Rule 497(e)
File No. 33-11351
<PAGE>
STEIN ROE MUTUAL FUNDS
Prospectus
February 3, 1997
Growth & Income Funds
Balanced Fund
Growth & Income Fund
Growth Funds
Growth Stock Fund
Special Fund
Special Venture Fund
Capital Opportunities Fund
[logo] STEIN ROE MUTUAL FUNDS
Building Wealth for Generations
<PAGE>
GROWTH & INCOME FUND* seeks to provide both growth of capital and
current income.
BALANCED FUND* seeks long-term growth of capital and current
income, consistent with reasonable investment risk.
GROWTH STOCK FUND* seeks long-term capital appreciation by
investing in common stocks and other equity-type securities.
SPECIAL FUND* seeks capital appreciation by investing in
securities that are considered to have limited downside risk
relative to their potential for above-average growth, including
securities of undervalued, underfollowed, or out-of-favor
companies.
SPECIAL VENTURE FUND* seeks long-term capital appreciation by
investing primarily in a diversified portfolio of equity
securities of entrepreneurially managed companies. The Fund
emphasizes investments in financially strong small and medium-
sized companies, based principally on management appraisal and
stock valuation.
CAPITAL OPPORTUNITIES FUND seeks long-term capital appreciation by
investing in aggressive growth companies. THIS FUND IS CLOSED TO
PURCHASES BY NEW INVESTORS EXCEPT FOR PURCHASES BY ELIGIBLE
INVESTORS AS DESCRIBED UNDER HOW TO PURCHASE SHARES.
*EACH OF GROWTH & INCOME FUND, BALANCED FUND, GROWTH STOCK
FUND, SPECIAL FUND, AND SPECIAL VENTURE FUND SEEKS TO ACHIEVE
ITS OBJECTIVE BY INVESTING ALL OF ITS NET INVESTABLE ASSETS IN
A CORRESPONDING PORTFOLIO OF SR&F BASE TRUST THAT HAS THE SAME
INVESTMENT OBJECTIVE AND SUBSTANTIALLY THE SAME INVESTMENT
POLICIES AS THE FUND. (SEE SPECIAL CONSIDERATIONS REGARDING
MASTER FUND/FEEDER FUND STRUCTURE.)
Each Fund is a "no-load" fund. There are no sales or redemption
charges, and the Funds have no 12b-1 plans. The Funds are series
of the STEIN ROE INVESTMENT TRUST and the Portfolios are series of
SR&F Base Trust. Each Trust is a diversified open-end management
investment company.
This prospectus contains information you should know before
investing in the Funds. Please read it carefully and retain it
for future reference.
A Statement of Additional Information dated February 3, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. This
prospectus is available electronically by using Stein Roe's
Internet address: http://www. steinroe.com. You can get a free
paper copy of the prospectus, the Statement of Additional
Information, and the most recent financial statements 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 February 3, 1997.
<PAGE>
TABLE OF CONTENTS
Page
Summary ..............................3
Fee Table ...........................6
Financial Highlights .................8
The Funds ...........................16
Investment Policies .................17
Growth & Income Fund................17
Balanced Fund.......................17
Growth Stock Fund...................18
Special Fund........................18
Special Venture Fund................19
Capital Opportunities Fund..........19
Portfolio Investments and Strategies 20
Investment Restrictions .............24
Risks and Investment Considerations..25
How to Purchase Shares ..............27
Capital Opportunities Fund Accounts.27
By Check............................28
By Wire.............................29
By Electronic Transfer .............29
By Exchange ........................30
Conditions of Purchase .............30
Purchases Through Third Parties.....30
Purchase Price and Effective Date ..30
How to Redeem Shares ................31
By Written Request .................31
By Exchange ........................32
Special Redemption Privileges ......32
General Redemption Policies ........34
Shareholder Services ................35
Net Asset Value .....................37
Distributions and Income Taxes ......38
Investment Return ...................40
Management...........................40
Organization and Description of
Shares............................45
Special Considerations Regarding
Master Fund/Feeder Fund Structure...45
Certificate of Authorization.........49
SUMMARY
The mutual funds described in this prospectus are series of the
Stein Roe Investment Trust, an open-end diversified management
investment company. Each Fund is a "no-load" fund. There are no
sales or redemption charges. (See The Funds and Organization and
Description of Shares.) This prospectus is not a solicitation in
any jurisdiction in which shares of the Funds are not qualified
for sale.
INVESTMENT OBJECTIVES AND POLICIES. Each Fund other than Capital
Opportunities Fund has converted to the master fund/feeder fund
structure, under which it seeks to achieve its objective by
investing all of its net investable assets in a corresponding
Portfolio of SR&F Base Trust that has the same investment
objective and substantially the same investment policies as the
Fund.
GROWTH & INCOME FUND seeks to provide both growth of capital and
current income. It is designed for investors seeking a
diversified portfolio of securities that offers the opportunity
for long-term growth of capital while also providing a steady
stream of income. Growth & Income Portfolio, in which Growth &
Income Fund invests, invests primarily in well-established
companies whose common stocks are believed to have both the
potential to appreciate in value and to pay dividends to
shareholders.
BALANCED FUND seeks long-term growth of capital and current
income, consistent with reasonable investment risk. Balanced
Portfolio, in which Balanced Fund invests, allocates its
investments among equities, debt securities, and cash. The
portfolio manager determines those allocations based on the views
of the Adviser's investment strategists regarding economic,
market, and other factors relative to investment opportunities.
GROWTH STOCK FUND seeks long-term capital appreciation. Growth
Stock Portfolio, in which Growth Stock Fund invests, normally
invests at least 65% of its total assets in common stocks and
other equity-type securities that the Adviser believes to have
long-term appreciation possibilities.
SPECIAL FUND seeks capital appreciation. Special Portfolio, in
which Special Fund invests, places particular emphasis on
securities that are considered to have limited downside risk
relative to their potential for above-average growth--including
securities of undervalued, underfollowed or out-of-favor
companies, and companies that are low-cost producers of goods or
services, financially strong, or run by well-respected managers.
Its investments may include securities of seasoned, established
companies that appear to have appreciation potential, as well as
securities of relatively small, new companies; securities with
limited marketability; new issues of securities; securities of
companies that, in the Adviser's opinion, will benefit from
management change, new technology, new product or service
development, or change in demand; and other securities that the
Adviser believes have capital appreciation possibilities.
SPECIAL VENTURE FUND seeks long-term capital appreciation.
Special Venture Portfolio, in which Special Venture Fund invests,
invests primarily in a diversified portfolio of equity securities
of entrepreneurially managed companies that the Adviser believes
represent special opportunities. It emphasizes investments in
financially strong small and medium-sized companies, based
principally on appraisal of their management and stock valuations.
CAPITAL OPPORTUNITIES FUND seeks long-term capital appreciation by
investing in aggressive growth companies. An aggressive growth
company, in general, is one that appears to have the ability to
increase its earnings at an above-average rate. These may include
securities of smaller emerging companies as well as securities of
well-seasoned companies of any size that offer strong earnings
growth potential. Such companies may benefit from new products or
services, technological developments, or changes in management.
There can be no guarantee that the Funds and the Portfolios will
achieve their investment objectives. Please see Investment
Policies and Portfolio Investments and Strategies for further
information.
INVESTMENT RISKS. Growth & Income Fund is designed for long-term
investors who desire to participate in the stock market with
moderate investment risk while seeking to limit market volatility.
Balanced Fund is designed for long-term investors who can accept
the fluctuations in portfolio value and other risks associated
with seeking long-term capital appreciation through investments in
securities. Growth Stock Fund and Special Fund are designed for
long-term investors who desire to participate in the stock market
with more investment risk and volatility than the stock market in
general, but with less investment risk and volatility than
aggressive capital appreciation funds. Special Venture Fund is
designed for long-term investors who want greater return potential
than is available from the stock market in general, and who are
willing to tolerate the greater investment risk and market
volatility associated with investments in small and medium-sized
companies. Capital Opportunities Fund is an aggressive growth
fund and is designed for long-term investors who can accept the
fluctuations in portfolio value and other risks associated with
seeking long-term capital appreciation through investments in
common stocks.
Since the Funds and the Portfolios may invest in foreign
securities, investors should understand and consider carefully the
risks involved in foreign investing. Investing in foreign
securities involves certain considerations involving both risks
and opportunities not typically associated with investing in U.S.
securities. Such risks include fluctuations in foreign currency
exchange rates, possible imposition of exchange controls, less
complete financial information, political instability, less
liquidity, and greater price volatility.
Please see Investment Policies, Portfolio Investments and
Strategies, and Risks and Investment Considerations for further
information.
PURCHASES. The minimum initial investment for each Fund is
$2,500, and additional investments must be at least $100 (only $50
for purchases by electronic transfer). Shares may be purchased by
check, by bank wire, by electronic transfer, or by exchange from
another Stein Roe Fund. Capital Opportunities Fund is closed to
purchases by new investors except for purchases by eligible
investors. For more detailed information, see How to Purchase
Shares.
REDEMPTIONS. For information on redeeming Fund shares, including
the special redemption privileges, see How to Redeem Shares.
NET ASSET VALUE. The purchase and redemption price of a Fund's
shares is its net asset value per share. The net asset value is
determined as of the close of trading on the New York Stock
Exchange. (For more detailed information, see Net Asset Value.)
DISTRIBUTIONS. Dividends for Growth & Income Fund and Balanced
Fund are normally declared and paid quarterly, and dividends for
the other Funds are normally declared and paid annually.
Distributions will be reinvested in additional 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 the Funds and the
Portfolios. For a description of the Adviser and its fees, see
Management.
If you have any additional questions about the Funds, please feel
free to discuss them with an account representative by calling
800-338-2550.
FEE TABLE
Capital
Growth & Growth Special Oppor-
Income Balanced Stock Special Venture tunities
Fund Fund Fund Fund Fund Fund
----- --------- ----- ------- ------- --------
SHAREHOLDER TRANSACTION
EXPENSES
Sales Load Imposed on
Purchases None None None None None None
Sales Load Imposed on
Reinvested Dividends None None None None None None
Deferred Sales Load None None None None None None
Redemption Fees* None None None None None None
Exchange Fees None None None None None None
ANNUAL FUND OPERATING
EXPENSES (after fee
waiver in the case
of Special Fund;
as a percentage of
average net assets)
Management and Admin-
istrative Fees (after
fee waiver in the
case of Special Fund) 0.75% 0.70% 0.75% 0.80% 0.90% 0.85%
12b-1 Fees None None None None None None
Other Expenses 0.43% 0.35% 0.33% 0.34% 0.44% 0.37%
----- ----- ----- ----- ----- ------
Total Fund Operating
Expenses (after fee
waiver in the case
of Special Fund) 1.18% 1.05% 1.08% 1.14% 1.34% 1.22%
===== ===== ===== ===== ===== ======
___________________
* There is a $7.00 charge for wiring redemption proceeds to your
bank.
EXAMPLES. You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return; and (2) redemption at
the end of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
Growth & Income Fund $12 $37 $65 $143
Balanced Fund 11 33 58 128
Growth Stock Fund 11 34 60 132
Special Fund 12 36 63 138
Special Venture Fund 14 42 73 161
Capital Opportunities Fund 12 39 67 148
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in a Fund. The table is based on
expenses incurred in the last fiscal year.
For Special Fund for the 12 months ending June 30, 1997, the
Adviser has agreed to reduce the portion of Special Fund's fee
payable by Special Portfolio by subtracting 0.05% from the
applicable annual rate of management fee. Absent that waiver,
Special Fund's proportionate share of Special Portfolio's
Management Fee and Special Fund's Administrative Fees (combined)
and Total Operating Expenses would be 0.85% and 1.19%,
respectively. An expense waiver for Special Venture Fund expired
on January 31, 1997.
Funds participating in the master fund/feeder fund structure
("feeder Funds") pay the Adviser an administrative fee based on
the Fund's average daily net assets, and each Portfolio pays the
Adviser a management fee based on its average daily net assets.
The expenses of both the feeder Funds and Portfolios are
summarized in the Fee Table. (The fees are described under
Management.) Each feeder Fund bears its proportionate share of
the fees and expenses of the corresponding Portfolio. The
trustees of Investment Trust have considered whether the annual
operating expenses of each feeder Fund, including its share of the
expenses of the Portfolio, would be more or less than if the
feeder Fund invested directly in the securities held by the
Portfolio, and concluded that the feeder Funds' expenses would not
be greater in such case.
For purposes of the Examples above, the figures assume that the
percentage amounts listed for the respective Funds under Annual
Fund Operating Expenses remain the same in each of the periods;
that all income dividends and capital gain distributions are
reinvested in additional Fund shares; and that, for purposes of
fee breakpoints, net assets remain at the same level as in the
most recently completed fiscal year. The figures in the Examples
are not necessarily indicative of past or future expenses, and
actual expenses may be greater or less than those shown. Although
information such as that shown in the Examples and Fee Table is
useful in reviewing the Funds' expenses and in providing a basis
for comparison with other mutual funds, it should not be used for
comparison with other investments using different assumptions or
time periods.
FINANCIAL HIGHLIGHTS
The tables below reflect the results of operations of the Funds on
a per-share basis for the periods shown and have been audited by
Arthur Andersen LLP, independent public accountant. These tables
should be read in conjunction with the respective Fund's financial
statements and notes thereto. The Funds' annual report, which may
be obtained from Investment Trust without charge upon request,
contains additional performance information.
Balanced Fund
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept.30, Years Ended September 30,
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $25.04 $25.07 $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78 $27.82
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net investment income...... 1.33 1.32 0.97 1.37 1.28 1.32 1.31 1.26 1.15 1.33 1.00
Net realized and
unrealized gains
(losses) on investments... 2.75 (1.06) 0.45 3.10 (2.92) 4.85 1.48 2.37 (1.06) 2.22 2.96
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations............... 4.08 0.26 1.42 4.47 (1.64) 6.17 2.79 3.63 0.09 3.55 3.96
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions
Net investment income..... (1.35) (1.63) (0.90) (1.34) (1.36) (1.26) (1.34) (1.30) (1.17) (1.23) (1.01)
Net realized capital
gains ................... (2.70) (1.45) (0.11) (0.38) (0.73) (0.51) (0.62) (1.67) (0.71) (0.28) (0.70)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions....... (4.05) (3.08) (1.01) (1.72) (2.09) (1.77) (1.96) (2.97) (1.88) (1.51) (1.71)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End
of Period.............. $25.07 $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78 $27.82 $30.07
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net expenses to
average net assets....... 0.79% 0.80% *0.87% 0.90% 0.88% 0.87% 0.85% 0.81% 0.83% 0.87% 1.05%
Ratio of net investment
income to average
net assets............... 5.21% 5.12% *5.68% 5.83% 5.36% 5.50% 4.94% 4.69% 4.53% 5.14% 3.45%
Portfolio turnover rate.... 108% 86% 85% 93% 75% 71% 59% 53% 29% 45% 87%
Average commissions
(per share)............. -- -- -- -- -- -- -- -- -- -- $0.0537
Total return............. 17.11% 0.74% 6.51% 20.76% (6.86%) 29.67% 11.13% 14.57% 0.36% 14.49% 14.83%
Net assets, end of
period (000 omitted). $149,831 $140,279 $134,225 $144,890 $124,592 $150,689 $173,417 $222,292 $229,274 $228,560 $231,063
</TABLE>
Growth & Income Fund
<TABLE>
<CAPTION>
Period
Ended
Sept. 30, Years Ended September 30,
1987 (a) 1988 1989 1990 1991 1992 1993 1994 1995 1996
-------- ------ ------ ------ ------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.00 $10.49 $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54 $16.65
-------- ------ ------ ------ ------ ------ ------- ------ ------ ------
Income from Investment
Operations
Net investment income..... 0.05 0.17 0.22 0.26 0.26 0.19 0.17 0.18 0.34 0.27
Net realized and un-
realized gains (losses)
on investments.......... 0.47 (1.64) 2.46 (0.85) 2.17 1.49 2.16 0.40 2.56 3.22
-------- ------ ------ ------ ------ ------ ------- ------ ------ ------
Total from investment
operations............... 0.52 (1.47) 2.68 (0.59) 2.43 1.68 2.33 0.58 2.90 3.49
-------- ------ ------ ------ ------ ------ ------- ------ ------ ------
Distributions
Net investment income... (0.03) (0.14) (0.22) (0.26) (0.29) (0.18) (0.16) (0.16) (0.20) (0.32)
Net realized capital
gains................... -- -- -- -- (0.36) (0.35) (0.76) (0.71) (0.59) (1.43)
-------- ------ ------ ------ ------ ------ ------- ------ ------ ------
Total distributions.... (0.03) (0.14) (0.22) (0.26) (0.65) (0.53) (0.92) (0.87) (0.79) (1.75)
-------- ------ ------ ------ ------ ------ ------- ------ ------ ------
Net Asset Value, End
of Period.............. $10.49 $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54 $16.65 $18.39
======== ====== ====== ====== ====== ====== ======= ====== ====== ======
Ratio of net expenses
to average net
assets (b)............. *1.91% 1.47% 1.24% 1.08% 1.00% 0.97% 0.88% 0.90% 0.96% 1.18%
Ratio of net investment
income to average
net assets (c)........ *1.43% 2.03% 2.28% 2.40% 2.27% 1.46% 1.23% 1.18% 1.78% 1.65%
Portfolio turnover rate.... 32% 105% 63% 51% 48% 40% 50% 85% 70% 13%
Average commissions
(per share).............. -- -- -- -- -- -- -- -- -- $0.0683
Total return............. 5.20% (13.90%) 30.63% (5.25%) 24.12% 14.00% 17.98% 4.03% 21.12% 22.67%
Net assets, end of
period (000 omitted) ..$22,863 $23,002 $32,562 $43,446 $54,820 $70,724 $100,365 $129,680 $139,539 $204,387
</TABLE>
GROWTH STOCK FUND
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept.30, Years Ended September 30,
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $17.43 $16.97 $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58 $26.13
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net investment income..... 0.26 0.24 0.19 0.34 0.39 0.33 0.18 0.15 0.13 0.12 0.08
Net realized and un-
realized gains (losses)
on investments........... 2.75 0.46 (0.11) 4.51 (1.17) 5.90 3.01 1.14 0.41 5.60 5.01
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations.............. 3.01 0.70 0.08 4.85 (0.78) 6.23 3.19 1.29 0.54 5.72 5.09
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions
Net investment income.... (0.25) (0.29) (0.15) (0.34) (0.37) (0.42) (0.16) (0.10) (0.12) (0.15) (0.10)
Net realized capital
gains................... (3.22) (2.71) -- (0.06) -- (0.92) (1.17) (0.95) (1.73) (3.02) (2.33)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions..... (3.47) (3.00) (0.15) (0.40) (0.37) (1.34) (1.33) (1.05) (1.85) (3.17) (2.43)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End
of Period...............$16.97 $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58 $26.13 $28.79
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net expenses to
average net assets.......0.67% 0.65% *0.76% 0.77% 0.73% 0.79% 0.92% 0.93% 0.94% 0.99% 1.08%
Ratio of net investment
income to average
net assets...............1.34% 1.25% *1.62% 2.05% 2.03% 1.63% 0.75% 0.59% 0.50% 0.56% 0.32%
Portfolio turnover rate... 137% 143% 84% 47% 40% 34% 23% 29% 27% 36% 39%
Average commissions
(per share)............ -- -- -- -- -- -- -- -- -- -- $0.0528
Total return.............16.91% 5.57% 0.54% 33.86% (4.17%) 36.64% 14.37% 5.09% 2.10% 28.18% 21.04%
Net assets, end of
period (000 omitted)..$226,604 $232,658 $195,641 $206,476 $206,031 $291,767 $372,758 $373,921 $321,502 $360,336 $417,964
</TABLE>
Special Fund
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept.30, Years Ended September 30,
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period... $18.41 $16.95 $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54 $25.26
------ ------ ------ ------ ------ ------ ------ ------- ------- ------ ------
Income from Investment
Operations
Net investment income... 0.35 0.23 0.14 0.36 0.42 0.34 0.21 0.17 0.15 0.13 0.01
Net realized and un-
realized gains (losses)
on investments...........2.33 0.12 2.16 5.58 (2.10) 4.55 1.50 5.31 0.33 3.05 4.14
------ ------ ------ ------ ------ ------ ------ ------- ------- ------ ------
Total from investment
operations.............. 2.68 0.35 2.30 5.94 (1.68) 4.89 1.71 5.48 0.48 3.18 4.15
------ ------ ------ ------ ------ ------ ------ ------- ------- ------ ------
Distributions
Net investment income... (0.34) (0.57) (0.01) (0.21) (0.39) (0.34) (0.37) (0.18) (0.21) (0.15) (0.11)
Net realized capital
gains.................. (3.80) (3.90) -- (0.06) (2.08) (1.32) (0.31) (1.16) (1.77) (1.31) (1.91)
------ ------ ------ ------ ------ ------ ------ ------- ------- ------ ------
Total distributions.... (4.14) (4.47) (0.01) (0.27) (2.47) (1.66) (0.68) (1.34) (1.98) (1.46) (2.02)
------ ------ ------ ------ ------ ------ ------ ------- ------- ------ ------
Net Asset Value, End
of Period..............$16.95 $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54 $25.26 $27.39
====== ====== ====== ====== ====== ====== ====== ======= ======= ====== ======
Ratio of net expenses to
average net assets..... 0.92% 0.96% *0.99% 0.96% 1.02% 1.04% 0.99% 0.97% 0.96% 1.02% 1.18%
Ratio of net investment
income to average
net assets............. 1.75% 1.32% *1.31% 2.12% 2.33% 2.11% 0.99% 0.92% 0.91% 0.56% 0.03%
Portfolio turnover rate 116% 103% 42% 85% 70% 50% 40% 42% 58% 41% 32%
Average commissions
(per share)............ . -- -- -- -- -- -- -- -- -- -- $0.0482
Total return........ .. 14.70% 4.27% 17.94% 40.00% (8.78%) 32.18% 8.96% 27.35% 2.02% 14.60% 17.89%
Net assets, end
of period
(000 omitted)..... . $253,693 $187,997 $224,628 $322,056 $361,065 $587,259 $626,080 $1,076,818 $1,243,885 $1,201,469 $1,158,498
</TABLE>
Special Venture Fund
Period Ended Year Ended
Sept. 30, Sept. 30,
1995(a) 1996
------ ------
Net Asset Value, Beginning of Period......$10.00 $12.60
------ ------
Income from Investment Operations
Net investment income.(loss)............... 0.01 (0.02)
Net realized and unrealized gains on
investments............................... 2.67 3.86
------ ------
Total from investment operations.......... 2.68 3.84
------ ------
Distributions
Net investment income..................... (0.03) --
Net realized capital gains............... (0.05) (0.57)
------ ------
Total distributions...................... (0.08) (0.57)
------ ------
Net Asset Value, End of Period........... $12.60 $15.87
====== ======
Ratio of net expenses to average net
assets (b)............................. *1.25% 1.25%
Ratio of net investment income to average
net assets (c).......................... *0.12% (2.19%)
Portfolio turnover rate.................... 84% 72%
Average commissions (per share).......... -- $0.0378
Total return .............................26.96% 31.81%
Net assets, end of period (000 omitted)..$60,533 $144,528
Capital Opportunities
Fund (d)
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept.30, Years Ended September 30,
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
Beginning of Period..... $11.91 $13.38 $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 $15.79 $21.69
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net investment income.
(loss).................... 0.03 0.03 0.03 0.05 0.06 0.11 0.06 0.01 0.02 0.01 (0.06)
Net realized and un-
realized gains (losses)
on investments............ 1.97 0.62 0.13 3.86 (4.72) 3.73 0.60 3.91 0.34 5.91 10.41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations............... 2.00 0.65 0.16 3.91 (4.66) 3.84 0.66 3.92 0.36 5.92 10.35
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions
Net investment income..... (0.10) (0.05) -- (0.05) (0.06) (0.08) (0.10) (0.04) (0.01) (0.02) (0.01)
Net realized capital
gains.................... (0.43) (3.36) -- (0.06) (2.54) (0.08) -- -- -- -- (0.99)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions...... (0.53) (3.41) -- (0.11) (2.60) (0.16) (0.10) (0.04) (0.01) (0.02) (1.00)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End
of Period............... $13.38 $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 $15.79 $21.69 $31.04
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net expenses to
average net assets....... 0.95% 0.95% *1.01% 1.09% 1.14% 1.18% 1.06% 1.06% 0.97% 1.05% 1.22%
Ratio of net investment
income to average
net assets............... 0.19% 0.18% *0.34% 0.42% 0.43% 1.19% 0.42% 0.09% 0.04% 0.08% (0.40%)
Portfolio turnover rate... 116% 133% 164% 245% 171% 69% 46% 55% 46% 60% 22%
Average commissions
(per share)............ -- -- -- -- -- -- -- -- -- -- $0.0555
Total return............ 16.77% 9.38% 1.51% 36.68% (37.51%) 53.51% 5.99% 34.01% 2.31% 37.46% 49.55%
Net assets, end of
period (000 omitted).. $191,415 $171,973 $194,160 $272,805 $86,342 $129,711 $118,726 $153,101 $175,687 $242,381 $1,684,538
</TABLE>
- ------------
*Annualized.
(a) From the commencement of operations: March 23, 1987 for
Growth & Income Fund and October 17, 1994 for Special
Venture Fund.
(b) If the Funds had paid all of their expenses and there had
been no reimbursement by the Adviser, this ratio would
have been 2.49% for the period ended September 30, 1987
and 1.09% for the year ended September 30, 1990 for
Growth & Income Fund; and 2.87% for the period ended
September 30, 1995 and 1.34% for the year ended September
30, 1996 for Special Venture Fund.
(c) Computed giving effect to the Adviser's fee waiver.
(d) For Capital Opportunities Fund, all per share amounts and
Average Shares Outstanding During Period on the debt
table reflect a two-for-one stock split effective August
25, 1995.
(e) For the periods indicated below, bank borrowing activity
was as follows:
Debt
outstanding Average debt Average shares Average debt
at end of outstanding outstanding per share
period (in during period during period during
Period Ended thousands) (in thousands) (in thousands) period
- ------------- ---------- -------------- ------------- ------------
Balanced Fund
12/31/86 $-- 2 5,506 $0.0004
Growth Stock Fund
9/30/89 -- 124 11,745 0.0106
Special Fund
12/31/86 -- 203 15,251 0.0133
Capital Oppor-
tunities Fund
12/31/86 -- 55 13,906 0.0039
12/31/87 -- 292 16,008 0.0183
9/30/88 -- 56 17,206 0.0033
9/30/89 -- 422 16,066 0.0263
9/30/90 200 1,042 15,944 0.0654
The Funds had no bank borrowings during any other periods.
THE FUNDS
The mutual funds offered by this prospectus are STEIN ROE GROWTH &
INCOME FUND ("Growth & Income Fund"), STEIN ROE BALANCED FUND
("Balanced Fund"), STEIN ROE GROWTH STOCK FUND ("Growth Stock
Fund"), STEIN ROE SPECIAL FUND ("Special Fund"), STEIN ROE SPECIAL
VENTURE FUND ("Special Venture Fund"), and STEIN ROE CAPITAL
OPPORTUNITIES FUND ("Capital Opportunities Fund") (collectively,
the "Funds"). Each of the Funds is a no-load, diversified "mutual
fund." Mutual funds sell their own shares to investors and use
the money they receive to invest in a portfolio of securities such
as common stocks. A mutual fund allows you to pool your money
with that of other investors in order to obtain professional
investment management. Mutual funds generally make it possible
for you to obtain greater diversification of your investments and
simplify your recordkeeping. The Funds do not impose commissions
or charges when shares are purchased or redeemed.
The Funds are series of the Stein Roe Investment Trust
("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 the Funds and the Portfolios. 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.
On February 3, 1997, each of Growth & Income Fund, Balanced Fund,
Growth Stock Fund, Special Fund and Special Venture Fund became a
"feeder fund"--that is, it invested all of its assets in a "master
fund" that has an investment objective identical to that of the
Fund. Each master fund is a series of SR&F Base Trust ("Base
Trust") (each master fund is referred to as a "Portfolio").
Before converting to a feeder fund, each Fund invested its assets
in a diversified group of securities. Under the "master
fund/feeder fund structure," a feeder fund and one or more feeder
funds pool their assets in a master portfolio that has the same
investment objective and substantially the same investment
policies as the feeder funds. The purpose of such an arrangement
is to achieve greater operational efficiencies and reduce costs.
The assets of each Portfolio are managed by the Adviser in the
same manner as the assets of the feeder fund were managed before
conversion to the master fund/feeder fund structure. (For more
information, see Special Considerations Regarding Master
Fund/Feeder Fund Structure.)
INVESTMENT POLICIES
The Funds invest as described below. Further information on
portfolio investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.
The investment objective of GROWTH & INCOME FUND is to provide
both growth of capital and current income. Growth & Income Fund
invests all of its net investable assets in SR&F Growth & Income
Portfolio ("Growth & Income Portfolio"). Growth & Income Fund is
designed for investors seeking a diversified portfolio of
securities that offers the opportunity for long-term growth of
capital while also providing a steady stream of income. Growth &
Income Portfolio invests primarily in well-established companies
whose common stocks are believed to have both the potential to
appreciate in value and to pay dividends to shareholders.
Although it may invest in a broad range of securities (including
common stocks, preferred stocks, securities convertible into or
exchangeable for common stocks, and warrants or rights to purchase
common stocks), normally Growth & Income Portfolio emphasizes
investments in equity securities of companies having market
capitalizations in excess of $1 billion. Securities of these
well-established companies are believed to be generally less
volatile than those of companies with smaller capitalizations
because companies with larger capitalizations tend to have
experienced management; broad, highly diversified product lines;
deep resources; and easy access to credit.
The investment objective of BALANCED FUND is to seek long-term
growth of capital and current income, consistent with reasonable
investment risk. Balanced Fund invests all of its net investable
assets in SR&F Balanced Portfolio ("Balanced Portfolio").
Balanced Portfolio allocates its investments among equities, debt
securities, and cash. The portfolio manager determines those
allocations based on the views of the Adviser's investment
strategists regarding economic, market, and other factors relative
to investment opportunities.
The equity portion of the investment portfolio is invested
primarily in well-established companies having market
capitalizations in excess of $1 billion. Fixed-income senior
securities will make up at least 25% of Balanced Portfolio's total
assets. Investments in debt securities are limited to those that
are within the four highest grades (generally referred to as
"investment grade") assigned by a nationally recognized
statistical rating organization or, if unrated, determined by the
Adviser to be of comparable quality.
The investment objective of GROWTH STOCK FUND is long-term capital
appreciation. Growth Stock Fund invests all of its net investable
assets in SR&F Growth Stock Portfolio ("Growth Stock Portfolio").
Growth Stock Portfolio attempts to achieve the objective by
normally investing at least 65% of its total assets in common
stocks and other equity-type securities (such as preferred stocks,
securities convertible into or exchangeable for common stocks, and
warrants or rights to purchase common stocks) that, in the opinion
of the Adviser, have long-term appreciation possibilities.
The investment objective of SPECIAL FUND is to invest in
securities selected for capital appreciation. Special Fund
invests all of its net investable assets in SR&F Special Portfolio
("Special Portfolio"). Particular emphasis is placed on
securities that are considered to have limited downside risk
relative to their potential for above-average growth--including
securities of undervalued, underfollowed or out-of-favor
companies, and companies that are low-cost producers of goods or
services, financially strong, or run by well-respected managers.
Special Portfolio may invest in securities of seasoned,
established companies that appear to have appreciation potential,
as well as securities of relatively small, new companies. In
addition, it may invest in securities with limited marketability;
new issues of securities; securities of companies that, in the
Adviser's opinion, will benefit from management change, new
technology, new product or service development, or change in
demand; and other securities that the Adviser believes have
capital appreciation possibilities. However, Special Portfolio
does not currently intend to invest, nor has it invested in the
past fiscal year, more than 5% of its net assets in any of these
types of securities. Securities of smaller, newer companies may
be subject to greater price volatility than securities of larger,
well-established companies. In addition, many smaller companies
are less well known to the investing public and may not be as
widely followed by the investment community. Although Special
Portfolio invests primarily in common stocks, it may also invest
in other equity-type securities, including preferred stocks and
securities convertible into equity securities.
The investment objective of SPECIAL VENTURE FUND is to seek long-
term capital appreciation. Special Venture Fund invests all of
its net investable assets in SR&F Special Venture Portfolio
("Special Venture Portfolio"). Special Venture Portfolio invests
primarily in a diversified portfolio of common stocks and other
equity-type securities (such as preferred stocks, securities
convertible or exchangeable for common stocks, and warrants or
rights to purchase common stocks) of entrepreneurially managed
companies that the Adviser believes represent special
opportunities. Special Venture Portfolio emphasizes investments
in financially strong small and medium-sized companies, based
principally on appraisal of their management and stock valuations.
The Adviser considers "small" and "medium-sized" companies to be
those with market capitalizations of less than $1 billion and $1
to $3 billion, respectively.
In both its initial and ongoing appraisals of a company's
management, the Adviser seeks to know both the principal owners
and senior management and to assess their business judgment and
strategies through personal visits. The Adviser favors companies
whose management has an owner/operator, risk-averse orientation
and a demonstrated ability to create wealth for investors.
Attractive company characteristics include unit growth, favorable
cost structures or competitive positions, and financial strength
that enables management to execute business strategies under
difficult conditions. A company is attractively valued when its
stock can be purchased at a meaningful discount to the value of
the underlying business.
CAPITAL OPPORTUNITIES FUND'S investment objective is long-term
capital appreciation, which it attempts to achieve by investing in
selected companies that, in the opinion of the Adviser, offer
opportunities for capital appreciation.
Capital Opportunities Fund pursues its objective by investing in
aggressive growth companies. An aggressive growth company, in
general, is one that appears to have the ability to increase its
earnings at an above-average rate. These may include securities
of smaller emerging companies as well as securities of well-
seasoned companies of any size that offer strong earnings growth
potential. Such companies may benefit from new products or
services, technological developments, or changes in management.
Securities of smaller companies may be subject to greater price
volatility than securities of larger companies. In addition, many
smaller companies are less well known to the investing public and
may not be as widely followed by the investment community.
Although it invests primarily in common stocks, Capital
Opportunities Fund may invest in all types of equity securities,
including preferred stocks and securities convertible into common
stocks.
PORTFOLIO INVESTMENTS AND STRATEGIES
For purposes of discussion under Portfolio Investments and
Strategies, the term "Fund" also means "Portfolio."
DEBT SECURITIES. In pursuing its investment objective, each Fund
may invest in debt securities of corporate and governmental
issuers. Investments in debt securities by Growth & Income
Portfolio, Balanced Portfolio, and Growth Stock Portfolio are
limited to those that are rated within the four highest grades
(generally referred to as "investment grade") assigned by a
nationally recognized statistical rating organization.
Investments in unrated debt securities are limited to those deemed
to be of comparable quality by the Adviser. Securities in the
fourth highest grade may possess speculative characteristics, and
changes in economic conditions are more likely to affect the
issuer's capacity to pay interest and repay principal. If the
rating of a security held by a Fund is lost or reduced below
investment grade, the Fund is not required to dispose of the
security--the Adviser will, however, consider that fact in
determining whether that Fund should continue to hold the
security. Special Venture Portfolio, Capital Opportunities Fund,
and Special Portfolio may invest up to 35% of their net assets in
debt securities, but do not expect to invest more than 5% of their
net assets in debt securities that are rated below investment
grade.
The risks inherent in debt securities depend primarily on the term
and quality of the obligations in a Fund's portfolio as well as on
market conditions. A decline in the prevailing levels of interest
rates generally increases the value of debt securities.
Conversely, an increase in rates usually reduces the value of debt
securities. Securities that are rated below investment grade are
considered predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal according to the
terms of the obligation, and therefore carry greater investment
risk, including the possibility of issuer default and bankruptcy.
When the Adviser determines that adverse market or economic
conditions exist and considers a temporary defensive position
advisable, the Funds may invest without limitation in high-quality
fixed income securities or hold assets in cash or cash
equivalents.
CONVERTIBLE SECURITIES. By investing in convertible securities, a
Fund obtains the right to benefit from the capital appreciation
potential in the underlying stock upon exercise of the conversion
right, while earning higher current income than would be available
if the stock were purchased directly. In determining whether to
purchase a convertible, the Adviser will consider substantially
the same criteria that would be considered in purchasing the
underlying stock. Although convertible securities purchased by a
Fund are frequently rated investment grade, the Funds also may
purchase unrated securities or securities rated below investment
grade if the securities meet the Adviser's other investment
criteria. Convertible securities rated below investment grade:
- - Tend to be more sensitive to interest rate and economic changes;
- - May be obligations of issuers who are less creditworthy than
issuers of higher quality convertible securities;
- - May be more thinly traded due to the fact that such securities
are less well known to investors than either common stock or
conventional debt securities.
As a result, the Adviser's own investment research and analysis
tends to be more important than other factors in the purchase of
such securities.
FOREIGN SECURITIES. Each Fund may invest in foreign securities.
Other than American Depositary Receipts (ADRs), foreign debt
securities denominated in U.S. dollars, and securities guaranteed
by a U.S. person, each Fund is limited to investing no more than
25% of its total assets in foreign securities. (See Risks and
Investment Considerations.) The Funds may invest in sponsored or
unsponsored ADRs. In addition to, or in lieu of, such direct
investment, a Fund may construct a synthetic foreign 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, the Funds may contract to purchase an amount of
foreign currency sufficient to pay the purchase price of the
securities at the settlement date. Such a contract involves the
risk that the value of the foreign currency may decline relative
to the value of the dollar prior to the settlement date--this risk
is in addition to the risk that the value of the foreign security
purchased may decline. The Funds also may enter into foreign
currency contracts as a hedging technique to limit or reduce
exposure to currency fluctuations. In addition, the Funds may use
options and futures contracts, as described below, to limit or
reduce exposure to currency fluctuations.
As of September 30, 1996, the Funds' holdings of foreign
companies, as a percentage of net assets, were as follows: Growth
& Income Fund, 3.2% (0.7% in foreign securities and 2.5% in ADRs);
Balanced Fund, 13.6% (11.3% in foreign securities and 2.3% in
ADRs); Growth Stock Fund, 5.0% (1.4% in foreign securities and
3.6% in ADRs); Special Fund, 6.9% (6.5% in foreign securities and
0.4% in ADRs); Special Venture Fund, 7.0% (3.5% in foreign
securities and 3.5% in ADRs); and Capital Opportunities Fund, 3.1%
(none in foreign securities and 3.1% in ADRs).
LENDING PORTFOLIO SECURITIES; WHEN-ISSUED AND DELAYED-DELIVERY
SECURITIES. Each Fund may make loans of its portfolio securities
to broker-dealers and banks subject to certain restrictions
described in the Statement of Additional Information. Each Fund
may participate in an interfund lending program, subject to
certain restrictions described in the Statement of Additional
Information. Each Fund may invest in securities purchased on a
when-issued or delayed-delivery basis. Although the payment terms
of these securities are established at the time the Fund enters
into the commitment, the securities may be delivered and paid for
a month or more after the date of purchase, when their value may
have changed. A Fund will make such commitments only with the
intention of actually acquiring the securities, but may sell the
securities before settlement date if it is deemed advisable for
investment reasons.
PORTFOLIO TURNOVER. Although the Funds do not purchase securities
with a view to rapid turnover, there are no limitations on the
length of time portfolio securities must be held, and the
portfolio turnover rate may vary significantly from year to year.
Under normal circumstances, Special Venture Portfolio expects to
experience moderate portfolio turnover with an investment time
horizon of three to five years, but its portfolio turnover is not
expected to exceed 100%. At times, Special Portfolio and Capital
Opportunities Fund may invest for short-term capital appreciation.
Flexibility of investment and emphasis on capital appreciation may
involve greater portfolio turnover than that of mutual funds that
have the objectives of income or maintenance of a balanced
investment position. A high rate of portfolio turnover may result
in increased transaction expenses and the realization of capital
gains and losses. (See Financial Highlights and Distributions and
Income Taxes.) Growth Stock Fund, Special Fund, Special Venture
Fund, and Capital Opportunities Fund are not intended to be
income-producing investments, although they may produce varying
amounts of income.
DERIVATIVES. Consistent with its objective, each Fund may invest
in a broad array of financial instruments and securities,
including conventional exchange-traded and non-exchange-traded
options, futures contracts, futures options, securities
collateralized by underlying pools of mortgages or other
receivables, floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each case,
the value of the instrument or security is "derived" from the
performance of an underlying asset or a "benchmark" such as a
security index, an interest rate, or a currency. No Fund expects
to invest more than 5% of its net assets in any type of Derivative
except for options, futures contracts, and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in currency exchange rates, security prices, interest
rates and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as well
regulated and may be less marketable than exchange-traded
Derivatives. For additional information on Derivatives, please
refer to the Statement of Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuation, each Fund may: (1)
purchase and write both call options and put options on
securities, indexes and foreign currencies; (2) enter into
interest rate, index and foreign currency futures contracts; (3)
write options on such futures contracts; and (4) purchase other
types of forward or investment contracts linked to individual
securities, indexes or other benchmarks. A Fund may write a call
or put option only if the option is covered. As the writer of a
covered call option, a Fund foregoes, during the option's life,
the opportunity to profit from increases in market value of the
security covering the call option above the sum of the premium and
the exercise price of the call. There can be no assurance that a
liquid market will exist when a Fund seeks to close out a
position. In addition, because futures positions may require low
margin deposits, the use of futures contracts involves a high
degree of leverage and may result in losses in excess of the
amount of the margin deposit.
SHORT SALES AGAINST THE BOX. Each Fund may sell short securities
the Fund 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 the 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.
However, any potential gains in such securities should be wholly
or partially offset by a corresponding loss in the short position.
Short sales against the box may be used to lock in a profit on a
security when, for tax reasons or otherwise, the Adviser does not
want to sell the security. For a more complete explanation,
please refer to the Statement of Additional Information.
INVESTMENT RESTRICTIONS
No Fund or Portfolio will invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of an investment portfolio, but does not apply to securities
of the U.S. Government or repurchase agreements /1/ for such
securities, and would not prevent a Fund from investing all of its
assets in shares of another investment company having the
identical investment objective.
- -----------------
/1/ A repurchase agreement involves a sale of securities to a Fund
or Portfolio in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a specified
time. In the event of bankruptcy of the seller, the Fund or
Portfolio could experience both losses and delays in liquidating
its collateral.
- -----------------
No Fund or Portfolio will acquire more than 10% of the outstanding
voting securities of any one issuer. Each Fund may, however,
invest all of its assets in shares of another investment company
having the identical investment objective.
No Fund or Portfolio may make loans except that it may (1)
purchase money market instruments and enter into repurchase
agreements; (2) acquire publicly-distributed or privately-placed
debt securities; (3) lend its portfolio securities under certain
conditions; and (4) participate in an interfund lending program
with other Stein Roe Funds and Portfolios. No Fund or Portfolio
may borrow money, except for non-leveraging, 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.
