditions are more likely to affect the issuer's capacity to
pay interest and repay principal. If the rating of a
security held by Growth Opportunities Fund is lost or reduced
below investment grade, it is not required to dispose of the
security, but the Adviser will consider that fact in
determining whether it 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, Growth Opportunities Fund may invest
without limitation in high-quality fixed income securities or
hold assets in cash or cash equivalents.
Derivatives
Consistent with its objective, Growth Opportunities 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.
<PAGE> 5
Growth Opportunities Fund currently does not intend to
invest more than 5% of its net assets in any type of
Derivative except for options, futures contracts, and futures
options. (See Options and Futures below.)
Some mortgage-backed debt securities are of the
"modified pass-through type," which means the interest and
principal payments on mortgages in the pool are "passed
through" to investors. During periods of declining interest
rates, there is increased likelihood that mortgages will be
prepaid, with a resulting loss of the full-term benefit of
any premium paid by Growth Opportunities 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 Growth Opportunities 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, Growth
Opportunities 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
<PAGE> 6
available if the stock were purchased directly. In
determining whether to purchase a convertible, the Adviser
will consider substantially the same criteria that would be
considered in purchasing the underlying stock. While
convertible securities purchased by Growth Opportunities Fund
are frequently rated investment grade, Growth Opportunities
Fund 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 tend to be more important in the
purchase of such securities than other factors.
Foreign Securities
Growth Opportunities 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 investment in securities of domestic issuers.
For this purpose, foreign securities do not include American
Depositary Receipts (ADRs) or securities guaranteed by a
United States person. ADRs are receipts typically issued by
an American bank or trust company evidencing ownership of the
underlying securities. Growth Opportunities Fund may invest
in sponsored or unsponsored ADRs. In the case of an
unsponsored ADR, Growth Opportunities Fund is likely to bear
its proportionate share of the expenses of the depositary and
it may have greater difficulty in receiving shareholder
communications than it would have with a sponsored ADR.
Growth Opportunities Fund does not intend to invest more than
5% of its net assets in unsponsored ADRs.
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies,
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 which are generally denominated in
foreign currencies, and utilization of forward foreign
currency exchange contracts involves 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
<PAGE> 7
securities; lack of uniform accounting, auditing, and
financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the
United States; possible imposition of foreign taxes; possible
investment in securities of companies in developing as well
as developed countries; and sometimes less advantageous
legal, operational, and financial protections applicable to
foreign sub-custodial arrangements.
Although Growth Opportunities 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.
Growth Opportunities Fund's foreign currency exchange
transactions are limited to transaction and portfolio hedging
involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of
forward contracts with respect to specific receivables or
payables of Growth Opportunities Fund arising in connection
with the purchase and sale of its portfolio securities.
Portfolio hedging is the use of forward contracts with
respect to portfolio security positions denominated or quoted
in a particular foreign currency. Portfolio hedging allows
Growth Opportunities Fund to limit or reduce its exposure in
a foreign currency by entering into a forward contract to
sell such foreign currency (or another foreign currency that
acts as a proxy for that currency) at a future date for a
price payable in U.S. dollars so that the value of the
foreign-denominated portfolio securities can be approximately
matched by a foreign-denominated liability. Growth
Opportunities 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 Growth Opportunities 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, Growth Opportunities 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 portfolio.
Growth Opportunities Fund may not engage in "speculative"
currency exchange transactions.
<PAGE> 8
At the maturity of a forward contract to deliver a
particular currency, Growth Opportunities 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
Growth Opportunities 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 it is obligated to deliver and if a decision is made
to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market
some of the currency received upon the sale of the portfolio
security if its market value exceeds the amount of currency
Growth Opportunities Fund is obligated to deliver.
If Growth Opportunities Fund retains the portfolio
security and engages in an offsetting transaction, it will
incur a gain or a loss to the extent that there has been
movement in forward contract prices. If Growth Opportunities
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 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, Growth Opportunities 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,
Growth Opportunities 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 Growth Opportunities Fund of
unrealized profits or force it to cover its commitments for
purchase or sale of currency, if any, at the current market
price.
Hedging against a decline in the value of a currency
does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities
decline. Such transactions also preclude the opportunity for
gain if the value of the hedged currency should rise.
Moreover, it may not be possible for Growth Opportunities
Fund to hedge against a devaluation that is so generally
anticipated that it is not able to contract to sell the
currency at a price above the devaluation level it
anticipates. The cost to Growth Opportunities 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, Growth
Opportunities Fund may lend its portfolio securities to
<PAGE> 9
broker-dealers and banks. Any such loan must be continuously
secured by collateral in cash or cash equivalents maintained
on a current basis in an amount at least equal to the market
value of the securities loaned by Growth Opportunities Fund.
Growth Opportunities 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. Growth Opportunities 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.
Growth Opportunities 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,
Growth Opportunities 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 it seeks to enforce its rights
thereto, (b) possible subnormal levels of income and lack of
access to income during this period, and (c) expenses of
enforcing its rights.
Repurchase Agreements
Growth Opportunities 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
Growth Opportunities 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 Growth Opportunities 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. Growth Opportunities 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. Growth
Opportunities Fund does not currently intend to have
commitments to purchase when-issued securities in excess of
5% of its net assets.
Growth Opportunities Fund may enter into reverse
repurchase agreements with banks and securities dealers. A
reverse repurchase agreement is a repurchase agreement in
which Growth Opportunities 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.
<PAGE> 10
At the time Growth Opportunities 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 Growth Opportunities 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
Growth Opportunities 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 "Against the Box"
Growth Opportunities Fund may sell securities short
against the box; that is, enter into short sales of
securities that it currently owns or has the right to acquire
through the conversion or exchange of other securities that
it owns at no additional cost. Growth Opportunities Fund may
make short sales of securities only if at all times when a
short position is open it owns at least an equal amount of
such securities or securities convertible into or
exchangeable for securities of the same issue as, and equal
in amount to, the securities sold short, at no additional
cost.