The Funds and Portfolios may invest in repurchase agreements,
provided that none will 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 (except for the first and second paragraphs as they relate
to Special Fund and Special Portfolio) and the policy with respect
to concentration of investments in any one industry described
under Risks and Investment Considerations are fundamental policies
and, as such, can be changed only with the approval of a "majority
of the outstanding voting securities" of a Fund as defined in the
Investment Company Act of 1940. The investment objectives of the
Funds and the Portfolios are 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. Any such change may result in a Fund having an
investment objective different from the objective the shareholder
considered appropriate at the time of investment in the Fund. All
of the investment restrictions are set forth in the Statement of
Additional Information.
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Growth & Income Fund is
designed for long-term investors who desire to participate in the
stock market with moderate investment risk while seeking to limit
market volatility. Balanced Fund is designed for long-term
investors who can accept the fluctuations in portfolio value and
other risks associated with seeking long-term capital appreciation
through investments in securities. Growth Stock Fund and Special
Fund are designed for long-term investors who desire to
participate in the stock market with more investment risk and
volatility than the stock market in general, but with less
investment risk and volatility than aggressive capital
appreciation funds. Special Venture Fund is designed for long-
term investors who want greater return potential than is available
from the stock market in general, and who are willing to tolerate
the greater investment risk and market volatility associated with
investments in small and medium-sized companies. Capital
Opportunities Fund is an aggressive growth fund and is designed
for long-term investors who can accept the fluctuations in
portfolio value and other risks associated with seeking long-term
capital appreciation through investments in common stocks. Of
course, there can be no guarantee that a Fund will achieve its
objective.
Securities of small and medium-sized companies may be subject to
greater price volatility than securities of larger companies and
tend to have a lower degree of market liquidity. They also may be
more sensitive to changes in economic and business conditions, and
may react differently than securities of larger companies. In
addition, such companies are less well known to the investing
public and may not be as widely followed by the investment
community.
Debt securities rated in the fourth highest grade may have some
speculative characteristics, and changes in economic conditions or
other circumstances may lead to a weakened capacity of the issuers
of such securities to make principal and interest payments.
Securities rated below investment grade may possess speculative
characteristics, and changes in economic conditions are more
likely to affect the issuer's capacity to pay interest or repay
principal.
Although Growth & Income Portfolio, Balanced Portfolio, Special
Portfolio, Special Venture Portfolio, and Capital Opportunities
Fund do not attempt to reduce or limit risk through wide industry
diversification of investment, they usually allocate their
investments among a number of different industries rather than
concentrating in a particular industry or group of industries.
Growth Stock Portfolio seeks to reduce risk by investing in a
diversified portfolio, but this does not eliminate all risk. No
Fund or Portfolio, however, will invest more than 25% of the total
value of its assets (at the time of investment) in the securities
of companies in any one industry. (See 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; different accounting, auditing, and
financial reporting standards; different settlement practices;
less market liquidity; more market volatility; less developed and
regulated markets; and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition of
exchange controls and withholding taxes on dividends, and seizure
or nationalization of investments owned by non-residents. Foreign
investments also tend to involve higher transaction and custody
costs.
HOW TO PURCHASE SHARES
You may purchase shares of any of the Funds by check, by wire, by
electronic transfer, or by exchange from your account with another
Stein Roe Fund. The initial purchase minimum per Fund account is
$2,500; the minimum for Uniform Gifts/Transfers to Minors Act
("UGMA") accounts is $1,000; the minimum for accounts established
under an automatic investment plan (i.e., Regular Investments,
Dividend Purchase Option, or Automatic Exchange Plan) is $1,000
for regular accounts and $500 for UGMA accounts; and the minimum
per account for Stein Roe IRAs is $500. The initial purchase
minimum is waived for shareholders who participate in the Stein
Roe Counselor [SERVICE MARK] and Stein Roe 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 sponsored by the
Adviser, you must obtain special forms for those plans. (See
Shareholder Services.)
CAPITAL OPPORTUNITIES FUND ACCOUNTS. CAPITAL OPPORTUNITIES FUND
IS CLOSED TO PURCHASES (INCLUDING EXCHANGES) BY NEW INVESTORS
EXCEPT FOR PURCHASES BY ELIGIBLE INVESTORS AS DESCRIBED BELOW.
Investment Trust has taken this step to facilitate management of
the Fund's portfolio. If you are already a shareholder of Capital
Opportunities Fund, you may continue to add to your account or
open another account with the Fund in your name. In addition, you
may open a new account if:
- - you participate in Stein Roe Counselor [SERVICE MARK] or Stein
Roe Personal Counselor [SERVICE MARK] or another investment
advisory service sponsored by the Adviser;
- - you are a trustee of Investment Trust; an employee of the
Adviser, or any of its affiliated companies; or a member of the
immediate family of any trustee or employee;
- - you are a client of the Adviser and, in the judgment of the
Adviser, your proposed investment in Capital Opportunities Fund
would not adversely affect the Adviser's ability to manage the
Fund effectively;
- - the Board of Trustees of Investment Trust determines that your
proposed investment in Capital Opportunities Fund would not
adversely affect the Adviser's ability to manage the Fund
effectively;
- - you purchased shares under an asset allocation program sponsored
by a financial advisor, broker-dealer, bank, trust company, or
other intermediary under an investment program with Capital
Opportunities Fund as of September 30, 1996;
- - you purchase shares for an individual retirement account or an
employee benefit plan, the records for which are maintained by a
trust company or plan administrator under an investment program
with Capital Opportunities Fund as of September 30, 1996.
The Board of Trustees of Investment Trust concluded that
permitting the additional investments described above would not
adversely affect the ability of the Adviser to manage Capital
Opportunities Fund effectively. If you have questions about your
eligibility to purchase shares of Capital Opportunities Fund,
please call 800-338-2550.
BY CHECK. To make an initial purchase of shares of a Fund by
check, please complete and sign the Application and mail it,
together with a check made payable to Stein Roe 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 a Fund be cancelled
because your check does not clear, you will be responsible for any
resulting loss incurred by that Fund.
BY WIRE. You also may pay for shares by instructing your bank to
wire federal funds (monies of member banks within the Federal
Reserve System) to the Funds 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 the Funds
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. ___; Stein Roe _____ Fund
Account of (exact name(s) in registration)
Shareholder Account No. ________
Fund Numbers:
11--Growth & Income Fund
31--Balanced Fund
32--Growth Stock Fund
34--Special Fund
16--Special Venture Fund
33--Capital Opportunities Fund
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. ___; Stein Roe _____ 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 purchases at your request
("Special Investments") by calling 800-338-2550 or at pre-
scheduled intervals ("Regular Investments"). (See Shareholder
Services.) Electronic transfer purchases are subject to a $50
minimum and a $100,000 maximum. You may not open a new account
through electronic transfer. Should an order to purchase shares
of a Fund be cancelled because your electronic transfer does not
clear, you will be responsible for any resulting loss incurred by
that Fund.
BY EXCHANGE. You may purchase shares by exchange of shares from
another Stein Roe Fund account either by phone (if the Telephone
Exchange Privilege has been established on the account from which
the exchange is being made), by mail, in person, or automatically
at regular intervals (if you have elected 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 a 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 that 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
interest of Investment Trust or of a 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 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 the Funds
for their clients for whom they hold Fund shares charge an annual
fee of up to 0.25% of the average net assets held in such accounts
for accounting, servicing, and distribution services they provide
with respect to the underlying Fund shares. The Adviser and the
Funds' 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 a Fund's
shares made directly with the Fund is made at that Fund's 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 the Fund receives the check or wire
transfer of funds in payment of the purchase.
A purchase by electronic transfer is made at the net asset value
next determined after the Fund receives the electronic transfer
from your bank. A Special Electronic Transfer Investment
instruction received by telephone on a business day before 3:00
p.m., central time, is effective on the next business day.
Each purchase of 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 a 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 dollar amount to be redeemed and identify the
shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The request must be accompanied by any certificates for the
shares, either properly endorsed for transfer, or accompanied
by a stock assignment properly endorsed exactly as the shares
are registered;
(4) The signatures on either the written redemption request or the
certificates (or the accompanying stock power) must be
guaranteed (a signature guarantee is not a notarization, but
is a widely accepted way to protect you and the Funds by
verifying your signature);
(5) Corporations and associations must submit with each request a
completed Certificate of Authorization included in this
prospectus (or a form of resolution acceptable to Investment
Trust); and
(6) The request must include other supporting legal documents as
required from organizations, executors, administrators,
trustees, or others acting on accounts not registered in their
names.
BY EXCHANGE. You may redeem all or any portion of your Fund
shares and use the proceeds to purchase shares of any other Stein
Roe Fund offered for sale in your state if your signed, properly
completed Application is on file. AN EXCHANGE TRANSACTION IS A
SALE AND PURCHASE OF SHARES FOR FEDERAL INCOME TAX PURPOSES AND
MAY RESULT IN CAPITAL GAIN OR LOSS. Before exercising the
Exchange Privilege, you should obtain the prospectus for the Stein
Roe Fund in which you wish to invest and read it carefully. The
registration of the account to which you are making an exchange
must be exactly the same as that of the Fund account from which
the exchange is made and the amount you exchange must meet any
applicable minimum investment of the Stein Roe Fund being
purchased. An exchange may be made by following the redemption
procedure described under By Written Request and indicating the
Stein Roe Fund to be purchased--a signature guarantee normally is
not required. (See also the discussion below of the Telephone
Exchange Privilege and Automatic Exchanges.)
SPECIAL REDEMPTION PRIVILEGES. The Telephone Exchange Privilege
and the Telephone Redemption by Check Privilege will be
established automatically for you when you open your account
unless you decline these Privileges on your Application. Other
Privileges must be specifically elected. If you do not want the
Telephone Exchange and Redemption Privileges, check the box(es)
under the section "Telephone Redemption Options" when completing
your Application. In addition, a signature guarantee may be
required to establish a Privilege after you open your account. If
you establish both the Telephone Redemption by Wire Privilege and
the Electronic Transfer Privilege, the bank account that you
designate for both Privileges must be the same.
You may not use any of the Special Redemption Privileges if you
hold certificates for any of your Fund shares. The Telephone
Redemption by Check Privilege, Telephone Redemption by Wire
Privilege, and Special Electronic Transfer Redemptions are not
available to redeem shares held by a tax-sheltered retirement plan
sponsored by the Adviser. (See also General Redemption Policies.)
Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account
by calling 800-338-2550 or by sending a telegram; new accounts
opened by exchange are subject to the $2,500 initial purchase
minimum. GENERALLY, YOU WILL BE LIMITED TO FOUR TELEPHONE
EXCHANGE ROUND-TRIPS PER YEAR AND THE FUNDS MAY REFUSE REQUESTS
FOR TELEPHONE EXCHANGES IN EXCESS OF FOUR ROUND-TRIPS (A ROUND-
TRIP BEING THE EXCHANGE OUT OF A FUND INTO ANOTHER STEIN ROE FUND,
AND THEN BACK TO THAT FUND). In addition, 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 the
Funds. THEREFORE, INVESTMENT TRUST GENERALLY WILL NOT HONOR
REQUESTS FOR TELEPHONE EXCHANGES BY SHAREHOLDERS IDENTIFIED BY
INVESTMENT TRUST 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
the Funds, 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 the Funds. 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 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.
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 that Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares and may result
in a realized capital gain or loss.
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 instructions furnished thereunder if they reasonably
believe that such instructions are genuine. The Funds employ
procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special Electronic Transfer Redemption Privilege are
genuine. Use of any Special Redemption Privilege or the Special
Electronic Transfer Redemption Privilege authorizes the Funds and
their transfer agent to tape-record all instructions to redeem.
In addition, callers are asked to identify the account number and
registration, and may be required to provide other forms of
identification. Written confirmations of transactions are mailed
promptly to the registered address; a legend on the confirmation
requests that the shareholder review the transactions and inform
the Fund immediately if there is a problem. If a Fund does not
follow reasonable procedures for protecting shareholders against
loss on telephone transactions, it may be liable for any losses
due to unauthorized or fraudulent instructions.
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 a Fund or any of the other
Stein Roe Funds may be redeemed to the extent necessary to
reimburse any Stein Roe Fund for any loss it sustains that is
caused by you (such as losses from uncollected checks and
electronic transfers for the purchase of shares, or any Stein Roe
Fund liability under the Internal Revenue Code provisions on
backup withholding).
SHAREHOLDER SERVICES
REPORTING TO SHAREHOLDERS. You will receive a confirmation
statement reflecting each of your purchases and redemptions of
shares of a Fund, as well as periodic statements detailing
distributions made by that Fund. Shares purchased by reinvestment
of dividends, by cross-reinvestment of dividends from another
Fund, or through an automatic investment plan will be confirmed to
you quarterly. In addition, Investment Trust will send you
semiannual and annual reports showing portfolio holdings and will
provide you annually with tax information.
FUNDS-ON-CALL [REGISTERED] AUTOMATED TELEPHONE SERVICE. To
access Stein Roe Funds-on-Call [registered], just call 800-338-
2550 on any touch-tone telephone and follow the recorded
instructions. Funds-on-Call [registered] provides yields, prices,
latest dividends, account balances, last transaction, and other
information 24 hours a day, seven days a week. You also may use
Funds-on-Call [registered] to make Special Investments and
Redemptions, Telephone Exchanges, and Telephone Redemptions by
Check. These transactions are subject to the terms and conditions
of the individual privileges. (See How to Purchase Shares and How
to Redeem Shares.)
STEIN ROE COUNSELOR [SERVICE MARK] PROGRAM. The Stein Roe
Counselor [SERVICE MARK] and Stein Roe 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 Fund account automatically invested
in another Stein Roe Fund account. Before establishing this
option, you should obtain and read carefully the prospectus of the
Stein Roe Fund into which you wish to have your distributions
invested. The account from which distributions are made must be
of sufficient size to allow each distribution to usually be at
least $25. The account into which distributions are to be
invested may be opened with an initial investment of only $1,000.
Automatic Dividend Deposit (electronic transfer)--to have income
dividends and capital gain distributions deposited directly into
your bank 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).
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 each Fund's shares is its net
asset value per share. The net asset value of a share of each
Fund is determined as of the close of trading on the New York
Stock Exchange ("NYSE") (currently 3:00 p.m., central time) by
dividing the difference between the values of 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 a
Fund should be determined on any such day, in which case the
determination will be made at 3:00 p.m., central time. Each
Portfolio allocates net asset value, income, and expenses among
its feeder funds in proportion to their respective interests in
the Portfolio.
Each security traded on a national stock exchange is valued at its
last sale price on that exchange on the day of valuation or, if
there are no sales that day, at the latest bid quotation. Each
over-the-counter security for which the last sale price on the day
of valuation is available from NASDAQ is valued at that price.
All other over-the-counter securities for which reliable
quotations are available are valued at the latest bid quotation.
Long-term straight-debt obligations and securities convertible
into stocks are valued at a fair value using a procedure
determined in good faith by the Board of Trustees. Pricing
services approved by the Board provide valuations (some of which
may be "readily available market quotations"). These valuations
are reviewed by the Adviser. If the Adviser believes that a
valuation received from the service does not represent a fair
value, it values the obligation using a method that the Board
believes represents fair value. The Board may approve the use of
other pricing services and any pricing service used may employ
electronic data processing techniques, including a so-called
"matrix" system, to determine valuations. Other assets and
securities are valued by a method that the Board believes
represents fair value.
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS. Income dividends for Growth & Income Fund and
Balanced Fund are normally declared and paid quarterly; and income
dividends for Growth Stock Fund, Special Fund, Special Venture
Fund, and Capital Opportunities Fund are normally declared and
paid annually. Each Fund intends to distribute by the end of each
calendar year at least 98% of any net capital gains realized from
the sale of securities during the twelve-month period ended
October 31 in that year. Therefore, an additional dividend may be
declared near year end. The Funds intend to distribute any
undistributed net investment income and net realized capital gains
in the following year.
All of your income dividends and capital gain distributions will
be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank 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 Fund shares if checks mailed to you
for distributions are returned as undeliverable or are not
presented for payment within six months.
INCOME TAXES. Your distributions will be taxable to you, under
income tax law, whether received in cash or reinvested in
additional shares. For federal income tax purposes, any
distribution that is paid in January but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital gain.
Distributions of net long-term capital gain will be taxable to you
as long-term capital gain regardless of the length of time you
have held your shares.
You will be advised annually as to the source of distributions for
tax purposes. If you are not subject to tax on your income, you
will not be required to pay tax on these amounts.
If you realize a loss on the sale or exchange of Fund shares held
for six months or less, your short-term loss is recharacterized as
long-term to the extent of any long-term capital gain
distributions you have received with respect to those shares.
For federal income tax purposes, each Fund is treated as a
separate taxable entity distinct from the other series of
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 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. The Funds
must promptly pay to the IRS all amounts withheld. Therefore, it
is usually not possible for a Fund to reimburse you for amounts
withheld. You may, however, claim the amount withheld as a credit
on your federal income tax return.
INVESTMENT RETURN
The total return from an investment in a Fund is measured by the
distributions received (assuming reinvestment), plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
Comparison of a Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. Of course, past performance is not necessarily
indicative of future results.
MANAGEMENT
TRUSTEES AND ADVISER. The Board of Trustees of Investment Trust
and the Board of Base Trust have overall management responsibility
for the Funds and the Portfolios, respectively. See the Statement
of Additional Information for the names of and additional
information about the trustees and officers. Since Investment
Trust and Base Trust have the same trustees, the trustees have
adopted conflict of interest procedures to monitor and address
potential conflicts between the interests of the Funds and the
Portfolios.
The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing the
Funds and the Portfolios, subject to the direction of the
respective Board of Trustees. The Adviser is registered as an
investment adviser under the Investment Advisers Act of 1940. The
Adviser was organized in 1986 to succeed to the business of Stein
Roe & Farnham, a partnership that had advised and managed mutual
funds since 1949. The Adviser is a wholly owned subsidiary of
Liberty Financial Companies, Inc. ("Liberty Financial"), which in
turn is a majority owned indirect subsidiary of Liberty Mutual
Insurance Company.
In approving the use of a single combined prospectus, the Boards
considered the possibility that one Fund or Portfolio might be
liable for misstatements in the prospectus regarding information
concerning another Fund or Portfolio.
PORTFOLIO MANAGERS. Daniel K. Cantor has been portfolio manager
of Growth & Income Portfolio since its inception in 1997 and had
been portfolio manager of Growth & Income Fund since 1995. He is
a senior vice president of the Adviser, which he joined in 1985.
A chartered financial analyst, he received a B.A. degree from the
University of Rochester in 1981 and an M.B.A. from the Wharton
School of the University of Pennsylvania in 1985. As of December
31, 1996, Mr. Cantor was responsible for managing $241 million in
mutual fund net assets. Jeffrey C. Kinzel is associate portfolio
manager. Mr. Kinzel received a B.A. from Northwestern University
(1979), a J.D. from the University of Michigan Law School (1983),
and an M.B.A. from the Wharton School of the University of
Pennsylvania (1991). Mr. Kinzel is a vice president and
intermediate research analyst with the Adviser. Before joining
the Adviser in 1991 as an equity research analyst, Mr. Kinzel was
employed by the law firm of Butler and Binion; the law firm of
Miller, Canfield, Paddock and Stone; and 1838 Investment Advisers.
Harvey B. Hirschhorn has been portfolio manager of Balanced
Portfolio since its inception in 1997 and had been portfolio
manager of Balanced Fund since April, 1996. He is executive vice
president and chief economist and investment strategist of the
Adviser, which he joined in 1973. He received an A.B. degree from
Rutgers College in 1971 and an M.B.A. from the University of
Chicago in 1973, and is a chartered financial analyst. Mr.
Hirschhorn was responsible for managing $557 million in mutual
fund net assets at December 31, 1996. William Garrison and Sandra
Knight are associate portfolio managers. Mr. Garrison joined the
Adviser in 1989. He received his A.B. from Princeton University
(1988) and an M.B.A. from the University of Chicago (1995). Ms.
Knight is a vice president and senior quantitative research
analyst with the Adviser, which she joined in 1991. She earned a
B.S. degree from Lawrence Technological University (1984) and an
M.B.A. from Loyola University of Chicago (1991).
Erik P. Gustafson has been portfolio of Growth Stock Portfolio
since its inception in 1997 and had managed Growth Stock Fund
since 1994. Mr. Gustafson is a senior vice president and senior
portfolio manager with the Adviser, which he joined in 1992. From
1989 to 1992 he was an attorney with Fowler, White, Burnett,
Hurley, Banick & Strickroot. He holds a B.A. from the University
of Virginia (1985) and M.B.A. and J.D. degrees from Florida State
University (1989). Mr. Gustafson was responsible for managing
$877 million in mutual fund net assets at December 31, 1996.
David P. Brady is associate portfolio manager. Mr. Brady is a
vice president of the Adviser, which he joined the Adviser in
1993, and was an equity investment analyst with State Farm Mutual
Automobile Insurance Company from 1986 to 1993.
Gloria J. Santella and Eric S. Maddix are co-portfolio managers of
Capital Opportunities Fund. Ms. Santella has been portfolio
manager since October, 1994, and had previously been co-portfolio
manager since March, 1991. Ms. Santella is a senior vice
president of the Adviser, having been associated with it since
1979. She received her B.B.A. from Loyola University (1979) and
M.B.A. from the University of Chicago (1983). Mr. Maddix became
co-portfolio manager in 1996, and was previously 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). As of December 31, 1996, Ms. Santella and Mr.
Maddix co-managed $1.4 billion in mutual fund net assets.
E. Bruce Dunn and Richard B. Peterson have been co-portfolio
managers of Special Portfolio and Special Venture Portfolio since
their inception in 1997 and had been portfolio managers of Special
Fund since 1991 and of Special Venture Fund since its inception in
1994. Each is a senior vice president of the Adviser. Mr. Dunn
has been associated with the Adviser since 1964. He received his
A.B. degree from Yale University (1956) and his M.B.A. from
Harvard University (1958) and is a chartered investment counselor.
Mr. Peterson, who began his investment career at Stein Roe &
Farnham in 1965 after graduating with a B.A. from Carleton College
(1962) and the Woodrow Wilson School at Princeton University
(1964) with a Masters in Public Administration, rejoined the
Adviser in 1991 after 15 years of equity research and portfolio
management experience with State Farm Investment Management Corp.
As of December 31, 1996, Messrs. Dunn and Peterson were
responsible for co-managing $1.5 billion in mutual fund net
assets.
FEES AND EXPENSES. In return for its services, the Adviser is
entitled to receive a management fee from each Portfolio, a
management fee from Capital Opportunities Fund, and an
administrative fee from each Fund. Prior to the conversion to the
master fund/feeder fund structure on February 3, 1997, management
fees were paid by each Fund. The annual rates, as a percentage of
average net assets (dollar amounts shown in millions), are as
follows:
Fund Management Fee Administrative Fee
- ----------------------- ------------------- -------------------
Growth & Income Fund;
Growth Stock Fund N/A .15% up to $500,
.125% next $500,
.10% thereafter
Growth & Income Portfolio;
Growth Stock Portfolio .60% up to $500, N/A
.55% next $500,
.50% thereafter
Balanced Fund N/A .15% up to $500,
.125% next $500,
.10% thereafter
Balanced Portfolio .55% up to $500, N/A
.50% next $500,
.45% thereafter
Special Fund N/A .15% up to $500,
.125% next $500,
.10% next $500,
.075% thereafter
Special Portfolio .75% up to $500, N/A
.70% next $500,
.65% next $500,
.60% thereafter
Capital Opportunities
Fund .75% up to $500, .15% up to $500,
.70% next $500, .125% next $500,
.65% next $500, .10% next $500,
.60% thereafter .075% thereafter
Special Venture Fund N/A .15%
Special Venture Portfolio.75% N/A
For the year ended September 30, 1996, the fees for Growth &
Income Fund, Balanced Fund, Growth Stock Fund, Special Fund, and
Capital Opportunities Fund amounted to 1.18%, 1.05%, 1.08%, 1.18%,
and 1.22% of average net assets, respectively; and the fee for
Special Venture Fund, after the fee waiver in effect during that
period, amounted to 1.25% of average net assets.
Under a separate agreement with each Trust, the Adviser provides
certain accounting and bookkeeping services to the Funds and the
Portfolios, 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.
DISTRIBUTOR. The shares of each Fund are offered for sale through
Liberty Securities Corporation ("Distributor") without any sales
commissions or charges to the Funds or to their shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to
SteinRoe Services Inc. at P.O. Box 8900, Boston, Massachusetts
02205, except for participants in the Stein Roe Counselor [SERVICE
MARK] Program, who 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
the Funds and the Portfolios. 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, nine 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 is also believed to be remote, because it would be limited
to claims to which the disclaimer did not apply and to
circumstances in which the other series was unable to meet its
obligations.
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND STRUCTURE
Commencing February 3, 1997, each of Growth & Income Fund,
Balanced Fund, Growth Stock Fund, Special Fund, and Special
Venture Fund (which are series of Investment Trust, an open-end
management investment company) seeks to achieve its objective by
investing all of its assets in shares of another mutual fund
having an investment objective identical to that of the Fund. The
shareholders of each Fund approved this policy of permitting a
Fund to act as a feeder fund by investing in a Portfolio. Please
refer to Investment Policies, Portfolio Investments and
Strategies, and Investment Restrictions for a description of the
investment objectives, policies, and restrictions of the Funds and
the Portfolios. The management fees and expenses of the Funds and
the Portfolios are described under the Fee Table and Management.
Each feeder Fund bears its proportionate share of the expenses of
its master Portfolio.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
Each Portfolio is a separate series of SR&F Base Trust ("Base
Trust"), a Massachusetts common law trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
August 23, 1993. The Declaration of Trust of Base Trust provides
that a Fund and other investors in a Portfolio will be liable for all
obligations of that Portfolio that are not satisfied by the
Portfolio. However, the risk of a Fund incurring financial loss
on account of such liability is limited to circumstances in which
liability was inadequately insured and a Portfolio was unable to
meet its obligations. Accordingly, the Trustees of Investment
Trust believe that neither the Funds nor their shareholders will
be adversely affected by reason of a Fund's investing in a
Portfolio.
The Declaration of Trust of Base Trust provides that a Portfolio
will terminate 120 days after the withdrawal of a Fund or any
other investor in the Portfolio, unless the remaining investors
vote to agree to continue the business of the Portfolio. The
trustees of Investment Trust may vote a Fund's interests in a
Portfolio for such continuation without approval of the Fund's
shareholders.
The common investment objectives of the Funds and the Portfolios
are non-fundamental and may be changed without shareholder
approval, subject, however, to at least 30 days' advance written
notice to a Fund's shareholders.
The fundamental policies of each Fund and the corresponding
fundamental policies of its master Portfolio can be changed only
with shareholder approval. If a Fund, as a Portfolio investor, is
requested to vote on a change in a fundamental policy of a
Portfolio or any other matter pertaining to the Portfolio (other
than continuation of the business of the Portfolio after
withdrawal of another investor), the Fund will solicit proxies
from its shareholders and vote its interest in the Portfolio for
and against such matters proportionately to the instructions to
vote for and against such matters received from Fund shareholders.
A Fund will vote shares for which it receives no voting
instructions in the same proportion as the shares for which it
receives voting instructions. If there are other investors in a
Portfolio, there can be no assurance that any matter receiving a
majority of votes cast by Fund shareholders will receive a
majority of votes cast by all investors. If other investors hold
a majority interest in a Portfolio, they could have voting control
over that Portfolio.
In the event that a Portfolio's fundamental policies were changed
so as to be inconsistent with those of the corresponding Fund, the
Board of Trustees of Investment Trust would consider what action
might be taken, including changes to the Fund's fundamental
policies, withdrawal of the Fund's assets from the Portfolio and
investment of such assets in another pooled investment entity, or
the retention of an investment adviser to invest those assets
directly in a portfolio of securities. Any of these actions would
require the approval of a Fund's shareholders. A Fund's inability
to find a substitute master fund or comparable investment
management could have a significant impact upon its shareholders'
investments. Any withdrawal of a Fund's assets could result in a
distribution in kind of portfolio securities (as opposed to a cash
distribution) to the Fund. Should such a distribution occur, the
Fund would incur brokerage fees or other transaction costs in
converting such securities to cash. In addition, a distribution
in kind could result in a less diversified portfolio of
investments for the Fund and could affect the liquidity of the
Fund.
Each investor in a Portfolio, including a Fund, may add to or
reduce its investment in the Portfolio on each day the NYSE is
open for business. The investor's percentage of the aggregate
interests in the Portfolio will be computed as the percentage
equal to the fraction (i) the numerator of which is the beginning
of the day value of such investor's investment in the Portfolio on
such day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investor's investment in the
Portfolio effected on such day; and (ii) the denominator of which
is the aggregate beginning of the day net asset value of the
Portfolio on such day plus or minus, as the case may be, the
amount of the net additions to or withdrawals from the aggregate
investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio as of the close
of business.
Base Trust may permit other investment companies and/or other
institutional investors to invest in a Portfolio, but members of
the general public may not invest directly in the Portfolio.
Other investors in a Portfolio are not required to sell their
shares at the same public offering price as a Fund, might incur
different administrative fees and expenses than the Fund, and
might charge a sales commission. Therefore, Fund shareholders
might have different investment returns than shareholders in
another investment company that invests exclusively in a
Portfolio. Investment by such other investors in a Portfolio
would provide funds for the purchase of additional portfolio
securities and would tend to reduce the operating expenses as a
percentage of the Portfolio's net assets. Conversely, large-scale
redemptions by any such other investors in a Portfolio could
result in untimely liquidations of the Portfolio's security
holdings, loss of investment flexibility, and increases in the
operating expenses of the Portfolio as a percentage of its net
assets. As a result, a Portfolio's security holdings may become
less diverse, resulting in increased risk.
Information regarding other investors in a Portfolio may be
obtained by writing to SR&F Base Trust at Suite 3200, One South
Wacker Drive, Chicago, IL 60606, or by calling 800-338-2550. The
Adviser may provide administrative or other services to one or
more of such investors.
<PAGE>
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>
The Stein Roe Mutual 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 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>
STEIN ROE MUTUAL FUNDS
Prospectus
February 3, 1997
International Fund
[logo] STEIN ROE MUTUAL FUNDS
Building Wealth for Generations
<PAGE>
INTERNATIONAL FUND
The investment objective of International Fund is to provide long-
term growth of capital. International Fund invests all of its net
investable assets in shares of SR&F International Portfolio, which
has the same investment objective and substantially the same
investment policies as International Fund. (SEE SPECIAL
CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND STRUCTURE.)
International Portfolio invests in a diversified portfolio of
foreign securities.
International Fund is a "no-load" fund. There are no sales or
redemption charges, and International Fund has no 12b-1 plan.
International Fund is a series of the Stein Roe Investment Trust
and International Portfolio is a series of SR&F Base Trust. Each
Trust is a diversified open-end management investment company.
This prospectus contains information you should know before
investing in International Fund. Please read it carefully and
retain it for future reference.
A Statement of Additional Information dated February 3, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. This
prospectus is available electronically by using Stein Roe's
Internet address: http://www. steinroe.com. You can get a free
paper copy of the prospectus, the Statement of Additional
Information, and the most recent financial statements 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 February 3, 1997.
<PAGE>
TABLE OF CONTENTS
Page
Summary .............................2
Fee Table ..........................4
Financial Highlights.................5
The Fund ............................6
Investment Policies .................7
Portfolio Investments and Strategies.8
Investment Restrictions.............12
Risks and Investment Considerations.14
How to Purchase Shares .............16
By Check .........................16
By Wire ..........................16
By Electronic Transfer ...........17
By Exchange ......................17
Conditions of Purchase ...........17
Purchases Through Third Parties...18
Purchase Price and Effective Date.18
How to Redeem Shares ...............19
By Written Request ...............19
By Exchange ......................19
Special Redemption Privileges ....20
General Redemption Policies ......21
Shareholder Services ...............23
Net Asset Value ....................25
Distributions and Income Taxes .....26
Investment Return ..................28
Management .........................28
Organization and Description of
Shares............................31
Special Considerations Regarding
Master Fund/Feeder Fund Structure..32
Certificate of Authorization........35
SUMMARY
Stein Roe International Fund ("International Fund") is a series of
Stein Roe Investment Trust, an open-end diversified management
investment company. International 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 International
Fund are not qualified for sale.
INVESTMENT OBJECTIVE AND POLICIES. The investment objective of
International Fund is to provide long-term growth of capital by
investing primarily in a diversified portfolio of foreign
securities. International Fund invests all of its net investable
assets in SR&F International Portfolio ("International
Portfolio"), which has the same investment objective and
substantially the same investment policies as International Fund.
International Portfolio invests primarily in equity securities.
Under normal market conditions, it will invest at least 65% of its
total assets (taken at market value) in foreign securities of at
least three countries outside the United States. International
Portfolio diversifies its investments among several countries and
does not concentrate investments in any particular industry.
There can be no guarantee that International Fund and
International Portfolio will achieve their common investment
objective. Please see Investment Policies and Portfolio
Investments and Strategies for further information.
INVESTMENT RISKS. International Fund is intended for long-term
investors who can accept the risks entailed in investing in
foreign securities. Since International Portfolio invests
primarily in foreign securities, investors should understand and
consider carefully the risks involved in foreign investing.
Investing in foreign securities involves certain considerations
involving both risks and opportunities not typically associated
with investing in U.S. securities. Such risks include
fluctuations in exchange rates on foreign currencies, less public
information, less government supervision, less liquidity, and
greater price volatility.
Please see Investment Policies, Portfolio Investments and
Strategies, and Risks and Investment Considerations for further
information.
PURCHASES. The minimum initial investment is $2,500 and
additional investments must be at least $100 (only $50 for
purchases by electronic transfer). Shares may be purchased by
check, by bank wire, by electronic transfer, or by exchange from
another Stein Roe Fund. For more detailed information, see How to
Purchase Shares.
REDEMPTIONS. For information on redeeming International Fund
shares, including the special redemption privileges, see How to
Redeem Shares.
NET ASSET VALUE. The purchase and redemption price of
International Fund's shares is its net asset value per share. The
net asset value is determined as of the close of trading on the
New York Stock Exchange. (For more detailed information, see Net
Asset Value.)
DISTRIBUTIONS. Dividends for International Fund are normally
declared and paid annually. Distributions will be reinvested in
additional International 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 investment management services to
International Portfolio and provides administrative and
bookkeeping and accounting services to International Portfolio and
International Fund. For a description of the Adviser and its
fees, see Management.
If you have any additional questions about International Fund,
please feel free to discuss them with an account representative by
calling 800-338-2550.
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None*
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (as a percentage
of average net assets)
Management and Administrative Fees 1.00%
12b-1 Fees None
Other Expenses 0.51%
-----
Total Fund Operating Expenses 1.51%
======
_________________
* 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 5 years 10 years
------ ------- -------- ---------
$15 $48 $82 $180
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 International Fund. The table is
based on expenses incurred in the last fiscal year.
International Fund pays the Adviser an administrative fee based on
the Fund's average daily net assets, and International Portfolio
pays the Adviser a management fee based on its average daily net
assets. The expenses of both International Fund and International
Portfolio are summarized in the Fee Table. (The fees are
described under Management.) International Fund bears its
proportionate share of Portfolio expenses. The trustees of
Investment Trust have considered whether the annual operating
expenses of International Fund, including its share of the
expenses of International Portfolio, would be more or less than if
International Fund invested directly in the securities held by
International Portfolio, and concluded that International Fund's
expenses would not be greater in such case.
For purposes of the Example above, the figures assume that the
percentage amounts listed for International Fund under Annual Fund
Operating Expenses remain the same in each of the periods and that
all income dividends and capital gain distributions are reinvested
in additional Fund shares.
The figures in the Example are not necessarily indicative of past
or future expenses, and actual expenses may be greater or less
than those shown. Although information such as that shown in the
Example and Fee Table is useful in reviewing International Fund's
expenses and in providing a basis for comparison with other mutual
funds, it should not be used for comparison with other investments
using different assumptions or time periods.
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of
International Fund on a per-share basis for the period shown and
has been audited by Arthur Andersen LLP, independent public
accountants. The table should be read in conjunction with
International Fund's financial statements and notes thereto.
International Fund's annual report, which may be obtained from
Investment Trust without charge upon request, contains additional
performance information.
Period Ended Years Ended
Sept. 30, September 30,
1994 (a) 1995 1996
---------- ------ ------
Net Asset Value, Beginning of Period.... $10.00 $10.61 $10.25
------ ------ ------
Income from Investment Operations
Net investment income..................... 0.03 0.12 0.09
Net realized and unrealized gains
(losses) on investments and
foreign currency transactions............ 0.58 (0.26) 0.74
------ ------ ------
Total from investment operations......... 0.61 (0.14) 0.83
------ ------ ------
Distributions
Net investment income..................... -- (0.05) (0.12)
Net realized capital gains................ -- (0.17) --
------ ------ ------
Total distributions....................... -- (0.22) (0.12)
------ ------ ------
Net Asset Value, End of Period.......... $10.61 $10.25 $10.96
====== ====== ======
Ratio of net expenses to average
net assets............................. *1.61% 1.59% 1.51%
Ratio of net investment income to
average net assets..................... *0.61% 1.41% 1.01%
Portfolio turnover rate.................. 48% 59% 42%
Average commissions (per share).......... -- -- $0.0010
Total return............................. 6.10% (1.28%) 8.23%
Net assets, end of period (000 omitted).$74,817 $83,020 $135,545
- -----------------
*Annualized.
(a) From commencement of operations on March 1, 1994.
THE FUND
STEIN ROE INTERNATIONAL FUND ("International 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. International Fund
does not impose commissions or charges when shares are purchased
or redeemed.
International 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
investment management, administrative, and bookkeeping and
accounting services to International Fund and International
Portfolio. The Adviser also manages and provides investment
advisory services for several other mutual funds with different
investment objectives, including other equity funds, taxable and
tax-exempt bond funds, and money market funds. To obtain
prospectuses and other information on any of those mutual funds,
please call 800-338-2550.
On February 3, 1997, International Fund became a "feeder fund"--
that is, it invested all of its assets in SR&F International
Portfolio ("International Portfolio"), a "master fund" that has an
investment objective identical to that of International Fund.
International Portfolio is a series of SR&F Base Trust ("Base
Trust"). Before converting to a feeder fund, International Fund
invested its assets in a diversified group of securities. Under
the "master fund/feeder fund structure," a feeder fund and one or
more feeder funds pool their assets in a master portfolio that has
the same investment objective and substantially the same
investment policies as the feeder funds. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. The assets of International Portfolio,
International Fund's master fund, are managed by the Adviser in
the same manner as the assets of International Fund were managed
before conversion to the master fund/feeder fund structure. (For
more information, see Special Considerations Regarding Master
Fund/Feeder Fund Structure.)
INVESTMENT POLICIES
The investment objective of International Fund is to seek long-
term growth of capital. International Fund invests all of its net
investable assets in International Portfolio, which has the same
investment objective and substantially the same investment
policies as International Fund. International Portfolio invests
as described below and may also employ investment techniques
described under Portfolio Investments and Strategies in this
prospectus.
International Portfolio invests primarily in a diversified
portfolio of foreign securities. Current income is not a primary
factor in the selection of portfolio securities. International
Portfolio invests primarily in common stocks and other equity-type
securities (such as preferred stocks, securities convertible or
exchangeable for common stocks, and warrants or rights to purchase
common stocks). International Portfolio may invest in securities
of smaller emerging companies as well as securities of well-
seasoned companies of any size. Smaller companies, however,
involve higher risks in that they typically have limited product
lines, markets, and financial or management resources. In
addition, the securities of smaller companies may trade less
frequently and have greater price fluctuation than larger
companies, particularly those operating in countries with
developing markets.
International Portfolio diversifies its investments among several
countries and does not concentrate investments in any particular
industry. In pursuing its objective, International Portfolio
varies the geographic allocation and types of securities in which
it invests based on the Adviser's continuing evaluation of
economic, market, and political trends throughout the world.
While International Portfolio has not established limits on
geographic asset distribution, it ordinarily invests in the
securities markets of at least three countries outside the United
States, including but not limited to Western European countries
(such as Belgium, France, Germany, Ireland, Italy, The
Netherlands, the countries of Scandinavia, Spain, Switzerland, and
the United Kingdom); countries in the Pacific Basin (such as
Australia, Hong Kong, Japan, Malaysia, the Philippines, Singapore,
and Thailand); and countries in the Americas (such as Argentina,
Brazil, Colombia, and Mexico). In addition, it does not currently
intend to invest more than 2% of its total assets in Russian
securities.
Under normal market conditions, International Portfolio will
invest at least 65% of its total assets (taken at market value) in
foreign securities. If, however, investments in foreign
securities appear to be relatively unattractive in the judgment of
the Adviser because of current or anticipated adverse political or
economic conditions, International Portfolio may hold cash or
invest any portion of its assets in securities of the U.S.
Government and equity and debt securities of U.S. companies, as a
temporary defensive strategy. To meet liquidity needs,
International Portfolio may also hold cash in domestic and foreign
currencies and invest in domestic and foreign money market
securities (including repurchase agreements and foreign money
market positions).
In the past the U.S. Government has from time to time imposed
restrictions, through taxation and other methods, on foreign
investments by U.S. investors such as International Portfolio. If
such restrictions should be reinstated, it might become necessary
for International Portfolio to invest all or substantially all of
its assets in U.S. securities. In such an event, International
Fund would review its investment objective and policies to
determine whether changes are appropriate.
International Portfolio may purchase foreign securities in the
form of American Depositary Receipts (ADRs), European Depositary
Receipts (EDRs), or other securities representing underlying
shares of foreign issuers. International Portfolio may invest in
sponsored or unsponsored ADRs. (For a description of ADRs and
EDRs, see the Statement of Additional Information.)
PORTFOLIO INVESTMENTS AND STRATEGIES
DERIVATIVES. Consistent with its objective, International
Portfolio may invest in a broad array of financial instruments and
securities, including conventional exchange-traded and non-
exchange-traded options, futures contracts, futures options,
forward contracts, securities collateralized by underlying pools
of mortgages or other receivables, floating rate instruments, and
other instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument or
security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, an interest rate, or a
currency. International Portfolio does not expect to invest more
than 5% of its net assets in any type of Derivative except for
options, futures contracts, futures options, and forward
contracts.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in currency exchange rates, security prices, interest
rates and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as well
regulated and may be less marketable than exchange-traded
Derivatives. For additional information on Derivatives, please
refer to the Statement of Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, International
Portfolio may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2) enter
into interest rate, index and foreign currency futures contracts;
(3) write options on such futures contracts; and (4) purchase
other types of forward or investment contracts linked to
individual securities, indexes, or other benchmarks.
International Portfolio may write a call or put option only if the
option is covered. As the writer of a covered call option,
International Portfolio foregoes, during the option's life, the
opportunity to profit from increases in market value of the
security covering the call option above the sum of the premium and
the exercise price of the call. There can be no assurance that a
liquid market will exist when International Portfolio seeks to
close out a position. In addition, because futures positions may
require low margin deposits, the use of futures contracts involves
a high degree of leverage and may result in losses in excess of
the amount of the margin deposit.
DEBT SECURITIES. In pursuing its investment objective,
International Portfolio may invest up to 35% of its total assets
in debt securities. Investments in debt securities are limited to
those that are rated within the four highest grades (generally
referred to as "investment grade") assigned by a nationally
recognized statistical rating organization. Investments in
unrated debt securities are limited to those deemed to be of
comparable quality by the Adviser. Securities in the fourth
highest grade may possess speculative characteristics. If the
rating of a security held by International Portfolio 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 International Portfolio should continue to
hold the security. 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.