In a short sale against the box, Growth Opportunities
Fund does not deliver from its portfolio the securities sold.
Instead, Growth Opportunities Fund borrows the securities
sold short from a broker-dealer through which the short sale
is executed, and the broker-dealer delivers such securities,
on behalf of Growth Opportunities Fund, to the purchaser of
such securities. Growth Opportunities Fund is required to
pay to the broker-dealer the amount of any dividends paid on
shares sold short. Finally, to secure its obligation to
deliver to such broker-dealer the securities sold short,
Growth Opportunities Fund must deposit and continuously
maintain in a separate account with its custodian an
equivalent amount of the securities sold short or securities
convertible into or exchangeable for such securities at no
additional cost. Growth Opportunities Fund is said to have a
short position in the securities sold until it delivers to
the broker-dealer the securities sold. Growth Opportunities
Fund may close out a short position by purchasing on the open
market and delivering to the broker-dealer an equal amount of
the securities sold short, rather than by delivering
portfolio securities.
Short sales may protect Growth Opportunities Fund
against the risk of losses in the value of its portfolio
securities because any unrealized losses with respect to such
portfolio securities should be wholly or partially offset by
a corresponding gain in the short position. However, any
potential gains in such portfolio securities should be wholly
or partially offset by a corresponding loss in the short
position. The extent to which such gains or losses are
offset will depend upon the amount of securities sold short
relative to the amount Growth Opportunities Fund owns, either
directly or indirectly, and, in the case where it owns
convertible securities, changes in the conversion premium.
Short sale transactions involve certain risks. If the
price of the security sold short increases between the time
of the short sale and the time Growth Opportunities
<PAGE> 11
Fund replaces the borrowed security, it will incur a loss and
if the price declines during this period, it will realize a
short-term capital gain. Any realized short-term capital
gain will be decreased, and any incurred loss increased, by
the amount of transaction costs and any premium, dividend or
interest which Growth Opportunities Fund may have to pay in
connection with such short sale. Certain provisions of the
Internal Revenue Code may limit the degree to which Growth
Opportunities Fund is able to enter into short sales. There
is no limitation on the amount of Growth Opportunities Fund's
assets that, in the aggregate, may be deposited as collateral
for the obligation to replace securities borrowed to effect
short sales and allocated to segregated accounts in
connection with short sales. It is currently expected that
no more than 5% of the total assets of Growth Opportunities
Fund would be involved in short sales against the box.
Rule 144A Securities
Growth Opportunities 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
Growth Opportunities 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 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, Growth Opportunities Fund's holdings of
illiquid securities would be reviewed to determine what, if
any, steps are required to assure that Growth Opportunities
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 assets invested in
illiquid securities if qualified institutional buyers are
unwilling to purchase such securities. Growth Opportunities
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 (n) under
Investment Restrictions.)
Line of Credit
Subject to restriction (6) under Investment Restrictions
in this Statement of Additional Information, Growth
Opportunities 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.
<PAGE> 12
Interfund Borrowing and Lending Program
Pursuant to an exemptive order issued by the Securities
and Exchange Commission, Growth Opportunities Fund has
received permission to lend money to, and borrow money from,
other mutual funds advised by the Adviser. Growth
Opportunities Fund will borrow through the program when
borrowing is necessary and appropriate and the costs are
equal to or lower than the costs of bank loans.
Portfolio Turnover
Although Growth Opportunities 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. Accordingly, the portfolio turnover rate may
vary significantly from year to year, but is not expected to
exceed 100% under normal market conditions. At times, Growth
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 Growth
Opportunities 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. A
high rate of portfolio turnover, if it should occur, would
result in increased transaction expenses, 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
Growth Opportunities 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. Growth Opportunities 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
<PAGE> 13
the index option. (An index is designed to reflect specified
facets of a particular financial or securities market, a
specific group of financial instruments or securities, or
certain economic indicators.)
Growth Opportunities 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 Growth Opportunities 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 Growth Opportunities Fund
expires, it realizes a capital gain equal to the premium
received at the time the option was written. If an option
purchased by Growth Opportunities Fund expires, it realizes a
capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an
option may be closed out by an offsetting purchase or sale of
an option of the same series (type, exchange, underlying
security or index, exercise price, and expiration). There
can be no assurance, however, that a closing purchase or sale
transaction can be effected when Growth Opportunities Fund
desires.
Growth Opportunities 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, it will realize a capital
loss. If the premium received from a closing sale
transaction is more than the premium paid to purchase the
option, it will realize a capital gain or, if it is less, it
will realize a capital loss. The principal factors affecting
the market value of a put or a call option include supply and
demand, interest rates, the current market price of the
underlying security or index in relation to the exercise
price of the option, the volatility of the underlying
security or index, and the time remaining until the
expiration date.
A put or call option purchased by Growth Opportunities
Fund is an asset, valued initially at the premium paid for
the option. The premium received for an option written by
Growth Opportunities 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 trans-
<PAGE> 14
action may be unsuccessful to some degree because of market
behavior or unexpected events.
There can be no assurance that a liquid market will
exist when Growth Opportunities Fund seeks to close out an
option position. If Growth Opportunities 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
Growth Opportunities 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, Growth Opportunities 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 Growth Opportunities Fund, it would not be able to
close out the option. If restrictions on exercise were
imposed, Growth Opportunities Fund might be unable to
exercise an option it has purchased.
Futures Contracts and Options on Futures Contracts
Growth Opportunities 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.
Growth Opportunities 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.