SETTLEMENT TRANSACTIONS. When International Portfolio enters into
a contract for the purchase or sale of a foreign portfolio
security, it usually is required to settle the purchase
transaction in the relevant foreign currency or receive the
proceeds of the sale in that currency. In either event,
International Portfolio is obliged to acquire or dispose of an
appropriate amount of foreign currency by selling or buying an
equivalent amount of U.S. dollars. At or near the time of the
purchase or sale of the foreign portfolio security, International
Portfolio may wish to lock in the U.S. dollar value of a
transaction at the exchange rate or rates then prevailing between
the U.S. dollar and the currency in which the security is
denominated. Known as "transaction hedging," this may be
accomplished by purchasing or selling such foreign securities on a
"spot," or cash, basis. Transaction hedging also may be
accomplished on a forward basis, whereby International Portfolio
purchases or sells a specific amount of foreign currency, at a
price set at the time of the contract, for receipt or delivery at
either a specified date or at any time within a specified time
period. In so doing, International Portfolio will attempt to
insulate itself against possible losses and gains resulting from a
change in the relationship between the U.S. dollar and the foreign
currency during the period between the date the security is
purchased or sold and the date on which payment is made or
received. Similar transactions may be entered into by using other
currencies if International Portfolio seeks to move investments
denominated in one currency to investments denominated in another.
CURRENCY HEDGING. Most of International Portfolio's portfolio
will be invested in foreign securities. As a result, in addition
to the risk of change in the market value of portfolio securities,
the value of the portfolio in U.S. dollars is subject to
fluctuations in the exchange rate between the foreign currencies
and the U.S. dollar. When, in the opinion of the Adviser, it is
desirable to limit or reduce exposure in a foreign currency to
moderate potential changes in the U.S. dollar value of the
portfolio, International Portfolio may enter into a forward
currency exchange contract to sell or buy such foreign currency
(or another foreign currency that acts as a proxy for that
currency)--through the contract, the U.S. dollar value of certain
underlying foreign portfolio securities can be approximately
matched by an equivalent U.S. dollar liability. This technique is
known as "currency hedging." By locking in a rate of exchange,
currency hedging is intended to moderate or reduce the risk of
change in the U.S. dollar value of the investment portfolio only
during the period of the forward contract. Forward contracts
usually are entered into with banks and broker-dealers; are not
exchange traded; and although they are usually less than one year,
may be renewed. A default on the contract would deprive
International Portfolio of unrealized profits or force
International Portfolio to cover its commitments for purchase or
sale of currency, if any, at the current market price.
Neither type of foreign currency transaction will eliminate
fluctuations in the prices of securities in the investment
portfolio or prevent loss if the price of such securities should
decline. In addition, such forward currency exchange contracts
will diminish the benefit of the appreciation in the U.S. dollar
value of that foreign currency. (For further information on
forward foreign currency exchange transactions, see the Statement
of Additional Information.)
SHORT SALES AGAINST THE BOX. International Portfolio 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 International
Portfolio against the risk of losses in the value of its portfolio
securities because any unrealized losses with respect to such
securities should be wholly or partly offset by a corresponding
gain in the short position. However, any potential gains in such
securities should be wholly or partially offset by a corresponding
loss in the short position. Short sales against the box may be
used to lock in a profit on a security when, for tax reasons or
otherwise, the Adviser does not want to sell the security. For a
more complete explanation, please refer to the Statement of
Additional Information.
PORTFOLIO TURNOVER. Although International Portfolio does not
purchase securities with a view to rapid turnover, there are no
limitations on the length of time portfolio securities must be
held. Accordingly, the portfolio turnover rate may vary
significantly from year to year, but is not expected to exceed
100% under normal market conditions. 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.) International Fund is not
intended to be an income-producing investment.
OTHER TECHNIQUES. International Portfolio may invest in
securities purchased on a when-issued or delayed-delivery basis.
Although the payment terms of these securities are established at
the time International Portfolio enters into the commitment, the
securities may be delivered and paid for a month or more after the
date of purchase, when their value may have changed.
International Portfolio will make such commitments only with the
intention of actually acquiring the securities, but may sell the
securities before settlement date if it is deemed advisable for
investment reasons. International Portfolio may utilize spot and
forward foreign exchange transactions to reduce the risk caused by
exchange rate fluctuations between one currency and another when
securities are purchased or sold on a when-issued basis. It may
also invest in synthetic money market instruments. International
Portfolio may invest in repurchase agreements, provided that it
will not invest more than 15% of its net assets in repurchase
agreements maturing in more than seven days and any other illiquid
securities. (See the Statement of Additional Information.)
International Fund may participate in an interfund lending
program, subject to certain restrictions described in the
Statement of Additional Information.
INVESTMENT RESTRICTIONS
Neither International Fund nor International Portfolio will 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 International Fund from investing 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 the
Fund or the Portfolio in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a specified
time. In the event of bankruptcy of the seller, the Fund or
Portfolio could experience both losses and delays in liquidating
its collateral.
- ----------------
Neither International Fund nor International Portfolio will invest
acquire more than 10% of the outstanding voting securities of any
one issuer. International Fund may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
Neither International Fund nor International Portfolio may make
loans except that each may (1) purchase money market instruments
and enter into repurchase agreements; (2) acquire publicly-
distributed or privately-placed debt securities; (3) lend its
portfolio securities under certain conditions; and (4) participate
in an interfund lending program with other Stein Roe Funds and
Portfolios. Neither may borrow money, except for non-leveraging,
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.
International Fund and International Portfolio may invest in
repurchase agreements, provided that neither will 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 of this
section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" as defined in the Investment
Company Act of 1940. The common investment objective of
International Fund and International Portfolio is non-fundamental
and, as such, may be changed by the Board of Trustees without
shareholder approval, subject, however, to at least 30 days'
advance written notice to International Fund's shareholders. Any
such change may result in International Fund having an investment
objective different from the objective the shareholder considered
appropriate at the time of investment in International Fund. All
of the investment restrictions are set forth in the Statement of
Additional Information.
Nothing in the investment restrictions outlined here shall be
deemed to prohibit International Portfolio from purchasing the
securities of any issuer pursuant to the exercise of subscription
rights distributed to International Portfolio by the issuer. No
such purchase may be made if, as a result, International Fund or
International Portfolio will no longer be a diversified investment
company as defined in the Investment Company Act of 1940 or would
fail to meet the diversification requirements of the Internal
Revenue Code.
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. INTERNATIONAL FUND IS
INTENDED FOR LONG-TERM INVESTORS WHO CAN ACCEPT THE RISKS ENTAILED
IN INVESTING IN FOREIGN SECURITIES. Of course, there can be no
guarantee that International Fund will achieve its objective.
Although International Portfolio does not attempt to reduce or
limit risk through wide industry diversification of investment, it
usually allocates its investments among a number of different
industries rather than concentrating in a particular industry or
group of industries. International Portfolio will not, however,
invest more than 25% of its total assets (at the time of
investment) in the securities of companies in any one industry.
FOREIGN INVESTING. International Fund provides long-term
investors with an opportunity to invest a portion of their assets
in a diversified portfolio of foreign securities. Non-U.S.
investments may be attractive because they increase
diversification, as compared to a portfolio comprised solely of
U.S. investments. In addition, many foreign economies have, from
time to time, grown faster than the U.S. economy, and the returns
on investments in these countries have exceeded those of similar
U.S. investments--there can be no assurance, however, that these
conditions will continue. International diversification also
allows International Fund and an investor to take advantage of
changes in foreign economies and market conditions.
Investors should understand and consider carefully the greater
risks involved in foreign investing. Investing in foreign
securities--positions which are generally denominated in foreign
currencies--and utilization of forward foreign currency exchange
contracts involve certain considerations comprising both risks and
opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulations or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and issuers of securities; lack of uniform accounting, auditing,
and financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment
in the securities of companies in developing as well as developed
countries; and sometimes less advantageous legal, operational, and
financial protections applicable to foreign sub-custodial
arrangements. These risks are greater for emerging market
countries.
Although International Portfolio will try to invest in companies
and governments of countries having stable political environments,
there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of
foreign government restrictions, and other adverse political,
social or diplomatic developments that could adversely affect
investment in these nations.
The price of securities of small, rapidly growing companies is
expected to fluctuate more widely than the general market due to
the difficulty in assessing financial prospects of companies
developing new products or operating in countries with developing
markets.
The strategy for selecting investments will be based on various
criteria. A company proposed for investment should have a good
market position in a fast-growing segment of the economy, strong
management, preferably a leading position in its business,
prospects of superior financial returns, ability to self-finance,
and securities available for purchase at a reasonable market
valuation. Because of the foreign domicile of such companies,
however, information on some of the above factors may be
difficult, if not impossible, to obtain.
To the extent portfolio securities are issued by foreign issuers
or denominated in foreign currencies, International Fund's
investment performance is affected by the strength or weakness of
the U.S. dollar against these currencies. If the dollar falls
relative to the Japanese yen, for example, the dollar value of a
yen-denominated stock held in the portfolio will rise even though
the price of the stock remains unchanged. Conversely, if the
dollar rises in value relative to the yen, the dollar value of the
yen-denominated stock will fall. (See the discussion of portfolio
and transaction hedging under Portfolio Investments and
Strategies.)
HOW TO PURCHASE SHARES
You may purchase International Fund shares by check, by wire, by
electronic transfer, or by exchange from your account with another
Stein Roe Fund. The initial purchase minimum per Fund account is
$2,500; the minimum for Uniform Gifts/Transfers to Minors Act
("UGMA") accounts is $1,000; the minimum for accounts established
under an automatic investment plan (i.e., Regular Investments,
Dividend Purchase Option, or the Automatic Exchange Plan) is
$1,000 for regular accounts and $500 for UGMA accounts; and the
minimum per account for Stein Roe IRAs is $500. The initial
purchase minimum is waived for shareholders who participate in the
Stein Roe Counselor [SERVICE MARK] and Stein Roe 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 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 International
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] and
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 International Fund
be cancelled because your check does not clear, you will be
responsible for any resulting loss incurred by International Fund.
BY WIRE. You also may pay for shares by instructing your bank to
wire federal funds (monies of member banks within the Federal
Reserve System) to the First National Bank of Boston. Your bank
may charge you a fee for sending the wire. If you are opening a
new account by wire transfer, you must first call 800-338-2550 to
request an account number and furnish your social security or
other tax identification number. Neither International 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. 12; Stein Roe International 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. 12; Stein Roe International Fund
Account of (exact name(s) in registration)
Counselor Account No. ________
BY ELECTRONIC TRANSFER. You may also make subsequent investments
by an electronic transfer of funds from your bank account.
Electronic transfer allows you to make purchases at your request
("Special Investments") by calling 800-338-2550 or at pre-
scheduled intervals ("Regular Investments") elected on your
application. (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 International Fund be
cancelled because your electronic transfer does not clear, you
will be responsible for any resulting loss incurred by
International 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 International
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 International 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 International
Fund's shareholders. Investment Trust also reserves the right to
waive or lower its investment minimums for any reason.
PURCHASES THROUGH THIRD PARTIES.
You may purchase (or redeem) shares through 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
International 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 International 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 International
Fund's shares made directly with the Fund 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 International 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 International Fund receives the electronic
transfer from your bank. A Special Electronic Transfer Investment
order received by telephone on a business day before 3:00 p.m.,
central time, is effective on the next business day.
Each purchase of International 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 International 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] and Personal Counselor [SERVICE MARK] Programs
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 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 International 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 Fund
shares and use the proceeds to purchase shares of any other Stein
Roe Fund offered for sale in your state if your signed, properly
completed Application is on file. AN EXCHANGE TRANSACTION IS A
SALE AND PURCHASE OF SHARES FOR FEDERAL INCOME TAX PURPOSES AND
MAY RESULT IN CAPITAL GAIN OR LOSS. Before exercising the
Exchange Privilege, you should obtain the prospectus for the Stein
Roe Fund in which you wish to invest and read it carefully. The
registration of the account to which you are making an exchange
must be exactly the same as that of the International 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 Redemption Privileges, check the box(es)
under the section "Telephone Redemption Options" when completing
your Application. In addition, a signature guarantee may be
required to establish a Privilege after you open your account. If
you establish both the Telephone Redemption by Wire Privilege and
the Electronic Transfer Privilege, the bank account that you
designate for both Privileges must be the same.
The Telephone Redemption by Check Privilege, Telephone Redemption
by Wire Privilege, and Special Electronic Transfer Redemptions are
not available to redeem shares held by a tax-sheltered retirement
plan sponsored by the Adviser. (See also General Redemption
Policies.)
Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account
by calling 800-338-2550 or by sending a telegram; new accounts
opened by exchange are subject to the initial purchase minimum for
the Fund being purchased. GENERALLY, YOU WILL BE LIMITED TO FOUR
TELEPHONE EXCHANGE ROUND-TRIPS PER YEAR AND INTERNATIONAL FUND MAY
REFUSE REQUESTS FOR TELEPHONE EXCHANGES IN EXCESS OF FOUR ROUND-
TRIPS (A ROUND-TRIP BEING THE EXCHANGE OUT OF INTERNATIONAL FUND
INTO ANOTHER STEIN ROE FUND, AND THEN BACK TO INTERNATIONAL 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
International Fund. THEREFORE, INVESTMENT TRUST GENERALLY WILL
NOT HONOR REQUESTS FOR TELEPHONE EXCHANGES BY SHAREHOLDERS
IDENTIFIED BY INVESTMENT TRUST 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 International 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 International 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 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.
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 International Fund's net
asset value per share at the time of redemption, it may be more or
less than the price you originally paid for the shares and may
result in a realized capital gain or loss.
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 and 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 instructions furnished thereunder if they reasonably
believe that such instructions are genuine. International 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
International 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 International Fund immediately if
there is a problem. If International 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 International 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 International Fund, as well as periodic statements
detailing distributions made by International Fund. Shares
purchased by reinvestment of dividends, by cross-reinvestment of
dividends from another Fund, or through an automatic investment
plan will be confirmed to you quarterly. In addition, Investment
Trust will send you semiannual and annual reports showing
portfolio holdings and will provide you annually with tax
information.
FUNDS-ON-CALL [REGISTERED] AUTOMATED TELEPHONE SERVICE. To
access Stein Roe Funds-on-Call [registered], just call 800-338-
2550 on any touch-tone telephone and follow the recorded
instructions. Funds-on-Call [registered] provides yields, prices,
latest dividends, account balances, last transaction, and other
information 24 hours a day, seven days a week. You also may use
Funds-on-Call [registered] to make Special Investments and
Redemptions, Telephone Exchanges, and Telephone Redemptions by
Check. These transactions are subject to the terms and conditions
of the individual privileges. (See How to Purchase Shares and How
to Redeem Shares.)
STEIN ROE COUNSELOR [SERVICE MARK] PROGRAM. The Stein Roe
Counselor [SERVICE MARK] and Stein Roe 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 Fund account automatically invested
in another Stein Roe Fund account. Before establishing this
option, you should obtain and read carefully the prospectus of the
Stein Roe Fund into which you wish to have your distributions
invested. The account from which distributions are made must be
of sufficient size to allow each distribution to usually be at
least $25. The account into which distributions are to be
invested may be opened with an initial investment of only $1,000.
Automatic Dividend Deposit (electronic transfer)--to have income
dividends and capital gain distributions deposited directly into
your bank 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).
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 International Fund's shares
is its net asset value per share. The net asset value of a share
of International 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 should be determined on any such day, in which case the
determination will be made at 3:00 p.m., central time.
International Portfolio allocates net asset value, income, and
expenses to International Fund and any other of its feeder funds
in proportion to their respective interests in International
Portfolio.
In computing the net asset value, the values of portfolio
securities are generally based upon market quotations. Depending
upon local convention or regulation, these market quotations may
be the last sale price, last bid or asked price, or the mean
between the last bid and asked prices as of, in each case, the
close of the appropriate exchange or other designated time.
Trading in securities on European and Far Eastern securities
exchanges and over-the-counter markets is normally completed at
various times before the close of business on each day on which
the NYSE is open. Trading of these securities may not take place
on every NYSE business day. In addition, trading may take place
in various foreign markets on Saturdays or on other days when the
NYSE is not open and on which net asset value is not calculated.
Therefore, such calculation does not take place contemporaneously
with the determination of the prices of many of the portfolio
securities used in such calculation and the value of the
investment portfolio may be significantly affected on days when
shares of International Fund may not be purchased or redeemed.
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS. Income dividends for International Fund are
normally declared and paid annually. International Fund intends
to distribute by the end of each calendar year at least 98% of any
net capital gains realized from the sale of securities during the
twelve-month period ended October 31 in that year. International
Fund intends to distribute any undistributed net investment income
and net realized capital gains in the following year.
All of your income dividends and capital gain distributions will
be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank 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 Fund shares if checks mailed to you
for distributions are returned as undeliverable or are not
presented for payment within six months.
U.S. FEDERAL INCOME TAXES. Your distributions will be taxable to
you, under income tax law, whether received in cash or reinvested
in additional shares. For federal income tax purposes, any
distribution that is paid in January but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital
gains. Distributions of net long-term capital gains will be
taxable to you as long-term capital gain regardless of the length
of time you have held your shares.
You will be advised annually as to the source of distributions for
tax purposes. If you are not subject to tax on your income, you
will not be required to pay tax on these amounts.
If you realize a loss on the sale or exchange of International
Fund shares held for six months or less, your short-term loss is
recharacterized as long-term to the extent of any long-term
capital gain distributions you have received with respect to those
shares.
For federal income tax purposes, International Fund is treated as
a separate taxable entity distinct from the other series of
Investment Trust.
FOREIGN INCOME TAXES. Investment income received by International
Portfolio from sources within foreign countries may be subject to
foreign income taxes withheld at the source. The United States
has entered into tax treaties with many foreign countries that
entitle International Portfolio to a reduced rate of tax or
exemption from tax on such income. It is impossible to determine
the effective rate of foreign tax in advance since the amount of
International Portfolio's assets to be invested within various
countries will fluctuate and the extent to which tax refunds will
be recovered is uncertain. International Portfolio intends to
operate so as to qualify for treaty-reduced tax rates where
applicable.
To the extent that International Fund is liable for foreign income
taxes withheld at the source, it also intends to operate so as to
meet the requirements of the U.S. Internal Revenue Code to "pass
through" to its shareholders foreign income taxes paid, but there
can be no assurance that it will be able to do so.
This discussion of U.S. and foreign taxation is not intended to be
a full discussion of income tax laws and their effect on
shareholders. You may wish to consult your own tax advisor. The
foregoing information applies to U.S. shareholders. Foreign
shareholders should consult their tax advisors as to the tax
consequences of ownership of International 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.
International Fund must promptly pay to the IRS all amounts
withheld. Therefore, it is usually not possible for International
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 International 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 International Fund's total return with alternative
investments should consider differences between International 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 ADVISERS. The Board of Trustees of Investment Trust
and the Board of Base Trust have overall management responsibility
for International Fund and International Portfolio, respectively.
See the Statement of Additional Information for the names of and
additional information about the trustees and officers. Since
Investment Trust and Base Trust have the same trustees, the
trustees have adopted conflict of interest procedures to monitor
and address potential conflicts between the interests of
International Fund and International Portfolio.
The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
International Fund and International Portfolio, subject to the
direction of the respective Board of Trustees. The Adviser is
registered as an investment adviser under the Investment Advisers
Act of 1940. The Adviser was organized in 1986 to succeed to the
business of Stein Roe & Farnham, a partnership that had advised
and managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Financial Companies, Inc.
("Liberty Financial"), which in turn is a majority owned indirect
subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS. Bruno Bertocci and David P. Harris have been
co-portfolio managers of International Portfolio since its
inception in 1997 and were managers of International Fund since
its inception in 1994. (Mr. Harris served as an associate
portfolio manager until May 1995.) In addition, they have been
co-portfolio managers of Stein Roe Emerging Markets Fund (a series
of Stein Roe Investment Trust), since its inception in 1997. They
joined the Adviser in 1995 as senior vice president and vice
president, respectively, to create Stein Roe Global Capital
Management, a dedicated global and international equity management
unit. Messrs. Bertocci and Harris are also employed by Colonial
Management Associates, Inc., a subsidiary of Liberty Financial and
an affiliate of the Adviser, as vice presidents. Prior to joining
the Adviser, Mr. Bertocci was a senior global equity portfolio
manager with Rockefeller & Co. ("Rockefeller") from 1983 to 1995.
While at Rockefeller, he served as portfolio manager for
International Fund, when Rockefeller was the Fund's sub-adviser.
Mr. Bertocci managed Rockefeller's London office from 1987 to 1989
and its Hong Kong office from 1989 to 1990. Prior to working at
Rockefeller, he served for three years at T. Rowe Price
Associates. Mr. Bertocci is a graduate of Oberlin College and
holds an M.B.A. from Harvard University. Mr. Harris was a
portfolio manager with Rockefeller from 1990 to 1995. After
earning a bachelor's degree from the University of Michigan, he
was an actuarial associate for GEICO before returning to school to
earn an M.B.A. from Cornell University. As of December 31, 1996,
Messrs. Bertocci and Harris were responsible for managing $141
million in mutual fund net assets.
FEES AND EXPENSES. In return for its services, the Adviser is
entitled to receive an administrative fee from International Fund
at an annual rate of .15% of average net assets; and a management
fee from International Portfolio at an annual rate of .85% of
average net assets. Prior to the conversion of International Fund
to the master fund/feeder fund structure on February 3, 1997, the
management fee was paid by International Fund.
Under a separate agreement with each Trust, the Adviser provides
certain accounting and bookkeeping services to International Fund
and International Portfolio, 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.
DISTRIBUTOR. The shares of International Fund are offered for
sale through Liberty Securities Corporation ("Distributor")
without any sales commissions or charges to International 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, except for participants in the Stein
Roe Counselor [SERVICE MARK] and Personal Counselor [SERVICE MARK]
Programs, who 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
International Fund and International Portfolio. Foreign
securities are maintained in the custody of foreign banks and
trust companies that are members of the Bank's Global Custody
Network or foreign depositories used by such members. (See
Custodian in the Statement of Additional Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
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, nine 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 is also believed to be remote, because it would be limited
to claims to which the disclaimer did not apply and to
circumstances in which the other series was unable to meet its
obligations.
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND STRUCTURE
Commencing February 3, 1997, International Fund, which is an open-
end management investment company, seeks to achieve its objective
by investing all of its assets in shares of another mutual fund
having an investment objective identical to that of International
Fund. The shareholders of International Fund approved this policy
of permitting International Fund to act as a feeder fund by
investing in International Portfolio. Please refer to Investment
Policies, Portfolio Investments and Strategies, and Investment
Restrictions for a description of the investment objectives,
policies, and restrictions of International Fund and International
Portfolio. The management fees and expenses of International Fund
and International Portfolio are described under the Fee Table and
Management. International Fund bears its proportionate share of
International Portfolio's expenses.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
International Portfolio is a separate series of SR&F Base Trust
("Base Trust"), a Massachusetts common law trust organized under
an Agreement and Declaration of Trust ("Declaration of Trust")
dated August 23, 1993. The Declaration of Trust of Base Trust
provides that International Fund and other investors in
International Portfolio will be liable for all obligations of
International Portfolio that are not satisfied by International
Portfolio. However, the risk of International Fund incurring
financial loss on account of such liability is limited to
circumstances in which liability was inadequately insured and
International Portfolio was unable to meet its obligations.
Accordingly, the Trustees of Investment Trust believe that neither
International Fund nor its shareholders will be adversely affected
by reason of International Fund's investing in International
Portfolio.
The Declaration of Trust of Base Trust provides that International
Portfolio will terminate 120 days after the withdrawal of
International Fund or any other investor in International
Portfolio, unless the remaining investors vote to agree to
continue the business of International Portfolio. The Trustees of
Investment Trust may vote International Fund's interests in
International Portfolio for such continuation without approval of
International Fund's shareholders.
The common investment objective of International Fund and
International Portfolio is non-fundamental and may be changed
without shareholder approval, subject, however, to at least 30
days' advance written notice to International Fund's shareholders.
The fundamental policies of International Fund and the
corresponding fundamental policies of International Portfolio can
be changed only with shareholder approval. If International Fund,
as a Portfolio investor, is requested to vote on a change in a
fundamental policy of International Portfolio or any other matter
pertaining to International Portfolio (other than continuation of
the business of International Portfolio after withdrawal of
another investor), it will solicit proxies from its shareholders
and vote its interest in International Portfolio for and against
such matters proportionately to the instructions to vote for and
against such matters received from Fund shareholders.
International Fund will vote shares for which it receives no
voting instructions in the same proportion as the shares for which
it receives voting instructions. If there are other investors in
International Portfolio, there can be no assurance that any matter
receiving a majority of votes cast by Fund shareholders will
receive a majority of votes cast by all investors. If other
investors hold a majority interest in International Portfolio,
they could have voting control over International Portfolio.
In the event that International Portfolio's fundamental policies
were changed so as to be inconsistent with those of International
Fund, the Board of Trustees of Investment Trust would consider
what action might be taken, including changes to International
Fund's fundamental policies, withdrawal of International Fund's
assets from International Portfolio and investment of such assets
in another pooled investment entity, or the retention of an
investment adviser to invest those assets directly in a portfolio
of securities. Any of these actions would require the approval of
International Fund's shareholders. International Fund's inability
to find a substitute master fund or comparable investment
management could have a significant impact upon its shareholders'
investments. Any withdrawal of International Fund's assets could
result in a distribution in kind of portfolio securities (as
opposed to a cash distribution) to International Fund. Should
such a distribution occur, International Fund would incur
brokerage fees or other transaction costs in converting such
securities to cash. In addition, a distribution in kind could
result in a less diversified portfolio of investments for
International Fund and could affect the liquidity of International
Fund.
Each investor in International Portfolio, including International
Fund, may add to or reduce its investment in International
Portfolio on each day the NYSE is open for business. The
investor's percentage of the aggregate interests in International
Portfolio will be computed as the percentage equal to the fraction
(i) the numerator of which is the beginning of the day value of
such investor's investment in International Portfolio on such day
plus or minus, as the case may be, the amount of any additions to
or withdrawals from the investor's investment in International
Portfolio effected on such day; and (ii) the denominator of which
is the aggregate beginning of the day net asset value of
International Portfolio on such day plus or minus, as the case may
be, the amount of the net additions to or withdrawals from the
aggregate investments in International Portfolio by all investors
in International Portfolio. The percentage so determined will
then be applied to determine the value of the investor's interest
in International Portfolio as of the close of business.
Base Trust may permit other investment companies and/or other
institutional investors to invest in International Portfolio, but
members of the general public may not invest directly in
International Portfolio. Other investors in International
Portfolio are not required to sell their shares at the same public
offering price as International Fund, might incur different
administrative fees and expenses than International Fund, and
might charge a sales commission. Therefore, International Fund
shareholders might have different investment returns than
shareholders in another investment company that invests
exclusively in International Portfolio. Investment by such other
investors in International Portfolio would provide funds for the
purchase of additional portfolio securities and would tend to
reduce the operating expenses as a percentage of International
Portfolio's net assets. Conversely, large-scale redemptions by
any such other investors in International Portfolio could result
in untimely liquidations of International Portfolio's security
holdings, loss of investment flexibility, and increases in the
operating expenses of International Portfolio as a percentage of
International Portfolio's net assets. As a result, International
Portfolio's security holdings may become less diverse, resulting
in increased risk.
Information regarding other investors in International Portfolio
may be obtained by writing to SR&F Base Trust at Suite 3200, One
South Wacker Drive, Chicago, IL 60606, or by calling 800-338-2550.
The Adviser may provide administrative or other services to one or
more of such investors.
<PAGE>
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>
The Stein Roe Mutual 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 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>
STEIN ROE MUTUAL FUNDS
Prospectus
February 3, 1997
Young Investor Fund
[logo] STEIN ROE MUTUAL FUNDS
Building Wealth for Generations
<PAGE>
YOUNG INVESTOR FUND
The investment objective of Young Investor Fund is to provide
long-term capital appreciation. Young Investor Fund invests all
of its net investable assets in shares of SR&F Growth Investor
Portfolio ("Growth Investor Portfolio"), which has the same
investment objective and substantially the same investment
policies as Young Investor Fund. (See Special Considerations
Regarding Master Fund/Feeder Fund Structure.) Growth Investor
Portfolio invests in securities of companies that affect the lives
of young people. Young Investor Fund is also intended to be an
educational experience for young investors and their parents.
Young Investor Fund is a "no-load" fund. There are no sales or
redemption charges, and Young Investor Fund has no 12b-1 plan.
Young Investor Fund is a series of the Stein Roe Investment Trust
and Growth Investor Portfolio is a series of SR&F Base Trust.
Each Trust is a diversified open-end management investment
company.
This prospectus contains information you should know before
investing in Young Investor Fund. Please read it carefully and
retain it for future reference.
If you have any questions about new Fund accounts, please call
800-403-KIDS (800-403-5437); for existing accounts, shareholders
should call 800-338-2550.
A Statement of Additional Information dated February 3, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. This
prospectus is available electronically by using Stein Roe's
Internet address: http://www. steinroe.com. You can get a free
paper copy of the prospectus, the Statement of Additional
Information, and the most recent financial statements 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 February 3, 1997.
<PAGE>
TABLE OF CONTENTS
Page
Summary ...............................2
Fee Table ............................4
Financial Highlights...................6
The Fund ..............................7
Investment Policies ...................8
Portfolio Investments and Strategies...8
Investment Restrictions...............11
Risks and Investment Considerations...13
How to Purchase Shares ...............14
By Check ...........................14
By Wire ............................15
By Electronic Transfer..............15
By Exchange ........................15
Conditions of Purchase..............16
Purchases Through Third Parties.....16
Purchase Price and Effective Date..16
How to Redeem Shares .................17
By Written Request .................17
By Exchange ........................17
Special Redemption Privileges ......18
General Redemption Policies ........20
Shareholder Services .................21
Net Asset Value ......................23
Distributions and Income Taxes .......24
Investment Return ....................26
Management ...........................26
Organization and Description of
Shares.............................28
Special Considerations Regarding
Master Fund/Feeder Fund Structure...29
SUMMARY
STEIN ROE YOUNG INVESTOR FUND ("Young Investor Fund") is a series
of the Stein Roe Investment Trust, an open-end diversified
management investment company. Young Investor Fund is a "no-load"
fund, which means that there are no sales or redemption charges.
(See The Fund and Organization and Description of Shares.) This
prospectus is not a solicitation in any jurisdiction in which
shares of Young Investor Fund are not qualified for sale.
INVESTMENT OBJECTIVES AND POLICIES.
The investment objective of Young Investor Fund is to provide
long-term capital appreciation by investing primarily in common
stocks and other equity-type securities that Stein Roe believes to
have long-term appreciation potential. Young Investor Fund
invests all of its net investable assets in SR&F Growth Investor
Portfolio ("Growth Investor Portfolio"), which has the same
investment objective and substantially the same investment
policies as Young Investor Fund. Growth Investor Portfolio
invests primarily in securities of companies that affect the lives
of young people. Young Investor Fund is designed for long-term
investors, particularly children and teenagers.
In addition to the investment objective and policies, Young
Investor Fund also has an educational objective. It seeks to
teach young people about Young Investor Fund, basic economic
principles, and personal finance through a variety of educational
materials prepared and paid for by Young Investor Fund.
There can be no guarantee that Young Investor Fund and Growth
Investor Portfolio will achieve their common investment objective.
Please see Investment Policies and Portfolio Investments and
Strategies for further information.
INVESTMENT RISKS.
Young Investor Fund is designed for long-term investors who are
willing to accept the investment risk and volatility of equity-
type securities in general, as well as the specific types of
equity securities emphasized by Growth Investor Portfolio. By
investing in companies whose products or services appeal to young
investors, Growth Investor Portfolio emphasizes various consumer
goods sectors. Since Growth Investor Portfolio may invest in
foreign securities, investors should understand and consider
carefully the risks involved in foreign investing. Investing in
foreign securities involves certain considerations involving both
risks and opportunities not typically associated with investing in
U.S. securities. Please see Investment Policies, Portfolio
Investments and Strategies, and Risks and Investment
Considerations for further information.
PURCHASES.
The minimum initial investment for Young Investor Fund is $2,500;
the minimum investment for Uniform Gifts/Transfers to Minors Act
accounts is $1,000. Additional investments must be at least $50.
Shares may be purchased by check, by bank wire, by electronic
transfer, or by exchange from another Stein Roe Fund. For more
detailed information, see How to Purchase Shares.
REDEMPTIONS.
For information on redeeming Young Investor Fund shares, including
the special redemption privileges, see How to Redeem Shares.
NET ASSET VALUE.
The purchase and redemption price of Young Investor Fund's shares
is its net asset value per share. The net asset value is
determined as of the close of trading on the New York Stock
Exchange. (For more detailed information, see Net Asset Value.)
DISTRIBUTIONS.
Dividends are normally declared and paid annually. Distributions
will be reinvested in additional 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.)
MANAGEMENT AND FEES.
Stein Roe & Farnham Incorporated ("Stein Roe") provides investment
management services to Growth Investor Portfolio and provides
administrative and bookkeeping and accounting services to Young
Investor Fund and Growth Investor Portfolio. For a description of
Stein Roe and its fees, see Management.
If you have any additional questions about Young Investor Fund,
please feel free to discuss them with an account representative by
calling 800-338-2550.
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None*
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (after
reimbursement; as a percentage of average
net assets)
Management and Administrative Fees (after
reimbursement) 0.60%
12b-1 Fees None
Other Expenses (after reimbursement) 0.90%
-----
Total Fund Operating Expenses (after reimbursement) 1.50%
=====
__________
*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 5 years 10 years
------- ------- -------- --------
$15 $47 $82 $179
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in Young Investor Fund. The table
illustrates expenses that would have been borne by investors for
the fiscal year ended September 30, 1996, assuming a change in the
fee reimbursement had been effective for the entire year.
From time to time, Stein Roe may voluntarily undertake to
reimburse Young Investor Fund for a portion of its operating
expenses and its pro rata share of the fees and expenses payable
by Growth Investor Portfolio. Stein Roe has undertaken to
reimburse Young Investor Fund for its operating expenses and its
pro rata share of Growth Investor Portfolio's operating expenses
to the extent such expenses exceed 1.50% of its annual average net
assets through January 31, 1998, subject to earlier review and
possible termination by Stein Roe on 30 days' notice to Young
Investor Fund (a waiver limiting expenses to 1.25% had been in
effect through January 31, 1997). Any such reimbursement will
lower Young Investor Fund's overall expense ratio and increase its
overall return to investors. Absent the fee waiver, Young
Investor Fund's share of Growth Investor Portfolio's Management
Fee, Young Investor Fund's Administrative Fee, Other Expenses, and
Total Operating Expenses would be 0.60%, 0.20%, 1.24%, and 2.04%,
respectively.
Young Investor Fund pays Stein Roe an administrative fee based on
the Fund's average daily net assets, and Growth Investor Portfolio
pays Stein Roe a management fee based on its average daily net
assets. The expenses of both Young Investor Fund and Growth
Investor Portfolio are summarized in the Fee Table. (The fees are
described under Management.) Young Investor Fund bears its
proportionate share of Portfolio expenses. The trustees of
Investment Trust have considered whether the annual operating
expenses of Young Investor Fund, including its proportionate share
of the expenses of Growth Investor Portfolio, would be more or
less than if Young Investor Fund invested directly in the
securities held by Growth Investor Portfolio, and concluded that
Young Investor Fund's expenses would not be greater in such case.
For purposes of the Example above, the figures assume that the
percentage amounts listed for Young Investor Fund under Annual
Fund Operating Expenses remain the same in each of the periods;
that all income dividends and capital gain distributions are
reinvested in additional Fund shares; and that, for purposes of
fee breakpoints, net assets remain at the same level as in the
most recently completed fiscal year. The figures in the Example
are not necessarily indicative of past or future expenses, and
actual expenses may be greater or less than those shown. Although
information such as that shown in the Example and Fee Table is
useful in reviewing Young Investor Fund's expenses and in
providing a basis for comparison with other mutual funds, it
should not be used for comparison with other investments using
different assumptions or time periods.
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of Young
Investor Fund on a per-share basis for the period shown and has
been audited by Arthur Andersen LLP, independent public
accountants. The table should be read in conjunction with Young
Investor Fund's financial statements and notes thereto. Young
Investor Fund's annual report, which may be obtained from
Investment Trust without charge upon request, contains additional
performance information.
Period Ended Years Ended
Sept. 30, September 30,
1994 (a) 1995 1996
---------- ------ ------
Net Asset Value, Beginning of Period.....$10.00 $10.24 $14.29
------ ------ ------
Income from investment operations
Net investment income..................... 0.03 0.06 0.05
Net realized and unrealized gains
on investments........................... 0.21 4.07 4.86
------ ------ ------
Total from investment operations......... 0.24 4.13 4.91
------ ------ ------
Distributions
Net investment income.................... -- (0.08) (0.05)
Net realized capital gains............... -- -- (0.51)
------ ------ ------
Total Distributions......................... -- (0.08) (0.56)
------ ------ ------
Net Asset Value, End of Period.......... $10.24 $14.29 $18.64
====== ====== ======
Ratio of net expenses to average
net assets (b)......................... *0.99% 0.99% 1.21%
Ratio of net investment income to
average net assets (c)................. *1.07% 0.47% 0.30%
Portfolio turnover rate.................. **12% 55% 98%
Average commissions (per share)........... -- -- $0.0603
Total return ........................**2.40% 40.58% 35.55%
Net assets, end of period (000 omitted). $8,176 $31,401 $179,089
________________________________
*Annualized.
**Not annualized.
(a) From commencement of operations on April 29, 1994.
(b) If Young Investor Fund had paid all of its expenses and there
had been no reimbursement of expenses by the investment
adviser, this ratio would have been 4.58% for the period ended
September 30, 1994, and 2.87% and 2.04% for the years ended
September 30, 1995 and 1996, respectively.
(c) Computed giving effect to the investment adviser's expense
limitation undertaking.
THE FUND
Stein Roe Young Investor Fund ("Young Investor 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. Young Investor Fund does not impose commissions or
charges when shares are purchased or redeemed.
Young Investor 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 ("Stein Roe") provides
administrative, management, and accounting and bookkeeping
services to Young Investor Fund and Growth
Investor Portfolio, and investment advisory services to Growth
Investor Portfolio. Stein Roe 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.
On February 3, 1997, Young Investor Fund became a "feeder fund"--
that is, it invested all of its assets in SR&F Growth Investor
Portfolio ("Growth Investor Portfolio"), a "master fund" that has
an investment objective identical to that of Young Investor Fund.
Growth Investor Portfolio is a series of SR&F Base Trust ("Base
Trust"). Before converting to a feeder fund, Young Investor Fund
invested its assets in a diversified group of securities. Under
the "master fund/feeder fund structure," a feeder fund and one or
more feeder funds pool their assets in a master portfolio that has
the same investment objective and substantially the same
investment policies as the feeder funds. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. The assets of Growth Investor Portfolio, Young
Investor Fund's master fund, are managed by Stein Roe in the
same manner as the assets of Young Investor Fund were managed
before conversion to the master fund/feeder fund structure. (For
more information, see Special Considerations Regarding Master
Fund/Feeder Fund Structure.)
INVESTMENT POLICIES
The investment objective of Young Investor Fund is to provide
long-term capital appreciation. Young Investor Fund invests all
of its net investable assets in Growth Investor Portfolio, which
has the same investment objective and substantially the same
investment policies as Young Investor Fund. Growth Investor
Portfolio seeks to achieve its objective by investing primarily in
common stocks and other equity-type securities that, in the
opinion of Stein Roe, have long-term appreciation potential.
Under normal circumstances, at least 65% of the total assets of
Growth Investor Portfolio will be invested in securities of
companies that, in the opinion of Stein Roe, directly or through
one or more subsidiaries, affect the lives of
young people. Such companies may include companies that produce
products or services that young people use, are aware of, or could
potentially have an interest in.
Although Growth Investor Portfolio invests primarily in common
stocks and other equity-type securities (such as preferred stocks,
securities convertible into or exchangeable for common stocks, and
warrants or rights to purchase common stocks), it may invest up to
35% of its total assets in debt securities. It may invest in
securities of smaller emerging companies as well as securities of
well-seasoned companies of any size. Smaller companies, however,
involve higher risks in that they typically have limited product
lines, markets, and financial or management resources. In
addition, the securities of smaller companies may trade less
frequently and have greater price fluctuation than larger
companies, particularly those operating in countries with
developing markets. Growth Investor Portfolio may also employ
investment techniques described elsewhere in this prospectus.
(See Risks and Investment Considerations.)
In addition to the investment objective and policies, Young
Investor Fund also has an educational objective. Young Investor
Fund seeks to educate its shareholders by providing educational
materials regarding personal finance and investing as well as
materials on Young Investor Fund and its portfolio holdings.
PORTFOLIO INVESTMENTS AND STRATEGIES
In pursuing its investment objective, Growth Investor Portfolio
may invest in debt securities. A debt security is an obligation
of a borrower to make payments of principal and interest to the
holder of the security. To the extent Growth Investor Portfolio
invests in debt securities, such holdings will be subject to
interest rate risk and credit risk. Interest rate risk is the
risk that the value of a portfolio will fluctuate in response to
changes in interest rates. Generally, the debt component of a
portfolio will tend to decrease in value when interest rates rise
and increase in value when interest rates fall. Credit risk is
the risk that an issuer will be unable to make principal and
interest payments when due. Investments in debt securities are
limited to those that are rated within the four highest grades
(generally referred to as "investment grade") assigned by a
nationally recognized statistical rating organization.
Investments in unrated debt securities are limited to those deemed
to be of comparable quality by Stein Roe. Securities rated within
the fourth highest grade may possess speculative characteristics.
If the rating of a security held by Growth Investor Portfolio is
lost or reduced below investment grade, Growth Investor Portfolio
is not required to dispose of the security--Stein Roe will,
however, consider that fact in determining whether it should
continue to hold the security. When Stein Roe considers a
temporary defensive position advisable, the Growth Investor
Portfolio may invest without limitation in high-quality fixed
income securities, or hold assets in cash or cash equivalents.
Growth Investor Portfolio may invest up to 25% of its total assets
in foreign securities. (See Risks and Investment Considerations.)
In addition to, or in lieu of, such direct investment, it may
construct a synthetic foreign debt position by (a) purchasing a
debt instrument denominated in one currency, generally U.S.
dollars; and (b) concurrently entering into a forward contract to
deliver a corresponding amount of that currency in exchange for a
different currency on a future date and at a specified rate of
exchange. Because of the availability of a variety of highly
liquid U.S. dollar debt instruments, a synthetic foreign debt
position utilizing such U.S. dollar instruments may offer greater
liquidity than direct investment in foreign currency debt
instruments. In connection with the purchase of foreign
securities, Growth Investor Portfolio may 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. As of September 30, 1996, Young
Investor Fund's holdings of foreign companies, as a percentage of
average net assets, amount to 3.8% (0.7% in foreign securities;
3.1% in ADRs).
Growth Investor Portfolio may make loans of portfolio securities
to broker-dealers and banks and enter into reverse repurchase
agreements subject to certain restrictions described in the
Statement of Additional Information. It may participate in an
interfund lending program, subject to certain restrictions
described in the Statement of Additional Information. It may
invest in securities purchased on a when-issued or delayed-
delivery basis. Although the payment terms of these securities
are established at the time Growth Investor Portfolio enters into
the commitment, the securities may be delivered and paid for a
month or more after the date of purchase, when their value may
have changed. Growth Investor Portfolio will make such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
it is deemed advisable for investment reasons.
Consistent with its objective, Growth Investor Portfolio may
invest in a broad array of financial instruments and securities,
including conventional, exchange-traded and non-exchange-traded
options, futures, contracts, futures options, forward contracts,
securities collateralized by underlying pools of mortgages or
other receivables, floating rate instruments, and other
instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument or
security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, or an interest rate.
Growth Investor Portfolio does not expect to invest more than 5%
of its net assets in any type of Derivative except for options,
futures contracts, and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on Stein Roe's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, Growth Investor
Portfolio may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2) enter
into interest rate, index and foreign currency futures contracts;
(3) write options on such futures contracts; and (4) purchase
other types of forward or investment contracts linked to
individual securities, indexes, or other benchmarks. Growth
Investor Portfolio may write a call or put option only if the
option is covered. As the writer of a covered call option, it
foregoes, during the option's life, the opportunity to profit from
increases in market value of the security covering the call option
above the sum of the premium and the exercise price of the call.
There can be no assurance that a liquid market will exist when
Growth Investor Portfolio seeks to close out a position. In
addition, because futures positions may require low margin
deposits, the use of futures contracts involves a high degree of
leverage and may result in losses in excess of the amount of the
margin deposit.
Growth Investor Portfolio 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 against the risk of losses in the value of
portfolio securities because any unrealized losses with respect to
such securities should be wholly or partly offset by a
corresponding gain in the short position. However, any potential
gains in such securities should be wholly or partially offset by a
corresponding loss in the short position. Short sales against the
box may be used to lock in a profit on a security when, for tax
reasons or otherwise, Stein Roe does not want to sell the
security. For a more complete explanation, please refer to the
Statement of Additional Information.
INVESTMENT RESTRICTIONS
Neither Young Investor Fund nor Growth Investor Portfolio may
invest more than 5% of its assets in the securities of any one
issuer. This restriction applies only to 75% of the investment
portfolio, but does not apply to securities of the U.S. Government
or repurchase agreements /1/ for such securities, and would not
prevent Young Investor Fund from investing 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 the
Fund or the Portfolio in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a specified
time. In the event of bankruptcy of the seller, the Fund or the
Portfolio could experience both losses and delays in liquidating
its collateral.
- --------------------
Neither Young Investor Fund nor Growth Investor Portfolio may
invest more than 25% of its total assets (at the time of
investment) in the securities of companies in any one industry.
Neither Young Investor Fund nor Growth Investor Portfolio may
acquire more than 10% of the outstanding voting securities of any
one issuer. Young Investor Fund may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
Neither Young Investor Fund nor Growth Investor Portfolio may make
loans except that each may (1) purchase money market instruments
and enter into repurchase agreements; (2) acquire publicly-
distributed or privately-placed debt securities; (3) lend its
portfolio securities under certain conditions; and (4) participate
in an interfund lending program with other Stein Roe Funds or
Portfolios. Neither may borrow money, except for non-leveraging,
temporary, or emergency purposes or in connection with
participation in the interfund lending program. Neither the
aggregate borrowings (including reverse repurchase agreements) nor
aggregate loans at any one time may exceed 33 1/3% of the value of
total assets. Neither Young Investor Fund nor Growth Investor
Portfolio currently intend to borrow in excess of 5% of total
assets. Additional securities may not be purchased when
borrowings, less proceeds receivable from sales of portfolio
securities, exceed 5% of total assets.
Young Investor Fund and Growth Investor Portfolio may invest in
repurchase agreements, provided that neither will invest more than
15% of net assets in illiquid securities, including repurchase
agreements maturing in more than seven days. An investment in
illiquid securities could involve relatively greater risks and
costs.
The investment restrictions described in the first four paragraphs
of this section are fundamental policies and, as such, can be
changed only with the approval of a "majority of the outstanding
voting securities" as defined in the Investment Company Act of
1940. The common investment objective of Young Investor Fund and
Growth Investor Portfolio is non-fundamental and, as such, may be
changed by the Board of Trustees without shareholder approval,
subject, however, to at least 30 days' advance written notice to
Young Investor Fund's shareholders. Any such change may result in
Young Investor Fund having an investment objective different from
the objective the shareholder considered appropriate at the time
of investment in Young Investor Fund. All of the investment
restrictions are set forth in the Statement of Additional
Information.
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Young Investor Fund is
designed for long-term investors who desire to participate in the
stock market and places an emphasis on companies that appeal to
young investors. These investors can accept more investment risk
and volatility than the stock market in general but want less
investment risk and volatility than aggressive capital
appreciation funds. Of course, there can be no guarantee that
Young Investor Fund or Growth Investor Portfolio will achieve its
objective. Young Investor Fund is also designed to be an
educational experience for young investors and their parents.
Although Growth Investor Portfolio seeks to reduce risk by
investing in a diversified portfolio, diversification does not
eliminate all risk. However, Growth Investor Portfolio 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.
By investing in companies whose products or services appeal to
young investors, Growth Investor Portfolio emphasizes various
consumer goods sectors.
Although Growth Investor Portfolio does not purchase securities
with a view to rapid turnover, there are no limitations on the
length of time portfolio securities must be held. Accordingly,
the portfolio turnover rate may vary significantly from year to
year, but is not expected to exceed 100% under normal market
conditions. A high rate of portfolio turnover may result in
increased transaction expenses and the realization of capital
gains and losses. (See Distributions and Income Taxes.) Young
Investor Fund is not intended to be an income-producing
investment, although it may produce income.
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers, different accounting, auditing and
financial reporting standards, different settlement practices,
less market liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition of
exchange controls and withholding taxes on dividends, and seizure
or nationalization of investments owned by non-residents. Foreign
investments also tend to involve higher transaction and custody
costs.
HOW TO PURCHASE SHARES
You may purchase Young Investor Fund shares by check, by wire, by
electronic transfer, or by exchange from your account with another
Stein Roe Fund. The initial purchase minimum per Fund account is
$2,500; the minimum for Uniform Gifts/Transfers to Minors Act
accounts is $1,000; the minimum for accounts established under an
automatic investment plan of at least $50 per month (i.e., Regular
Investments or the Automatic Exchange Plan) is $100; and the
minimum per account for Stein Roe IRAs is $500. The initial
purchase minimum is waived for shareholders who participate in the
Stein Roe Counselor [SERVICE MARK] and Stein Roe Personal
Counselor [SERVICE MARK] programs and for clients of Stein Roe.
Subsequent purchases must be at least $50. (See Shareholder
Services.)
BY CHECK.
To make an initial purchase of shares of Young Investor Fund by
check, please complete and sign the Application and mail it,
together with a check made payable to Stein Roe Mutual Funds, to
SteinRoe Services Inc., P.O. Box 8900, Boston, Massachusetts
02205. Participants in the Stein Roe Counselor [SERVICE MARK]
Program should send orders to SteinRoe Services Inc., P.O. Box
803938, Chicago, Illinois 60680.
You may make subsequent investments by submitting a check along
with either the stub from your Fund account confirmation statement
or a note indicating the amount of the purchase, your account
number, and the name in which your account is registered. Each
individual check submitted for purchase must be at least $50, and
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 Young Investor Fund
be cancelled because your check does not clear, you will be
responsible for any resulting loss incurred by Young Investor
Fund.
BY WIRE.
You also may pay for shares by instructing your bank to wire
federal funds (monies of member banks within the Federal Reserve
System) to the First National Bank of Boston. Your bank may
charge you a fee for sending the wire. If you are opening a new
account by wire transfer, you must first call 800-338-2550 to
request an account number and furnish your social security or
other tax identification number. Neither Young Investor 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. 14; Stein Roe Young Investor Fund
Account of (exact name(s) in registration)
Shareholder Account No. ________
Participants in the Stein Roe Counselor [SERVICE MARK] program
should address their wires as follows:
First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Fund No. 14; Stein Roe Young Investor Fund
Account of (exact name(s) in registration)
Counselor Account No. ________
BY ELECTRONIC TRANSFER.
You may also make subsequent investments by an electronic transfer
of funds from your bank account. Electronic transfer allows you
to make purchases at your request ("Special Investments") by
calling 800-338-2550 or at pre-scheduled intervals ("Regular
Investments") elected on your Application. (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 Young Investor Fund be cancelled because your electronic
transfer does not clear, you will be responsible for any resulting
loss incurred by Young Investor 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 Young Investor 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 Young
Investor 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 Young Investor Fund's shareholders.
Investment Trust also reserves the right to waive or lower its
investment minimums for any reason.
PURCHASES THROUGH THIRD PARTIES.
You may purchase (or redeem) shares through 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 Young
Investor Fund for their clients for whom they hold Fund shares
charge an annual fee of up to 0.25% of the average net assets held
in such accounts for accounting, servicing, and distribution
services they provide with respect to the underlying Fund shares.
Stein Roe and the Fund's transfer agent share in the expense of
these fees, and Stein Roe pays all sales and promotional expenses.
PURCHASE PRICE AND EFFECTIVE DATE.
Each purchase of Young Investor Fund's shares made directly with
the Fund 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 Young Investor 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 Young Investor Fund receives the electronic
transfer from your bank. A Special Electronic Transfer Investment
instruction received by telephone on a business day before 3:00
p.m., central time, is effective on the next business day.
Each purchase of Young Investor Fund shares through an
Intermediary that is an authorized agent of the 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 Young Investor
Fund by submitting a written request in "good order" to SteinRoe
Services Inc., P.O. Box 8900, Boston, MA 02205. Participants in
the Stein Roe Counselor [SERVICE MARK] Program should send
redemption requests to SteinRoe Services Inc., P.O. Box 803938,
Chicago, IL 60680. A redemption request will be considered to
have been received in good order if the following conditions are
satisfied:
(1) The request must be in writing, and must indicate the number
of shares or dollar amount to be redeemed and identify the
shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The signatures on the written redemption request must be
guaranteed (a signature guarantee is not a notarization, but
is a widely accepted way to protect you and Young Investor
Fund by verifying your signature);
(4) The request must include other supporting legal documents as
required from organizations, executors, administrators,
trustees, or others acting on accounts not registered in their
names.
BY EXCHANGE.
You may redeem all or any portion of your Fund shares and use the
proceeds to purchase shares of any other Stein Roe Fund offered
for sale in your state if your signed, properly completed
Application is on file. An exchange transaction is a sale and
purchase of shares for federal income tax purposes and may result
in capital gain or loss. Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. The
registration of the account to which you are making an exchange
must be exactly the same as that of the Fund account from which
the exchange is made and the amount you exchange must meet any
applicable minimum investment of the Stein Roe Fund being
purchased. An exchange may be made by following the redemption
procedure described under By Written Request and indicating the
Stein Roe Fund to be purchased--a signature guarantee normally is
not required. (See also the discussion below of the Telephone
Exchange Privilege and Automatic Exchanges.)
SPECIAL REDEMPTION PRIVILEGES.
The Telephone Exchange Privilege and the Telephone Redemption by
Check Privilege will be established automatically for you when you
open your account unless you decline these Privileges on your
Application. Other Privileges must be specifically elected. If
you do not want the Telephone Exchange and Redemption Privileges,
check the box(es) under the section "Telephone Redemption Options"
when completing your Application. In addition, a signature
guarantee may be required to establish a Privilege after you open
your account. If you establish both the Telephone Redemption by
Wire Privilege and the Electronic Transfer Privilege, the bank
account that you designate for both Privileges must be the same.
The Telephone Redemption by Check Privilege, Telephone Redemption
by Wire Privilege, and Special Electronic Transfer Redemptions may
not be used to redeem shares held by a tax-sheltered retirement
plan sponsored by Stein Roe. (See also General Redemption
Policies.)
Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account
by calling 800-338-2550 or by sending a telegram; new accounts
opened by exchange are subject to the $2,500 initial purchase
minimum. GENERALLY, YOU WILL BE LIMITED TO FOUR TELEPHONE
EXCHANGE ROUND-TRIPS PER YEAR AND YOUNG INVESTOR FUND MAY REFUSE
REQUESTS FOR TELEPHONE EXCHANGES IN EXCESS OF FOUR ROUND-TRIPS (A
ROUND-TRIP BEING THE EXCHANGE OUT OF YOUNG INVESTOR FUND INTO
ANOTHER STEIN ROE FUND, AND THEN BACK TO YOUNG INVESTOR 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
Young Investor Fund. THEREFORE, INVESTMENT TRUST GENERALLY WILL
NOT HONOR REQUESTS FOR TELEPHONE EXCHANGES BY SHAREHOLDERS
IDENTIFIED BY INVESTMENT TRUST 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 Young Investor 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 Young Investor 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 Fund account for
investment in another Stein Roe Fund account on a regular basis.
Telephone Redemption by Wire Privilege. You may use this
Privilege to redeem shares from your account ($1,000 minimum;
$100,000 maximum) by calling 800-338-2550. The proceeds will be
transmitted by wire to your account at a commercial bank
previously designated by you that is a member of the Federal
Reserve System. The fee for wiring proceeds (currently $7.00 per
transaction) will be deducted from the amount wired.
Telephone Redemption by Check Privilege. You may use the
Telephone Redemption by Check Privilege to redeem an amount of
$1,000 or more from your account by calling 800-338-2550. The
proceeds will be sent by check to your registered address.
Electronic Transfer Privilege. You may redeem shares by calling
800-338-2550 and requesting an electronic transfer ("Special
Redemption") of the proceeds to a 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. 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 Young Investor Fund's
net asset value per share at the time of redemption, it may be
more or less than the price you originally paid for the shares 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 at any time without prior
notice to suspend, limit, modify, or terminate any Privilege or
its use in any manner by any person or class.
Neither 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 instructions furnished thereunder if they reasonably
believe that such instructions are genuine. Young Investor 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
Young Investor 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 Young Investor Fund immediately if
there is a problem. If Young Investor 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 Young Investor 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 Young Investor Fund.
Shares purchased by reinvestment of dividends, by cross-
reinvestment of dividends from another Fund, or through an
automatic investment plan will be confirmed to you quarterly.
Investment Trust will send you quarterly materials on Young
Investor Fund and portfolio holdings, will send you semiannual and
annual reports, and will provide you annually with tax
information.
FUNDS-ON-CALL [REGISTERED] AUTOMATED TELEPHONE SERVICE.
To access Stein Roe Funds-on-Call [registered], just call 800-338-
2550 on any touch-tone telephone and follow the recorded
instructions. Funds-on-Call [registered] provides yields, prices,
latest dividends, account balances, last transaction, and other
information 24 hours a day, seven days a week. You also may use
Funds-on-Call [registered] to make Special Investments and
Redemptions, Telephone Exchanges, and Telephone Redemptions by
Check. These transactions are subject to the terms and conditions
of the individual privileges. (See How to Purchase Shares and How
to Redeem Shares.)
STEIN ROE COUNSELOR [SERVICE MARK] PROGRAM.
The Stein Roe Counselor [SERVICE MARK] and Stein Roe 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 PLAN.
Booklets describing the Individual Retirement Account ("IRA")
program and special forms necessary for establishing it are
available on request. IRAs are available for employed persons and
their non-employed spouses. You may use all of the Stein Roe
Funds, except those investing primarily in tax-exempt securities,
in the plan. Please read the prospectus for each fund in which
you plan to invest before making your investment.
SPECIAL SERVICES.
The following special services are available to shareholders.
Please call 800-338-2550 or write Investment Trust for additional
information and forms.
Dividend Purchase Option--to diversify your Fund investments by
having distributions from one Fund account automatically invested
in another Stein Roe Fund account. Before establishing this
option, you should obtain and read carefully the prospectus of the
Stein Roe Fund into which you wish to have your distributions
invested. The account from which distributions are made must be
of sufficient size to allow each distribution to usually be at
least $25.
Automatic Dividend Deposit (electronic transfer)--to have income
dividends and capital gain distributions deposited directly into
your bank 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).
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 Young Investor Fund's shares
is its net asset value per share. The net asset value of a share
of Young Investor 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. Growth
Investor Portfolio allocates net asset value, income, and expenses
to Young Investor Fund and any other of its feeder funds in
proportion to their respective interests in Growth Investor
Portfolio.
Net asset value will not be determined on days when the NYSE is
closed unless, in the judgment of the Board of Trustees, the net
asset value 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 Stein Roe. If Stein Roe believes that a
valuation received from the service does not represent a fair
value, it values the obligation using a method that the Board
believes represents fair value. The Board may approve the use of
other pricing services and any pricing service used may employ
electronic data processing techniques, including a so-called
"matrix" system, to determine valuations. Other assets and
securities are valued by a method that the Board believes
represents fair value.
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually. Young
Investor Fund intends to distribute by the end of each calendar
year at least 98% of any net capital gains realized from the sale
of securities during the twelve-month period ended October 31 in
that year. Young Investor Fund intends to distribute any
undistributed net investment income and net realized capital gains
in the following year.
All of your income dividends and capital gain distributions will
be reinvested in additional shares of Young Investor Fund 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 Fund
shares if checks mailed to you for distributions are returned as
undeliverable or are not presented for payment within six months.
INCOME TAXES.
Your distributions will be taxable to you, under income tax law,
whether received in cash or reinvested in additional shares. For
federal income tax purposes, any distribution that is paid in
January but was declared in the prior calendar year is deemed paid
in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital gain.
Distributions of net long-term capital gain will be taxable to you
as long-term capital gain regardless of the length of time you
have held your shares.
You will be advised annually as to the source of distributions for
tax purposes. If you are not subject to tax on your income, you
may not be required to pay tax on these amounts.
If you realize a loss on the sale or exchange of Fund shares held
for six months or less, your short-term loss is recharacterized as
long-term to the extent of any long-term capital gain
distributions you have received with respect to those shares.
For federal income tax purposes, Young Investor 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 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. Young
Investor Fund must promptly pay to the IRS all amounts withheld.
Therefore, it is usually not possible for Young Investor 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 Young Investor Fund is
measured by the distributions received (assuming reinvestment of
dividends and capital gains), plus or minus the change in the net
asset value per share for a given period. A total return
percentage may be calculated by dividing the value of a share at
the end of the period (including reinvestment of distributions) by
the value of the share at the beginning of the period and
subtracting one. For a given period, an average annual total
return may be calculated by finding the average annual compounded
rate that would equate a hypothetical $1,000 investment to the
ending redeemable value.
Comparison of Young Investor Fund's total return with alternative
investments should consider differences between Young Investor
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 and the Board of
Trustees of Base Trust have overall management responsibility for
Young Investor Fund and Growth Investor Portfolio, respectively.
See the Statement of Additional Information for the names of and
additional information about the trustees and officers. Since
Investment Trust and Base Trust have the same trustees, the
trustees have adopted conflict of interest procedures to monitor
and address potential conflicts between the interests of Young
Investor Fund and Growth Investor Portfolio.
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
Illinois 60606, is responsible for managing the business affairs
of Young Investor Fund, Growth Investor Portfolio, and the Trusts
and the investment portfolio of Growth Investor Portfolio, subject
to the direction of the respective Boards. Stein Roe is
registered as an investment adviser under the Investment Advisers
Act of 1940. Stein Roe (and its predecessor) has advised and
managed mutual funds since 1949. Stein Roe is a wholly owned
indirect subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which in turn is a majority owned indirect subsidiary
of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
Erik P. Gustafson, David P. Brady and Arthur J. McQueen have been
portfolio managers of Growth Investor Portfolio since its
inception in 1997. Mr. Gustafson had been portfolio manager of
Young Investor Fund since February 1995, Mr. Brady since March
1995, and Mr. McQueen since April 1996. As of December 31, 1996,
Messrs. Gustafson, Brady and McQueen were responsible for co-
managing $877 million, $877 million and $271 million in mutual
fund net assets, respectively.
Messrs. Gustafson and McQueen are senior vice presidents of Stein
Roe and Mr. Brady is a vice president of Stein Roe. Before
joining Stein Roe, Mr. Gustafson was an attorney with Fowler,
White, Burnett, Hurley, Banick & Strickroot from 1989 to 1992.
He holds a B.A. from the University of Virginia (1985) and M.B.A.
and J.D. degrees from Florida State University (1989). Mr. Brady,
who joined Stein Roe in 1993, was an equity investment analyst
with State Farm Mutual Automobile Insurance Company from 1986 to
1993. A chartered financial analyst, Mr. Brady earned a B.S. in
Finance, graduating Magna Cum Laude, from the University of
Arizona (1986), and an M.B.A. from the University of Chicago
(1989). Mr. McQueen earned a B.S. from Villanova University
(1980) and an M.B.A. from the Wharton School of the University of
Pennsylvania (1987). Mr. McQueen has been employed by Stein Roe
as an equity analyst since 1987 and was previously employed by
Citibank and GTE.
FEES AND EXPENSES.
In return for its services, Stein Roe is entitled to receive an
administrative fee from Young Investor Fund at an annual rate of
.20% of the first $500 million of average net assets, .15% of the
next $500 million, and .125% thereafter; and a management fee from
Growth Investor Portfolio at an annual rate of .60% of the first
$500 million, .55% of the next $500 million, and .50% thereafter.
Prior to the conversion of Young Investor Fund to the master
fund/feeder fund structure on February 3, 1997, the management fee
was paid by Young Investor Fund.
For the fiscal year ended September 30, 1996, Stein Roe reimbursed
Young Investor Fund $663,230, resulting in a net payment by Stein
Roe of $27,483. Please refer to Fee Table for a description of
the fee waiver.
Because Young Investor Fund also has as an objective being an
educational experience for investors, its non-advisory expenses
may be higher than other mutual funds due to regular educational
and other reporting to shareholders.
Under a separate agreement with each Trust, Stein Roe provides
certain accounting and bookkeeping services to Young Investor Fund
and Growth Investor Portfolio, including computation of net asset
value and calculation of its net income and capital gains and
losses on disposition of assets.
PORTFOLIO TRANSACTIONS.
Stein Roe places the orders for the purchase and sale of portfolio
securities and options and futures transactions. In doing so,
Stein Roe seeks to obtain the best combination of price and
execution, which involves a number of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago,
Illinois 60606, a wholly owned subsidiary of Liberty Financial, is
the agent of Investment Trust for the transfer of shares,
disbursement of dividends, and maintenance of shareholder
accounting records.
DISTRIBUTOR.
The shares of Young Investor Fund are offered for sale through
Liberty Securities Corporation ("Distributor") without any sales
commissions or charges to Young Investor Fund or to its
shareholders. The Distributor is a wholly owned subsidiary of
Liberty Financial. The business address of the Distributor is 600
Atlantic Avenue, Boston, Massachusetts 02210; however, all Fund
correspondence (including purchase and redemption orders) should
be mailed to SteinRoe Services Inc., P.O. Box 8900, Boston, MA
02205, except for participants in the Stein Roe Counselor [SERVICE
MARK] Program, who should send orders to SteinRoe Services Inc.,
P.O. Box 803938, Chicago, IL 60680. All distribution and
promotional expenses are paid by Stein Roe, including payments to
the Distributor for sales of Fund shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for Young
Investor Fund and Growth Investor Portfolio. Foreign securities
are maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
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, nine 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 Investment
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 is also believed to be remote, because it would be limited
to claims to which the disclaimer did not apply and to
circumstances in which the other series was unable to meet its
obligations.
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND STRUCTURE
Commencing February 3, 1997, Young Investor Fund, which is an
open-end management investment company, seeks to achieve its
objective by investing all of its assets in shares of another
mutual fund having an investment objective identical to that of
Young Investor Fund. The shareholders of Young Investor Fund
approved this policy of permitting Young Investor Fund to act as a
feeder fund by investing in Growth Investor Portfolio. Please
refer to Investment Policies, Portfolio Investments and
Strategies, and Investment Restrictions for a description of the
investment objectives, policies, and restrictions of Young
Investor Fund and Growth Investor Portfolio. The management fees
and expenses of Young Investor Fund and Growth Investor Portfolio
are described under the Fee Table and Management. Young Investor
Fund bears its proportionate share of Growth Investor Portfolio's
expenses.
Stein Roe has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
SR&F Growth Investor Portfolio is a separate series of SR&F Base
Trust ("Base Trust"), a Massachusetts common law trust organized
under an Agreement and Declaration of Trust ("Declaration of
Trust") dated August 23, 1993. The Declaration of Trust of
Base Trust provides that Young Investor Fund and other investors
in Growth Investor Portfolio will be liable for all obligations of
Growth Investor Portfolio that are not satisfied by Growth
Investor Portfolio. However, the risk of Young Investor Fund
incurring financial loss on account of such liability is limited
to circumstances in which liability was inadequately insured and
Growth Investor Portfolio was unable to meet its obligations.
Accordingly, the Trustees of Investment Trust believe that neither
Young Investor Fund nor its shareholders will be adversely
affected by reason of Young Investor Fund's investing in Growth
Investor Portfolio.
The Declaration of Trust of Base Trust provides that Growth
Investor Portfolio will terminate 120 days after the withdrawal of
Young Investor Fund or any other investor in Growth Investor
Portfolio, unless the remaining investors vote to agree to
continue the business of Growth Investor Portfolio. The Trustees
of Investment Trust may vote Young Investor Fund's interests in
Growth Investor Portfolio for such continuation without approval
of Young Investor Fund's shareholders.
The common investment objective of Young Investor Fund and Growth
Investor Portfolio is non-fundamental and may be changed without
shareholder approval, subject, however, to at least 30 days'
advance written notice to Young Investor Fund's shareholders.
The fundamental policies of Young Investor Fund and the
corresponding fundamental policies of Growth Investor Portfolio
can be changed only with shareholder approval. If Young Investor
Fund, as a Portfolio investor, is requested to vote on a change in
a fundamental policy of Growth Investor Portfolio or any other
matter pertaining to Growth Investor Portfolio (other than
continuation of the business of Growth Investor Portfolio after
withdrawal of another investor), Young Investor Fund will solicit
proxies from its shareholders and vote its interest in Growth
Investor Portfolio for and against such matters proportionately to
the instructions to vote for and against such matters received
from Fund shareholders. Young Investor Fund will vote shares for
which it receives no voting instructions in the same proportion as
the shares for which it receives voting instructions. If there
are other investors in Growth Investor Portfolio, there can be no
assurance that any matter receiving a majority of votes cast by
Fund shareholders will receive a majority of votes cast by all
investors. If other investors hold a majority interest in Growth
Investor Portfolio, they could have voting control over Growth
Investor Portfolio.
In the event that Growth Investor Portfolio's fundamental policies
were changed so as to be inconsistent with those of Young Investor
Fund, the Board of Trustees of Investment Trust would consider
what action might be taken, including changes to Young Investor
Fund's fundamental policies, withdrawal of Young Investor Fund's
assets from Growth Investor Portfolio and investment of such
assets in another pooled investment entity, or the retention of an
investment adviser to invest those assets directly in a portfolio
of securities. Any of these actions would require the approval of
Young Investor Fund's shareholders. Young Investor Fund's
inability to find a substitute master fund or comparable
investment management could have a significant impact upon its
shareholders' investments. Any withdrawal of Young Investor
Fund's assets could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution) to Young Investor
Fund. Should such a distribution occur, Young Investor Fund would
incur brokerage fees or other transaction costs in converting such
securities to cash. In addition, a distribution in kind could
result in a less diversified portfolio of investments for Young
Investor Fund and could affect the liquidity of Young Investor
Fund.
Each investor in Growth Investor Portfolio, including Young
Investor Fund, may add to or reduce its investment in Growth
Investor Portfolio on each day the NYSE is open for business. The
investor's percentage of the aggregate interests in Growth
Investor Portfolio will be computed as the percentage equal to the
fraction (i) the numerator of which is the beginning of the day
value of such investor's investment in Growth Investor Portfolio
on such day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investor's investment in
Growth Investor Portfolio effected on such day; and (ii) the
denominator of which is the aggregate beginning of the day net
asset value of Growth Investor Portfolio on such day plus or
minus, as the case may be, the amount of the net additions to or
withdrawals from the aggregate investments in Growth Investor
Portfolio by all investors in Growth Investor Portfolio. The
percentage so determined will then be applied to determine the
value of the investor's interest in Growth Investor Portfolio as
of the close of business.
Base Trust may permit other investment companies and/or other
institutional investors to invest in Growth Investor Portfolio,
but members of the general public may not invest directly in
Growth Investor Portfolio. Other investors in Growth Investor
Portfolio are not required to sell their shares at the same public
offering price as Young Investor Fund, might incur different
administrative fees and expenses than Young Investor Fund, and
might charge a sales commission. Therefore, Young Investor Fund
shareholders might have different investment returns than
shareholders in another investment company that invests
exclusively in Growth Investor Portfolio. Investment by such
other investors in Growth Investor Portfolio would provide funds
for the purchase of additional portfolio securities and would tend
to reduce the operating expenses as a percentage of Growth
Investor Portfolio's net assets. Conversely, large-scale
redemptions by any such other investors in Growth Investor
Portfolio could result in untimely liquidations of Growth Investor
Portfolio's security holdings, loss of investment flexibility, and
increases in the operating expenses of Growth Investor Portfolio
as a percentage of Growth Investor Portfolio's net assets. As a
result, Growth Investor Portfolio's security holdings may become
less diverse, resulting in increased risk.
Information regarding other investors in Growth Investor Portfolio
may be obtained by writing to SR&F Base Trust at Suite 3200, One
South Wacker Drive, Chicago, IL 60606, or by calling 800-338-2550.
Stein Roe may provide administrative or other services to one or
more of such investors.
<PAGE>
The Stein Roe Mutual 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 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>
STEIN ROE INVESTMENT TRUST
STEIN ROE EMERGING MARKETS FUND
Supplement to Prospectus Dated February 3, 1997
The distributor of Emerging Markets Fund, Liberty Securities
Corporation, is soliciting subscriptions for Fund shares during an
initial offering period currently scheduled from February 3, 1997
to February 27, 1997 (the "Subscription Period"). The
subscription price will be the Fund's initial net asset value of
$10.00 per share. Orders to purchase shares of the Fund received
during the Subscription Period will be accepted when the Fund
commences operations. Checks accompanying orders received during
the Subscription Period will be held uninvested until the close of
business on February 27, 1997.
This Supplement is Dated February 3, 1997
<PAGE>
STEIN ROE MUTUAL FUNDS
Prospectus
February 3, 1997
Emerging Markets Fund
[logo] STEIN ROE MUTUAL FUNDS
Building Wealth for Generations
<PAGE>
EMERGING MARKETS FUND
Emerging Markets Fund seeks capital appreciation primarily through
investing in stocks of companies in emerging markets. While the
Adviser believes that emerging markets investing offers strong
reward potential, many investments in emerging markets can be
considered speculative, and the value of those investments can be
more volatile than is typical in more developed foreign markets.
Emerging Markets Fund should not be considered a complete
investment program.
The Fund is a "no-load" fund. There are no sales charges, and the
Fund has no 12b-1 plan. There is a 1% redemption fee retained by
the Fund which is imposed only on redemptions of shares held less
than 90 days. The Fund is a series of the Stein Roe Investment
Trust.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated February 3, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. This
prospectus is 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 February 3, 1997.
TABLE OF CONTENTS
Page
Summary ..............................2
Fee Table ...........................4
The Fund .............................5
Investment Policies...................5
Portfolio Investments and Strategies..7
Investment Restrictions ..............9
Risks and Investment Considerations..10
How to Purchase Shares ..............12
By Check ..........................13
By Wire ...........................13
By Electronic Transfer ............13
By Exchange .......................15
Conditions of Purchase ............14
Purchases Through Third Parties....14
Purchase Price and Effective Date .14
How to Redeem Shares ................15
Redemption Fee.....................15
By Written Request ................15
By Exchange .......................16
Special Redemption Privileges .....16
General Redemption Policies .......17
Shareholder Services ................19
Net Asset Value .....................20
Distributions and Income Taxes ......21
Investment Return ...................23
Management...........................23
Organization and Description of
Shares.............................25
Certificate of Authorization.........26
SUMMARY
Stein Roe Emerging Markets Fund (the "Fund") is a series of the
Stein Roe Investment Trust, an open-end diversified management
investment company. The Fund is a "no-load" fund. There are no
sales charges. The Fund is intended to be a long-term investment.
There is a 1% redemption fee retained by the Fund which is imposed
only on redemptions of shares held less than 90 days. (See The
Fund and Organization and Description of Shares.) This prospectus
is not a solicitation in any jurisdiction in which shares of the
Fund are not qualified for sale.
INVESTMENT OBJECTIVE AND POLICIES. The Fund seeks capital
appreciation primarily through investing in stocks of companies in
emerging markets. Under normal market conditions, the Fund will
invest at least 65% of its total assets (taken at market value) in
equity securities of emerging markets issuers. The Fund is
designed to provide investors an efficient mechanism for investing
in companies within, and participating in the growth of, emerging
markets throughout the world.
The Fund does not concentrate investments in any particular
industry. In addition, there is no limitation on the amount the
Fund can invest in a specific country or region of the world.
However, the Fund intends to diversify its investments among
several countries.
There can be no guarantee that the Fund will achieve its
investment objective. Please see Investment Policies and
Portfolio Investments and Strategies for further information.
INVESTMENT RISKS. The Fund is intended for long-term investors
seeking to diversify their portfolios and not for short-term
trading purposes. It should not be considered a complete
investment program.
Since the Fund invests primarily in foreign securities, investors
should understand and consider carefully the risks involved in
foreign investing. Investing in foreign securities involves
certain considerations involving both risks and opportunities not
typically associated with investing in U.S. securities. Such
risks include fluctuations in exchange rates on foreign
currencies, less public information, less government supervision,
less liquidity, and greater price volatility. Investments in
securities of emerging markets issuers may present greater risks
than investments in more developed foreign markets. Many
investments in emerging markets can be considered speculative, and
the value of those investments can be more volatile than is
typical in the more developed foreign markets.
Please see Investment Policies, Portfolio Investments and
Strategies, and Risks and Investment Considerations for further
information.
PURCHASES. The minimum initial investment for the Fund is $2,500
and additional investments must be at least $100 (only $50 for
purchases by electronic transfer). Shares may be purchased by
check, by bank wire, by electronic transfer, or by exchange from
another Stein Roe Fund. For more detailed information, see How to
Purchase Shares.
REDEMPTIONS. For information on redeeming Fund shares, including
the special redemption privileges and redemption fee, see How to
Redeem Shares.
NET ASSET VALUE. The purchase price of the Fund's shares is its
net asset value per share. The redemption price of the Fund's
shares is it net asset value per share minus a redemption fee if
shares are redeemed within 90 days of purchase. The net asset
value is determined as of the close of trading on the New York
Stock Exchange. (For more detailed information, see Net Asset
Value.)
DISTRIBUTIONS. Dividends for the Fund are normally declared and
paid annually. Distributions will be reinvested in additional
Fund shares unless you elect to have them paid in cash, deposited
by electronic transfer into your bank checking account, or
invested in shares another Stein Roe Fund. (See Distributions and
Income Taxes and Shareholder Services.)
ADVISER AND FEES. Stein Roe & Farnham Incorporated (the
"Adviser") provides administrative, management and investment
advisory services to the Fund. For a description of the Adviser
and the advisory fees paid by the Fund, see Management.
If you have any additional questions about the Fund, please feel
free to discuss them with an account representative by calling
800-338-2550.
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees 1.00*
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (after
reimbursement; as a percentage of average
net assets)
Management and Administrative Fees (after
reimbursement) 1.10%
12b-1 Fees None
Other Expenses (after reimbursement) 0.90%
-----
Total Fund Operating Expenses (after reimbursement) 2.00%
=====
__________
* There is a $7.00 charge for wiring redemption proceeds to your
bank. There is a 1% fee retained by Emerging Markets Fund which
is imposed only on redemptions of shares held less than 90 days.
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
-------- -------
$20 $63
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. Because Emerging Markets
Fund has no operating history, the information in the table is
based upon an estimate of expenses, assuming net assets of $50
million.
From time to time, the Adviser may voluntarily undertake to
reimburse the Fund for a portion of its operating expenses. The
Adviser has undertaken to reimburse the Fund for its operating
expenses to the extent that such expenses on an annualized basis
exceed 2.00% of its annual average net assets through February 1,
1998, subject to earlier review and possible termination by the
Adviser on 30 days' notice to the Fund. Any such reimbursement
will lower the Fund's overall expense ratio and increase its
overall return to investors. Absent such reimbursement, the
estimated Management and Administrative Fees, Other Expenses and
Total Operating Expenses for the Emerging Markets Fund would be
1.25%, 1.00% and 2.25%. (Also see Management--Fees and Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts listed for the Fund under Annual Fund Operating
Expenses remain the same in each of the periods and that all
income dividends and capital gain distributions are reinvested in
additional Fund shares.
The figures in the Example are not necessarily indicative of past
or future expenses, and actual expenses may be greater or less
than those shown. Although information such as that shown in the
Example and Fee Table is useful in reviewing the Fund's expenses
and in providing a basis for comparison with other mutual funds,
it should not be used for comparison with other investments using
different assumptions or time periods.
THE FUND
STEIN ROE EMERGING MARKETS FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own shares to
investors and use the money they receive to invest in a portfolio
of securities such as common stocks. A mutual fund allows you to
pool your money with that of other investors in order to obtain
professional investment management. Mutual funds generally make
it possible for you to obtain greater diversification of your
investments and simplify your recordkeeping. The Fund does not
impose commissions or charges when shares are purchased. There is
a 1% redemption fee retained by the Fund which is imposed only on
redemptions of shares held less than 90 days.
The Fund is a series of the Stein Roe Investment Trust (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages and
provides investment advisory services for several other mutual
funds with different investment objectives, including other equity
funds, taxable and tax-exempt bond funds, and money market funds.
To obtain prospectuses and other information on any of those
mutual funds, please call 800-338-2550.
INVESTMENT POLICIES
The Fund invests as described below. Further information on
portfolio investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.
The Fund's investment objective is to seek capital appreciation
primarily through investing in stocks of companies in emerging
markets. Under normal market conditions, the Fund will invest at
least 65% of its total assets (taken at market value) in equity
securities of emerging market issuers. The Fund does not intend to
concentrate investments in any particular industry. In addition,
there is no limitation on the amount the Fund can invest in a
specific country or region of the world. However, the Fund
intends to diversify its investment among several countries. The
Fund has no current intent of investing more than 5% of its total
assets in Russian securities.
The Fund considers "emerging markets" to include any country that
is defined as an emerging or developing country by (i) the World
Bank, (ii) the International Finance Corporation or (iii) the
United Nations or its authorities. The Fund's investments will
include, but are not limited to, securities of companies located
within countries in Asia, Africa, Latin America and certain parts
of Europe.
The Fund considers an issuer to be an "emerging markets issuer"
if:
- - the issuer is organized under the laws of an emerging market
country;
- - the principal securities trading market for the issuer's
securities is in an emerging market country;
- - the issuer derives at least 50% of its revenue from goods
produced or services rendered in emerging market countries; or
- - at least 50% of the issuer's assets are located in emerging
market countries.
The Fund invests primarily in common stocks and other equity-type
securities (such as preferred stocks, securities convertible or
exchangeable for common stocks, and warrants or rights to purchase
common stocks). The Fund may invest in securities of smaller
emerging companies as well as securities of well-seasoned
companies of any size. The Adviser believes that smaller
companies may offer opportunities for significant capital
appreciation. Smaller companies, however, involve higher risks in
that they typically have limited product lines, markets, and
financial or management resources. In addition, the securities of
smaller companies may trade less frequently and have greater price
fluctuation than larger companies, particularly those operating in
countries with developing markets.
The Fund is designed to provide investors an efficient mechanism
for investing in companies located within, and participating in
the growth of, emerging markets throughout the world. The Adviser
believes that emerging markets possess strong economic growth
potential and that, over the next decade, economic growth in such
markets is likely to outpace that in industrial markets. The
Adviser expects that this growth, in turn, should create
attractive investment opportunities in these markets. The Fund
will seek to take advantage of these opportunities on behalf of
investors by investing in companies that offer superior relative
growth.
The Fund intends to use a value approach to investing in emerging
markets by investing in securities of companies with attractive
growth prospects that appear to be undervalued.
If investment in emerging markets securities appears to be
relatively unattractive in the judgment of the Adviser because of
actual or anticipated adverse political or economic conditions,
the Fund may hold cash equivalents or invest any portion of its
assets in securities of the U.S. Government and equity and debt
securities of U.S. companies, as a temporary defensive strategy.
To meet liquidity needs, the Fund may also hold cash in domestic
and foreign currencies and invest in domestic and foreign money
market securities (including repurchase agreements and foreign
money market positions).
In the past the U.S. Government has from time to time imposed
restrictions, through taxation and other methods, on foreign
investments by U.S. investors such as the Fund. If such
restrictions should be reinstated, it might become necessary for
the Fund to invest all or substantially all of its assets in U.S.
securities. In such an event, the Fund would review its
investment objective and policies to determine whether changes are
appropriate.
The Fund may purchase foreign securities in the form of American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs),
or other securities representing underlying shares of foreign
issuers. The Fund may invest in sponsored or unsponsored ADRs.
(For a description of ADRs and EDRs, see the Statement of
Additional Information.)
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES. In pursuing its investment objective, the Fund
may invest up to 35% of its total assets in debt securities. The
Fund has established no minimum rating criteria for the emerging
market and domestic debt securities in which it may invest, and
such securities may be unrated. The Fund does not intend to
purchase debt securities that are in default or which the Adviser
believes will be in default. The Fund may also invest in "Brady
Bonds," which are debt securities issued under the framework of
the Brady Plan as a mechanism for debtor countries to restructure
their outstanding bank loans. Most "Brady Bonds" have their
principal collateralized by zero coupon U.S. Treasury bonds.
The risks inherent in debt securities held in the Fund's portfolio
depend primarily on the term and quality of the particular
obligations, 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. Medium-quality debt
securities are considered to have speculative characteristics.
Lower-quality debt securities rated lower than Baa by Moody's
Investor Services Inc. or lower than BBB by Standard & Poor's
Corp., and unrated securities of comparable quality, are
considered to be below investment grade. These type of debt
securities are commonly referred to as "junk bonds" and involve
greater investment risk, including the possibility of issuer
default or bankruptcy. During a period of adverse economic
changes, issuers of junk bonds may experience difficulty in
servicing their principal and interest payment obligations. The
Fund does not expect to invest more than 5% of its net assets in
high-yield ("junk") bonds.
SETTLEMENT TRANSACTIONS. When the Fund enters into a contract for
the purchase or sale of a foreign portfolio security, it usually
is required to settle the purchase transaction in the relevant
foreign currency or receive the proceeds of the sale in that
currency. In either event, the Fund is obliged to acquire or
dispose of an appropriate amount of foreign currency by selling or
buying an equivalent amount of U.S. dollars. At or near the time
of the purchase or sale of the foreign portfolio security, the
Fund may wish to lock in the U.S. dollar value of a transaction at
the exchange rate or rates then prevailing between the U.S. dollar
and the currency in which the security is denominated. Known as
"transaction hedging," this may be accomplished by purchasing or
selling such foreign securities on a "spot," or cash, basis.