Growth Opportunities Fund might, for example, use futures
contracts to hedge against or gain exposure to fluctuations
in
- -----------
/2/ A futures contract on an index is an agreement pursuant
to which two parties agree to take or make delivery of an
amount of cash equal to the difference between the value of
the index at the close of the last trading day of the
contract and the price at which the index contract was
originally written. Although the value of a securities index
is a function of the value of certain specified securities,
no physical delivery of those securities is made.
- -----------
<PAGE> 15
the general level of stock prices, anticipated changes in
interest rates or currency fluctuations that might adversely
affect either the value of its portfolio securities or the
price of the securities that it intends to purchase.
Although other techniques could be used to reduce or increase
Growth Opportunities Fund's exposure to stock price, interest
rate and currency fluctuations, it may be able to achieve its
exposure more effectively and perhaps at a lower cost by
using futures contracts and futures options.
Growth Opportunities 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, Growth Opportunities 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
Growth Opportunities Fund, it is required to deposit with its
custodian (or broker, if legally permitted) a specified
amount of cash or U.S. Government securities or other
securities acceptable to the broker ("initial margin"). The
margin required for a futures contract is set by the exchange
on which the contract is traded and may be modified during
the term of the contract. The initial margin is in the
nature of a performance bond or good faith deposit on the
futures contract, which is returned to Growth Opportunities
Fund upon termination of the contract, assuming all
contractual obligations have been satisfied. Growth
Opportunities Fund expects to earn interest income on its
initial margin deposits. A futures contract held by Growth
Opportunities Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day Growth
Opportunities 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 Growth Opportunities
Fund does not represent a borrowing or loan but is instead
settlement between Growth Opportunities 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, Growth Opportunities Fund will mark-
to-market its open futures positions.
Growth Opportunities 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 it holds.
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 se-
<PAGE> 16
curity or index, and delivery month). If an offsetting
purchase price is less than the original sale price, Growth
Opportunities Fund realizes a capital gain, or if it is more,
it realizes a capital loss. Conversely, if an offsetting
sale price is more than the original purchase price, Growth
Opportunities Fund realizes a capital gain, or if it is less,
it realizes a capital loss. The transaction costs must also
be included in these calculations.
Risks Associated with Futures
There are several risks associated with the use of
futures contracts and futures options. A purchase or sale of
a futures contract may result in losses in excess of the
amount invested in the futures contract. In trying to
increase or reduce market exposure, there can be no guarantee
that there will be a correlation between price movements in
the futures contract and in 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 investments portfolio, and, in the case of interest rate
futures contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures
contract may differ from the financial instruments held in
the investment portfolio. A decision as to whether, when and
how to use futures contracts involves the exercise of skill
and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or
unexpected stock price or interest rate trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount
that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of
the current trading session. Once the daily limit has been
reached in a futures contract subject to the limit, no more
trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a
particular trading day and therefore does not limit potential
losses because the limit may work to prevent the liquidation
of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive
trading days with little or no trading, thereby preventing
prompt liquidation of positions and subjecting some holders
of futures contracts to substantial losses. Stock index
futures contracts are not normally subject to such daily
price change limitations.
There can be no assurance that a liquid market will
exist at a time when Growth Opportunities Fund seeks to close
out a futures or futures option position. Growth
Opportunities Fund would be exposed to possible loss on the
position during
<PAGE> 17
the interval of inability to close, and would continue to be
required to meet margin requirements until the position is
closed. In addition, many of the contracts discussed above
are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an
active secondary market will develop or continue to exist.
Limitations on Options and Futures
If other options, futures contracts, or futures options
of types other than those described herein are traded in the
future, Growth Opportunities Fund may also use those
investment vehicles, provided the Board of Trustees
determines that their use is consistent with its investment
objective.
Growth Opportunities Fund will not enter into a futures
contract or purchase an option thereon if, immediately
thereafter, the initial margin deposits for futures contracts
it holds 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 its total assets.
When purchasing a futures contract or writing a put
option on a futures contract, Growth Opportunities 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, Growth Opportunities 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.
Growth Opportunities 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 Growth Opportunities 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," Growth Opportunities 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 Growth Opportunities Fund, after taking into
account unrealized
- ------------
/3/ A call option is "in-the-money" if the value of the
futures contract that is the subject of the option exceeds
the exercise price. A put option is "in-the-money" if the
exercise price exceeds the value of the futures contract that
is the subject of the option.
- ------------
<PAGE> 18
profits and unrealized losses on any such contracts it has
entered into [in the case of an option that is in-the-money
at the time of purchase, the in-the-money amount (as defined
in Section 190.01(x) of the Commission Regulations) may be
excluded in computing such 5%].
Taxation of Options and Futures
If Growth Opportunities 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
Growth Opportunities 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 Growth Opportunities
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 Growth
Opportunities 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 Growth
Opportunities 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 Growth Opportunities Fund writes an equity call
option /4/ other than a "qualified covered call option," as
defined in the Internal Revenue Code, any loss on such option
transaction, to the extent it does not exceed the unrealized
gains on the securities covering the option, may be subject
to deferral until the securities covering the option have
been sold.
A futures contract held until delivery results in
capital gain or loss equal to the difference between the
price at which the futures contract was entered into and the
settlement price on the earlier of delivery notice date or
expiration date. If Growth Opportunities Fund delivers
securities under a futures contract, it also realizes a
capital gain or loss on those securities.
For federal income tax purposes, Growth Opportunities
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
- ----------
/4/ An equity option is defined to mean any option to buy or
sell stock, and any other option the value of which is
determined by reference to an index of stocks of the type
that is ineligible to be traded on a commodity futures
exchange (e.g., an option contract on a sub-index based on
the price of nine hotel-casino stocks). The definition of
equity option excludes options on broad-based stock indexes
(such as the Standard & Poor's 500 index).