Transaction hedging also may be accomplished on a forward basis,
whereby the Fund purchases or sells a specific amount of foreign
currency, at a price set at the time of the contract, for receipt
or delivery at either a specified date or at any time within a
specified time period. In so doing, the Fund will attempt to
insulate itself against possible losses and gains resulting from a
change in the relationship between the U.S. dollar and the foreign
currency during the period between the date the security is
purchased or sold and the date on which payment is made or
received. Similar transactions may be entered into by using other
currencies if the Fund seeks to move investments denominated in
one currency to investments denominated in another.
PORTFOLIO TURNOVER. Although the Fund does not purchase
securities with a view to rapid turnover, there are no limitations
on the length of time portfolio securities must be held.
Accordingly, the portfolio turnover rate may vary significantly
from year to year, but is not expected to exceed 100% under normal
market conditions. Flexibility of investment and emphasis on
capital appreciation may involve greater portfolio turnover than
that of mutual funds that have the objectives of income or
maintenance of a balanced investment position. A high rate of
portfolio turnover may result in increased transaction expenses
and the realization of capital gains and losses. (See
Distributions and Income Taxes.) The Fund is not intended to be
an income-producing investment.
OTHER TECHNIQUES. The Fund may make loans of its portfolio
securities to broker-dealers and banks subject to certain
restrictions described in the Statement of Additional Information,
though the Fund does not have a current intent to do so. The Fund
may invest in securities purchased on a when-issued or delayed-
delivery basis. Although the payment terms of these securities
are established at the time the Fund enters into the commitment,
the securities may be delivered and paid for a month or more after
the date of purchase, when their value may have changed. The Fund
will make such commitments only with the intention of actually
acquiring the securities, but may sell the securities before
settlement date if it is deemed advisable for investment reasons.
The Fund may utilize spot and forward foreign exchange
transactions to reduce the risk caused by exchange rate
fluctuations between one currency and another when securities are
purchased or sold on a when-issued basis. The Fund may also
invest in synthetic money market instruments, structured notes,
swaps and Eurodollar instruments. The Fund may invest in
repurchase agreements, provided that it will not invest more than
15% of its net assets in repurchase agreements maturing in more
than seven days and any other illiquid securities. The Fund does
not currently intend to enter into repurchase agreements. It may
participate in an interfund lending program, subject to certain
restrictions described in the Statement of Additional Information.
In addition, and consistent with its investment objective, the
Fund may invest in a broad array of financial instruments and
securities, including conventional exchange-traded and non-
exchange-traded options, futures contracts, futures options,
forward contracts, securities collateralized by underlying pools
of mortgages or other receivables, floating rate instruments, and
other instruments that securitize assets of various types
("Derivatives"). The Fund may also sell short securities the Fund
owns or has the right to acquire without further consideration, a
technique called selling short "against the box." For further
information on Derivatives and short sales against the box, see
the Statement of Additional Information.
The Fund may also invest in closed-end investment companies
investing primarily in the emerging markets. To the extent the
Fund invests in such closed-end investment companies, shareholders
will incur certain duplicate fees and expenses. Such closed-end
investment company investments will generally only be made when
market access or liquidity restricts direct investment in the
market. (See the Statement of Additional Information.)
INVESTMENT RESTRICTIONS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S. Government or repurchase agreements /1/ for such
securities, and would not prevent the Fund from investing all of
its assets in shares of another investment company having the
identical investment objective.
- -------------------
/1/ A repurchase agreement involves a sale of securities to the
Fund in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, the Fund could experience both losses
and delays in liquidating its collateral.
- ------------------
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. The Fund may, however, invest all
of its assets in shares of another investment company having the
identical investment objective.
To maintain liquidity, the Fund may borrow from banks. The Fund
will not borrow money, except for non-leveraging temporary, or
emergency purposes or in connection with participation in an
interfund lending program with other Stein Roe Funds. In such a
case, the aggregate borrowings at any one time--including any
reverse repurchase agreements and dollar rolls--may not exceed 33
1/3% of the Fund's total assets (at market). The Fund will not
purchase additional securities when its borrowings, less proceeds
receivable from sales of portfolio securities, exceed 5% of total
assets. If the Fund borrows money, its share price may be subject
to greater fluctuation until the borrowing is paid off. The Fund
does not expect to borrow for investment purposes.
The Fund may invest in repurchase agreements, provided that the
Fund will not invest more than 15% of its net assets in illiquid
securities, including repurchase agreements maturing in more than
seven days. The Fund does not currently intend to invest in
repurchase agreements.
The policies summarized in the first three paragraphs of this
section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" of the Fund as defined in the
Investment Company Act of 1940. The Fund's investment objective
is non-fundamental and, as such, may be changed by the Board of
Trustees without shareholder approval. All of the investment
restrictions are set forth in the Statement of Additional
Information.
Nothing in the investment restrictions outlined here shall be
deemed to prohibit the Fund from purchasing the securities of any
issuer pursuant to the exercise of subscription rights distributed
to the Fund by the issuer. No such purchase may be made if, as a
result, the Fund will no longer be a diversified investment
company as defined in the Investment Company Act of 1940 or if the
Fund will fail to meet the diversification requirements of the
Internal Revenue Code.
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. The Fund seeks capital
appreciation primarily through investing in stocks of companies in
emerging markets. The Fund is intended for long-term investors
and not for short-term trading purposes. It should not be
considered a complete investment program. While the Fund offers
the potential for substantial price appreciation over time, it
also involves above-average investment risk. To encourage a long-
term investment horizon, a 1% redemption fee, described more fully
below, is payable to the Fund for the benefit of remaining
shareholders on shares held less than 90 days. Of course, there
can be no guarantee that the Fund will achieve its objective.
The Fund does not concentrate investments in any particular
industry. In addition, there is no limitation on the amount the
Fund can invest in a specific country or region of the world.
However, the Fund intends to diversify its investments among
several countries. The Fund has no current intent of investing
more than 5% of its total assets in Russian securities.
FOREIGN INVESTING. Non-U.S. investments may be attractive because
they increase diversification, compared to a portfolio comprising
U.S. investments alone. In addition, many foreign economies have,
from time to time, grown faster than the U.S. economy, and the
returns on investments in these countries have exceeded those of
similar U.S. investments. In addition, many emerging market
countries have experienced economic growth rates well in excess of
those found in the U.S. and other developed markets. However,
there can be no assurance that these conditions will continue.
International diversification allows the Fund and an investor to
take advantage of changes in foreign economies and market
conditions.
Investors should understand and consider carefully the greater
risks involved in foreign investing. Investing in foreign
securities--positions which are generally denominated in foreign
currencies--and utilization of forward foreign currency exchange
contracts involve certain considerations comprising both risks and
opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulations or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and issuers of securities; lack of uniform accounting, auditing,
and financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment
in the securities of companies in developing as well as developed
countries; and sometimes less advantageous legal, operational, and
financial protections applicable to foreign sub-custodial
arrangements. These risks are greater for emerging market
countries.
Investments in emerging markets securities include special risks
in addition to those generally associated with foreign investing.
Many investments in emerging markets can be considered
speculative, and the value of those investments can be more
volatile than is typical in more developed foreign markets. This
difference reflects the greater uncertainties of investing in less
established markets and economies. Emerging markets also have
different clearance and settlement procedures, and in certain
markets there have been times when settlements have not kept pace
with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in
temporary periods when a portion of the assets of the Fund is
uninvested and no return is earned thereon. The inability of the
Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due
to settlement problems could result either in losses to the Fund
due to subsequent declines in the value of those securities or, if
the Fund has entered into a contract to sell a security, in
possible liability to the purchaser. Costs associated with
transactions in emerging markets securities are typically higher
than costs associated with transactions in U.S. securities. Such
transactions also involve additional costs for the purchase or
sale of foreign currency.
Volume and liquidity of securities transactions in most emerging
markets are lower than in the U.S. In addition, many emerging
markets have experienced substantial rates of inflation.
Inflation and rapid fluctuations in inflation rates have had, and
may continue to have, adverse effects on the economies and
securities markets of certain emerging market countries.
Investment in foreign securities exposes the Fund to the
possibility of expropriation or confiscatory taxation, seizure or
nationalization of foreign bank deposits or other assets,
establishment of exchange controls, the adoption of foreign
government restrictions, and other adverse political, social or
diplomatic developments that could affect investment in these
nations.
The price of securities of small, rapidly growing companies is
expected to fluctuate more widely than the general market due to
the difficulty in assessing financial prospects of companies
developing new products or operating in countries with developing
markets.
The strategy for selecting investments in the Fund will be based
on various criteria. A company considered for investment may have
a good market position in a fast-growing segment of the economy,
strong management, preferably a leading position in its business,
prospects of superior financial returns, and securities available
for purchase at an attractive market valuation. Information on
some of the above factors may be difficult, if not impossible, to
obtain.
To the extent portfolio securities are issued by foreign issuers
or denominated in foreign currencies, the Fund's investment
performance is affected by the strength or weakness of the U.S.
dollar against these currencies. If the dollar falls relative to
the Japanese yen, for example, the dollar value of a yen-
denominated stock held in the portfolio will rise even though the
price of the stock remains unchanged. Conversely, if the dollar
rises in value relative to the yen, the dollar value of the yen-
denominated stock will fall. (See the discussion of portfolio and
transaction hedging under Portfolio Investments and Strategies.)
Certain foreign markets (including emerging markets) may require
governmental approval for the repatriation of investment income,
capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in an emerging
market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The
Fund could be adversely affected by delays in, or a refusal to
grant, required governmental approval for repatriation of capital,
as well as by the application to the Fund of any restrictions on
investments.
MASTER FUND/FEEDER FUND OPTION. Rather than invest in securities
directly, the Fund may in the future seek to achieve its
investment objective by pooling its assets with assets of other
investment companies for investment in another investment company
having the same investment objective and substantially the same
investment policies as the Fund. The purpose of such an
arrangement is to achieve greater operational efficiencies and to
reduce costs. It is expected that any such investment company
would be managed by the Adviser in substantially the same manner
as the Fund. Shareholders of the Fund will be given at least 30
days' prior notice of any such investment. Such investment would
be made only if the Trustees determine it to be in the best
interests of the Fund and its shareholders.
HOW TO PURCHASE SHARES
You may purchase shares of the 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 the Automatic Exchange Plan) is
$1,000 for regular accounts and $500 for UGMA accounts; and the
minimum per account for Stein Roe IRAs is $500. The initial
purchase minimum is waived for shareholders who participate in the
Stein Roe Counselor [SERVICE MARK] or 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 sponsored by the
Adviser, you must obtain special forms for those plans. (See
Shareholder Services.)
BY CHECK. To make an initial purchase of shares of the Fund by
check, please complete and sign the Application and mail it,
together with a check made payable to Stein Roe Mutual Funds, to
SteinRoe Services Inc. at P.O. Box 8900, Boston, Massachusetts
02205. Participants in the Stein Roe Counselor [SERVICE MARK]and
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
the 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 the Fund be cancelled
because your check does not clear, you will be responsible for any
resulting loss incurred by the Fund.
BY WIRE. You also may pay for shares by instructing your bank to
wire federal funds (monies of member banks within the Federal
Reserve System) to 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 the Fund nor the Trust
will be responsible for the consequences of delays, including
delays in the banking or Federal Reserve wire systems. Your bank
must include the full name(s) in which your account is registered
and your Fund account number, and should address its wire as
follows:
First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Boston, Massachusetts
Attention: SteinRoe Services Inc.
Fund No. 18; Stein Roe Emerging Markets 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.18; Stein Roe Emerging Markets Fund
Account of (exact names(s) in registration)
Counselor Account No. _________
BY ELECTRONIC TRANSFER. You may also make subsequent investments
by an electronic transfer of funds from your bank account.
Electronic transfer allows you to make purchases at your request
("Special Investments") by calling 800-338-2550 or at pre-
scheduled intervals ("Regular Investments") elected on your
application. (See Shareholder Services.) Electronic transfer
purchases are subject to a $50 minimum and a $100,000 maximum.
You may not open a new account through electronic transfer.
Should an order to purchase shares of the Fund be cancelled
because your electronic transfer does not clear, you will be
responsible for any resulting loss incurred by the Fund.
BY EXCHANGE. You may purchase shares by exchange of shares from
another Stein Roe Fund account either by phone (if the Telephone
Exchange Privilege has been established on the account from which
the exchange is being made), by mail, in person, or automatically
at regular intervals (if you have elected the Automatic Exchange
Privilege). Restrictions apply; please review the information on
the Exchange Privilege under How to Redeem Shares--By Exchange.
CONDITIONS OF PURCHASE. Each purchase order for the Fund must be
accepted by an authorized officer of the 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.
The Trust reserves the right not to accept any purchase order that
it determines not to be in the best interests of the Trust or of
the Fund's shareholders. The Trust also reserves the right to
waive or lower its investment minimums for any reason. The Trust
does not issue share certificates.
PURCHASES THROUGH THIRD PARTIES. You may purchase (or redeem)
shares through broker-dealers, banks, or other financial
institutions ("Intermediaries"). These Intermediaries may charge
for their services or place limitations on the extent to which you
may use the services offered by the Trust. There are no charges
or limitations imposed by the Trust, other than those described in
this prospectus, if shares are purchased (or redeemed) directly
from the Trust.
Some Intermediaries that maintain nominee accounts with the Fund
for their clients for whom they hold Fund shares charge an annual
fee of up to 0.25% of the average net assets held in such accounts
for accounting, servicing, and distribution services they provide
with respect to the underlying Fund shares. The Adviser and the
Fund's transfer agent share in the expenses of these fees, and the
Adviser pays all sales and promotional expenses.
PURCHASE PRICE AND EFFECTIVE DATE. Each purchase of the Fund's
shares made directly with the Fund is made at the Fund's 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 the Fund receives the check or wire
transfer of funds in payment of the purchase.
A purchase by electronic transfer is made at the net asset value
next determined after the Fund receives the electronic transfer
from your bank. A Special Electronic Transfer Investment order
received by telephone on a business day before 3:00 p.m., central
time, is effective on the next business day.
Each purchase of Fund shares through an Intermediary that is an
authorized agent of the 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
REDEMPTION FEE. Upon the redemption of shares held less than 90
days, a fee of 1% of the current net asset value of the shares
redeemed will be assessed and retained by the Fund for the benefit
of remaining shareholders. The fee is waived for all shares
purchased through certain retirement plans, including 401(k)
plans, 403(b) plans, 457 plans, Keogh accounts and Profit Sharing
and Money Purchase Pension Plans. However, if such shares are
purchased through an Intermediary maintaining an omnibus account
for the shares, such fee waiver may not apply. Before purchasing
shares, please check with your account representative concerning
the availability of the fee waiver. In addition, the fee waiver
does not apply to IRA and SEP-IRA accounts. The redemption fee is
intended encourage long-term investment in the Fund, to avoid
transaction and other expenses caused by early redemptions and to
facilitate portfolio management. The fee does not benefit the
Adviser in any way. The Fund reserves the right to modify the
terms of or terminate this fee at any time.
The redemption fee applies to redemptions from the Fund, but not
to dividend or capital gains distributions which have been
automatically reinvested in the Fund. The fee is applied to the
shares being redeemed on a first-in, first-out basis. For more
information, see Purchases and Redemptions in the Statement of
Additional Information.
BY WRITTEN REQUEST. You may redeem all or a portion of your
shares of the Fund by submitting a written request in "good order"
to SteinRoe Services Inc. at P.O. Box 8900, Boston, Massachusetts
02205. Participants in the Stein Roe Counselor [SERVICE MARK] or
Stein Roe Personal Counselor [SERVICE MARK] Programs 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 dollar amount to be redeemed and identify the
shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The signatures on the written redemption request must be
guaranteed (a signature guarantee is not a notarization, but
is a widely accepted way to protect you and the Fund by
verifying your signature);
(4) Corporations and associations must submit with each request a
completed Certificate of Authorization included in this
prospectus (or a form of resolution acceptable to the Trust);
and
(5) The request must include other supporting legal documents as
required from organizations, executors, administrators,
trustees, or others acting on accounts not registered in their
names.
BY EXCHANGE. You may redeem all or any portion of your Fund
shares and use the proceeds to purchase shares of any other Stein
Roe Fund offered for sale in your state if your signed, properly
completed Application is on file. AN EXCHANGE TRANSACTION IS A
SALE AND PURCHASE OF SHARES FOR FEDERAL INCOME TAX PURPOSES AND
MAY RESULT IN CAPITAL GAIN OR LOSS. Before exercising the
Exchange Privilege, you should obtain the prospectus for the Stein
Roe Fund in which you wish to invest and read it carefully. The
registration of the account to which you are making an exchange
must be exactly the same as that of the Fund account from which
the exchange is made and the amount you exchange must meet any
applicable minimum investment of the Stein Roe Fund being
purchased. Unless you have elected to receive your dividends in
cash, on an exchange of all shares, any accrued unpaid dividends
will be invested in the Stein Roe Fund to which you exchange on
the next business day. 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 Redemption Privileges, check the box(es)
under the section "Telephone Redemption Options" when completing
your Application. In addition, a signature guarantee may be
required to establish a Privilege after you open your account. If
you establish both the Telephone Redemption by Wire Privilege and
the Electronic Transfer Privilege, the bank account that you
designate for both Privileges must be the same.
The Telephone Redemption by Check, Telephone Redemption by Wire
Privilege, and Special Electronic Transfer Redemptions are not
available to redeem shares held by a tax-sheltered retirement plan
sponsored by the Adviser. (See also General Redemption Policies.)
Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account
by calling 800-338-2550 or by sending a telegram; new accounts
opened by exchange are subject to the $2,500 initial purchase
minimum. GENERALLY, YOU WILL BE LIMITED TO FOUR TELEPHONE
EXCHANGE ROUND-TRIPS PER YEAR AND THE FUND MAY REFUSE REQUESTS FOR
TELEPHONE EXCHANGES IN EXCESS OF FOUR ROUND-TRIPS (A ROUND-TRIP
BEING THE EXCHANGE OUT OF THE FUND INTO ANOTHER STEIN ROE FUND,
AND THEN BACK TO THE FUND). In addition, the Trust's general
redemption policies apply to redemptions of shares by Telephone
Exchange. (See General Redemption Policies.)
The Trust reserves the right to suspend or terminate, at any time
and without prior notice, the use of the Telephone Exchange
Privilege by any person or class of persons. The Trust believes
that use of the Telephone Exchange Privilege by investors
utilizing market-timing strategies adversely affects the Fund.
THEREFORE, THE TRUST GENERALLY WILL NOT HONOR REQUESTS FOR
TELEPHONE EXCHANGES BY SHAREHOLDERS IDENTIFIED BY THE TRUST AS
"MARKET-TIMERS." Moreover, the Trust reserves the right to
suspend, limit, modify, or terminate, at any time and without
prior notice, the Telephone Exchange Privilege in its entirety.
Because such a step would be taken only if the Board of Trustees
believes it would be in the best interests of the Fund, the Trust
expects that it would provide shareholders with prior written
notice of any such action unless the resulting delay in the
suspension, limitation, modification, or termination of the
Telephone Exchange Privilege would adversely affect the Fund. IF
THE TRUST WERE TO SUSPEND, LIMIT, MODIFY, OR TERMINATE THE
TELEPHONE EXCHANGE PRIVILEGE, A SHAREHOLDER EXPECTING TO MAKE A
TELEPHONE EXCHANGE MIGHT FIND THAT AN EXCHANGE COULD NOT BE
PROCESSED OR THAT THERE MIGHT BE A DELAY IN THE IMPLEMENTATION OF
THE EXCHANGE. (See How to Redeem Shares--By Exchange.) During
periods of volatile economic and market conditions, you may have
difficulty placing your exchange by telephone.
Automatic Exchanges. You may use the Automatic Exchange Privilege
to automatically redeem a fixed amount from your Fund account for
investment in another Stein Roe Fund account on a regular basis.
Telephone Redemption by 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.
Telephone Redemption by Wire Privilege. You may use this
Privilege to redeem an amount of $1,000 or more from your account
by calling 800-338-2550. The proceeds will be transmitted by wire
to your account at a commercial bank previously designated by you
that is a member of the Federal Reserve System. The fee for
wiring proceeds (currently $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 or at scheduled intervals ("Automatic Redemptions"-
- -see Shareholder Services). Electronic transfers are subject to a
$50 minimum and a $100,000 maximum. A Special Redemption request
received by telephone after 3:00 p.m., central time, is deemed
received on the next business day.
GENERAL REDEMPTION POLICIES. You may not cancel or revoke your
redemption order once instructions have been received and
accepted. The Trust cannot accept a 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. (See Shareholder Services--Tax-Sheltered
Retirement Plans.) The Trust reserves the right to require a
properly completed Application before making payment for shares
redeemed.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares and may result
in a realized capital gain or loss.
The Trust will generally mail payment for shares redeemed within
seven days after proper instructions are received. However, the
Trust normally intends to pay proceeds of a Telephone Redemption
paid by wire on the next business day. If you attempt to redeem
shares within 15 days after they have been purchased by check or
electronic transfer, the Trust may delay payment of the redemption
proceeds to you until it can verify that payment for the purchase
of those shares has been (or will be) collected. To reduce such
delays, the Trust recommends that your purchase be made by federal
funds wire through your bank.
Generally, you may not use the Special Redemption Privilege to
redeem shares purchased by check (other than certified or
cashiers' checks) or electronic transfer until 15 days after their
date of purchase.
The Trust reserves the right to suspend, limit, modify, or
terminate, at any time and without prior notice, any Privilege or
its use in any manner by any person or class.
Neither the Trust, its transfer agent, nor their respective
officers, trustees, directors, employees, or agents will be
responsible for the authenticity of instructions provided under
the Privileges, nor for any loss, liability, cost or expense for
acting upon instructions furnished thereunder if they reasonably
believe that such instructions are genuine. The Fund employs
procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special Electronic Transfer Redemption Privilege are
genuine. Use of any Special Redemption Privilege or the Special
Electronic Transfer Redemption Privilege authorizes the Fund and
its transfer agent to tape-record all instructions to redeem. In
addition, callers are asked to identify the account number and
registration, and may be required to provide other forms of
identification. Written confirmations of transactions are mailed
promptly to the registered address; a legend on the confirmation
requests that the shareholder review the transactions and inform
the Fund immediately if there is a problem. If the Fund does not
follow reasonable procedures for protecting shareholders against
loss on telephone transactions, it may be liable for any losses
due to unauthorized or fraudulent instructions.
The Trust reserves the right to redeem shares in any account and
send the proceeds to the owner if the shares in the account do not
have a value of at least $1,000. A shareholder would be notified
that his account is below the minimum and would be allowed 30 days
to increase the account before the redemption is processed.
Shares in any account you maintain with the Fund or any of the
other Stein Roe Funds may be redeemed to the extent necessary to
reimburse any Stein Roe Fund for any loss it sustains that is
caused by you (such as losses from uncollected checks and
electronic transfers or any Stein Roe Fund liability under the
Internal Revenue Code provisions on backup withholding).
SHAREHOLDER SERVICES
REPORTING TO SHAREHOLDERS. You will receive a confirmation
statement reflecting each of your purchases and redemptions of
shares of the Fund, as well as periodic statements detailing
distributions made by the Fund. Shares purchased by reinvestment
of dividends, by cross-reinvestment of dividends from another
Fund, or through an automatic investment plan will be confirmed to
you quarterly. In addition, the Trust will send you semiannual
and annual reports showing Fund portfolio holdings and will
provide you annually with tax information.
FUNDS-ON-CALL [REGISTERED] AUTOMATED TELEPHONE TRANSACTIONS. To
access the Stein Roe Funds-on-Call [registered], just call 800-
338-2550 on any touch-tone telephone and follow the recorded
instructions. Funds-on-Call [registered] provides yields, prices,
latest dividends, account balances, last transaction and other
information 24 hours a day, seven days a week. You may also use
Funds-on-Call [registered] to make Special Investments and
Redemptions, Telephone Exchanges, and Telephone Redemptions by
Check. These transactions are subject to the terms and conditions
of the individual privileges. (See How to Purchase Shares and How
to Redeem Shares.)
STEIN ROE COUNSELOR [SERVICE MARK] PROGRAM. The Adviser offers
Stein Roe Counselor [SERVICE MARK] and Personal Counselor [SERVICE
MARK] Programs. These programs are designed to provide investment
guidance in helping investors to select a portfolio of Stein Roe
Mutual Funds. The Stein Roe Personal Counselor [SERVICE MARK]
Program, which automatically adjusts client portfolios, has a fee
of up to 1% of assets.
TAX-SHELTERED RETIREMENT PLANS. Booklets describing the following
programs and special forms necessary for establishing them are
available on request. You may use all of the Stein Roe Funds,
except those investing primarily in tax-exempt securities, in
these plans. Please read the prospectus for each Fund in which
you plan to invest before making your investment.
Individual Retirement Accounts ("IRAs") for employed persons and
their non-employed spouses.
Prototype Money Purchase Pension and Profit Sharing Plans for
self-employed individuals, partnerships, and corporations.
Simplified Employee Pension Plans permitting employers to provide
retirement benefits to their employees by utilizing IRAs while
minimizing administration and reporting requirements.
SPECIAL SERVICES. The following special services are available to
shareholders. Please call 800-338-2550 or write the Trust for
additional information and forms.
Dividend Purchase Option--to diversify your Fund investments by
having distributions from one Fund account automatically invested
in another Stein Roe Fund account. Before establishing this
option, you should obtain and read carefully the prospectus of the
Stein Roe Fund into which you wish to have your distributions
invested. The account from which distributions are made must be
of sufficient size to allow each distribution to usually be at
least $25. The account into which distributions are to be
invested may be opened with an initial investment of only $1,000.
Automatic Dividend Deposit (electronic transfer)--to have income
dividends and capital gain distributions deposited directly into
your bank 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).
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.
*A 1% redemption fee is imposed on redemptions of shares held less
than 90 days.
NET ASSET VALUE
The purchase price of the Fund's shares is its net asset value per
share. The redemption price of the Fund's shares is at its net
asset value per share minus a redemption fee if shares are
redeemed within 90 days of purchase. The net asset value of a
share of the Fund is determined as of the close of trading on the
New York Stock Exchange ("NYSE") (currently 3:00 p.m., central
time) by dividing the difference between the values of the Fund's
assets and liabilities by the number of shares outstanding. Net
asset value will not be determined on days when the NYSE is closed
unless, in the judgment of the Board of Trustees, the net asset
value of the Fund should be determined on any such day, in which
case the determination will be made at 3:00 p.m., central time.
In computing the net asset value of the Fund, the values of
portfolio securities are generally based upon market quotations.
Depending upon local convention or regulation, these market
quotations may be the last sale price, last bid or asked price, or
the mean between the last bid and asked prices as of, in each
case, the close of the appropriate exchange or other designated
time. Trading in securities on European and Far Eastern
securities exchanges and over-the-counter markets is normally
completed at various times before the close of business on each
day on which the NYSE is open. Trading of these securities may
not take place on every NYSE business day. In addition, trading
may take place in various foreign markets on Saturdays or on other
days when the NYSE is not open and on which the Fund's net asset
value is not calculated. Therefore, such calculation does not
take place contemporaneously with the determination of the prices
of many of the portfolio securities used in such calculation and
the value of the Fund's portfolio may be significantly affected on
days when shares of the Fund may not be purchased or redeemed.
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS. Income dividends for the Fund are normally
declared and paid annually. The Fund intends to distribute by the
end of each calendar year at least 98% of any net capital gains
realized from the sale of securities during the twelve-month
period ended October 31 in that year. The Fund intends to
distribute any undistributed net investment income and net
realized capital gains in the following year.
All of your income dividends and capital gain distributions will
be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank account; (3) applied to
purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See Shareholder Services.) Reinvestment into
the same Fund account normally occurs one business day after the
record date. Investment of distributions into another Stein Roe
Fund account occurs on the payable date. If you choose to receive
your distributions in cash, your distribution check normally will
be mailed approximately 15 days after the record date. The Trust
reserves the right to reinvest the proceeds and future
distributions in additional Fund shares if checks mailed to you
for distributions are returned as undeliverable or are not
presented for payment within six months.
U.S. FEDERAL INCOME TAXES. Your distributions will be taxable to
you, under income tax law, whether received in cash or reinvested
in additional shares. For federal income tax purposes, any
distribution that is paid in January but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital
gains. Distributions of net long-term capital gains will be
taxable to you as long-term capital gain regardless of the length
of time you have held your shares.
You will be advised annually as to the source of distributions for
tax purposes. If you are not subject to tax on your income, you
will not be required to pay tax on these amounts.
If you realize a loss on the sale or exchange of Fund shares held
for six months or less, your short-term loss is recharacterized as
long-term to the extent of any long-term capital gain
distributions you have received with respect to those shares.
For federal income tax purposes, the Fund is treated as a separate
taxable entity distinct from the other series of the Trust.
FOREIGN INCOME TAXES. Investment income received by the Fund from
sources within foreign countries may be subject to foreign income
taxes withheld at the source. The United States has entered into
tax treaties with many foreign countries that entitle the Fund to
a reduced rate of tax or exemption from tax on such income. It is
impossible to determine the effective rate of foreign tax in
advance since the amount of the Fund's assets to be invested
within various countries will fluctuate and the extent to which
tax refunds will be recovered is uncertain. The Fund intends to
operate so as to qualify for treaty-reduced tax rates where
applicable.
To the extent that the Fund is liable for foreign income taxes
withheld at the source, the Fund also intends to operate so as to
meet the requirements of the U.S. Internal Revenue Code to "pass
through" to the Fund's shareholders foreign income taxes paid, but
there can be no assurance that the Fund will be able to do so.
This discussion of U.S. and foreign taxation is not intended to be
a full discussion of income tax laws and their effect on
shareholders. You may wish to consult your own tax advisor. The
foregoing information applies to U.S. shareholders. Foreign
shareholders should consult their tax advisors as to the tax
consequences of ownership of Fund shares.
BACKUP WITHHOLDING. The Trust may be required to withhold federal
income tax ("backup withholding") from certain payments to you,
generally redemption proceeds. Backup withholding may be required
if:
- - You fail to furnish your properly certified social security or
other tax identification number;
- - You fail to certify that your tax identification number is
correct or that you are not subject to backup withholding due to
the underreporting of certain income;
- - The Internal Revenue Service informs the Trust that your tax
identification number is incorrect.
These certifications are contained in the Application that you
should complete and return when you open an account. The Fund
must promptly pay to the IRS all amounts withheld. Therefore, it
is usually not possible for the Fund to reimburse you for amounts
withheld. You may, however, claim the amount withheld as a
credit on your federal income tax return.
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment), plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
Comparison of the Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. Of course, past performance is not necessarily
indicative of future results.
MANAGEMENT
TRUSTEES AND INVESTMENT ADVISER. The Board of Trustees of the
Trust has overall management responsibility for the Trust and the
Fund. See the Statement of Additional Information for the names
of and additional information about the trustees and officers.
The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for investment
portfolio and business affairs of the Fund and the Trust, subject
to the direction of the Board. The Adviser is registered as an
investment adviser under the Investment Advisers Act of 1940. The
Adviser was organized in 1986 to succeed to the business of Stein
Roe & Farnham, a partnership that had advised and managed mutual
funds since 1949. The Adviser is a wholly owned indirect
subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which in turn is a majority owned indirect subsidiary
of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS. Bruno Bertocci and David P. Harris have been
co-portfolio managers of the Fund since its inception in 1997. In
addition, they have been co-portfolio managers of SR&F
International Portfolio since its inception in 1997 and of its
corresponding "feeder" fund, Stein Roe International Fund, since
its inception in 1994 (Mr. Harris served as an associate portfolio
manager until May 1995). They joined the Adviser in 1995, as
senior vice president and vice president, respectively, to create
Stein Roe Global Capital Management, a dedicated global and
international equity management unit. Messrs. Bertocci and Harris
are also employed by Colonial Management Associates, Inc., a
subsidiary of Liberty Financial, as vice presidents. As of
December 31, 1996, Messrs. Bertocci and Harris were responsible
for co-managing $141 million in mutual fund net assets.
Prior to joining the Adviser, Mr. Bertocci was a senior global
equity portfolio manager with Rockefeller & Co. ("Rockefeller")
from 1983 to 1995. While at Rockefeller, he served as portfolio
manager for Stein Roe International Fund, when Rockefeller was
that Fund's sub-adviser. Mr. Bertocci managed Rockefeller's
London office from 1987 to 1989 and its Hong Kong office from 1989
to 1990. Prior to working at Rockefeller, he served for three
years at T. Rowe Price Associates. Mr. Bertocci is a graduate of
Oberlin College and holds an M.B.A. from Harvard University.
Mr. Harris was a portfolio manager with Rockefeller from 1990 to
1995. After earning a bachelor's degree from the University of
Michigan, he was an actuarial associate for GEICO before returning
to school to earn an M.B.A. from Cornell University.
FEES AND EXPENSES. In return for its services, the Adviser is
entitled to receive monthly management and administrative fees
from the Fund, computed and accrued daily, at an annual rate of
1.25% of average net assets. These fees are higher than the fees
paid by most mutual funds. As noted under Fee Table, the Adviser
may voluntarily waive a portion of its fees.
The Adviser provides office space and executive and other
personnel to the Fund. All expenses of the 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 the Fund.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset value and calculation of its
net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS. The Adviser places the orders for the
purchase and sale of the Fund's 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 the Trust for the transfer of shares,
disbursement of dividends, and maintenance of shareholder
accounting records.
DISTRIBUTOR. The shares of the Fund are offered for sale through
Liberty Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to
SteinRoe Services Inc. at P.O. Box 8900, Boston, Massachusetts
02205 except for participants in the Stein Roe Counselor [SERVICE
MARK] and Personal Counselor [SERVICE MARK] Programs, who should
send orders to SteinRoe Services Inc. at P.O. Box 803938, Chicago,
Illinois 60680. All distributions and promotional expenses are
paid by the Adviser, including payments to the Distributor for
sales of Fund shares.
CUSTODIAN. State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
the Fund. Foreign securities are maintained in the custody of
foreign banks and trust companies that are members of the Bank's
Global Custody Network or foreign depositories used by such
members. (See Custodian in the Statement of Additional
Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, nine series are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the
Trust was unable to meet its obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the Trust is
also believed to be remote, because it would be limited to claims
to which the disclaimer did not apply and to circumstances in
which the other series was unable to meet its obligations.
<PAGE>
Stein Roe 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>
The Stein Roe Mutual 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 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>
[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE GROWTH & INCOME FUND
The investment objective of Growth & Income Fund is to provide
both growth of capital and current income. Growth & Income Fund
invests all of its net investable assets in shares of SR&F Growth
& Income Portfolio, which has the same investment objective and
substantially the same investment policies as Growth & Income
Fund. (See Special Considerations Regarding Master Fund/Feeder
Fund Structure.)
This prospectus relates only to shares of Growth & Income Fund
purchased through eligible employer-sponsored defined contribution
plans ("defined contribution plans").
Growth & Income Fund is a "no-load" fund. There are no sales or
redemption charges, and Growth & Income Fund has no 12b-1 plan.
Growth & Income Fund is a series of the Stein Roe Investment Trust
and Growth & Income Portfolio is a series of SR&F Base Trust.
Each Trust is a diversified open-end management investment
company.
This prospectus contains information you should know before
investing in Growth & Income Fund. Please read it carefully and
retain it for future reference.
A Statement of Additional Information dated February 3, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the Stein
Roe Mutual Funds at Suite 3200, One South Wacker Drive, Chicago,
IL 60606 or by calling 800-322-1130. The Statement of Additional
Information contains information relating to other series of the
Stein Roe Investment Trust that may not be available as investment
vehicles for your defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 3, 1997
TABLE OF CONTENTS
Page
Fee Table ..............................2
Financial Highlights....................2
The Fund................................3
Investment Policies.....................4
Portfolio Investments and Strategies....4
Investment Restrictions ................6
Risks and Investment Considerations ....7
How to Purchase Shares..................7
How to Redeem Shares ...................7
Net Asset Value ........................8
Distributions and Income Taxes..........8
Investment Return.......................9
Management .............................9
Organization and Description of Shares.10
Special Considerations Regarding
Master Fund/Feeder Fund Structure....11
For More Information ..................13
<PAGE>
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (as a
percentage of average net assets)
Management and Administrative Fees 0.75%
12b-1 Fees None
Other Expenses 0.43%
-----
Total Operating Expenses 1.18%
=====
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- ---------
$12 $37 $65 $143
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 & Income Fund. The table is
based upon actual expenses incurred in the last fiscal year.
Growth & Income Fund pays the Adviser an administrative fee based
on Growth & Income Fund's average daily net assets, and Growth &
Income Portfolio pays the Adviser a management fee based on its
average daily net assets. The expenses of both Growth & Income
Fund and Growth & Income Portfolio are summarized in the Fee
Table. (The fees are described under Management.) Growth &
Income Fund bears its proportionate share of Portfolio expenses.
The trustees of Investment Trust have considered whether the
annual operating expenses of Growth & Income Fund, including its
share of the expenses of Growth & Income Portfolio, would be more
or less than if Growth & Income Fund invested directly in the
securities held by Growth & Income Portfolio, and concluded that
Growth & Income Fund's expenses would not be greater in such case.
For purposes of the Example above, the figures assume that the
percentage amounts listed for Growth & Income Fund under Annual
Fund Operating Expenses remain the same in each of the periods;
that all income dividends and capital gain distributions are
reinvested in additional Fund shares; and that, for purposes of
fee breakpoints, Growth & Income Fund's net assets remain at the
same level as in the most recently completed fiscal year. The
figures in the Example are not necessarily indicative of past or
future expenses, and actual expenses may be greater or less than
those shown. Although information such as that shown in the
Example and Fee Table is useful in reviewing Growth & Income
Fund's expenses and in providing a basis for comparison with other
mutual funds, it should not be used for comparison with other
investments using different assumptions or time periods. The
example does not reflect any charges or expenses related to your
employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of Growth &
Income Fund for the periods shown on a per-share basis and has
been audited by Arthur Andersen LLP, independent public
accountants. This table should be read in conjunction with Growth
& Income Fund's financial statements and notes thereto. Growth &
Income Fund's annual report, which may be obtained from Investment
Trust without charge upon request, contains additional performance
information.
<TABLE>
<CAPTION>
Period
Ended
Sept. 30, Years Ended September 30,
1987 (a) 1988 1989 1990 1991 1992 1993 1994 1995 1996
-------- ------ ------ ------ ------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $10.00 $10.49 $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54 $16.65
-------- ------ ------ ------ ------ ------ ------- ------ ------ ------
Income from Investment
Operations
Net investment income..... 0.05 0.17 0.22 0.26 0.26 0.19 0.17 0.18 0.34 0.27
Net realized and un-
realized gains (losses)
on investments.......... 0.47 (1.64) 2.46 (0.85) 2.17 1.49 2.16 0.40 2.56 3.22
-------- ------ ------ ------ ------ ------ ------- ------ ------ ------
Total from investment
operations............... 0.52 (1.47) 2.68 (0.59) 2.43 1.68 2.33 0.58 2.90 3.49
-------- ------ ------ ------ ------ ------ ------- ------ ------ ------
Distributions
Net investment income... (0.03) (0.14) (0.22) (0.26) (0.29) (0.18) (0.16) (0.16) (0.20) (0.32)
Net realized capital
gains................... -- -- -- -- (0.36) (0.35) (0.76) (0.71) (0.59) (1.43)
-------- ------ ------ ------ ------ ------ ------- ------ ------ ------
Total distributions.... (0.03) (0.14) (0.22) (0.26) (0.65) (0.53) (0.92) (0.87) (0.79) (1.75)
-------- ------ ------ ------ ------ ------ ------- ------ ------ ------
Net Asset Value, End
of Period.............. $10.49 $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54 $16.65 $18.39
======== ====== ====== ====== ====== ====== ======= ====== ====== ======
Ratio of net expenses
to average net
assets (b)............. *1.91% 1.47% 1.24% 1.08% 1.00% 0.97% 0.88% 0.90% 0.96% 1.18%
Ratio of net investment
income to average
net assets (c)........ *1.43% 2.03% 2.28% 2.40% 2.27% 1.46% 1.23% 1.18% 1.78% 1.65%
Portfolio turnover rate.... 32% 105% 63% 51% 48% 40% 50% 85% 70% 13%
Average commissions
(per share).............. -- -- -- -- -- -- -- -- -- $0.0683
Total return............. 5.20% (13.90%) 30.63% (5.25%) 24.12% 14.00% 17.98% 4.03% 21.12% 22.67%
Net assets, end of
period (000 omitted) ..$22,863 $23,002 $32,562 $43,446 $54,820 $70,724 $100,365 $129,680 $139,539 $204,387
</TABLE>
*Annualized.
(a) From the commencement of operations on March 23, 1987.
(b) If Growth & Income Fund had paid all of its expenses and there
had been no reimbursement by the Adviser, this ratio would
have been 2.49% for the period ended September 30, 1987 and
1.09% for the year ended September 30, 1990.
(c) Computed giving effect to the Adviser's expense limitation
undertaking.
__________________________
THE FUND
STEIN ROE GROWTH & INCOME FUND ("Growth & Income 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 & Income Fund does not impose commissions
or charges when shares are purchased or redeemed.
Growth & Income 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
investment management, administrative, and bookkeeping and
accounting services to Growth & Income Fund and Growth & Income
Portfolio. The Adviser also manages 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 opening a regular account in any of these mutual funds, please
call 800-338-2550.
On February 3, 1997, Growth & Income Fund became a "feeder fund"--
that is, it invested all of its assets in SR&F Growth & Income
Portfolio ("Growth & Income Portfolio"), a "master fund" that has
an investment objective identical to that of Growth & Income Fund.
Growth & Income Portfolio is a series of SR&F Base Trust ("Base
Trust"). Before converting to a feeder fund, Growth & Income Fund
invested its assets in a diversified group of securities. Under
the "master fund/feeder fund structure," a feeder fund and one or
more feeder funds pool their assets in a master portfolio that has
the same investment objective and substantially the same
investment policies as the feeder funds. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. The assets of Growth & Income Portfolio, Growth &
Income Fund's master fund, are managed by the Adviser in the same
manner as the assets of Growth & Income Fund were managed before
conversion to the master fund/feeder fund structure. (For more
information, see Special Considerations Regarding Master
Fund/Feeder Fund Structure.)
__________________________
INVESTMENT POLICIES
The investment objective of Growth & Income Fund is to provide
both growth of capital and current income. Growth & Income Fund
invests all of its net investable assets in Growth & Income
Portfolio, which has the same investment objective and
substantially the same investment policies as Growth & Income
Fund. It is designed for investors seeking a diversified
portfolio of securities that offers the opportunity for long-term
growth of capital while also providing a steady stream of income.
Growth & Income Portfolio invests primarily in well-established
companies whose common stocks are believed to have both the
potential to appreciate in value and to pay dividends to
shareholders.