- ----------
<PAGE> 19
("year-end mark-to-market"). Generally, any gain or loss
recognized with respect to such positions (either by year-end
mark-to-market or by actual closing of the positions) is
considered to be 60% long-term and 40% short-term, without
regard to the holding periods of the contracts. However, in
the case of positions classified as part of a "mixed
straddle," the recognition of losses on certain positions
(including options, futures and futures options positions,
the related securities and certain successor positions
thereto) may be deferred to a later taxable year. Sale of
futures contracts or writing of call options (or futures call
options) or buying put options (or futures put options) that
are intended to hedge against a change in the value of
securities held by Growth Opportunities 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 Growth Opportunities Fund were to enter into a short
index future, short index futures option or short index
option position and its portfolio were deemed to "mimic" the
performance of the index underlying such contract, the option
or futures contract position and its stock positions would be
deemed to be positions in a mixed straddle, subject to the
above-mentioned loss deferral rules.
In order for Growth Opportunities 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 its 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, Growth Opportunities Fund may be required to
defer the closing out of certain positions beyond the time
when it would otherwise be advantageous to do so.
Growth Opportunities 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 its other investments, and shareholders are
advised of the nature of the payments.
INVESTMENT RESTRICTIONS
Growth Opportunities Fund operates under the following
investment restrictions. It may not:
(1) with respect to 75% of its total assets, invest more
than 5% of its total assets, taken at market value at the
time of a particular purchase, in the securities of a single
issuer, except for securities issued or guaranteed by the
U.S. Government or any of its
<PAGE> 20
agencies or instrumentalities or repurchase agreements for
such securities, and except that all or substantially all of
its assets 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 its
assets 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 its assets may be
invested in another registered investment company having the
same investment objective and substantially similar
investment policies as the Fund;
(4) purchase or sell real estate (although it may
purchase securities secured by real estate or interests
therein, or securities issued by companies which invest in
real estate or interests therein), commodities, or commodity
contracts, except that it may enter into (a) futures and
options on futures and (b) forward contracts;
(5) make loans, although it may (a) lend portfolio
securities and participate in an interfund lending program
with other Stein Roe Funds and Portfolios provided that no
such loan may be made if, as a result, the aggregate of such
loans would exceed 33 1/3% of the value of its total assets
(taken at market value at the time of such loans); (b)
purchase money market instruments and enter into repurchase
agreements; and (c) acquire publicly distributed or privately
placed debt securities;
(6) borrow except that it may (a) borrow for non-
leveraging, temporary or emergency purposes, (b) engage in
reverse repurchase agreements and make other borrowings,
provided that the combination of (a) and (b) shall not exceed
33 1/3% of the value of its total assets (including the
amount borrowed) less liabilities (other than borrowings) or
such other percentage permitted by law, and (c) enter into
futures and options transactions; it may borrow from banks,
other Stein Roe Funds and Portfolios, and other persons to
the extent permitted by applicable law;
(7) invest in a security if more than 25% of its total
assets (taken at market value at the time of a particular
purchase) would be invested in the securities of issuers in
any particular industry, except that this restriction does
not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, and except
that all or substantially all of its assets 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.
<PAGE> 21
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. Growth
Opportunities 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 Growth Opportunities 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. Growth Opportunities 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);
<PAGE> 22
(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) it owns or
has the right to obtain securities equivalent in kind and
amount to those sold short at no added cost or (ii) the
securities sold are "when issued" or "when distributed"
securities which it expects to receive in a recapitalization,
reorganization, or other exchange for securities it
contemporaneously owns or has the right to obtain and
provided that transactions in options, futures, and options
on futures are not treated as short sales;
(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.
In working to build wealth for generations it has been guided
by three primary objectives which it believes are the
foundation of a successful investment program. These
objectives are preservation of capital, limited volatility
through managed risk, and consistent above-average returns,
as appropriate for the particular client or managed account.
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:
<PAGE> 23
What are my investment goals?
It is important to a choose a fund that has investment
objectives compatible with your investment goals.
What is my investment time frame?
If you have a short investment time frame (e.g., less than
three years), a mutual fund that seeks to provide a stable
share price, such as a money market fund, or one that seeks
capital preservation as one of its objectives may be
appropriate. If you have a longer investment time frame, you
may seek to maximize your investment returns by investing in
a mutual fund that offers greater yield or appreciation
potential in exchange for greater investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks
which will vary depending on investment objective and
security type. However, mutual funds seek to reduce risk
through professional investment management and portfolio
diversification.
In general, equity mutual funds emphasize long-term
capital appreciation and tend to have more volatile net asset
values than bond or money market mutual funds. Although
there is no guarantee that they will be able to maintain a
stable net asset value of $1.00 per share, money market
funds emphasize safety of principal and liquidity, but tend
to offer lower income potential than bond funds. Bond funds
tend to offer higher income potential than money market funds
but tend to have greater risk of principal and yield
volatility.
In addition, the Adviser believes that investment in a
high yield fund provides an opportunity to diversify an
investment portfolio because the economic factors that affect
the performance of high-yield, high-risk debt securities
differ from those that affect the performance of high quality
debt securities or equity securities.
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 Investment
Trust of any such purchase order. The state of Texas has
asked that Investment 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.
Growth Opportunities 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, respec-
<PAGE> 24
tively. 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 Growth Opportunities Fund should
be determined on any such day, in which case the
determination will be made at 3:00 p.m., Chicago time.
Investment Trust intends to pay all redemptions in cash
and is obligated to redeem shares solely in cash up to the
lesser of $250,000 or one percent of the net assets of
Investment Trust during any 90-day period for any one
shareholder. However, redemptions in excess of such limit
may be paid wholly or partly by a distribution in kind of
securities. If redemptions were made in kind, the redeeming
shareholders might incur transaction costs in selling the
securities received in the redemptions.