Although it may invest in a broad range of securities (including
common stocks, preferred stocks, securities convertible into or
exchangeable for common stocks, and warrants or rights to purchase
common stocks), normally Growth & Income Portfolio emphasizes
investments in equity securities of companies having market
capitalizations in excess of $1 billion. Securities of these
well-established companies are believed to be generally less
volatile than those of companies with smaller capitalizations
because companies with larger capitalizations tend to have
experienced management; broad, highly diversified product lines;
deep resources; and easy access to credit.
Further information on portfolio investments and strategies may be
found under Portfolio Investments and Strategies in this
prospectus and in the Statement of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, Growth & Income Portfolio
may invest in debt securities of corporate and governmental
issuers. Investment in debt securities is limited to those that
are rated within the four highest grades (generally referred to as
investment grade). Securities in the fourth highest grade may
possess speculative characteristics, and changes in economic
conditions are more likely to affect the issuer's capacity to pay
interest and repay principal. If the rating of a security held by
Growth & Income Portfolio is lost or reduced below investment
grade, Growth & Income Portfolio is not required to dispose of the
security--the Adviser will, however, consider that fact in
determining whether Growth & Income Portfolio should continue to
hold the security. When the Adviser deems a temporary defensive
position advisable, Growth & Income Portfolio may invest, without
limitation, in high-quality fixed income securities, or hold
assets in cash or cash equivalents.
FOREIGN SECURITIES.
Growth & Income Portfolio may invest in foreign securities. Other
than American Depositary Receipts (ADRs), foreign debt securities
denominated in U.S. dollars, or securities guaranteed by a U.S.
person, Growth & Income Portfolio is limited to investing no more
than 25% of its total assets in foreign securities. (See Risks
and Investment Considerations.) Growth & Income Portfolio may
invest in sponsored and unsponsored ADRs. In addition to, or in
lieu of, such direct investment, Growth & Income Portfolio may
construct a synthetic foreign debt position by (a) purchasing a
debt instrument denominated in one currency, generally U.S.
dollars; and (b) concurrently entering into a forward contract to
deliver a corresponding amount of that currency in exchange for a
different currency on a future date and at a specified rate of
exchange. Because of the availability of a variety of highly
liquid U.S. dollar debt instruments, a synthetic foreign debt
position utilizing such U.S. dollar instruments may offer greater
liquidity than direct investment in foreign currency debt
instruments. In connection with the purchase of foreign
securities, Growth & Income Portfolio may contract to purchase an
amount of foreign currency sufficient to pay the purchase price of
the securities at the settlement date. Such a contract involves
the risk that the value of the foreign currency may decline
relative to the value of the dollar prior to the settlement date--
this risk is in addition to the risk that the value of the foreign
security purchased may decline. Growth & Income Portfolio also
may enter into foreign currency contracts as a hedging technique
to limit or reduce exposure to currency fluctuations. In
addition, Growth & Income Portfolio may use options and futures
contracts, as described below, to limit or reduce exposure to
currency fluctuations. As of September 30, 1996, Growth & Income
Fund's holdings of foreign companies, as a percentage of net
assets, were 3.2% (0.7% in foreign securities and 2.5% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
Growth & Income Portfolio may invest in securities purchased on a
when-issued or delayed-delivery basis. Although the payment terms
of these securities are established at the time Growth & Income
Portfolio enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. Growth & Income Portfolio will
make such commitments only with the intention of actually
acquiring the securities, but may sell the securities before
settlement date if it is deemed advisable for investment reasons.
Growth & Income Portfolio may make loans of its portfolio
securities to broker-dealers and banks subject to certain
restrictions described in the Statement of Additional Information.
It may participate in an interfund lending program, subject to
certain restrictions described in the Statement of Additional
Information.
PORTFOLIO TURNOVER
Although Growth & Income Portfolio does not purchase securities
with a view to rapid turnover, there are no limitations on the
length of time portfolio securities must be held. The turnover
rate may vary significantly from year to year. A high rate of
portfolio turnover may result in increased transaction expenses
and the realization of capital gains and losses. (See
Distributions and Income Taxes and Financial Highlights.)
DERIVATIVES.
Consistent with its objective, Growth & Income Portfolio may
invest in a broad array of financial instruments and securities,
including conventional exchange-traded and non-exchange-traded
options, futures contracts, futures options, securities
collateralized by underlying pools of mortgages or other
receivables, floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each case,
the value of the instrument or security is "derived" from the
performance of an underlying asset or a "benchmark" such as a
security index, an interest rate, or a currency. Growth & Income
Portfolio does not expect to invest more than 5% of its net assets
in any type of Derivative except for options, futures contracts,
and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, Growth & Income
Portfolio may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2) enter
into interest rate, index and foreign currency futures contracts;
(3) write options on such futures contracts; and (4) purchase
other types of forward or investment contracts linked to
individual securities, indexes or other benchmarks. Growth &
Income Portfolio may write a call or put option only if the option
is covered. As the writer of a covered call option, Growth &
Income Portfolio foregoes, during the option's life, the
opportunity to profit from increases in market value of the
security covering the call option above the sum of the premium and
the exercise price of the call. There can be no assurance that a
liquid market will exist when Growth & Income Portfolio seeks to
close out a position. In addition, because futures positions may
require low margin deposits, the use of futures contracts involves
a high degree of leverage and may result in losses in excess of
the amount of the margin deposit.
SHORT SALES AGAINST THE BOX.
Growth & Income Portfolio 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 & Income Portfolio against the risk of
losses in the value of its portfolio securities because any
unrealized losses with respect to such securities should be wholly
or partly offset by a corresponding gain in the short position.
However, any potential gains in such securities should be wholly
or partially offset by a corresponding loss in the short position.
Short sales against the box may be used to lock in a profit on a
security when, for tax reasons or otherwise, the Adviser does not
want to sell the security. For a more complete explanation,
please refer to the Statement of Additional Information.
__________________________
INVESTMENT RESTRICTIONS
Neither Growth & Income Fund nor Growth & Income Portfolio will
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 & Income Fund from investing 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
& Income Portfolio in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a specified
time. In the event of bankruptcy of the seller, Growth & Income
Portfolio could experience both losses and delays in liquidating
its collateral.
- -----------------
Neither Growth & Income Fund nor Growth & Income Portfolio will
acquire more than 10% of the outstanding voting securities of any
one issuer. Growth & Income Fund may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
Neither Growth & Income Fund nor Growth & Income Portfolio may
make loans except that each may (1) purchase money market
instruments and enter into repurchase agreements; (2) acquire
publicly-distributed or privately-placed debt securities; (3) lend
its portfolio securities under certain conditions; and (4)
participate in an interfund lending program with other Stein Roe
Funds and Portfolios. Neither may borrow money, except for non-
leveraging, 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 & Income Fund and Growth & Income Portfolio may invest in
repurchase agreements, provided that neither will 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 common investment objective of Growth &
Income Fund and Growth & Income Portfolio is non-fundamental and,
as such, may be changed by the Board of Trustees without
shareholder approval, subject, however, to at least 30 days'
advance written notice to Growth & Income Fund's shareholders.
Any such change may result in Growth & Income Fund having an
investment objective different from the objective the shareholder
considered appropriate at the time of investment in Growth &
Income Fund. All of the investment restrictions are set forth in
the Statement of Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Growth & Income Fund is
designed for long-term investors who desire to participate in the
stock market with moderate investment risk while seeking to limit
market volatility. Growth & Income Portfolio usually allocates
its investments among a number of different industries rather than
concentrating in a particular industry or group of industries. It
may, however, under abnormal circumstances, invest up to 25% of
net assets in a particular industry or group of industries. There
can be no guarantee that Growth & Income Fund will achieve its
objective.
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers, different accounting, auditing and
financial reporting standards, different settlement practices,
less market liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition of
exchange controls and withholding taxes on dividends, and seizure
or nationalization of investments owned by non-residents. Foreign
investments also tend to involve higher transaction and custody
costs.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of Growth & Income Fund through your employer or
limitations on the amount that may be purchased, please consult
your employer. Shares are sold to eligible defined contribution
plans at Growth & Income Fund's net asset value (see Net Asset
Value) next determined after receipt of an order in good form,
including receipt of payment by Growth & Income Fund. Each
purchase of Growth & Income Fund shares through a broker-dealer,
bank, or other intermediary ("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.
Each purchase order for Growth & Income 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
Growth & Income 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 interest
of Investment Trust or of Growth & Income Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed
quarterly. All other purchases and redemptions will be confirmed
as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Growth &
Income Fund shares may be redeemed any day the New York Stock
Exchange is open. For more information about how to redeem your
shares of Growth & Income Fund through your employer's plan,
including any charges that may be imposed by the plan, please
consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Growth & Income Fund shares and use the proceeds
to purchase shares of any other Stein Roe Fund available through
your employer's defined contribution plan. (An exchange is
commonly referred to as a "transfer.") Before exercising the
Exchange Privilege, you should obtain the prospectus for the Stein
Roe Fund in which you wish to invest and read it carefully.
Contact your plan administrator for instructions on how to
exchange your shares or to obtain prospectuses of other Stein Roe
Funds available through your plan. Growth & Income Fund reserves
the right to suspend, limit, modify, or terminate the Exchange
Privilege or its use in any manner by any person or class;
shareholders would be notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by Investment Trust. Investment
Trust cannot accept a redemption request that specifies a
particular date or price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon Growth & Income Fund's
net asset value per share at the time of redemption, it may be
more or less than the price you originally paid for the shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of Growth & Income Fund's shares
is its net asset value per share. The net asset value of a share
of Growth & Income Fund is determined as of the close of trading
on the New York Stock Exchange (currently 3:00 p.m., central time)
by dividing the difference between the values of its assets and
liabilities by the number of shares outstanding. Net asset value
will not be determined on days when the Exchange is closed unless,
in the judgment of the Board of Trustees, the net asset value
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., central time. Growth &
Income Portfolio allocates net asset value, income, and expenses
to Growth & Income Fund and any other of its feeder funds in
proportion to their respective interests in Growth & Income
Portfolio.
Each security traded on a national stock exchange is valued at its
last sale price on that exchange on the day of valuation or, if
there are no sales that day, at the latest bid quotation. Each
over-the-counter security for which the last sale price on the day
of valuation is available from NASDAQ is valued at that price.
All other over-the-counter securities for which reliable
quotations are available are valued at the latest bid quotation.
Long-term straight-debt obligations and securities convertible
into stocks are valued at a fair value using a procedure
determined in good faith by the Board of Trustees. Pricing
services approved by the Board provide valuations (some of which
may be "readily available market quotations"). These valuations
are reviewed by the Adviser. If the Adviser believes that a
valuation received from the service does not represent a fair
value, it values the obligation using a method that the Board
believes represents fair value. The Board may approve the use of
other pricing services and any pricing service used may employ
electronic data processing techniques, including a so-called
"matrix" system, to determine valuations. Other assets and
securities are valued by a method that the Board believes
represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid each calendar
quarter. However, because Growth & Income Fund is required to
distribute at least 98% of its net investment income by the end of
the calendar year, an additional dividend may be declared near
year end. Growth & Income Fund intends to distribute by the end
of each calendar year at least 98% of any net capital gains
realized from the sale of securities during the twelve-month
period ended October 31 in that year. Growth & Income Fund
intends to distribute any undistributed net investment income and
net realized capital gains in the following year.
The terms of your plan will govern how you may receive
distributions from Growth & Income Fund. Generally, dividend and
capital gains distributions will be reinvested in additional
shares of Growth & Income Fund.
INCOME TAXES.
Growth & Income Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal
taxes on income and gain it distributes. Growth & Income Fund
will distribute substantially all of its ordinary income and net
capital gains on a current basis. Generally, Growth & Income Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by Growth & Income Fund to employer-
sponsored defined contribution plans that qualify for tax-exempt
treatment under federal income tax laws will not be taxable.
Special tax rules apply to investments through such plans. You
should consult your tax advisor to determine the suitability of
Growth & Income Fund as an investment through such a plan and the
tax treatment of distributions (including distributions of amounts
attributable through an investment in Growth & Income Fund) from
such a plan. This section is not intended to be a full discussion
of income tax laws and their effect on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in Growth & Income 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 & Income Fund's total return with alternative
investments should consider differences between Growth & Income
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. Growth & Income Fund's total
return does not reflect any charges or expenses related to your
employer's plan. Of course, past performance is not necessarily
indicative of future results.
__________________________
MANAGEMENT
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of Investment Trust and the Board of Base
Trust have overall management responsibility for Growth & Income
Fund and Growth & Income Portfolio, respectively. See the
Statement of Additional Information for the names of and
additional information about the trustees and officers. Since
Investment Trust and Base Trust have the same trustees, the
trustees have adopted conflict of interest procedures to monitor
and address potential conflicts between the interests of Growth &
Income Fund and Growth & Income Portfolio.
The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing Growth
& Income Fund and Growth & Income Portfolio, subject to the
direction of the respective Board of Trustees. The Adviser is
registered as an investment adviser under the Investment Advisers
Act of 1940. The Adviser was organized in 1986 to succeed to the
business of Stein Roe & Farnham, a partnership that had advised
and managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Financial Companies, Inc.
("Liberty Financial"), which in turn is a majority owned indirect
subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
Daniel K. Cantor has been portfolio managers of Growth & Income
Portfolio since its inception in 1997. He had been portfolio
manager of Growth & Income Fund since 1995. Mr. Cantor is a
senior vice president of the Adviser, which he joined in 1985. A
chartered financial analyst, he received a B.A. degree from the
University of Rochester (1981) and an M.B.A. from the Wharton
School of the University of Pennsylvania (1985). As of December
31, 1996, Mr. Cantor was responsible for managing $241 million in
mutual fund net assets. Jeffrey C. Kinzel is associate portfolio
manager. Mr. Kinzel received a B.A. from Northwestern University
(1979), a J.D. from the University of Michigan Law School (1983),
and an M.B.A. from the Wharton School of the University of
Pennsylvania (1991). Mr. Kinzel is a vice president and
intermediate research analyst with the Adviser. Before joining
the Adviser in 1991 as an equity research analyst, Mr. Kinzel was
employed by the law firm of Butler and Binion; the law firm of
Miller, Canfield, Paddock and Stone; and 1838 Investment Advisers.
FEES AND EXPENSES.
In return for its services, the Adviser is entitled to receive a
management fee from Growth & Income Portfolio based on an annual
rate of 60% of the first $500 million of average net assets, .55%
of the next $500 million, and .50% thereafter; and an
administrative fee from Growth & Income Fund based on an annual
rate of .15% of the first $500 million, .125% of the next $500
million, and .10% thereafter. Prior to conversion to the master
fund/feeder fund structure on February 3, 1997, the management fee
was paid by Growth & Income Fund. For the year ended September
30, 1996, the fees for Growth & Income Fund amounted to 1.18% of
average net assets.
Under a separate agreement with each Trust, the Adviser provides
certain accounting and bookkeeping services to Growth & Income
Fund and Growth & Income Portfolio, 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.
DISTRIBUTOR.
The shares of Growth & Income Fund are offered for sale through
Liberty Securities Corporation ("Distributor") without any sales
commissions or charges to Growth & Income 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 Growth
& Income Fund correspondence (including purchase and redemption
orders) should be mailed to SteinRoe Services Inc. at P.O. Box
8900, Boston, Massachusetts 02205. 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 &
Income Fund and Growth & Income Portfolio. Foreign securities are
maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
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, nine 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 is also believed to be remote, because it would be limited
to claims to which the disclaimer did not apply and to
circumstances in which the other series was unable to meet its
obligations.
__________________________
SPECIAL CONSIDERATIONS REGARDING
MASTER FUND/FEEDER FUND STRUCTURE
Commencing February 3, 1997, Growth & Income Fund, which is an
open-end management investment company, seeks to achieve its
objective by investing all of its assets in shares of another
mutual fund having an investment objective identical to that of
Growth & Income Fund. The shareholders of Growth & Income Fund
approved this policy of permitting Growth & Income Fund to act as
a feeder fund by investing in Growth & Income Portfolio. Please
refer to Investment Policies, Portfolio Investments and
Strategies, and Investment Restrictions for a description of the
investment objectives, policies, and restrictions of Growth &
Income Fund and Growth & Income Portfolio. The management fees
and expenses of Growth & Income Fund and Growth & Income Portfolio
are described under the Fee Table and Management. Growth & Income
Fund bears its proportionate share of Growth & Income Portfolio's
expenses.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
Growth & Income Portfolio is a separate series of SR&F Base Trust
("Base Trust"), a Massachusetts common law trust organized under
an Agreement and Declaration of Trust ("Declaration of Trust")
dated August 23, 1993. The Declaration of Trust of Base Trust
provides that Growth & Income Fund and other investors in Growth &
Income Portfolio will be liable for all obligations of Growth &
Income Portfolio that are not satisfied by Growth & Income
Portfolio. However, the risk of Growth & Income Fund incurring
financial loss on account of such liability is limited to
circumstances in which liability was inadequately insured and
Growth & Income Portfolio was unable to meet its obligations.
Accordingly, the Trustees of Investment Trust believe that neither
Growth & Income Fund nor its shareholders will be adversely
affected by reason of Growth & Income Fund's investing in Growth &
Income Portfolio.
The Declaration of Trust of Base Trust provides that Growth &
Income Portfolio will terminate 120 days after the withdrawal of
Growth & Income Fund or any other investor in Growth & Income
Portfolio, unless the remaining investors vote to agree to
continue the business of Growth & Income Portfolio. The Trustees
of Investment Trust may vote Growth & Income Fund's interests in
Growth & Income Portfolio for such continuation without approval
of Growth & Income Fund's shareholders.
The common investment objective of Growth & Income Fund and Growth
& Income Portfolio is non-fundamental and may be changed without
shareholder approval, subject, however, to at least 30 days'
advance written notice to Growth & Income Fund's shareholders.
The fundamental policies of Growth & Income Fund and the
corresponding fundamental policies of Growth & Income Portfolio
can be changed only with shareholder approval. If Growth & Income
Fund, as a Portfolio investor, is requested to vote on a change in
a fundamental policy of Growth & Income Portfolio or any other
matter pertaining to Growth & Income Portfolio (other than
continuation of the business of Growth & Income Portfolio after
withdrawal of another investor), Growth & Income Fund will solicit
proxies from its shareholders and vote its interest in Growth &
Income Portfolio for and against such matters proportionately to
the instructions to vote for and against such matters received
from Fund shareholders. Growth & Income Fund will vote shares for
which it receives no voting instructions in the same proportion as
the shares for which it receives voting instructions. If there
are other investors in Growth & Income Portfolio, there can be no
assurance that any matter receiving a majority of votes cast by
Fund shareholders will receive a majority of votes cast by all
investors. If other investors hold a majority interest in Growth
& Income Portfolio, they could have voting control over Growth &
Income Portfolio.
In the event that Growth & Income Portfolio's fundamental policies
were changed so as to be inconsistent with those of Growth &
Income Fund, the Board of Trustees of Investment Trust would
consider what action might be taken, including changes to Growth &
Income Fund's fundamental policies, withdrawal of Growth & Income
Fund's assets from Growth & Income Portfolio and investment of
such assets in another pooled investment entity, or the retention
of an investment adviser to invest those assets directly in a
portfolio of securities. Any of these actions would require the
approval of Growth & Income Fund's shareholders. Growth & Income
Fund's inability to find a substitute master fund or comparable
investment management could have a significant impact upon its
shareholders' investments. Any withdrawal of Growth & Income
Fund's assets could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution) to Growth & Income
Fund. Should such a distribution occur, Growth & Income Fund
would incur brokerage fees or other transaction costs in
converting such securities to cash. In addition, a distribution
in kind could result in a less diversified portfolio of
investments for Growth & Income Fund and could affect the
liquidity of Growth & Income Fund.
Each investor in Growth & Income Portfolio, including Growth &
Income Fund, may add to or reduce its investment in Growth &
Income Portfolio on each day the NYSE is open for business. The
investor's percentage of the aggregate interests in Growth &
Income Portfolio will be computed as the percentage equal to the
fraction (i) the numerator of which is the beginning of the day
value of such investor's investment in Growth & Income Portfolio
on such day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investor's investment in
Growth & Income Portfolio effected on such day; and (ii) the
denominator of which is the aggregate beginning of the day net
asset value of Growth & Income Portfolio on such day plus or
minus, as the case may be, the amount of the net additions to or
withdrawals from the aggregate investments in Growth & Income
Portfolio by all investors in Growth & Income Portfolio. The
percentage so determined will then be applied to determine the
value of the investor's interest in Growth & Income Portfolio as
of the close of business.
Base Trust may permit other investment companies and/or other
institutional investors to invest in Growth & Income Portfolio,
but members of the general public may not invest directly in
Growth & Income Portfolio. Other investors in Growth & Income
Portfolio are not required to sell their shares at the same public
offering price as Growth & Income Fund, might incur different
administrative fees and expenses than Growth & Income Fund, and
might charge a sales commission. Therefore, Growth & Income Fund
shareholders might have different investment returns than
shareholders in another investment company that invests
exclusively in Growth & Income Portfolio. Investment by such
other investors in Growth & Income Portfolio would provide funds
for the purchase of additional portfolio securities and would tend
to reduce the operating expenses as a percentage of Growth &
Income Portfolio's net assets. Conversely, large-scale
redemptions by any such other investors in Growth & Income
Portfolio could result in untimely liquidations of Growth & Income
Portfolio's security holdings, loss of investment flexibility, and
increases in the operating expenses of Growth & Income Portfolio
as a percentage of Growth & Income Portfolio's net assets. As a
result, Growth & Income Portfolio's security holdings may become
less diverse, resulting in increased risk.
Information regarding other investors in Growth & Income Portfolio
may be obtained by writing to SR&F Base Trust at Suite 3200, One
South Wacker Drive, Chicago, IL 60606, or by calling 800-338-2550.
The Adviser may provide administrative or other services to one or
more of such investors.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about Growth & Income Fund.
________________
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE INTERNATIONAL FUND
The investment objective of International Fund is to provide long-
term growth of capital. International Fund invests all of its net
investable assets in shares of SR&F International Portfolio, which
has the same investment objective and substantially the same
investment policies as International Fund. (See Special
Considerations Regarding Master Fund/Feeder Fund Structure.)
International Portfolio invests in a diversified portfolio of
foreign securities.
This prospectus relates only to shares of International Fund
purchased through eligible employer-sponsored defined contribution
plans ("defined contribution plans").
International Fund is a "no-load" fund. There are no sales or
redemption charges, and International Fund has no 12b-1 plan.
International Fund is a series of the Stein Roe Investment Trust
and International Portfolio is a series of SR&F Base Trust. Each
Trust is a diversified open-end management investment company.
This prospectus contains information you should know before
investing in International Fund. Please read it carefully and
retain it for future reference.
A Statement of Additional Information dated February 3, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the Stein
Roe Mutual Funds at Suite 3200, One South Wacker Drive, Chicago,
IL 60606 or by calling 800-322-1130. The Statement of Additional
Information contains information relating to other series of the
Stein Roe Investment Trust that may not be available as investment
vehicles for your defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 3, 1997
TABLE OF CONTENTS
Page
Fee Table ..............................2
Financial Highlights....................2
The Fund................................3
Investment Policies.....................4
Portfolio Investments and Strategies....4
Investment Restrictions ................7
Risks and Investment Considerations ....8
How to Purchase Shares .................9
How to Redeem Shares ...................9
Net Asset Value ........................9
Distributions and Income Taxes.........10
Investment Return......................11
Management.............................11
Organization and Description of Shares.12
Special Considerations Relating to the
Master Fund/Feeder Fund Structure....13
For More Information...................14
<PAGE>
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (as a
percentage of average net assets)
Management and Administrative Fees 1.00%
12b-1 Fees None
Other Expenses 0.51%
-----
Total Operating Expenses 1.51%
=====
EXAMPLE. You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return; and (2) redemption at
the end of each time period:
1 year 3 years 5 years 10 years
------ ------- ------- ---------
$15 $48 $82 $180
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 International Fund. The information
in the table is based upon actual expenses incurred in the last
fiscal year.
International Fund pays the Adviser an administrative fee based on
the Fund's average daily net assets, and International Portfolio
pays the Adviser a management fee based on its average daily net
assets. The expenses of both International Fund and International
Portfolio are summarized in the Fee Table. (The fees are
described under Management.) International Fund bears its
proportionate share of Portfolio expenses. The trustees of
Investment Trust have considered whether the annual operating
expenses of International Fund, including its share of the
expenses of International Portfolio, would be more or less than if
International Fund invested directly in the securities held by
International Portfolio, and concluded that International Fund's
expenses would not be greater in such case.
For purposes of the Example above, the figures assume that the
percentage amounts listed for International Fund under Annual Fund
Operating Expenses remain the same in each of the periods and that
all income dividends and capital gain distributions are reinvested
in additional International Fund shares. The figures in the
Example are not necessarily indicative of past or future expenses,
and actual expenses may be greater or less than those shown.
Although information such as that shown in the Example and Fee
Table is useful in reviewing International Fund's expenses and in
providing a basis for comparison with other mutual funds, it
should not be used for comparison with other investments using
different assumptions or time periods. The example does not
reflect any charges or expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of
International Fund for the periods shown on a per-share basis and
has been audited by Arthur Andersen LLP, independent public
accountants. This table should be read in conjunction with
International Fund's financial statements and notes thereto.
International Fund's annual report, which may be obtained from
Investment Trust without charge upon request, contains additional
performance information.
Period Ended Years Ended
Sept. 30, September 30,
1994 (a) 1995 1996
---------- ------ ------
Net Asset Value, Beginning of Period.... $10.00 $10.61 $10.25
------ ------ ------
Income from Investment Operations
Net investment income..................... 0.03 0.12 0.09
Net realized and unrealized gains
(losses) on investments and
foreign currency transactions............ 0.58 (0.26) 0.74
------ ------ ------
Total from investment operations......... 0.61 (0.14) 0.83
------ ------ ------
Distributions
Net investment income..................... -- (0.05) (0.12)
Net realized capital gains................ -- (0.17) --
------ ------ ------
Total distributions....................... -- (0.22) (0.12)
------ ------ ------
Net Asset Value, End of Period.......... $10.61 $10.25 $10.96
====== ====== ======
Ratio of net expenses to average
net assets............................. *1.61% 1.59% 1.51%
Ratio of net investment income to
average net assets..................... *0.61% 1.41% 1.01%
Portfolio turnover rate.................. 48% 59% 42%
Average commissions (per share).......... -- -- $0.0010
Total return............................. 6.10% (1.28%) 8.23%
Net assets, end of period (000 omitted).$74,817 $83,020 $135,545
- --------------
*Annualized.
(a) From commencement of operations on March 1, 1994.
_________________________
THE FUND
STEIN ROE INTERNATIONAL FUND ("International 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. International Fund
does not impose commissions or charges when shares are purchased
or redeemed.
International 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
investment management, administrative, and bookkeeping and
accounting services to International Fund and International
Portfolio. The Adviser also manages 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 opening a regular account in any of these mutual funds, please
call 800-338-2550.
On February 3, 1997, International Fund became a "feeder fund"--
that is, it invested all of its assets in SR&F International
Portfolio ("International Portfolio"), a "master fund" that has an
investment objective identical to that of International Fund.
International Portfolio is a series of SR&F Base Trust ("Base
Trust"). Before converting to a feeder fund, International Fund
invested its assets in a diversified group of securities. Under
the "master fund/feeder fund structure," a feeder fund and one or
more feeder funds pool their assets in a master portfolio that has
the same investment objective and substantially the same
investment policies as the feeder funds . The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. The assets of International Portfolio,
International Fund's master fund, are managed by the Adviser in
the same manner as the assets of International Fund were managed
before conversion to the master fund/feeder fund structure. (For
more information, see Special Considerations Regarding Master
Fund/Feeder Fund Structure.)
__________________________
INVESTMENT POLICIES
The investment objective of International Fund is to seek long-
term growth of capital by investing primarily in a diversified
portfolio of foreign securities. International Fund invests all
of its net investable assets in International Portfolio, which has
the same investment objective and substantially the same
investment policies as International Fund. Current income is not
a primary factor in the selection of portfolio securities.
International Portfolio invests primarily in common stocks and
other equity-type securities (such as preferred stocks, securities
convertible or exchangeable for common stocks, and warrants or
rights to purchase common stocks). International Portfolio may
invest in securities of smaller emerging companies as well as
securities of well-seasoned companies of any size. Smaller
companies, however, involve higher risks in that they typically
have limited product lines, markets, and financial or management
resources. In addition, the securities of smaller companies may
trade less frequently and have greater price fluctuation than
larger companies, particularly those operating in countries with
developing markets.
International Portfolio diversifies its investments among several
countries and does not concentrate investments in any particular
industry. In pursuing its objective, International Portfolio
varies the geographic allocation and types of securities in which
it invests based on the Adviser's continuing evaluation of
economic, market, and political trends throughout the world.
While International Portfolio has not established limits on
geographic asset distribution, it ordinarily invests in the
securities markets of at least three countries outside the United
States, including but not limited to Western European countries
(such as Belgium, France, Germany, Ireland, Italy, The
Netherlands, the countries of Scandinavia, Spain, Switzerland, and
the United Kingdom); countries in the Pacific Basin (such as
Australia, Hong Kong, Japan, Malaysia, the Philippines, Singapore,
and Thailand); and countries in the Americas (such as Argentina,
Brazil, Colombia, and Mexico). In addition, it does not currently
intend to invest more than 2% of its total assets in Russian
securities.
Under normal market conditions, International Portfolio will
invest at least 65% of its total assets (taken at market value) in
foreign securities. If, however, investments in foreign
securities appear to be relatively unattractive in the judgment of
the Adviser because of current or anticipated adverse political or
economic conditions, International Portfolio may hold cash or
invest any portion of its assets in securities of the U.S.
Government and equity and debt securities of U.S. companies, as a
temporary defensive strategy. To meet liquidity needs,
International Portfolio may also hold cash in domestic and foreign
currencies and invest in domestic and foreign money market
securities (including repurchase agreements and foreign money
market positions).
In the past, the U.S. Government has from time to time imposed
restrictions, through taxation and otherwise, on foreign
investments by U.S. investors such as International Portfolio. If
such restrictions should be reinstated, it might become necessary
for International Portfolio to invest all or substantially all of
its assets in U.S. securities. In such an event, International
Portfolio would review its investment objective and policies to
determine whether changes are appropriate.
International Portfolio may purchase foreign securities in the
form of American Depositary Receipts (ADRs), European Depositary
Receipts (EDRs), or other securities representing underlying
shares of foreign issuers. International Portfolio may invest in
sponsored or unsponsored ADRs. (For a description of ADRs and
EDRs, see the Statement of Additional Information.)
Further information on portfolio investments and strategies may be
found under Portfolio Investments and Strategies in this
prospectus and in the Statement of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DERIVATIVES.
Consistent with its objective, International Portfolio may invest
in a broad array of financial instruments and securities,
including conventional exchange-traded and non-exchange-traded
options, futures contracts, futures options, forward contracts,
securities collateralized by underlying pools of mortgages or
other receivables, floating rate instruments, and other
instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument or
security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, an interest rate, or a
currency. International Portfolio does not expect to invest more
than 5% of its net assets in any type of Derivative except for
options, futures contracts, futures options, and forward
contracts.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in currency exchange rates, security prices, interest
rates and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as well
regulated and may be less marketable than exchange-traded
Derivatives. For additional information on Derivatives, please
refer to the Statement of Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, International
Portfolio may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2) enter
into interest rate, index and foreign currency futures contracts;
(3) write options on such futures contracts; and (4) purchase
other types of forward or investment contracts linked to
individual securities, indexes, or other benchmarks.
International Portfolio may write a call or put option only if the
option is covered. As the writer of a covered call option,
International Portfolio foregoes, during the option's life, the
opportunity to profit from increases in market value of the
security covering the call option above the sum of the premium and
the exercise price of the call. There can be no assurance that a
liquid market will exist when International Portfolio seeks to
close out a position. In addition, because futures positions may
require low margin deposits, the use of futures contracts involves
a high degree of leverage and may result in losses in excess of
the amount of the margin deposit.
DEBT SECURITIES.
In pursuing its investment objective, International Portfolio may
invest up to 35% of its total assets in debt securities.
Investments in debt securities are limited to those that are rated
within the four highest grades (generally referred to as
"investment grade") assigned by a nationally recognized
statistical rating organization. Investments in unrated debt
securities are limited to those deemed to be of comparable quality
by the Adviser. Securities in the fourth highest grade may
possess speculative characteristics. If the rating of a security
held by International Portfolio is lost or reduced below
investment grade, International Portfolio is not required to
dispose of the security--the Adviser will, however, consider that
fact in determining whether International Portfolio should
continue to hold the security.
SETTLEMENT TRANSACTIONS.
When International Portfolio enters into a contract for the
purchase or sale of a foreign portfolio security, it usually is
required to settle the purchase transaction in the relevant
foreign currency or receive the proceeds of the sale in that
currency. In either event, International Portfolio is obliged to
acquire or dispose of an appropriate amount of foreign currency by
selling or buying an equivalent amount of U.S. dollars. At or
near the time of the purchase or sale of the foreign portfolio
security, International Portfolio may wish to lock in the U.S.
dollar value of a transaction at the exchange rate or rates then
prevailing between the U.S. dollar and the currency in which the
security is denominated. Known as "transaction hedging," this may
be accomplished by purchasing or selling such foreign securities
on a "spot," or cash, basis. Transaction hedging also may be
accomplished on a forward basis, whereby International Portfolio
purchases or sells a specific amount of foreign currency, at a
price set at the time of the contract, for receipt or delivery at
either a specified date or at any time within a specified time
period. In so doing, International Portfolio will attempt to
insulate itself against possible losses and gains resulting from a
change in the relationship between the U.S. dollar and the foreign
currency during the period between the date the security is
purchased or sold and the date on which payment is made or
received. Similar transactions may be entered into by using other
currencies if International Portfolio seeks to move investments
denominated in one currency to investments denominated in another.
CURRENCY HEDGING.
Most of the portfolio will be invested in foreign securities. As
a result, in addition to the risk of change in the market value of
portfolio securities, the value of the portfolio in U.S. dollars
is subject to fluctuations in the exchange rate between the
foreign currencies and the U.S. dollar. When, in the opinion of
the Adviser, it is desirable to limit or reduce exposure in a
foreign currency to moderate potential changes in the U.S. dollar
value of the portfolio, International Portfolio may enter into a
forward currency exchange contract to sell or buy such foreign
currency (or another foreign currency that acts as a proxy for
that currency)--through the contract, the U.S. dollar value of
certain underlying foreign portfolio securities can be
approximately matched by an equivalent U.S. dollar liability.
This technique is known as "currency hedging." By locking in a
rate of exchange, currency hedging is intended to moderate or
reduce the risk of change in the U.S. dollar value of
International Portfolio's portfolio only during the period of the
forward contract. Forward contracts usually are entered into with
banks and broker-dealers; are not exchange traded; and although
they are usually less than one year, may be renewed. A default on
the contract would deprive International Portfolio of unrealized
profits or force it to cover its commitments for purchase or sale
of currency, if any, at the current market price.
Neither type of foreign currency transaction will eliminate
fluctuations in the prices of International Portfolio's portfolio
securities or prevent loss if the price of such securities should
decline. In addition, such forward currency exchange contracts
will diminish the benefit of the appreciation in the U.S. dollar
value of that foreign currency. (For further information on
forward foreign currency exchange transactions, see the Statement
of Additional Information.)
OTHER TECHNIQUES.
International Portfolio may invest in securities purchased on a
when-issued or delayed-delivery basis. Although the payment terms
of these securities are established at the time International
Portfolio enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. International Portfolio will
make such commitments only with the intention of actually
acquiring the securities, but may sell the securities before
settlement date if it is deemed advisable for investment reasons.
International Portfolio may utilize spot and forward foreign
exchange transactions to reduce the risk caused by exchange rate
fluctuations between one currency and another when securities are
purchased or sold on a when-issued basis. It may also invest in
synthetic money market instruments. International Portfolio may
invest in repurchase agreements, provided that it will not invest
more than 15% of its net assets in repurchase agreements maturing
in more than seven days and any other illiquid securities. (See
the Statement of Additional Information.) It may participate in
an interfund lending program, subject to certain restrictions
described in the Statement of Additional Information.
SHORT SALES AGAINST THE BOX.
International Portfolio 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 International Portfolio against the risk of losses
in the value of its portfolio securities because any unrealized
losses with respect to such securities should be wholly or partly
offset by a corresponding gain in the short position. However,
any potential gains in such securities should be wholly or
partially offset by a corresponding loss in the short position.
Short sales against the box may be used to lock in a profit on a
security when, for tax reasons or otherwise, the Adviser does not
want to sell the security. For a more complete explanation,
please refer to the Statement of Additional Information.
PORTFOLIO TURNOVER.
Although International Portfolio does not purchase securities with
a view to rapid turnover, there are no limitations on the length
of time portfolio securities must be held. Accordingly, the
portfolio turnover rate may vary significantly from year to year,
but is not expected to exceed 100% under normal market conditions.
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.)
International Fund is not intended to be an income-producing
investment.
__________________________
INVESTMENT RESTRICTIONS
Neither International Fund nor International Portfolio will 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 International Fund from investing 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
International Portfolio in which the seller agrees to repurchase
the securities at a higher price, which includes an amount
representing interest on the purchase price, within a specified
time. In the event of bankruptcy of the seller, International
Portfolio could experience both losses and delays in liquidating
its collateral.
- -----------------------
Neither International Fund nor International Portfolio will
acquire more than 10% of the outstanding voting securities of any
one issuer. International Fund may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
Neither International Fund nor International Portfolio may make
loans except that each may (1) purchase money market instruments
and enter into repurchase agreements; (2) acquire publicly-
distributed or privately-placed debt securities; (3) lend its
portfolio securities under certain conditions; and (4) participate
in an interfund lending program with other Stein Roe Funds and
Portfolios. Neither may borrow money, except for non-leveraging,
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.
International Fund and International Portfolio may invest in
repurchase agreements, provided that neither will 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 of this
section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" as defined in the Investment
Company Act of 1940. The common investment objective of
International Fund and International Portfolio is non-fundamental
and, as such, may be changed by the Board of Trustees without
shareholder approval, subject, however, to at least 30 days'
advance written notice to International Fund's shareholders. Any
such change may result in International Fund having an investment
objective different from the objective the shareholder considered
appropriate at the time of investment in International Fund. All
of the investment restrictions are set forth in the Statement of
Additional Information.
Nothing in the investment restrictions outlined here shall be
deemed to prohibit International Portfolio from purchasing the
securities of any issuer pursuant to the exercise of subscription
rights distributed to International Fund by the issuer. No such
purchase may be made if, as a result, International Fund or
International Portfolio will no longer be a diversified investment
company as defined in the Investment Company Act of 1940 or would
fail to meet the diversification requirements of the Internal
Revenue Code.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. International Fund is
intended for long-term investors who can accept the risks entailed
in investing in foreign securities. Of course, there can be no
guarantee that International Fund will achieve its objective.
Although International Portfolio does not attempt to reduce or
limit risk through wide industry diversification of investment, it
usually allocates its investments among a number of different
industries rather than concentrating in a particular industry or
group of industries. International Portfolio will, however, not
invest more than 25% of its total assets (at the time of
investment) in the securities of companies in any one industry.
FOREIGN INVESTING.
International Fund provides long-term investors with an
opportunity to invest a portion of their assets in a diversified
portfolio of foreign securities. Non-U.S. investments may be
attractive because they increase diversification, as compared to a
portfolio comprised solely of U.S. investments. In addition, many
foreign economies have, from time to time, grown faster than the
U.S. economy, and the returns on investments in these countries
have exceeded those of similar U.S. investments--there can be no
assurance, however, that these conditions will continue.
International diversification also allows International Fund and
an investor to take advantage of changes in foreign economies and
market conditions.
Investors should understand and consider carefully the greater
risks involved in foreign investing. Investing in foreign
securities--positions which are generally denominated in foreign
currencies--and utilization of forward foreign currency exchange
contracts involve certain considerations comprising both risks and
opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulations or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and issuers of securities; lack of uniform accounting, auditing,
and financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment
in the securities of companies in developing as well as developed
countries; and sometimes less advantageous legal, operational, and
financial protections applicable to foreign sub-custodial
arrangements. These risks are greater for emerging markets.
Although International Portfolio will try to invest in companies
and governments of countries having stable political environments,
there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of
foreign government restrictions, and other adverse political,
social or diplomatic developments that could adversely affect
investment in these nations.
The price of securities of small, rapidly growing companies is
expected to fluctuate more widely than the general market due to
the difficulty in assessing financial prospects of companies
developing new products or operating in countries with developing
markets.
The strategy for selecting investments will be based on various
criteria. A company proposed for investment should have a good
market position in a fast-growing segment of the economy, strong
management, preferably a leading position in its business,
prospects of superior financial returns, ability to self-finance,
and securities available for purchase at a reasonable market
valuation. Because of the foreign domicile of such companies,
however, information on some of the above factors may be
difficult, if not impossible, to obtain.
To the extent portfolio securities are issued by foreign issuers
or denominated in foreign currencies, investment performance is
affected by the strength or weakness of the U.S. dollar against
these currencies. If the dollar falls relative to the Japanese
yen, for example, the dollar value of a yen-denominated stock held
in the portfolio will rise even though the price of the stock
remains unchanged. Conversely, if the dollar rises in value
relative to the yen, the dollar value of the yen-denominated stock
will fall. (See the discussion of portfolio and transaction
hedging under Portfolio Investments and Strategies.)
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of International Fund through your employer or limitations
on the amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at
International Fund's net asset value (see Net Asset Value) next
determined after receipt of an order in good form, including
receipt of payment by International Fund. Each purchase of
International Fund shares through a broker-dealer, bank, or other
intermediary ("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.
Each purchase order for International 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
International 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 interest
of Investment Trust or of International Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed
quarterly. All other purchases and redemptions will be confirmed
as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan,
International Fund shares may be redeemed any day the New York
Stock Exchange is open. For more information about how to redeem
your shares of International Fund through your employer's plan,
including any charges that may be imposed by the plan, please
consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your International Fund shares and use the proceeds to
purchase shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. International Fund reserves the right to
suspend, limit, modify, or terminate the Exchange Privilege or its
use in any manner by any person or class; shareholders would be
notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by Investment Trust. Investment
Trust cannot accept a redemption request that specifies a
particular date or price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon International Fund's net
asset value per share at the time of redemption, it may be more or
less than the price you originally paid for the shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of International Fund's shares
is its net asset value per share. The net asset value of a share
of International 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 should be determined on any such day, in which case the
determination will be made at 3:00 p.m., central time.
International Portfolio allocates net asset value, income, and
expenses to International Fund and any other of its feeder funds
in proportion to their respective interests in International
Portfolio.
In computing the net asset value, the values of portfolio
securities are generally based upon market quotations. Depending
upon local convention or regulation, these market quotations may
be the last sale price, last bid or asked price, or the mean
between the last bid and asked prices as of, in each case, the
close of the appropriate exchange or other designated time.
Trading in securities on European and Far Eastern securities
exchanges and over-the-counter markets is normally completed at
various times before the close of business on each day on which
the NYSE is open. Trading of these securities may not take place
on every NYSE business day. In addition, trading may take place
in various foreign markets on Saturdays or on other days when the
NYSE is not open and on which net asset value is not calculated.