Due to the relatively high cost of maintaining smaller
accounts, Investment Trust reserves the right to redeem
shares in any account for their then-current value (which
will be promptly paid to the investor) if at any time the
shares in the account do not have a value of at least $1,000.
An investor will be notified that the value of his account is
less than that minimum and allowed at least 30 days to bring
the value of the account up to at least $1,000 before the
redemption is processed. The Agreement and Declaration of
Trust also authorizes Investment Trust to redeem shares under
certain other circumstances as may be specified by the Board
of Trustees.
Investment Trust reserves the right to suspend or
postpone redemptions of shares of Growth Opportunities 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 not reasonably practicable.
MANAGEMENT
The following table sets forth certain information with
respect to the trustees and officers of Investment Trust:
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME AGE WITH THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
Gary A. Anetsberger 41 Senior Vice-President Chief financial officer of the Mutual Funds
division of Stein Roe & Farnham Incorporated (the
"Adviser"); senior vice president of the Adviser
since April, 1996; vice president of the Adviser
prior thereto
Timothy K. Armour 48 President; Trustee President of the Mutual Funds division of the
(1)(2) Adviser and director of the Adviser since June,
1992; senior vice president and director of
marketing of Citibank Illinois prior thereto
Jilaine Hummel Bauer 41 Executive Vice- General counsel and secretary of the Adviser since
President; Secretary November, 1995; senior vice president of the
Adviser
<PAGE> 25
Bruno Bertocci 42 Vice-President Vice president of Colonial Management Associates,
Inc. since January, 1996; senior vice president of
the Adviser since May, 1995; global equity
portfolio manager with Rockefeller & Co. prior
thereto
Kenneth L. Block(3) 76 Trustee Chairman emeritus of A. T. Kearney, Inc.
(international management consultants)
William W. Boyd 70 Trustee Chairman and director of Sterling Plumbing Group,
(2)(3) Inc. (manufacturer of plumbing products)
David P. Brady 33 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 40 Executive Vice-President Senior vice president of the Adviser since
September, 1994; first vice president, corporate
communications, of Mellon Bank Corporation prior
thereto
Daniel K. Cantor 37 Vice-President Senior vice president of the Adviser
Lindsay Cook (1) 45 Trustee Executive vice president of Liberty Financial
Companies, Inc. (the indirect parent of the
Adviser) since March, 1997; senior vice president
prior thereto
Philip J. Crosley 50 Vice-President Senior vice president of the Adviser since
February, 1996; vice president, institutional
sales-advisor sales, Invesco Funds Group prior
thereto
E. Bruce Dunn 63 Vice-President Senior vice president of the Adviser
Erik P. Gustafson 33 Vice-President Senior portfolio manager of the Adviser; senior
vice president of the Adviser since April, 1996;
vice president of the Adviser from May, 1994 to
April, 1996; associate of the Adviser prior thereto
Douglas A. Hacker(3) 41 Trustee Senior vice president and chief financial officer,
United Airlines, since July, 1994; senior vice
president, finance, United Airlines, February, 1993
to July, 1994; vice president, American Airlines
prior thereto
David P. Harris 32 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
Harvey B. Hirschhorn 47 Vice-President Executive vice president, senior portfolio manager,
and chief economist and investment strategist of
the Adviser; director of research of the Adviser,
1991 to 1995
<PAGE> 26
Janet Langford Kelly 39 Trustee Senior vice president, secretary and general
(3) counsel of Sara Lee Corporation (branded, packaged,
consumer-products manufacturer) since 1995;
partner, Sidley & Austin (law firm) prior thereto
Eric S. Maddix 33 Vice-President Vice president of the Adviser since November, 1995;
portfolio manager or research assistant for the
Adviser since 1987
Lynn C. Maddox 56 Vice-President Senior vice president of the Adviser
Anne E. Marcel 39 Vice-President Vice president of the Adviser since April, 1996;
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 prior thereto
Arthur J. McQueen 38 Vice-President Senior vice president of the Adviser
Francis W. Morley 76 Trustee Chairman of Employer Plan Administrators and
(3) Consultants Co. (designer, administrator, and
communicator of employee benefit plans)
Charles R. Nelson 54 Trustee Van Voorhis Professor of Political Economy,
(3) Department of Economics of the University of
Washington
Nicolette D. Parrish 47 Vice-President; Assistant Senior compliance administrator and assistant
Secretary secretary of the Adviser since November, 1995;
senior legal assistant for the Adviser prior
thereto
Judith E. Perrie 29 Treasurer Compliance manager for the Adviser's Mutual Funds
division since April, 1997; tax manager, Strong
Capital Management, Inc. (investment advisory firm)
since June 1996; associate with Strong's corporate
tax department prior thereto
Richard B. Peterson 56 Vice-President Senior vice president of the Adviser
Cynthia A. Prah 34 Vice-President Manager of shareholder transaction processing for
the Adviser
Sharon R. Robertson 35 Controller Accounting manager for the Adviser's Mutual Funds
division
Janet B. Rysz 41 Assistant Secretary Senior compliance administrator and assistant
secretary of the Adviser
Gloria J. Santella 39 Vice-President Senior vice president of the Adviser since
November, 1995; vice president of the Adviser prior
thereto
Thomas P. Sorbo 36 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
<PAGE> 27
Thomas C. Theobald 60 Trustee Managing director, William Blair Capital Partners
(3) (private equity fund) since 1994; chief executive
officer and chairman of the Board of Directors of
Continental Bank Corporation, 1987-1994
Heidi J. Walter 29 Vice-President Legal counsel for the Adviser since March, 1995;
associate with Beeler Schad & Diamond PC (law
firm), prior thereto
Stacy H. Winick 32 Vice-President Senior legal counsel for the Adviser since October,
1996; associate of Bell, Boyd & Lloyd (law firm),
June, 1993 to September, 1996; associate of
Debevoise & Plimpton (law firm) prior thereto
Hans P. Ziegler 56 Executive Vice-President Chief executive officer of the Adviser since May,
1994; president of the Investment Counsel division
of the Adviser from July, 1993 to June, 1994;
president and chief executive officer, Pitcairn
Financial Management Group prior thereto
Margaret O. Zwick 30 Treasurer Accounting manager for the Adviser since
April 1997, compliance manager for the Adviser's
Mutual Funds division, August 1995 to April 1997;
compliance accountant, January 1995 to July 1995;
section manager, January 1994 to January 1995;
supervisor prior thereto
<FN>
_________________________
(1) Trustee who is an "interested person" of Investment Trust
and of the Adviser, as defined in the Investment Company
Act of 1940.