Therefore, such calculation does not take place contemporaneously
with the determination of the prices of many of the portfolio
securities used in such calculation and the value of the portfolio
may be significantly affected on days when shares of International
Fund may not be purchased or redeemed.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually.
International Fund intends to distribute by the end of each
calendar year at least 98% of any net capital gains realized from
the sale of securities during the twelve-month period ended
October 31 in that year. International Fund intends to distribute
any undistributed net investment income and net realized capital
gains in the following year.
The terms of your plan will govern how you may receive
distributions from International Fund. Generally, dividend and
capital gains distributions will be reinvested in additional
shares of International Fund.
U.S. FEDERAL INCOME TAXES.
International Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal
taxes on income and gain it distributes. International Fund will
distribute substantially all of its ordinary income and net
capital gains on a current basis. Generally, International Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by International Fund to employer-
sponsored defined contribution plans that qualify for tax-exempt
treatment under federal income tax laws will not be taxable.
Special tax rules apply to investments through such plans. You
should consult your tax advisor to determine the suitability of
International Fund as an investment through such a plan and the
tax treatment of distributions (including distributions of amounts
attributable through an investment in International Fund) from
such a plan. This section is not intended to be a full discussion
of income tax laws and their effect on shareholders.
FOREIGN INCOME TAXES.
Investment income received by International Fund from sources
within foreign countries may be subject to foreign income taxes
withheld at the source. The United States has entered into tax
treaties with many foreign countries that entitle International
Fund to a reduced rate of tax or exemption from tax on such
income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of International Fund's
assets to be invested within various countries will fluctuate and
the extent to which tax refunds will be recovered is uncertain.
International Fund intends to operate so as to qualify for treaty-
reduced tax rates where applicable.
To the extent that International Fund is liable for foreign income
taxes withheld at the source, it also intends to operate so as to
meet the requirements of the U.S. Internal Revenue Code to "pass
through" to International Fund's shareholders foreign income taxes
paid, but there can be no assurance that International Fund will
be able to do so.
This discussion of U.S. and foreign taxation is not intended to be
a full discussion of income tax laws and their effect on
shareholders. You may wish to consult your own tax advisor. The
foregoing information applies to U.S. shareholders. Foreign
shareholders should consult their tax advisors as to the tax
consequences of ownership of International Fund shares.
__________________________
INVESTMENT RETURN
The total return from an investment in International 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 International Fund's total return with alternative
investments should consider differences between International 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. International Fund's total return
does not reflect any charges or expenses related to your
employer's plan. Of course, past performance is not necessarily
indicative of future results.
__________________________
MANAGEMENT
TRUSTEES AND ADVISER.
The Board of Trustees of Investment Trust and the Board of Base
Trust have overall management responsibility for International
Fund and International Portfolio, respectively. See the Statement
of Additional Information for the names of and additional
information about the trustees and officers. Since Investment
Trust and Base Trust have the same trustees, the trustees have
adopted conflict of interest procedures to monitor and address
potential conflicts between the interests of International Fund
and International Portfolio.
The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
International Fund and International Portfolio, subject to the
direction of the respective Board of Trustees. The Adviser is
registered as an investment adviser under the Investment Advisers
Act of 1940. The Adviser was organized in 1986 to succeed to the
business of Stein Roe & Farnham, a partnership that had advised
and managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Financial Companies, Inc.
("Liberty Financial"), which in turn is a majority owned indirect
subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
Bruno Bertocci and David P. Harris have been co-portfolio managers
of International Portfolio since its inception in 1997 and of
International Fund since its inception in 1994. (Mr. Harris
served as an associate portfolio manager until May 1995.) In
addition, they have been co-portfolio managers of Stein Roe
Emerging Markets Fund (another series of Investment Trust), since
its inception in 1997. They joined the Adviser in 1995 as senior
vice president and vice president, respectively, to create Stein
Roe Global Capital Management, a dedicated global and
international equity management unit. Messrs. Bertocci and Harris
are also employed by Colonial Management Associates, Inc., a
subsidiary of Liberty Financial and an affiliate of the Adviser,
as vice presidents. Prior to joining the Adviser, Mr. Bertocci
was a senior global equity portfolio manager with Rockefeller &
Co. ("Rockefeller") from 1983 to 1995. While at Rockefeller, he
served as portfolio manager for International Fund, when
Rockefeller was that Fund's sub-adviser. Mr. Bertocci managed
Rockefeller's London office from 1987 to 1989 and its Hong Kong
office from 1989 to 1990. Prior to working at Rockefeller, he
served for three years at T. Rowe Price Associates. Mr. Bertocci
is a graduate of Oberlin College and holds an M.B.A. from Harvard
University. Mr. Harris was a portfolio manager with Rockefeller
from 1990 to 1995. After earning a bachelor's degree from the
University of Michigan, he was an actuarial associate for GEICO
before returning to school to earn an M.B.A. from Cornell
University. As of December 31, 1996, Messrs. Bertocci and Harris
were responsible for managing $141 million in mutual fund net
assets.
FEES AND EXPENSES.
In return for its services, the Adviser is entitled to receive an
administrative fee from International Fund at an annual rate of
.15% of average net assets; and a management fee from
International Portfolio at an annual rate of .85% of average net
assets. Prior to the conversion of International Fund to the
master fund/feeder fund structure on February 3, 1997, the
management fee was paid by International Fund.
Under a separate agreement with each Trust, the Adviser provides
certain accounting and bookkeeping services to International Fund
and International Portfolio, 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 for
International Fund. In doing so, the Adviser seeks to obtain the
best combination of price and execution, which involves a number
of judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago, Illinois
60606, a wholly owned subsidiary of Liberty Financial, is the
agent of Investment Trust for the transfer of shares, disbursement
of dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The shares of International Fund are offered for sale through
Liberty Securities Corporation ("Distributor") without any sales
commissions or charges to International 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
International Fund correspondence (including purchase and
redemption orders) should be mailed to SteinRoe Services Inc. at
P.O. Box 8900, Boston, Massachusetts 02205. 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
International Fund and International Portfolio. Foreign
securities are maintained in the custody of foreign banks and
trust companies that are members of the Bank's Global Custody
Network or foreign depositories used by such members. (See
Custodian in the Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
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, nine 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 is also believed to be remote, because it would be limited
to claims to which the disclaimer did not apply and to
circumstances in which the other series was unable to meet its
obligations.
__________________________
SPECIAL CONSIDERATIONS REGARDING
MASTER FUND/FEEDER FUND STRUCTURE
Commencing February 3, 1997, International Fund, which is an open-
end management investment company, seeks to achieve its objective
by investing all of its assets in shares of another mutual fund
having an investment objective identical to that of International
Fund. The shareholders of International Fund approved this policy
of permitting International Fund to act as a feeder fund by
investing in International Portfolio. Please refer to Investment
Policies, Portfolio Investments and Strategies, and Investment
Restrictions for a description of the investment objectives,
policies, and restrictions of International Fund and International
Portfolio. The management fees and expenses of International Fund
and International Portfolio are described under the Fee Table and
Management. International Fund bears its proportionate share of
International Portfolio's expenses.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
International Portfolio is a separate series of SR&F Base Trust
("Base Trust"), a Massachusetts common law trust organized under
an Agreement and Declaration of Trust ("Declaration of Trust")
dated August 23, 1993. The Declaration of Trust of Base Trust
provides that International Fund and other investors in
International Portfolio will be liable for all obligations of
International Portfolio that are not satisfied by International
Portfolio. However, the risk of International Fund incurring
financial loss on account of such liability is limited to
circumstances in which liability was inadequately insured and
International Portfolio was unable to meet its obligations.
Accordingly, the Trustees of Investment Trust believe that neither
International Fund nor its shareholders will be adversely affected
by reason of International Fund's investing in International
Portfolio.
The Declaration of Trust of Base Trust provides that International
Portfolio will terminate 120 days after the withdrawal of
International Fund or any other investor in International
Portfolio, unless the remaining investors vote to agree to
continue the business of International Portfolio. The Trustees of
Investment Trust may vote International Fund's interests in
International Portfolio for such continuation without approval of
International Fund's shareholders.
The common investment objective of International Fund and
International Portfolio is non-fundamental and may be changed
without shareholder approval, subject, however, to at least 30
days' advance written notice to International Fund's shareholders.
The fundamental policies of International Fund and the
corresponding fundamental policies of International Portfolio can
be changed only with shareholder approval. If International Fund,
as a Portfolio investor, is requested to vote on a change in a
fundamental policy of International Portfolio or any other matter
pertaining to International Portfolio (other than continuation of
the business of International Portfolio after withdrawal of
another investor), International Fund will solicit proxies from
its shareholders and vote its interest in International Portfolio
for and against such matters proportionately to the instructions
to vote for and against such matters received from Fund
shareholders. International Fund will vote shares for which it
receives no voting instructions in the same proportion as the
shares for which it receives voting instructions. If there are
other investors in International Portfolio, there can be no
assurance that any matter receiving a majority of votes cast by
Fund shareholders will receive a majority of votes cast by all
investors. If other investors hold a majority interest in
International Portfolio, they could have voting control over
International Portfolio.
In the event that International Portfolio's fundamental policies
were changed so as to be inconsistent with those of International
Fund, the Board of Trustees of Investment Trust would consider
what action might be taken, including changes to International
Fund's fundamental policies, withdrawal of International Fund's
assets from International Portfolio and investment of such assets
in another pooled investment entity, or the retention of an
investment adviser to invest those assets directly in a portfolio
of securities. Any of these actions would require the approval of
International Fund's shareholders. International Fund's inability
to find a substitute master fund or comparable investment
management could have a significant impact upon its shareholders'
investments. Any withdrawal of International Fund's assets could
result in a distribution in kind of portfolio securities (as
opposed to a cash distribution) to International Fund. Should
such a distribution occur, International Fund would incur
brokerage fees or other transaction costs in converting such
securities to cash. In addition, a distribution in kind could
result in a less diversified portfolio of investments for
International Fund and could affect the liquidity of International
Fund.
Each investor in International Portfolio, including International
Fund, may add to or reduce its investment in International
Portfolio on each day the NYSE is open for business. The
investor's percentage of the aggregate interests in International
Portfolio will be computed as the percentage equal to the fraction
(i) the numerator of which is the beginning of the day value of
such investor's investment in International Portfolio on such day
plus or minus, as the case may be, the amount of any additions to
or withdrawals from the investor's investment in International
Portfolio effected on such day; and (ii) the denominator of which
is the aggregate beginning of the day net asset value of
International Portfolio on such day plus or minus, as the case may
be, the amount of the net additions to or withdrawals from the
aggregate investments in International Portfolio by all investors
in International Portfolio. The percentage so determined will
then be applied to determine the value of the investor's interest
in International Portfolio as of the close of business.
Base Trust may permit other investment companies and/or other
institutional investors to invest in International Portfolio, but
members of the general public may not invest directly in
International Portfolio. Other investors in International
Portfolio are not required to sell their shares at the same public
offering price as International Fund, might incur different
administrative fees and expenses than International Fund, and
might charge a sales commission. Therefore, International Fund
shareholders might have different investment returns than
shareholders in another investment company that invests
exclusively in International Portfolio. Investment by such other
investors in International Portfolio would provide funds for the
purchase of additional portfolio securities and would tend to
reduce the operating expenses as a percentage of International
Portfolio's net assets. Conversely, large-scale redemptions by
any such other investors in International Portfolio could result
in untimely liquidations of International Portfolio's security
holdings, loss of investment flexibility, and increases in the
operating expenses of International Portfolio as a percentage of
International Portfolio's net assets. As a result, International
Portfolio's security holdings may become less diverse, resulting
in increased risk.
Information regarding other investors in International Portfolio
may be obtained by writing to SR&F Base Trust at Suite 3200, One
South Wacker Drive, Chicago, IL 60606, or by calling 800-338-2550.
The Adviser may provide administrative or other services to one or
more of such investors.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about International Fund.
________________
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE YOUNG INVESTOR FUND
The investment objective of Young Investor Fund is to provide
long-term capital appreciation. Young Investor Fund invests all
of its net investable assets in shares of SR&F Growth Investor
Portfolio, which has the same investment objective and
substantially the same investment policies as Young Investor Fund.
(See Special Considerations Regarding Master Fund/Feeder Fund
Structure.) Growth Investor Portfolio invests in securities of
companies that affect the lives of young people. Young Investor
Fund is also intended to be an educational experience for young
investors and their parents.
This prospectus relates only to shares of Young Investor Fund
purchased through eligible employer-sponsored defined contribution
plans ("defined contribution plans").
Young Investor Fund is a "no-load" fund. There are no sales or
redemption charges, and Young Investor Fund has no 12b-1 plan.
Young Investor Fund is a series of the Stein Roe Investment Trust
and Growth Investor Portfolio is a series of SR&F Base Trust.
Each Trust is a diversified open-end management investment
company.
This prospectus contains information you should know before
investing in Young Investor Fund. Please read it carefully and
retain it for future reference.
A Statement of Additional Information dated February 3, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the Stein
Roe Mutual Funds at Suite 3200, One South Wacker Drive, Chicago,
IL 60606 or by calling 800-322-1130. The Statement of Additional
Information contains information relating to other series of the
Stein Roe Investment Trust that may not be available as investment
vehicles for your defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February 3, 1997
TABLE OF CONTENTS
Page
Fee Table ..............................2
Financial Highlights....................3
The Fund................................3
Investment Policies.....................4
Portfolio Investments and Strategies....4
Investment Restrictions ................6
Risks and Investment Considerations ....7
How to Purchase Shares..................8
How to Redeem Shares ...................8
Net Asset Value ........................8
Distributions and Income Taxes..........9
Investment Return.......................9
Management.............................10
Organization and Description of Shares.11
Special Considerations Regarding
Master Fund/Feeder Fund Structure....12
For More Information ..................13
<PAGE>
__________________________
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
reimbursement; as a percentage of average
net assets)
Management and Administrative Fees (after
reimbursement) 0.60%
12b-1 Fees None
Other Expenses (after reimbursement) 0.90%
-----
Total Operating Expenses (after reimbursement) 1.50%
=====
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$15 $47 $82 $179
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in Young Investor Fund. The table
illustrates expenses that would have been borne by investors for
the fiscal year ended September 30, 1996, assuming a change in the
fee reimbursement had been effective for the entire year.
From time to time, the Adviser may voluntarily undertake to
reimburse Young Investor Fund for a portion of its operating
expenses and its pro rata share of the fees and expenses payable
by Growth Investor Portfolio. The Adviser has undertaken to
reimburse Young Investor Fund for its operating expenses and its
pro rata share of the fees and expenses payable by Growth Investor
Portfolio to the extent such expenses exceed 1.50% of its annual
average net assets through January 31, 1998, subject to earlier
review and possible termination by the Adviser on 30 days' notice
to Young Investor Fund (a waiver limiting expenses to 1.25% had
been in effect through January 31, 1997). Any such reimbursement
will lower Young Investor Fund's overall expense ratio and
increase its overall return to investors. Absent the fee waiver,
Young Investor Fund's share of Growth Investor Portfolio's
Management Fee, Young Investor Fund's Administrative Fee, Other
Expenses, and Total Operating Expenses would be 0.60%, 0.20%,
1.24%, and 2.04%, respectively.
Young Investor Fund pays the Adviser an administrative fee based
on the Fund's average daily net assets, and Growth Investor
Portfolio pays the Adviser a management fee based on its average
daily net assets. The expenses of both Young Investor Fund and
Growth Investor Portfolio are summarized in the Fee Table. (The
fees are described under Management.) Young Investor Fund bears
its proportionate share of Portfolio expenses. The trustees of
Investment Trust have considered whether the annual operating
expenses of Young Investor Fund, including its proportionate share
of the expenses of Growth Investor Portfolio, would be more or
less than if Young Investor Fund invested directly in the
securities held by Growth Investor Portfolio, and concluded that
Young Investor Fund's expenses would not be greater in such case.
For purposes of the Example above, the figures assume that the
percentage amounts listed for Young Investor Fund under Annual
Fund Operating Expenses remain the same in each of the periods;
that all income dividends and capital gain distributions are
reinvested in additional Young Investor Fund shares; and that, for
purposes of fee breakpoints, net assets remain at the same level
as in the most recently completed fiscal year. The figures in the
Example are not necessarily indicative of past or future expenses,
and actual expenses may be greater or less than those shown.
Although information such as that shown in the Example and Fee
Table is useful in reviewing Young Investor Fund's expenses and in
providing a basis for comparison with other mutual funds, it
should not be used for comparison with other investments using
different assumptions or time periods. The example does not
reflect any charges or expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of Young
Investor Fund on a per-share basis for the periods shown and has
been audited by Arthur Andersen LLP, independent public
accountants. The table should be read in conjunction with Young
Investor Fund's financial statements and notes thereto. Young
Investor Fund's annual report, which may be obtained from
Investment Trust without charge upon request, contains additional
performance information.
Period Ended Years Ended
Sept. 30, September 30,
1994 (a) 1995 1996
---------- ------ ------
Net Asset Value, Beginning of Period.....$10.00 $10.24 $14.29
------ ------ ------
Income from investment operations
Net investment income..................... 0.03 0.06 0.05
Net realized and unrealized gains
on investments........................... 0.21 4.07 4.86
------ ------ ------
Total from investment operations......... 0.24 4.13 4.91
------ ------ ------
Distributions
Net investment income.................... -- (0.08) (0.05)
Net realized capital gains............... -- -- (0.51)
------ ------ ------
Total Distributions......................... -- (0.08) (0.56)
------ ------ ------
Net Asset Value, End of Period.......... $10.24 $14.29 $18.64
====== ====== ======
Ratio of net expenses to average
net assets (b)......................... *0.99% 0.99% 1.21%
Ratio of net investment income to
average net assets (c)................. *1.07% 0.47% 0.30%
Portfolio turnover rate.................. **12% 55% 98%
Average commissions (per share)........... -- -- $0.0603
Total return ........................**2.40% 40.58% 35.55%
Net assets, end of period (000 omitted). $8,176 $31,401 $179,089
________________________________
*Annualized.
**Not annualized.
(a) From commencement of operations on April 29, 1994.
(b) If Young Investor Fund had paid all of its expenses and there
had been no reimbursement of expenses by the investment
adviser, this ratio would have been 4.58% for the period ended
September 30, 1994, 2.87% for the year ended September 30,
1995, and 2.04% for the year ended September 30, 1996.
(c) Computed giving effect to the investment adviser's expense
limitation undertaking.
__________________________
THE FUND
STEIN ROE YOUNG INVESTOR FUND ("Young Investor 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. Young Investor Fund does not impose commissions or
charges when shares are purchased or redeemed.
Young Investor 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
investment management, administrative, and bookkeeping and
accounting services to Young Investor Fund and Growth Investor
Portfolio. The Adviser also manages 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 opening a regular account in any of these mutual funds, please
call 800-338-2550.
On February 3, 1997, Young Investor Fund became a "feeder fund"--
that is, it invested all of its assets in SR&F Growth Investor
Portfolio ("Growth Investor Portfolio"), a "master fund" that has
an investment objective identical to that of Young Investor Fund.
Growth Investor Portfolio is a series of SR&F Base Trust ("Base
Trust"). Before converting to a feeder fund, Young Investor Fund
invested its assets in a diversified group of securities. Under
the "master fund/feeder fund structure," a feeder fund and one or
more feeder funds pool their assets in a master portfolio that has
the same investment objective and substantially the same
investment policies as the feeder funds. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. The assets of Growth Investor Portfolio, Young
Investor Fund's master fund, are managed by the Adviser in the
same manner as the assets of Young Investor Fund were managed
before conversion to the master fund/feeder fund structure. (For
more information, see Special Considerations Regarding Master
Fund/Feeder Fund Structure.)
__________________________
INVESTMENT POLICIES
The investment objective of Young Investor Fund is long-term
capital appreciation. Young Investor Fund invests all of its net
investable assets in Growth Investor Portfolio, which has the same
investment objective and substantially the same investment
policies as Young Investor Fund. Growth Investor Portfolio
invests primarily in common stocks and other equity-type
securities that, in the opinion of the Adviser, have long-term
appreciation potential.
Under normal circumstances, at least 65% of the total assets of
Growth Investor Portfolio will be invested in securities of
companies that, in the opinion of the Adviser, directly or through
one or more subsidiaries, affect the lives of young people. Such
companies may include companies that produce products or services
that young people use, are aware of, or could potentially have an
interest in.
Although Growth Investor Portfolio invests primarily in common
stocks and other equity-type securities (such as preferred stocks,
securities convertible into or exchangeable for common stocks, and
warrants or rights to purchase common stocks), it may invest up to
35% of its total assets in debt securities. Growth Investor
Portfolio may invest in securities of smaller emerging companies
as well as securities of well-seasoned companies of any size.
Smaller companies, however, involve higher risks in that they
typically have limited product lines, markets, and financial or
management resources. In addition, the securities of smaller
companies may trade less frequently and have greater price
fluctuation than larger companies, particularly those operating in
countries with developing markets. Growth Investor Portfolio may
also employ investment techniques described elsewhere in this
prospectus. (See Risks and Investment Considerations and Fees and
Expenses.)
In addition to the investment objective and policies, Young
Investor Fund also has an educational objective. Young Investor
Fund will seek to educate its shareholders by providing
educational materials regarding personal finance and investing as
well as materials on Young Investor Fund and its portfolio
holdings.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, Growth Investor Portfolio
may invest in debt securities. A debt security is an obligation
of a borrower to make payments of principal and interest to the
holder of the security. To the extent Growth Investor Portfolio
invests in debt securities, such holdings will be subject to
interest rate risk and credit risk. Interest rate risk is the
risk that the value of a portfolio will fluctuate in response to
changes in interest rates. Generally, the debt component of a
portfolio will tend to decrease in value when interest rates rise
and increase in value when interest rates fall. Credit risk is
the risk that an issuer will be unable to make principal and
interest payments when due. Investments in debt securities are
limited to those that are rated within the four highest grades
(generally referred to as "investment grade") assigned by a
nationally recognized statistical rating organization.
Investments in unrated debt securities are limited to those deemed
to be of comparable quality by the Adviser. Securities rated
within the fourth highest grade may possess speculative
characteristics. If the rating of a security held by Growth
Investor Portfolio is lost or reduced below investment grade,
Growth Investor Portfolio is not required to dispose of the
security--the Adviser will, however, consider that fact in
determining whether Growth Investor Portfolio should continue to
hold the security. When the Adviser considers a temporary
defensive position advisable, Growth Investor Portfolio may invest
without limitation in high-quality fixed income securities, or
hold assets in cash or cash equivalents.
FOREIGN SECURITIES.
Growth Investor Portfolio may invest up to 25% of its total assets
in foreign securities. (See Risks and Investment Considerations.)
In addition to, or in lieu of, such direct investment, Growth
Investor Portfolio may construct a synthetic foreign debt position
by (a) purchasing a debt instrument denominated in one currency,
generally U.S. dollars; and (b) concurrently entering into a
forward contract to deliver a corresponding amount of that
currency in exchange for a different currency on a future date and
at a specified rate of exchange. Because of the availability of a
variety of highly liquid U.S. dollar debt instruments, a synthetic
foreign debt position utilizing such U.S. dollar instruments may
offer greater liquidity than direct investment in foreign currency
debt instruments. In connection with the purchase of foreign
securities, Growth Investor Portfolio may 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. As of September 30, 1996, Young
Investor Fund's holdings of foreign companies, as a percentage of
net assets, were 3.8% (0.7% in foreign securities and 3.1% in
ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
Growth Investor Portfolio may make loans of portfolio securities
to broker-dealers and banks and enter into reverse repurchase
agreements subject to certain restrictions described in the
Statement of Additional Information. It may participate in an
interfund lending program, subject to certain restrictions
described in the Statement of Additional Information. Growth
Investor Portfolio may invest in securities purchased on a when-
issued or delayed-delivery basis. Although the payment terms of
these securities are established at the time Growth Investor
Portfolio enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. Growth Investor Portfolio will
make such commitments only with the intention of actually
acquiring the securities, but may sell the securities before
settlement date if it is deemed advisable for investment reasons.
DERIVATIVES.
Consistent with its objective, Growth Investor Portfolio may
invest in a broad array of financial instruments and securities,
including conventional, exchange-traded and non-exchange-traded
options, futures contracts, futures options, forward contracts,
securities collateralized by underlying pools of mortgages or
other receivables, floating rate instruments, and other
instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument or
security is "derived" from the performance of an underlying asset
or a "benchmark" such as a security index, or an interest rate.
Growth Investor Portfolio does not expect to invest more than 5%
of its net assets in any type of Derivative except for options,
futures contracts, and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, Growth Investor
Portfolio may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2) enter
into interest rate, index and foreign currency futures contracts;
(3) write options on such futures contracts; and (4) purchase
other types of forward or investment contracts linked to
individual securities, indexes, or other benchmarks. Growth
Investor Portfolio may write a call or put option only if the
option is covered. As the writer of a covered call option, Growth
Investor Portfolio foregoes, during the option's life, the
opportunity to profit from increases in market value of the
security covering the call option above the sum of the premium and
the exercise price of the call. There can be no assurance that a
liquid market will exist when Growth Investor Portfolio seeks to
close out a position. In addition, because futures positions may
require low margin deposits, the use of futures contracts involves
a high degree of leverage and may result in losses in excess of
the amount of the margin deposit.
SHORT SALES AGAINST THE BOX.
Growth Investor Portfolio 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 Investor Portfolio against the risk of
losses in the value of its portfolio securities because any
unrealized losses with respect to such securities should be wholly
or partly offset by a corresponding gain in the short position.
However, any potential gains in such securities should be wholly
or partially offset by a corresponding loss in the short position.
Short sales against the box may be used to lock in a profit on a
security when, for tax reasons or otherwise, the Adviser does not
want to sell the security. For a more complete explanation,
please refer to the Statement of Additional Information.
__________________________
INVESTMENT RESTRICTIONS
Neither Young Investor Fund nor Growth Investor Portfolio may
invest more than 5% of its assets in the securities of any one
issuer. This restriction applies only to 75% of the investment
portfolio, but does not apply to securities of the U.S. Government
or repurchase agreements /1/ for such securities, and would not
prevent Young Investor Fund from investing 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
Investor Portfolio in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a specified
time. In the event of bankruptcy of the seller, Growth Investor
Portfolio could experience both losses and delays in liquidating
its collateral.
- -----------------
Neither Young Investor Fund nor Growth Investor Portfolio may
invest more than 25% of its total assets (at the time of
investment) in the securities of companies in any one industry.
Neither Young Investor Fund nor Growth Investor Portfolio may
acquire more than 10% of the outstanding voting securities of any
one issuer. Young Investor Fund may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
Neither Young Investor Fund nor Growth Investor Portfolio may make
loans except that each may (1) purchase money market instruments
and enter into repurchase agreements; (2) acquire publicly-
distributed or privately-placed debt securities; (3) lend its
portfolio securities under certain conditions; and (4) participate
in an interfund lending program with other Stein Roe Funds and
Portfolios. Neither may borrow money, except for non-leveraging,
temporary, or emergency purposes or in connection with
participation in the interfund lending program. Neither the
aggregate borrowings (including reverse repurchase agreements) nor
aggregate loans at any one time may exceed 33 1/3% of the value of
total assets. Neither Growth Investor Fund nor Growth Investor
Portfolio currently intend to borrow in excess of 5% of total
assets. Additional securities may not be purchased when
borrowings, less proceeds receivable from sales of portfolio
securities, exceed 5% of total assets.
Young Investor Fund and Growth Investor Portfolio may invest in
repurchase agreements, provided that neither will invest more than
15% of its net assets in illiquid securities, including repurchase
agreements maturing in more than seven days. An investment in
illiquid securities could involve relatively greater risks and
costs to Young Investor Fund.
The investment restrictions described in the first four paragraphs
of this section are fundamental policies and, as such, can be
changed only with the approval of a "majority of the outstanding
voting securities" as defined in the Investment Company Act of
1940. The common investment objective of Young Investor Fund and
Growth Investor Portfolio is non-fundamental and, as such, may be
changed by the Board of Trustees without shareholder approval,
subject, however, to at least 30 days' advance written notice to
Young Investor Fund's shareholders. Any such change may result in
Young Investor Fund having an investment objective different from
the objective the shareholder considered appropriate at the time
of investment in Young Investor Fund. All of the investment
restrictions are set forth in the Statement of Additional
Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Young Investor Fund is
designed for long-term investors who desire to participate in the
stock market and places an emphasis on companies that appeal to
young investors. These investors can accept more investment risk
and volatility than the stock market in general but want less
investment risk and volatility than aggressive capital
appreciation funds. Of course, there can be no guarantee that
Young Investor Fund will achieve its objective. Young Investor
Fund is also designed to be an educational experience for young
investors and their parents.
Although Growth Investor Portfolio seeks to reduce risk by
investing in a diversified portfolio, diversification does not
eliminate all risk. However, Growth Investor Portfolio 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.
By investing in companies whose products or services appeal to
young investors, Growth Investor Portfolio emphasizes various
consumer goods sectors.
Although Growth Investor Portfolio does not purchase securities
with a view to rapid turnover, there are no limitations on the
length of time portfolio securities must be held. Accordingly,
the portfolio turnover rate may vary significantly from year to
year, but is not expected to exceed 100% under normal market
conditions. A high rate of portfolio turnover may result in
increased transaction expenses and the realization of capital
gains and losses. (See Distributions and Income Taxes.) Young
Investor Fund is not intended to be an income-producing
investment, although it may produce income.
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers, different accounting, auditing and
financial reporting standards, different settlement practices,
less market liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition of
exchange controls and withholding taxes on dividends, and seizure
or nationalization of investments owned by non-residents. Foreign
investments also tend to involve higher transaction and custody
costs.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of Young Investor Fund through your employer or limitations
on the amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at Young
Investor Fund's net asset value (see Net Asset Value) next
determined after receipt of an order in good form, including
receipt of payment by Young Investor Fund. Each purchase of Young
Investor Fund shares through a broker-dealer, bank, or other
intermediary ("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.
Each purchase order for Young Investor 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 Young
Investor 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 interest of
Investment Trust or of Young Investor Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed
quarterly. All other purchases and redemptions will be confirmed
as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Young
Investor Fund shares may be redeemed any day the New York Stock
Exchange is open. For more information about how to redeem your
shares of Young Investor Fund through your employer's plan,
including any charges that may be imposed by the plan, please
consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Young Investor Fund shares and use the proceeds to
purchase shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. Young Investor Fund reserves the right to
suspend, limit, modify, or terminate the Exchange Privilege or its
use in any manner by any person or class; shareholders would be
notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by Investment Trust. Investment
Trust cannot accept a redemption request that specifies a
particular date or price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon Young Investor Fund's
net asset value per share at the time of redemption, it may be
more or less than the price you originally paid for the shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of Young Investor Fund's shares
is its net asset value per share. The net asset value of a share
of Young Investor 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. Growth
Investor Portfolio allocates net asset value, income, and expenses
to Young Investor Fund and any other of its feeder funds in
proportion to their respective interests in Growth Investor
Portfolio.
Net asset value will not be determined on days when the NYSE is
closed unless, in the judgment of the Board of Trustees, the net
asset value 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" 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. Young
Investor Fund intends to distribute by the end of each calendar
year at least 98% of any net capital gains realized from the sale
of securities during the twelve-month period ended October 31 in
that year. Young Investor Fund intends to distribute any
undistributed net investment income and net realized capital gains
in the following year.
The terms of your plan will govern how you may receive
distributions from Young Investor Fund. Generally, dividend and
capital gains distributions will be reinvested in additional
shares of Young Investor Fund.
INCOME TAXES.
Young Investor Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal
taxes on income and gain it distributes. Young Investor Fund will
distribute substantially all of its ordinary income and net
capital gains on a current basis. Generally, Young Investor Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by Young Investor Fund to employer-
sponsored defined contribution plans that qualify for tax-exempt
treatment under federal income tax laws will not be taxable.
Special tax rules apply to investments through such plans. You
should consult your tax advisor to determine the suitability of
Young Investor Fund as an investment through such a plan and the
tax treatment of distributions (including distributions of amounts
attributable through an investment in Young Investor Fund) from
such a plan. This section is not intended to be a full discussion
of income tax laws and their effect on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in Young Investor Fund is
measured by the distributions received (assuming reinvestment of
dividends and capital gains), plus or minus the change in the net
asset value per share for a given period. A total return
percentage may be calculated by dividing the value of a share at
the end of the period (including reinvestment of distributions) by
the value of the share at the beginning of the period and
subtracting one. For a given period, an average annual total
return may be calculated by finding the average annual compounded
rate that would equate a hypothetical $1,000 investment to the
ending redeemable value.
Comparison of Young Investor Fund's total return with alternative
investments should consider differences between Young Investor
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. Young Investor Fund's total
return does not reflect any charges or expenses related to your
employer's plan. Of course, past performance is not necessarily
indicative of future results.
__________________________
MANAGEMENT
TRUSTEES AND ADVISER.
The Board of Trustees of Investment Trust and the Board of Base
Trust have overall management responsibility for Young Investor
Fund and Growth Investor Portfolio, respectively. See the
Statement of Additional Information for the names of and
additional information about the trustees and officers. Since
Investment Trust and Base Trust have the same trustees, the
trustees have adopted conflict of interest procedures to monitor
and address potential conflicts between the interests of Young
Investor Fund and Growth Investor Portfolio.
The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing Young
Investor Fund and Growth Investor Portfolio, subject to the
direction of the respective Board of Trustees. The Adviser is
registered as an investment adviser under the Investment Advisers
Act of 1940. The Adviser was organized in 1986 to succeed to the
business of Stein Roe & Farnham, a partnership that had advised
and managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Financial Companies, Inc.
("Liberty Financial"), which in turn is a majority owned indirect
subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
Erik P. Gustafson, David P. Brady and Arthur J. McQueen have been
co-portfolio managers of Growth Investor Portfolio since its
inception in 1997. Mr. Gustafson had been portfolio manager of
Young Investor Fund since February 1995, Mr. Brady since March
1995, and Mr. McQueen since April 1996. As of December 31, 1996,
Messrs. Gustafson, Brady and McQueen were responsible for co-
managing $877 million, $877 million and $271 million in mutual
fund net assets, respectively.
Messrs. Gustafson and McQueen are senior vice presidents of the
Adviser and Mr. Brady is a vice president of the Adviser. Before
joining the Adviser, Mr. Gustafson was an attorney with Fowler,
White, Burnett, Hurley, Banick & Strickroot from 1989 to 1992. He
holds a B.A. from the University of Virginia (1985) and M.B.A. and
J.D. degrees from Florida State University (1989). Mr. Brady, who
joined the Adviser in 1993, was an equity investment analyst with
State Farm Mutual Automobile Insurance Company from 1986 to 1993.
A chartered financial analyst, Mr. Brady earned a B.S. in Finance,
graduating Magna Cum Laude, from the University of Arizona (1986),
and an M.B.A. from the University of Chicago (1989). Mr. McQueen
earned a B.S. from Villanova University (1980) and an M.B.A. from
the Wharton School of the University of Pennsylvania (1987). Mr.
McQueen has been employed by the Adviser as an equity analyst
since 1987 and was previously employed by Citibank and GTE.
FEES AND EXPENSES.
In return for its services, the Adviser is entitled to receive a
management fee from Growth Investor Portfolio based on an annual
rate of .60% of the first $500 million of average net assets, .55%
of the next $500 million, and .50% thereafter; and an
administrative fee from Young Investor Fund based on an annual
rate of .20% of the first $500 million of average net assets, .15%
of the next $500 million, and .125% thereafter. Prior to
conversion to the master fund/feeder fund structure on February 3,
1997, the management fee was paid by Young Investor Fund. For the
fiscal year ended September 30, 1996, the Adviser reimbursed Young
Investor Fund $663,230, resulting in a net payment by the Adviser
of $27,483. Please refer to Fee Table for a description of the
fee waiver.
Because Young Investor Fund also has as an objective being an
educational experience for investors, Young Investor Fund's non-
advisory expenses may be higher than other mutual funds due to
regular educational and other reporting to shareholders.
Under a separate agreement with each Trust, the Adviser provides
certain accounting and bookkeeping services to Young Investor Fund
and Growth Investor Portfolio, 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. ("SSI"), 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.
DISTRIBUTOR.
The shares of Young Investor Fund are offered for sale through
Liberty Securities Corporation ("Distributor") without any sales
commissions or charges to Young Investor Fund or to its
shareholders. The Distributor is a wholly owned subsidiary of
Liberty Financial. The business address of the Distributor is 600
Atlantic Avenue, Boston, Massachusetts 02210; however, all Fund
correspondence (including purchase and redemption orders) should
be mailed to SteinRoe Services Inc., P.O. Box 8900, Boston,
Massachusetts 02205. All distribution and promotional expenses
are paid by 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 Young
Investor Fund and Growth Investor Portfolio. Foreign securities
are maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
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, nine 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 is also believed to be remote, because it would be limited
to claims to which the disclaimer did not apply and to
circumstances in which the other series was unable to meet its
obligations.
__________________________
SPECIAL CONSIDERATIONS REGARDING
MASTER FUND/FEEDER FUND STRUCTURE
Commencing February 3, 1997, Young Investor Fund, which is an
open-end management investment company, seeks to achieve its
objective by investing all of its assets in shares of another
mutual fund having an investment objective identical to that of
Young Investor Fund. The shareholders of Young Investor Fund
approved this policy of permitting Young Investor Fund to act as a
feeder fund by investing in Growth Investor Portfolio. Please
refer to Investment Policies, Portfolio Investments and
Strategies, and Investment Restrictions for a description of the
investment objectives, policies, and restrictions of Young
Investor Fund and Growth Investor Portfolio. The management fees
and expenses of Young Investor Fund and Growth Investor Portfolio
are described under the Fee Table and Management. Young Investor
Fund bears its proportionate share of Growth Investor Portfolio's
expenses.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
Growth Investor Portfolio is a separate series of SR&F Base Trust
("Base Trust"), a Massachusetts common law trust organized under
an Agreement and Declaration of Trust ("Declaration of Trust")
dated August 23, 1993. The Declaration of Trust of Base Trust
provides that Young Investor Fund and other investors in Growth
Investor Portfolio will be liable for all obligations of Growth
Investor Portfolio that are not satisfied by Growth Investor
Portfolio. However, the risk of Young Investor Fund incurring
financial loss on account of such liability is limited to
circumstances in which liability was inadequately insured and
Growth Investor Portfolio was unable to meet its obligations.
Accordingly, the Trustees of Investment Trust believe that neither
Young Investor Fund nor its shareholders will be adversely
affected by reason of Young Investor Fund's investing in Growth
Investor Portfolio.
The Declaration of Trust of Base Trust provides that Growth
Investor Portfolio will terminate 120 days after the withdrawal of
Young Investor Fund or any other investor in Growth Investor
Portfolio, unless the remaining investors vote to agree to
continue the business of Growth Investor Portfolio. The Trustees
of Investment Trust may vote Young Investor Fund's interests in
Growth Investor Portfolio for such continuation without approval
of Young Investor Fund's shareholders.
The common investment objective of Young Investor Fund and Growth
Investor Portfolio is non-fundamental and may be changed without
shareholder approval, subject, however, to at least 30 days'
advance written notice to Young Investor Fund's shareholders.
The fundamental policies of Young Investor Fund and the
corresponding fundamental policies of Growth Investor Portfolio
can be changed only with shareholder approval. If Young Investor
Fund, as a Portfolio investor, is requested to vote on a change in
a fundamental policy of Growth Investor Portfolio or any other
matter pertaining to Growth Investor Portfolio (other than
continuation of the business of Growth Investor Portfolio after
withdrawal of another investor), Young Investor Fund will solicit
proxies from its shareholders and vote its interest in Growth
Investor Portfolio for and against such matters proportionately to
the instructions to vote for and against such matters received
from Fund shareholders. Young Investor Fund will vote shares for
which it receives no voting instructions in the same proportion as
the shares for which it receives voting instructions. If there
are other investors in Growth Investor Portfolio, there can be no
assurance that any matter receiving a majority of votes cast by
Fund shareholders will receive a majority of votes cast by all
investors. If other investors hold a majority interest in Growth
Investor Portfolio, they could have voting control over Growth
Investor Portfolio.
In the event that Growth Investor Portfolio's fundamental policies
were changed so as to be inconsistent with those of Young Investor
Fund, the Board of Trustees of Investment Trust would consider
what action might be taken, including changes to Young Investor
Fund's fundamental policies, withdrawal of Young Investor Fund's
assets from Growth Investor Portfolio and investment of such
assets in another pooled investment entity, or the retention of an
investment adviser to invest those assets directly in a portfolio
of securities. Any of these actions would require the approval of
Young Investor Fund's shareholders. Young Investor Fund's
inability to find a substitute master fund or comparable
investment management could have a significant impact upon its
shareholders' investments. Any withdrawal of Young Investor
Fund's assets could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution) to Young Investor
Fund. Should such a distribution occur, Young Investor Fund would
incur brokerage fees or other transaction costs in converting such
securities to cash. In addition, a distribution in kind could
result in a less diversified portfolio of investments for Young
Investor Fund and could affect the liquidity of Young Investor
Fund.
Each investor in Growth Investor Portfolio, including Young
Investor Fund, may add to or reduce its investment in Growth
Investor Portfolio on each day the NYSE is open for business. The
investor's percentage of the aggregate interests in Growth
Investor Portfolio will be computed as the percentage equal to the
fraction (i) the numerator of which is the beginning of the day
value of such investor's investment in Growth Investor Portfolio
on such day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investor's investment in
Growth Investor Portfolio effected on such day; and (ii) the
denominator of which is the aggregate beginning of the day net
asset value of Growth Investor Portfolio on such day plus or
minus, as the case may be, the amount of the net additions to or
withdrawals from the aggregate investments in Growth Investor
Portfolio by all investors in Growth Investor Portfolio. The
percentage so determined will then be applied to determine the
value of the investor's interest in Growth Investor Portfolio as
of the close of business.
Base Trust may permit other investment companies and/or other
institutional investors to invest in Growth Investor Portfolio,
but members of the general public may not invest directly in
Growth Investor Portfolio. Other investors in Growth Investor
Portfolio are not required to sell their shares at the same public
offering price as Young Investor Fund, might incur different
administrative fees and expenses than Young Investor Fund, and
might charge a sales commission. Therefore, Young Investor Fund
shareholders might have different investment returns than
shareholders in another investment company that invests
exclusively in Growth Investor Portfolio. Investment by such
other investors in Growth Investor Portfolio would provide funds
for the purchase of additional portfolio securities and would tend
to reduce the operating expenses as a percentage of Growth
Investor Portfolio's net assets. Conversely, large-scale
redemptions by any such other investors in Growth Investor
Portfolio could result in untimely liquidations of Growth Investor
Portfolio's security holdings, loss of investment flexibility, and
increases in the operating expenses of Growth Investor Portfolio
as a percentage of Growth Investor Portfolio's net assets. As a
result, Growth Investor Portfolio's security holdings may become
less diverse, resulting in increased risk.
Information regarding other investors in Growth Investor Portfolio
may be obtained by writing to SR&F Base Trust at Suite 3200, One
South Wacker Drive, Chicago, IL 60606, or by calling 800-338-2550.
The Adviser may provide administrative or other services to one or
more of such investors.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about Young Investor Fund.