(2) Member of the Executive Committee of the Board of
Trustees, which is authorized to exercise all powers of
the Board with certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the
scope and results of the audit.
</TABLE>
Certain of the trustees and officers of Investment Trust
are trustees or officers of other investment companies
managed by the Adviser. Mr. Armour, Ms. Bauer, Mr. Cook, and
Ms. Walter are vice presidents of Growth Opportunities Fund's
distributor, Liberty Securities Corporation. The address of
Mr. Block is 11 Woodley Road, Winnetka, Illinois 60093; that
of Mr. Boyd is 2900 Golf Road, Rolling Meadows, Illinois
60008; that of Mr. Cook is 600 Atlantic Avenue, Boston,
Massachusetts 02210; that of Mr. Hacker is P.O. Box 66100,
Chicago, IL 60666; that of Ms. Kelly is Three First National
Plaza, Chicago, Illinois 60602; that of Mr. Morley is 20
North Wacker Drive, Suite 2275, Chicago, Illinois 60606; that
of Mr. Nelson is Department of Economics, University of
Washington, Seattle, Washington 98195; that of Mr. Theobald
is Suite 3300, 222 West Adams Street, Chicago, IL 60606; that
of 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 Investment Trust. In
compensation for their services to Investment Trust, trustees
who are not "interested persons" of Investment Trust or the
Adviser are paid an annual retainer of $8,000 (divided
equally among the series of Investment Trust) plus an
attendance fee from each series for each meeting of the Board
or standing committee thereof attended at which business for
that series is conducted. The attendance
<PAGE> 28
fees (other than for a Nominating Committee or Compensation
Committee meeting) are based on each series' net assets as of
the preceding December 31. For a series with net assets of
less than $50 million, the fee is $50 per meeting; with $51 to
$250 million, the fee is $200 per meeting; with $251 million to
$500 million, $350; with $501 million to $750 million, $500;
with $751 million to $1 billion, $650; and with over $1 billion
in net assets, $800. For a series participating in the master
fund/feeder fund structure, the trustees' attendance fees are
paid solely by the master portfolio. Each non-interested trustee
also receives $500 from Investment Trust for attending each meeting
of the Nominating Committee or Compensation Committee. Investment
Trust has no retirement or pension plan. The following table sets
forth compensation paid by Investment Trust during the fiscal year
ended September 30, 1996 to each of the trustees:
Aggregate Total Compensation
Compensation from the
Name of Trustee from the Trust Stein Roe Fund Complex
------------------ --------------- ----------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Janet Langford Kelly -0- -0-
Douglas A. Hacker $ 4,700 $11,650
Thomas C. Theobald 4,700 11,650
Kenneth L. Block 35,750 81,817
William W. Boyd 37,750 88,317
Francis W. Morley 35,750 82,017
Charles R. Nelson 37,750 88,317
Gordon R. Worley 36,150 82,217
_______________
* 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 Investment Trust,
and one series of SR&F Base Trust. Messrs. Hacker and
Theobald were elected trustees on June 18, 1996; Mr. Worley
retired as a trustee on December 31, 1996; and Ms. Kelly
became a trustee on January 1, 1997.
PRINCIPAL SHAREHOLDERS
As of the date of this Statement of Additional
Information, Growth Opportunities Fund had no shareholders.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated provides investment
management and administrative services to Growth
Opportunities Fund. The Adviser is a wholly owned subsidiary
of SteinRoe Services Inc. ("SSI"), Growth Opportunities
Fund's transfer agent, which is a wholly owned subsidiary of
Liberty Financial Companies, Inc. ("Liberty Financial"),
which is a majority owned subsidiary of LFC Holdings, Inc.,
which is a wholly owned subsidiary of Liberty Mutual Equity
Corporation, which is a wholly owned subsidiary of Liberty
Mutual Insurance Company. Liberty Mutual Insurance Company
is a mutual insurance company, principally in the
property/casualty insurance field, organized under the laws
of Massachusetts in 1912.
<PAGE> 29
The directors of the Adviser are Kenneth R. Leibler,
Harold W. Cogger, C. Allen Merritt, Jr., Timothy K. Armour,
and Hans P. Ziegler. Mr. Leibler is President and Chief
Executive Officer of Liberty Financial; Mr. Cogger is
Executive Vice President of Liberty Financial; Mr. Merritt is
Executive Vice President and Treasurer of Liberty Financial;
Mr. Armour is President of the Adviser's Mutual Funds
division; and Mr. Ziegler is Chief Executive Officer of the
Adviser. The business address of Messrs. Leibler, Cogger,
and Merritt is Federal Reserve Plaza, Boston, Massachusetts
02210; and that of Messrs. Armour and Ziegler is One South
Wacker Drive, Chicago, Illinois 60606.
The Adviser and its predecessor have been providing
investment advisory services since 1932. The Adviser acts as
investment adviser to wealthy individuals, trustees, pension
and profit sharing plans, charitable organizations, and other
institutional investors. As of December 31, 1996, the
Adviser managed over $26.7 billion in assets: over $8 billion
in equities and over $18.7 billion in fixed income securities
(including $1.6 billion in municipal securities). The $26.7
billion in managed assets included over $7.5 billion held by
open-end mutual funds managed by the Adviser (approximately
16% of the mutual fund assets were held by clients of the
Adviser). These mutual funds were owned by over 227,000
shareholders. The $7.5 billion in mutual fund assets
included over $743 million in over 47,000 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 December 31, 1996,
the Adviser employed 19 research analysts and 55 account
managers. The average investment-related experience of these
individuals was 22 years.
Stein Roe Counselor [service mark] and Stein Roe
Personal Counselor [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
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 Personal Counselor [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, the
management agreement and administrative agreement, fees,
expense limitations, and transfer agency services
<PAGE> 30
under Fee Table and Management in the Prospectus, which are
incorporated herein by reference.
The Adviser provides office space and executive and
other personnel to Growth Opportunities Fund, and bears any
sales or promotional expenses. Growth Opportunities Fund
pays all expenses other than those paid by the Adviser,
including but not limited to printing and postage charges and
securities registration and custodian fees and expenses
incidental to its organization.
The administrative agreement provides that the Adviser
shall reimburse the Fund to the extent its that total annual
expenses (including fees paid to the Adviser, but excluding
taxes, interest, commissions and other normal charges
incident to the purchase and sale of portfolio securities,
and expenses of litigation to the extent permitted under
applicable state law) exceed the applicable limits prescribed
by any state in which shares of Growth Opportunities Fund are
being offered for sale to the public; provided, however, the
Adviser is not required to reimburse Growth Opportunities
Fund an amount in excess of fees paid by the Fund under that
agreement for such year. In addition, in the interest of
further limiting expenses of Growth Opportunities Fund, the
Adviser may voluntarily waive its management fee and/or
absorb certain expenses, as described under Fee Table in the
Prospectus. Any such reimbursement will enhance the yield of
Growth Opportunities Fund.
The management agreement provides that neither the
Adviser, nor any of its directors, officers, stockholders (or
partners of stockholders), agents, or employees shall have
any liability to 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 Growth Opportunities
Fund shall be paid solely out its assets. Any expenses
incurred by Investment 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 Investment Trust,
the Adviser receives a fee for performing certain bookkeeping
and accounting services for Growth Opportunities 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 years ended September 30, 1995
and 1996, the Adviser received aggregate fees of $192,479 and
$265,246, respectively, from Investment Trust for services
performed under this Agreement.
<PAGE> 31
DISTRIBUTOR
Shares of Growth Opportunities Fund are distributed by
Liberty Securities Corporation ("LSC") under a Distribution
Agreement as described under Management 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 Investment Trust, and (ii) by a majority of the
trustees who are not parties to the Agreement or interested
persons of any such party. Investment Trust has agreed to pay
all expenses in connection with registration of its shares with the
Securities and Exchange Commission and auditing and filing
fees in connection with registration of its shares under the
various state blue sky laws and assumes the cost of
preparation of prospectuses and other expenses.
As agent, LSC offers shares of Growth Opportunities 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 Growth Opportunities Fund. LSC
offers the shares of Growth Opportunities Fund only on a
best-efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for
Investment Trust, as described under Management in the
Prospectus. For performing these services, SSI receives from
Growth Opportunities Fund a fee based on an annual rate of
.22 of 1% of Growth Opportunities Fund's average net assets.
Investment Trust believes the charges by SSI to Growth
Opportunities Fund are comparable to those of other companies
performing similar services. (See Investment Advisory
Services.)
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the
custodian for Investment Trust. It is responsible for
holding all securities and cash, receiving and paying for
securities purchased, delivering against payment securities
sold, receiving and collecting income from investments,
making all payments covering expenses, and performing other
administrative duties, all as directed by authorized persons.
The custodian does not exercise any supervisory function in
such matters as purchase and sale of portfolio securities,
payment of dividends, or payment of expenses.
Portfolio securities purchased in the U.S. are
maintained in the custody of the Bank or of other domestic
banks or depositories. Portfolio securities purchased
outside of the U.S. are maintained in the custody of foreign
banks and trust companies that are members of the Bank's
Global Custody Network and foreign depositories ("foreign
sub-custodians"). Each of the domestic and foreign custodial
institutions holding portfolio securities has been approved
by the Board of Trustees in accordance with regulations under
the Investment Company Act of 1940.
<PAGE> 32
The Board of Trustees reviews, at least annually,
whether it is in the best interests of Growth Opportunities
Fund and its shareholders to maintain assets in each of the
countries in which it invests with particular foreign sub-
custodians in such countries, pursuant to contracts between
such respective foreign sub-custodians and the Bank. The
review includes an assessment of the risks of holding assets
in any such country (including risks of expropriation or
imposition of exchange controls), the operational capability
and reliability of each such foreign sub-custodian, and the
impact of local laws on each such custody arrangement. 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 the Adviser and counsel. However, with respect to
foreign sub-custodians, there can be no assurance that Growth
Opportunities 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 foreign sub-custodial
arrangements. Accordingly, an investor should recognize that
the non-investment risks involved in holding assets abroad
are greater than those associated with investing in the
United States.
Growth Opportunities 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 Investment Trust
are Arthur Andersen LLP, 33 West Monroe Street, Chicago,
Illinois 60603. The accountants audit and report on the
annual financial statements, review certain regulatory
reports and the federal income tax returns, and perform other
professional accounting, auditing, tax and advisory services
when engaged to do so by the Trust.
PORTFOLIO TRANSACTIONS
The Adviser places the orders for the purchase and sale
of Growth Opportunities 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, Growth Opportunities
Fund may pay a brokerage commission in excess of that which
<PAGE> 33
another broker or dealer may have charged for effecting the same
transaction. Evaluations of the reasonableness of brokerage
commissions, based on the foregoing factors, are made on an ongoing
basis by the Adviser's staff while effecting portfolio transactions.
The general level of brokerage commissions paid is reviewed by the
Adviser, and reports are made annually to the Board of Trustees.
With respect to issues of securities involving brokerage
commissions, when more than one broker or dealer is believed
to be capable of providing the best combination of price and
execution with respect to a particular portfolio transaction
for Growth Opportunities 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 Growth Opportunities 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 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 Growth
Opportunities Fund), while the portion of the costs
attributable to non-research usage of such products or
services is paid by the Adviser in cash. No person acting on
behalf of Growth Opportunities 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.
The Adviser may also receive research in connection with
selling concessions and designations in fixed price offerings
in which the Fund participates. Research products or
services furnished by brokers and dealers may be used in
servicing any or all of the clients of the Adviser and not
all such research products or services are used in connection
with the management of Growth Opportunities Fund.
With respect to Growth Opportunities 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.
<PAGE> 34
Investment 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 the Association of the National
Association of Securities Dealers.
ADDITIONAL INCOME TAX CONSIDERATIONS
Growth Opportunities 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.
Growth Opportunities Fund expects that less than 100% of
its dividends will qualify for the deduction for dividends
received by corporate shareholders.
To the extent Growth Opportunities 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 total assets at the close
of any fiscal year consist of stock or securities of foreign
corporations, Growth Opportunities Fund may file an election
with the Internal Revenue Service pursuant to which its
shareholders 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
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 Growth Opportunities 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 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, Growth Opportunities Fund
<PAGE> 35
will notify shareholders of the amount of (i) each shareholder's
pro rata share of foreign income taxes paid and (ii) the portion
of Fund dividends which represents income from each foreign
country, if it qualifies to pass along such credit.
INVESTMENT PERFORMANCE
Growth Opportunities 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.
n
Average Annual Total Return is computed as follows: ERV = P(1+T)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the
end of the period (or fractional portion thereof).
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 Growth
Opportunities Fund is a result of conditions in the
securities markets, portfolio management, and operating
expenses. Although investment performance information is
useful in reviewing Growth Opportunities 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, Growth
Opportunities 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 Growth
Opportunities Fund. Comparison of Growth Opportunities 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 Investment Trust believes to be generally accurate.
Growth Opportunities Fund may also note its mention or
recognition in newspapers, magazines, or other media from
time to time. However, Investment Trust assumes no
responsibility for the accuracy of such data. Newspapers and
<PAGE> 36
magazines which might mention Growth Opportunities Fund
include, but are not limited to, the following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Associated Press
Barron's
Bloomberg
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World
Forbes
Fortune
Fund Action
Fund Decoder
Gourmet
Individual Investor
Investment Adviser
Investment Dealers' Digest
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Lipper Analytical Services
Los Angeles Times
Louis Rukeyser's Wall Street
Money
Morningstar
Mutual Fund Market News
Mutual Fund News Service
Mutual Funds Magazine
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
The San Francisco Chronicle
Securities Industry Daily
Smart Money
Smithsonian
Strategic Insight
Time
Travel & Leisure
USA Today
U.S. News & World Report
Value Line
The Wall Street Journal
The Washington Post
Working Women
Worth
Your Money
Growth Opportunities Fund may compare its performance to
the Consumer Price Index (All Urban), a widely recognized
measure of inflation.
Growth Opportunities 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
recognized indicators of the performance of stocks
general U.S. stock market traded in the indicated
results.) markets.)
In addition, Growth Opportunities Fund may compare its
performance to the following benchmarks:
Lipper Capital Appreciation Fund Average
Lipper Capital Appreciation Fund Index
Lipper Equity Fund Average
Lipper General Equity Fund Average
Morningstar Aggressive Growth Fund Average
Morningstar Domestic Stock Average
<PAGE> 37
Morningstar Total Fund Average
Value Line Index
(Widely recognized indicator of the performance
of small- and medium-sized company stocks)
The Lipper and Morningstar averages are unweighted
averages of total return performance of mutual funds as
classified, calculated, and published by these independent
services that monitor the performance of mutual funds.
Growth Opportunities 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 Growth
Opportunities Fund to a different category or develop (and
place a Fund into) a new category, it may compare its perfor-
mance or ranking with those of other funds in the newly
assigned category, as published by the service.
Growth Opportunities 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 its risk score (which is a function of a fund's
monthly returns less the 3-month T-bill return) from its
load-adjusted total return score. This numerical score is
then translated into rating categories, with the top 10%
labeled five star, the next 22.5% labeled four star, the next
35% labeled three star, the next 22.5% labeled two star, and
the bottom 10% one star. A high rating reflects either
above-average returns or below-average risk, or both.
Of course, past performance is not indicative of future
results.
________________
To illustrate the historical returns on various types of
financial assets, Growth Opportunities 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
_____________________
Growth Opportunities 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
<PAGE> 38
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, Growth Opportunities 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 Personal Counselor [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 should be continuously reviewed
and that individual analysts give different weightings to the
various factors involved in credit analysis. A rating is not
a recommendation to purchase, sell or hold a security because
it does not take into account market value or suitability for
a particular investor. When a security has received a rating
from more than one service, each rating should be evaluated
independently. Ratings are based on current information
furnished by the issuer or obtained by the rating services
from other sources which they consider reliable. Ratings may
be changed, suspended or withdrawn as a result of changes in
or unavailability of such information, or for other reasons.
<PAGE> 39
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
<PAGE> 40
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.