________________
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE SPECIAL VENTURE FUND
The investment objective of Special Venture Fund is to provide
long-term capital appreciation. Special Venture Fund invests all
of its net investable assets in shares of SR&F Special Venture
Portfolio, which has the same investment objective and
substantially the same investment policies as Special Venture
Fund. (See Special Considerations Regarding Master Fund/Feeder
Fund Structure.) Special Venture Portfolio invests primarily in a
diversified portfolio of equity securities of entrepreneurially
managed companies. It emphasizes investments in financially
strong small and medium-sized companies, based principally on
management appraisal and stock valuation.
This prospectus relates only to shares of Special Venture Fund
purchased through eligible employer-sponsored defined contribution
plans ("defined contribution plans").
Special Venture Fund is a "no-load" fund. There are no sales or
redemption charges, and Special Venture Fund has no 12b-1 plan.
Special Venture Fund is a series of the Stein Roe Investment Trust
and Special Venture Portfolio is a series of SR&F Base Trust.
Each Trust is a diversified open-end management investment
company.
This prospectus contains information you should know before
investing in Special Venture Fund. Please read it carefully and
retain it for future reference.
A Statement of Additional Information dated February 3, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the Stein
Roe Mutual Funds at Suite 3200, One South Wacker Drive, Chicago,
IL 60606 or by calling 800-322-1130. The Statement of Additional
Information contains information relating to other series of the
Stein Roe Investment Trust that may not be available as investment
vehicles for your defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 3, 1997
TABLE OF CONTENTS
Page
Fee Table ..............................2
Financial Highlights....................2
The Fund................................3
Investment Policies.....................4
Portfolio Investments and Strategies....4
Investment Restrictions.................6
Risks and Investment Considerations ....7
How to Purchase Shares..................7
How to Redeem Shares ...................8
Net Asset Value ........................8
Distributions and Income Taxes..........9
Investment Return.......................9
Management .............................9
Organization and Description of Shares.11
Special Considerations Regarding
Master Fund/Feeder Fund Structure....11
For More Information ..................13
<PAGE>
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases ......... None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load ..................... None
Redemption Fees ......................... None
Exchange Fees ........................... None
ANNUAL FUND OPERATING EXPENSES (as a percentage
of average net assets)
Management and Administrative Fees 0.90%
12b-1 Fees None
Other Expenses 0.44%
-----
Total Operating Expenses 1.34%
=====
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- ---------
$14 $42 $73 $161
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 Special Venture Fund. The table is
based upon actual expenses incurred in the last fiscal year. An
expense waiver for Special Venture Fund expired on January 31,
1997.
Special Venture Fund pays the Adviser an administrative fee based
on the Fund's average daily net assets, and Special Venture
Portfolio pays the Adviser a management fee based on its average
daily net assets. The expenses of both Special Venture Fund and
Special Venture Portfolio are summarized in the Fee Table. (The
fees are described under Management.) Special Venture Fund bears
its proportionate share of the expenses of Special Venture
Portfolio. The trustees of Investment Trust have considered
whether the annual operating expenses of Special Venture Fund,
including its share of the expenses of Special Venture Portfolio,
would be more or less than if Special Venture Fund invested
directly in the securities held by Special Venture Portfolio, and
concluded that Special Venture Funds' expenses would not be
greater in such case.
For purposes of the Example above, the figures assume that the
percentage amounts listed for Special Venture Fund under Annual
Fund Operating Expenses remain the same in each of the periods and
that all income dividends and capital gain distributions are
reinvested in additional Special Venture Fund shares. The figures
in the Example are not necessarily indicative of past or future
expenses, and actual expenses may be greater or less than those
shown. Although information such as that shown in the Example and
Fee Table is useful in reviewing Special Venture Fund's expenses
and in providing a basis for comparison with other mutual funds,
it should not be used for comparison with other investments using
different assumptions or time periods. The example does not
reflect any charges or expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of Special
Venture Fund for the periods shown on a per-share basis and has
been audited by Arthur Andersen LLP, independent public
accountants. This table should be read in conjunction with
Special Venture Fund's financial statements and notes thereto.
The annual report, which may be obtained from Investment Trust
without charge upon request, contains additional performance
information.
Period Ended Year Ended
Sept. 30, Sept. 30,
1995(a) 1996
------ ------
Net Asset Value, Beginning of Period......$10.00 $12.60
------ ------
Income from Investment Operations
Net investment income.(loss)............... 0.01 (0.02)
Net realized and unrealized gains on
investments............................... 2.67 3.86
------ ------
Total from investment operations.......... 2.68 3.84
------ ------
Distributions
Net investment income..................... (0.03) --
Net realized capital gains............... (0.05) (0.57)
------ ------
Total distributions...................... (0.08) (0.57)
------ ------
Net Asset Value, End of Period........... $12.60 $15.87
====== ======
Ratio of net expenses to average net
assets (b)............................. *1.25% 1.25%
Ratio of net investment income to average
net assets (c).......................... *0.12% (2.19%)
Portfolio turnover rate.................... 84% 72%
Average commissions (per share).......... -- $0.0378
Total return .............................26.96% 31.81%
Net assets, end of period (000 omitted)..$60,533 $144,528
*Annualized.
(a) From the commencement of operations on October 17, 1994 .
(b) If Special Venture Fund had paid all of its expenses and there
had been no reimbursement by the Adviser, this ratio would
have been 2.87% for the period ended September 30, 1995 and
1.34% for the year ended September 30, 1996.
(c) Computed giving effect to the Adviser's fee waiver.
__________________________
THE FUND
STEIN ROE SPECIAL VENTURE FUND ("Special Venture 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. Special Venture Fund does not impose commissions
or charges when shares are purchased or redeemed.
Special Venture 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
investment management, administrative, and bookkeeping and
accounting services to Special Venture Fund and Special Venture
Portfolio. The Adviser also manages 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 opening a regular account in any of these mutual funds, please
call 800-338-2550.
On February 3, 1997, Special Venture Fund became a "feeder fund"--
that is, it invested all of its assets in SR&F Special Venture
Portfolio ("Special Venture Portfolio"), a "master fund" that has
an investment objective identical to that of Special Venture Fund.
Special Venture Portfolio is a series of SR&F Base Trust ("Base
Trust"). Before converting to a feeder fund, Special Venture Fund
invested its assets in a diversified group of securities. Under
the "master fund/feeder fund structure," a feeder fund and one or
more feeder funds pool their assets in a master portfolio that has
the same investment objective and substantially the same
investment policies as the feeder funds. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. The assets of Special Venture Portfolio, Special
Venture Fund's master fund, are managed by the Adviser in the same
manner as the assets of Special Venture Fund were managed before
conversion to the master fund/feeder fund structure. (For more
information, see Special Considerations Regarding Master
Fund/Feeder Fund Structure.)
__________________________
INVESTMENT POLICIES
The investment objective of Special Venture Fund is to seek long-
term capital appreciation. Special Venture Fund invests all of
its net investable assets in Special Venture Portfolio, which has
the same investment objective and substantially the same
investment policies as Special Venture Fund. Special Venture
Portfolio invests primarily in a diversified portfolio of common
stocks and other equity-type securities (such as preferred stocks,
securities convertible or exchangeable for common stocks, and
warrants or rights to purchase common stocks) of entrepreneurially
managed companies that the Adviser believes represent special
opportunities. Special Venture Portfolio emphasizes investments
in financially strong small and medium-sized companies, based
principally on appraisal of their management and stock valuations.
The Adviser considers "small" and "medium-sized" companies to be
those with market capitalizations of less than $1 billion and $1
to $3 billion, respectively.
In both its initial and ongoing appraisals of a company's
management, the Adviser seeks to know both the principal owners
and senior management and to assess their business judgment and
strategies through personal visits. The Adviser favors companies
whose management has an owner/operator, risk-averse orientation
and a demonstrated ability to create wealth for investors.
Attractive company characteristics include unit growth, favorable
cost structures or competitive positions, and financial strength
that enables management to execute business strategies under
difficult conditions. A company is attractively valued when its
stock can be purchased at a meaningful discount to the value of
the underlying business. Further information on portfolio
investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, Special Venture Portfolio
may invest in debt securities of corporate and governmental
issuers. Special Venture Portfolio may invest up to 35% of its
net assets in debt securities, but it does not currently intend to
invest more than 5% of its net assets in debt securities rated
below investment grade. The risks inherent in debt securities
depend primarily on the term and quality of the obligations in the
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. 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, Special Venture Portfolio may invest
without limitation in high-quality fixed income securities or hold
assets in cash or cash equivalents.
FOREIGN SECURITIES.
Special Venture Portfolio may invest in foreign securities. Other
than American Depositary Receipts (ADRs), foreign debt securities
denominated in U.S. dollars, or securities guaranteed by a U.S.
person, Special Venture Portfolio is limited to investing no more
than 25% of its total assets in foreign securities. (See Risks
and Investment Considerations.) Special Venture Portfolio may
invest in sponsored and unsponsored ADRs. In addition to, or in
lieu of, such direct investment, Special Venture Portfolio may
construct a synthetic foreign debt position by (a) purchasing a
debt instrument denominated in one currency, generally U.S.
dollars; and (b) concurrently entering into a forward contract to
deliver a corresponding amount of that currency in exchange for a
different currency on a future date and at a specified rate of
exchange. Because of the availability of a variety of highly
liquid U.S. dollar debt instruments, a synthetic foreign debt
position utilizing such U.S. dollar instruments may offer greater
liquidity than direct investment in foreign currency debt
instruments. In connection with the purchase of foreign
securities, Special Venture Portfolio may contract to purchase an
amount of foreign currency sufficient to pay the purchase price of
the securities at the settlement date. Such a contract involves
the risk that the value of the foreign currency may decline
relative to the value of the dollar prior to the settlement date--
this risk is in addition to the risk that the value of the foreign
security purchased may decline. Special Venture Portfolio also
may enter into foreign currency contracts as a hedging technique
to limit or reduce exposure to currency fluctuations. In
addition, Special Venture Portfolio may use options and futures
contracts, as described below, to limit or reduce exposure to
currency fluctuations. As of September 30, 1996, Special Venture
Fund's holdings of foreign companies, as a percentage of net
assets, were 7.0% (3.5% in foreign securities and 3.5% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
Special Venture Portfolio may invest in securities purchased on a
when-issued or delayed-delivery basis. Although the payment terms
of these securities are established at the time Special Venture
Portfolio enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. Special Venture Portfolio will
make such commitments only with the intention of actually
acquiring the securities, but may sell the securities before
settlement date if it is deemed advisable for investment reasons.
Special Venture Portfolio may make loans of its portfolio
securities to broker-dealers and banks subject to certain
restrictions described in the Statement of Additional Information.
It may participate in an interfund lending program, subject to
certain restrictions described in the Statement of Additional
Information.
PORTFOLIO TURNOVER
Under normal circumstances, Special Venture Portfolio expects to
experience moderate portfolio turnover with an investment time
horizon of three to five years. Although the portfolio turnover
rate is not expected to exceed 100% under normal market
conditions, there are no limitations on the length of time that
portfolio securities must be held. Flexibility of investment and
emphasis on capital appreciation may involve greater portfolio
turnover than that of mutual funds that have the objectives of
income or maintenance of a balanced investment position. A high
rate of portfolio turnover may result in increased transaction
expenses and the realization of capital gains and losses. (See
Distributions and Income Taxes.) Special Venture Fund is not
intended to be an income-producing investment.
DERIVATIVES.
Consistent with its objective, Special Venture Portfolio may
invest in a broad array of financial instruments and securities,
including conventional exchange-traded and non-exchange-traded
options, futures contracts, futures options, securities
collateralized by underlying pools of mortgages or other
receivables, floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each case,
the value of the instrument or security is "derived" from the
performance of an underlying asset or a "benchmark" such as a
security index, an interest rate, or a currency. Special Venture
Portfolio does not expect to invest more than 5% of its net assets
in any type of Derivative except for options, futures contracts,
and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, Special Venture
Portfolio may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2) enter
into interest rate, index and foreign currency futures contracts;
(3) write options on such futures contracts; and (4) purchase
other types of forward or investment contracts linked to
individual securities, indexes or other benchmarks. Special
Venture Portfolio may write a call or put option only if the
option is covered. As the writer of a covered call option,
Special Venture Portfolio foregoes, during the option's life, the
opportunity to profit from increases in market value of the
security covering the call option above the sum of the premium and
the exercise price of the call. There can be no assurance that a
liquid market will exist when Special Venture Portfolio seeks to
close out a position. In addition, because futures positions may
require low margin deposits, the use of futures contracts involves
a high degree of leverage and may result in losses in excess of
the amount of the margin deposit.
SHORT SALES AGAINST THE BOX.
Special Venture Portfolio 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 Special Venture Portfolio against the risk of
losses in the value of its portfolio securities because any
unrealized losses with respect to such securities should be wholly
or partly offset by a corresponding gain in the short position.
However, any potential gains in such securities should be wholly
or partially offset by a corresponding loss in the short position.
Short sales against the box may be used to lock in a profit on a
security when, for tax reasons or otherwise, the Adviser does not
want to sell the security. For a more complete explanation,
please refer to the Statement of Additional Information.
_________________________
INVESTMENT RESTRICTIONS
Neither Special Venture Fund nor Special Venture Portfolio will
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 Special Venture Fund from investing 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
Special Venture Portfolio in which the seller agrees to repurchase
the securities at a higher price, which includes an amount
representing interest on the purchase price, within a specified
time. In the event of bankruptcy of the seller, Special Venture
Portfolio could experience both losses and delays in liquidating
its collateral.
- -----------------
Neither Special Venture Fund nor Special Venture Portfolio will
acquire more than 10% of the outstanding voting securities of any
one issuer. Special Venture Fund may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
Neither Special Venture Fund nor Special Venture Portfolio may
make loans except that each may (1) purchase money market
instruments and enter into repurchase agreements; (2) acquire
publicly-distributed or privately-placed debt securities; (3) lend
its portfolio securities under certain conditions; and (4)
participate in an interfund lending program with other Stein Roe
Funds and Portfolios. Neither may borrow money, except for non-
leveraging, 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.
Special Venture Fund and Special Venture Portfolio may invest in
repurchase agreements, provided that neither will 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 of this
section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" as defined in the Investment
Company Act of 1940. The common investment objective of Special
Venture Fund and Special Venture Portfolio is non-fundamental and,
as such, may be changed by the Board of Trustees without
shareholder approval, subject, however, to at least 30 days'
advance written notice to Special Venture Fund's shareholders.
Any such change may result in Special Venture Fund having an
investment objective different from the objective the shareholder
considered appropriate at the time of investment in Special
Venture Fund. All of the investment restrictions are set forth in
the Statement of Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Special Venture Fund is
designed for long-term investors who want greater return potential
than available from the stock market in general, and who are
willing to tolerate the greater investment risk and market
volatility associated with investments in small and medium-sized
companies. Securities of such companies may be subject to greater
price volatility than securities of larger companies and tend to
have a lower degree of market liquidity. They also may be more
sensitive to changes in economic and business conditions, and may
react differently than securities of larger companies. In
addition, such companies are less well known to the investing
public and may not be as widely followed by the investment
community. There can be no guarantee that Special Venture Fund
will achieve its objective.
Debt securities rated in the fourth highest grade may have some
speculative characteristics, and changes in economic conditions or
other circumstances may lead to a weakened capacity of the issuers
of such securities to make principal and interest payments.
Securities rated below investment grade may possess speculative
characteristics, and changes in economic conditions are more
likely to affect the issuer's capacity to pay interest or repay
principal.
Although Special Venture Portfolio does not attempt to reduce or
limit risk through wide industry diversification of investment, it
usually allocates its investments among a number of different
industries rather than concentrating in a particular industry or
group of industries. Special Venture Portfolio will not invest
more than 25% of its total assets (at the time of investment) in
the securities of companies in any one industry.
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers, different accounting, auditing and
financial reporting standards, different settlement practices,
less market liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition of
exchange controls and withholding taxes on dividends, and seizure
or nationalization of investments owned by non-residents. Foreign
investments also tend to involve higher transaction and custody
costs.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of Special Venture Fund through your employer or
limitations on the amount that may be purchased, please consult
your employer. Shares are sold to eligible defined contribution
plans at Special Venture Fund's net asset value (see Net Asset
Value) next determined after receipt of an order in good form,
including receipt of payment by Special Venture Fund. Each
purchase of Special Venture Fund shares through a broker-dealer,
bank, or other intermediary ("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.
Each purchase order for Special Venture 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
Special Venture 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 interest
of Investment Trust or of Special Venture Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed
quarterly. All other purchases and redemptions will be confirmed
as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Special
Venture Fund shares may be redeemed any day the New York Stock
Exchange is open. For more information about how to redeem your
shares of Special Venture Fund through your employer's plan,
including any charges that may be imposed by the plan, please
consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Special Venture Fund shares and use the proceeds
to purchase shares of any other Stein Roe Fund available through
your employer's defined contribution plan. (An exchange is
commonly referred to as a "transfer.") Before exercising the
Exchange Privilege, you should obtain the prospectus for the Stein
Roe Fund in which you wish to invest and read it carefully.
Contact your plan administrator for instructions on how to
exchange your shares or to obtain prospectuses of other Stein Roe
Funds available through your plan. Special Venture Fund reserves
the right to suspend, limit, modify, or terminate the Exchange
Privilege or its use in any manner by any person or class;
shareholders would be notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by Investment Trust. Investment
Trust cannot accept a redemption request that specifies a
particular date or price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon Special Venture Fund's
net asset value per share at the time of redemption, it may be
more or less than the price you originally paid for the shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of Special Venture Fund's shares
is its net asset value per share. The net asset value of a share
of Special Venture Fund is determined as of the close of trading
on the New York Stock Exchange (currently 3:00 p.m., central time)
by dividing the difference between the values of its assets and
liabilities by the number of shares outstanding. Net asset value
will not be determined on days when the Exchange is closed unless,
in the judgment of the Board of Trustees, the net asset value
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., central time. Special
Venture Portfolio allocates net asset value, income, and expenses
to Special Venture Fund and any other of its feeder funds in
proportion to their respective interests in Special Venture
Portfolio.
Each security traded on a national stock exchange is valued at its
last sale price on that exchange on the day of valuation or, if
there are no sales that day, at the latest bid quotation. Each
over-the-counter security for which the last sale price on the day
of valuation is available from NASDAQ is valued at that price.
All other over-the-counter securities for which reliable
quotations are available are valued at the latest bid quotation.
Long-term straight-debt obligations and securities convertible
into stocks are valued at a fair value using a procedure
determined in good faith by the Board of Trustees. Pricing
services approved by the Board provide valuations (some of which
may be "readily available market quotations"). These valuations
are reviewed by the Adviser. If the Adviser believes that a
valuation received from the service does not represent a fair
value, it values the obligation using a method that the Board
believes represents fair value. The Board may approve the use of
other pricing services and any pricing service used may employ
electronic data processing techniques, including a so-called
"matrix" system, to determine valuations. Other assets and
securities are valued by a method that the Board believes
represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually. Special
Venture Fund intends to distribute by the end of each calendar
year at least 98% of any net capital gains realized from the sale
of securities during the twelve-month period ended October 31 in
that year. Special Venture Fund intends to distribute any
undistributed net investment income and net realized capital gains
in the following year.
The terms of your plan will govern how you may receive
distributions from Special Venture Fund. Generally, dividend and
capital gains distributions will be reinvested in additional
shares of Special Venture Fund.
INCOME TAXES.
Special Venture Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal
taxes on income and gain it distributes. Special Venture Fund
will distribute substantially all of its ordinary income and net
capital gains on a current basis. Generally, Special Venture Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by Special Venture Fund to employer-
sponsored defined contribution plans that qualify for tax-exempt
treatment under federal income tax laws will not be taxable.
Special tax rules apply to investments through such plans. You
should consult your tax advisor to determine the suitability of
Special Venture Fund as an investment through such a plan and the
tax treatment of distributions (including distributions of amounts
attributable through an investment in Special Venture Fund) from
such a plan. This section is not intended to be a full discussion
of income tax laws and their effect on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in Special Venture 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 Special Venture Fund's total return with alternative
investments should consider differences between Special Venture
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. Special Venture Fund's total
return does not reflect any charges or expenses related to your
employer's plan. Of course, past performance is not necessarily
indicative of future results.
__________________________
MANAGEMENT
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of Investment Trust and the Board of Base
Trust have overall management responsibility for Special Venture
Fund and Special Venture Portfolio, respectively. See the
Statement of Additional Information for the names of and
additional information about the trustees and officers. Since
Investment Trust and Base Trust have the same trustees, the
trustees have adopted conflict of interest procedures to monitor
and address potential conflicts between the interests of Special
Venture Fund and Special Venture Portfolio.
The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
Special Venture Fund and Special Venture Portfolio, subject to the
direction of the respective Board of Trustees. The Adviser is
registered as an investment adviser under the Investment Advisers
Act of 1940. The Adviser was organized in 1986 to succeed to the
business of Stein Roe & Farnham, a partnership that had advised
and managed mutual funds since 1949. The Adviser is a wholly
owned indirect subsidiary of Liberty Financial Companies, Inc.
("Liberty Financial"), which in turn is a majority owned indirect
subsidiary of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
E. Bruce Dunn and Richard B. Peterson have been co-portfolio
managers of Special Venture Portfolio since its inception in 1997
and had been portfolio managers of Special Venture Fund since its
inception in 1994. Each is a senior vice president of the
Adviser. Mr. Dunn has been associated with the Adviser since
1964. He received his A.B. degree from Yale University (1956) and
his M.B.A. from Harvard University (1958) and is a chartered
investment counselor. Mr. Peterson, who began his investment
career at Stein Roe & Farnham in 1965 after graduating with a B.A.
from Carleton College (1962) and the Woodrow Wilson School at
Princeton University (1964) with a Masters in Public
Administration, rejoined the Adviser in 1991 after 15 years of
equity research and portfolio management experience with State
Farm Investment Management Corp. As of December 31, 1996, Messrs.
Dunn and Peterson were responsible for co-managing $1.5 billion in
mutual fund net assets.
FEES AND EXPENSES.
In return for its services, the Adviser is entitled to receive a
management fee from Special Venture Portfolio based on an annual
rate of .75% of average net assets; and an administrative fee from
Special Venture Fund based on an annual rate of .15% of average
net assets. Prior to conversion to the master fund/feeder fund
structure on February 3, 1997, the management fee was paid by
Special Venture Fund. The fee for the period ended September 30,
1996, after the fee waiver in effect during that period, amounted
to 1.25% of average net assets.
Under a separate agreement with each Trust, the Adviser provides
certain accounting and bookkeeping services to Special Venture
Fund and Special Venture Portfolio, 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.
DISTRIBUTOR.
The shares of Special Venture Fund are offered for sale through
Liberty Securities Corporation ("Distributor") without any sales
commissions or charges to Special Venture 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 Special
Venture Fund correspondence (including purchase and redemption
orders) should be mailed to SteinRoe Services Inc. at P.O. Box
8900, Boston, Massachusetts 02205. 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 Special
Venture Fund and Special Venture Portfolio. Foreign securities
are maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
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, nine 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 is also believed to be remote, because it would be limited
to claims to which the disclaimer did not apply and to
circumstances in which the other series was unable to meet its
obligations.
__________________________
SPECIAL CONSIDERATIONS REGARDING
MASTER FUND/FEEDER FUND STRUCTURE
Commencing February 3, 1997, Special Venture Fund, which is an
open-end management investment company, seeks to achieve its
objective by investing all of its assets in shares of another
mutual fund having an investment objective identical to that of
Special Venture Fund. The shareholders of Special Venture Fund
approved this policy of permitting Special Venture Fund to act as
a feeder fund by investing in Special Venture Portfolio. Please
refer to Investment Policies, Portfolio Investments and
Strategies, and Investment Restrictions for a description of the
investment objectives, policies, and restrictions of Special
Venture Fund and Special Venture Portfolio. The management fees
and expenses of Special Venture Fund and Special Venture Portfolio
are described under the Fee Table and Management. Special Venture
Fund bears its proportionate share of Special Venture Portfolio's
expenses.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
Special Venture Portfolio is a separate series of SR&F Base Trust
("Base Trust"), a Massachusetts common law trust organized under
an Agreement and Declaration of Trust ("Declaration of Trust")
dated August 23, 1993. The Declaration of Trust of Base Trust
provides that Special Venture Fund and other investors in Special
Venture Portfolio will be liable for all obligations of Special
Venture Portfolio that are not satisfied by Special Venture
Portfolio. However, the risk of Special Venture Fund incurring
financial loss on account of such liability is limited to
circumstances in which liability was inadequately insured and
Special Venture Portfolio was unable to meet its obligations.
Accordingly, the Trustees of Investment Trust believe that neither
Special Venture Fund nor its shareholders will be adversely
affected by reason of Special Venture Fund's investing in Special
Venture Portfolio.
The Declaration of Trust of Base Trust provides that Special
Venture Portfolio will terminate 120 days after the withdrawal of
Special Venture Fund or any other investor in Special Venture
Portfolio, unless the remaining investors vote to agree to
continue the business of Special Venture Portfolio. The Trustees
of Investment Trust may vote Special Venture Fund's interests in
Special Venture Portfolio for such continuation without approval
of Special Venture Fund's shareholders.
The common investment objective of Special Venture Fund and
Special Venture Portfolio is non-fundamental and may be changed
without shareholder approval, subject, however, to at least 30
days' advance written notice to Special Venture Fund's
shareholders.
The fundamental policies of Special Venture Fund and the
corresponding fundamental policies of Special Venture Portfolio
can be changed only with shareholder approval. If Special Venture
Fund, as a Portfolio investor, is requested to vote on a change in
a fundamental policy of Special Venture Portfolio or any other
matter pertaining to Special Venture Portfolio (other than
continuation of the business of Special Venture Portfolio after
withdrawal of another investor), Special Venture Fund will solicit
proxies from its shareholders and vote its interest in Special
Venture Portfolio for and against such matters proportionately to
the instructions to vote for and against such matters received
from Fund shareholders. Special Venture Fund will vote shares for
which it receives no voting instructions in the same proportion as
the shares for which it receives voting instructions. If there
are other investors in Special Venture Portfolio, there can be no
assurance that any matter receiving a majority of votes cast by
Fund shareholders will receive a majority of votes cast by all
investors. If other investors hold a majority interest in Special
Venture Portfolio, they could have voting control over Special
Venture Portfolio.
In the event that Special Venture Portfolio's fundamental policies
were changed so as to be inconsistent with those of Special
Venture Fund, the Board of Trustees of Investment Trust would
consider what action might be taken, including changes to Special
Venture Fund's fundamental policies, withdrawal of Special Venture
Fund's assets from Special Venture Portfolio and investment of
such assets in another pooled investment entity, or the retention
of an investment adviser to invest those assets directly in a
portfolio of securities. Any of these actions would require the
approval of Special Venture Fund's shareholders. Special Venture
Fund's inability to find a substitute master fund or comparable
investment management could have a significant impact upon its
shareholders' investments. Any withdrawal of Special Venture
Fund's assets could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution) to Special Venture
Fund. Should such a distribution occur, Special Venture Fund
would incur brokerage fees or other transaction costs in
converting such securities to cash. In addition, a distribution
in kind could result in a less diversified portfolio of
investments for Special Venture Fund and could affect the
liquidity of Special Venture Fund.
Each investor in Special Venture Portfolio, including Special
Venture Fund, may add to or reduce its investment in Special
Venture Portfolio on each day the NYSE is open for business. The
investor's percentage of the aggregate interests in Special
Venture Portfolio will be computed as the percentage equal to the
fraction (i) the numerator of which is the beginning of the day
value of such investor's investment in Special Venture Portfolio
on such day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investor's investment in
Special Venture Portfolio effected on such day; and (ii) the
denominator of which is the aggregate beginning of the day net
asset value of Special Venture Portfolio on such day plus or
minus, as the case may be, the amount of the net additions to or
withdrawals from the aggregate investments in Special Venture
Portfolio by all investors in Special Venture Portfolio. The
percentage so determined will then be applied to determine the
value of the investor's interest in Special Venture Portfolio as
of the close of business.
Base Trust may permit other investment companies and/or other
institutional investors to invest in Special Venture Portfolio,
but members of the general public may not invest directly in
Special Venture Portfolio. Other investors in Special Venture
Portfolio are not required to sell their shares at the same public
offering price as Special Venture Fund, might incur different
administrative fees and expenses than Special Venture Fund, and
might charge a sales commission. Therefore, Special Venture Fund
shareholders might have different investment returns than
shareholders in another investment company that invests
exclusively in Special Venture Portfolio. Investment by such
other investors in Special Venture Portfolio would provide funds
for the purchase of additional portfolio securities and would tend
to reduce the operating expenses as a percentage of Special
Venture Portfolio's net assets. Conversely, large-scale
redemptions by any such other investors in Special Venture
Portfolio could result in untimely liquidations of Special Venture
Portfolio's security holdings, loss of investment flexibility, and
increases in the operating expenses of Special Venture Portfolio
as a percentage of Special Venture Portfolio's net assets. As a
result, Special Venture Portfolio's security holdings may become
less diverse, resulting in increased risk.
Information regarding other investors in Special Venture Portfolio
may be obtained by writing to SR&F Base Trust at Suite 3200, One
South Wacker Drive, Chicago, IL 60606, or by calling 800-338-2550.
The Adviser may provide administrative or other services to one or
more of such investors.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about Special Venture Fund.
________________
<PAGE>
[[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE BALANCED FUND
The investment objective of Balanced Fund is to provide long-term
growth of capital and current income, consistent with reasonable
investment risk. Balanced Fund invests all of its net investable
assets in shares of SR&F Balanced Portfolio, which has the same
investment objective and substantially the same investment
policies as Balanced Fund. (See Special Considerations Regarding
Master Fund/Feeder Fund Structure.)
This prospectus relates only to shares of Balanced Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
Balanced Fund is a "no-load" fund. There are no sales or
redemption charges, and Balanced Fund has no 12b-1 plan. Balanced
Fund is a series of the Stein Roe Investment Trust and Balanced
Portfolio is a series of SR&F Base Trust. Each Trust is a
diversified open-end management investment company.
This prospectus contains information you should know before
investing in Balanced Fund. Please read it carefully and retain
it for future reference.
A Statement of Additional Information dated February 3, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the Stein
Roe Mutual Funds at Suite 3200, One South Wacker Drive, Chicago,
IL 60606 or by calling 800-322-1130. The Statement of Additional
Information contains information relating to other series of the
Stein Roe Investment Trust that may not be available as investment
vehicles for your defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 3, 1997
TABLE OF CONTENTS
Page
Fee Table ..............................2
Financial Highlights....................2
The Fund................................3
Investment Policies.....................4
Portfolio Investments and Strategies....4
Investment Restrictions ...............6
Risks and Investment Considerations ....7
How to Purchase Shares..................7
How to Redeem Shares ...................7
Net Asset Value ........................8
Distributions and Income Taxes..........8
Investment Return.......................9
Management .............................9
Organization and Description of Shares.10
Special Considerations Regarding
Master Fund/Feeder Fund Structure....11
For More Information ..................12
<PAGE>
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (as a percentage
of average net assets)
Management and Administrative Fees 0.70%
12b-1 Fees None
Other Expenses 0.35%
-----
Total Operating Expenses 1.05%
=====
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------- -------- -------- ---------
$11 $33 $58 $128
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 Balanced Fund. The table is based
upon actual expenses incurred in the last fiscal year.
Balanced Fund pays the Adviser an administrative fee based on the
Fund's average daily net assets, and Balanced Portfolio pays the
Adviser a management fee based on its average daily net assets.
The expenses of both Balanced Fund and Balanced Portfolio are
summarized in the Fee Table. (The fees are described under
Management.) Balanced Fund bears its proportionate share of
Portfolio expenses. The trustees of Investment Trust have
considered whether the annual operating expenses of Balanced Fund,
including its share of the expenses of Balanced Portfolio, would
be more or less than if Balanced Fund invested directly in the
securities held by Balanced Portfolio, and concluded that Balanced
Fund's expenses would not be greater in such case.
For purposes of the Example above, the figures assume that the
percentage amounts listed for Balanced Fund under Annual Fund
Operating Expenses remain the same in each of the periods, that
all income dividends and capital gain distributions are reinvested
in additional Balanced Fund shares, and that, for purposes of fee
breakpoints, Balanced Fund's net assets remain at the same level
as in the most recently completed fiscal year. The figures in the
Example are not necessarily indicative of past or future expenses,
and actual expenses may be greater or less than those shown.
Although information such as that shown in the Example and Fee
Table is useful in reviewing Balanced Fund's expenses and in
providing a basis for comparison with other mutual funds, it
should not be used for comparison with other investments using
different assumptions or time periods. The example does not
reflect any charges or expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of Balanced
Fund for the periods shown on a per-share basis and has been
audited by Arthur Andersen LLP, independent public accountants.
This table should be read in conjunction with Balanced Fund's
financial statements and notes thereto. Balanced Fund's annual
report, which may be obtained from Investment Trust without charge
upon request, contains additional performance information.
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept.30, Years Ended September 30,
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period..... $25.04 $25.07 $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78 $27.82
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net investment income...... 1.33 1.32 0.97 1.37 1.28 1.32 1.31 1.26 1.15 1.33 1.00
Net realized and
unrealized gains
(losses) on investments... 2.75 (1.06) 0.45 3.10 (2.92) 4.85 1.48 2.37 (1.06) 2.22 2.96
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations............... 4.08 0.26 1.42 4.47 (1.64) 6.17 2.79 3.63 0.09 3.55 3.96
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions
Net investment income..... (1.35) (1.63) (0.90) (1.34) (1.36) (1.26) (1.34) (1.30) (1.17) (1.23) (1.01)
Net realized capital
gains ................... (2.70) (1.45) (0.11) (0.38) (0.73) (0.51) (0.62) (1.67) (0.71) (0.28) (0.70)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions....... (4.05) (3.08) (1.01) (1.72) (2.09) (1.77) (1.96) (2.97) (1.88) (1.51) (1.71)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End
of Period.............. $25.07 $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78 $27.82 $30.07
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net expenses to
average net assets....... 0.79% 0.80% *0.87% 0.90% 0.88% 0.87% 0.85% 0.81% 0.83% 0.87% 1.05%
Ratio of net investment
income to average
net assets............... 5.21% 5.12% *5.68% 5.83% 5.36% 5.50% 4.94% 4.69% 4.53% 5.14% 3.45%
Portfolio turnover rate.... 108% 86% 85% 93% 75% 71% 59% 53% 29% 45% 87%
Average commissions
(per share)............. -- -- -- -- -- -- -- -- -- -- $0.0537
Total return............. 17.11% 0.74% 6.51% 20.76% (6.86%) 29.67% 11.13% 14.57% 0.36% 14.49% 14.83%
Net assets, end of
period (000 omitted). $149,831 $140,279 $134,225 $144,890 $124,592 $150,689 $173,417 $222,292 $229,274 $228,560 $231,063
</TABLE>
*Annualized.
(a) For the year ended December 31, 1986, the average amount of
debt outstanding for Balanced Fund was $2,222, the average
number of shares outstanding was 5,506,763, and the average
amount of debt outstanding was $0.0004 per share. Balanced
Fund had no borrowings outstanding during any other periods.
__________________________
THE FUND
STEIN ROE BALANCED FUND ("Balanced 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. Balanced Fund does
not impose commissions or charges when shares are purchased or
redeemed.
Balanced 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
investment management, administrative, and bookkeeping and
accounting services to Balanced Fund and Balanced Portfolio. The
Adviser also manages 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 opening a regular
account in any of these mutual funds, please call 800-338-2550.
On February 3, 1997, Balanced Fund became a "feeder fund"--that
is, it invested all of its assets in SR&F Balanced Portfolio
("Balanced Portfolio"), a "master fund" that has an investment
objective identical to that of Balanced Fund. Balanced Portfolio
is a series of SR&F Base Trust ("Base Trust"). Before converting
to a feeder fund, Balanced Fund invested its assets in a
diversified group of securities. Under the "master fund/feeder
fund structure," a feeder fund and one or more feeder funds pool
their assets in a master portfolio that has the same investment
objective and substantially the same investment policies as the
feeder funds. The purpose of such an arrangement is to achieve
greater operational efficiencies and reduce costs. The assets of
Balanced Portfolio, Balanced Fund's master fund, are managed by
the Adviser in the same manner as the assets of Balanced Fund were
managed before conversion to the master fund/feeder fund
structure. (For more information, see Special Considerations
Regarding Master Fund/Feeder Fund Structure.)
__________________________
INVESTMENT POLICY
The investment objective of Balanced Fund is to seek long-term
growth of capital and current income, consistent with reasonable
investment risk. Balanced Fund invests all of its net investable
assets in Balanced Portfolio, which has the same investment
objective and substantially the same investment policies as
Balanced Fund. Balanced Portfolio allocates its investments among
equities, debt securities and cash. The portfolio manager
determines those allocations based on the views of the Adviser's
investment strategists regarding economic, market and other
factors relative to investment opportunities.
The equity portion of the portfolio is invested primarily in well-
established companies having market capitalizations in excess of
$1 billion. Debt securities will make up at least 25% of Balanced
Portfolio's total assets. Investments in debt securities are
limited to those that are within the four highest grades
(generally referred to as "investment grade") assigned by a
nationally recognized statistical rating organization or, if
unrated, determined by the Adviser to be of comparable quality.
Further information on portfolio investments and strategies may be
found under Portfolio Investments and Strategies in this
prospectus and in the Statement of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
CONVERTIBLE SECURITIES.
By investing in convertible securities, Balanced Portfolio obtains
the right to benefit from the capital appreciation potential in
the underlying stock upon exercise of the conversion right, while
earning higher current income than would be available if the stock
were purchased directly. In determining whether to purchase a
convertible, the Adviser will consider substantially the same
criteria that would be considered in purchasing the underlying
stock. The convertible securities purchased by Balanced Portfolio
are limited to those that are within the four highest grades
(generally referred to as "investment grade") assigned by a
nationally recognized statistical rating organization or, if
unrated, determined by the Adviser to be of comparable quality.
DEBT SECURITIES.
In pursuing its investment objective, Balanced Portfolio may
invest in debt securities of corporate and governmental issuers.
Investment in debt securities is limited to those that are rated
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
Balanced Portfolio is lost or reduced below investment grade,
Balanced Portfolio is not required to dispose of the security--the
Adviser will, however, consider that fact in determining whether
Balanced Portfolio should continue to hold the security. When the
Adviser deems a temporary defensive position advisable, Balanced
Portfolio may invest, without limitation, in high-quality fixed
income securities, or hold assets in cash or cash equivalents.
FOREIGN SECURITIES.
Balanced Portfolio may invest in foreign securities. Other than
American Depositary Receipts (ADRs), foreign debt securities
denominated in U.S. dollars, or securities guaranteed by a U.S.
person, Balanced Portfolio is limited to investing no more than
25% of its total assets in foreign securities. (See Risks and
Investment Considerations.) Balanced Portfolio may invest in
sponsored or unsponsored ADRs. In addition to, or in lieu of,
such direct investment, Balanced Portfolio may construct a
synthetic foreign debt position by (a) purchasing a debt
instrument denominated in one currency, generally U.S. dollars;
and (b) concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign debt position
utilizing such U.S. dollar instruments may offer greater liquidity
than direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, Balanced
Portfolio may contract to purchase an amount of foreign currency
sufficient to pay the purchase price of the securities at the
settlement date. Such a contract involves the risk that the value
of the foreign currency may decline relative to the value of the
dollar prior to the settlement date--this risk is in addition to
the risk that the value of the foreign security purchased may
decline. Balanced Portfolio also may enter into foreign currency
contracts as a hedging technique to limit or reduce its exposure
to currency fluctuations. In addition, Balanced Portfolio may use
options and futures contracts, as described below, to limit or
reduce exposure to currency fluctuations. As of September 30,
1996, Balanced Fund's holdings of foreign companies, as a
percentage of net assets, were 13.6% (11.3% in foreign securities
and 2.3% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
Balanced Portfolio may invest in securities purchased on a when-
issued or delayed-delivery basis. Although the payment terms of
these securities are established at the time Balanced Portfolio
enters into the commitment, the securities may be delivered and
paid for a month or more after the date of purchase, when their
value may have changed. Balanced Portfolio will make such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
it is deemed advisable for investment reasons. Balanced Portfolio
may make loans of its portfolio securities to broker-dealers and
banks subject to certain restrictions described in the Statement
of Additional Information. It may also participate in an
interfund lending program subject to certain restrictions
described in the Statement of Additional Information.
DERIVATIVES.
Consistent with its objective, Balanced Portfolio may invest in a
broad array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized by
underlying pools of mortgages or other receivables, floating rate
instruments, and other instruments that securitize assets of
various types ("Derivatives"). In each case, the value of the
instrument or security is "derived" from the performance of an
underlying asset or a "benchmark" such as a security index, an
interest rate, or a currency. Balanced Portfolio does not expect
to invest more than 5% of its net assets in any type of Derivative
except for options, futures contracts, and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, Balanced
Portfolio may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2) enter
into interest rate, index and foreign currency futures contracts;
(3) write options on such futures contracts; and (4) purchase
other types of forward or investment contracts linked to
individual securities, indexes or other benchmarks. Balanced
Portfolio may write a call or put option only if the option is
covered. As the writer of a covered call option, Balanced
Portfolio foregoes, during the option's life, the opportunity to
profit from increases in market value of the security covering the
call option above the sum of the premium and the exercise price of
the call. There can be no assurance that a liquid market will
exist when Balanced Portfolio seeks to close out a position. In
addition, because futures positions may require low margin
deposits, the use of futures contracts involves a high degree of
leverage and may result in losses in excess of the amount of the
margin deposit.
SHORT SALES AGAINST THE BOX.
Balanced Portfolio 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 Balanced Portfolio against the risk of losses in the value
of its portfolio securities because any unrealized losses with
respect to such securities should be wholly or partly offset by a
corresponding gain in the short position. However, any potential
gains in such securities should be wholly or partially offset by a
corresponding loss in the short position. Short sales against the
box may be used to lock in a profit on a security when, for tax
reasons or otherwise, the Adviser does not want to sell the
security. For a more complete explanation, please refer to the
Statement of Additional Information.
PORTFOLIO TURNOVER.
Although Balanced Portfolio does not purchase securities with a
view to rapid turnover, there are no limitations on the length of
time portfolio securities must be held. The turnover rate may
vary significantly from year to year. A high rate of portfolio
turnover may result in increased transaction expenses and the
realization of capital gains and losses. (See Distributions and
Income Taxes and Financial Highlights.)
__________________________
INVESTMENT RESTRICTIONS
Neither Balanced Fund nor Balanced Portfolio will 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 Balanced
Fund from investing 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
Balanced Portfolio in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a specified
time. In the event of bankruptcy of the seller, Balanced
Portfolio could experience both losses and delays in liquidating
its collateral.
- ------------------
Neither Balanced Fund nor Balanced Portfolio will acquire more
than 10% of the outstanding voting securities of any one issuer.
Balanced Fund may, however, invest all of its assets in shares of
another investment company having the identical investment
objective.
Neither Balanced Fund nor Balanced Portfolio may make loans except
that each may (1) purchase money market instruments and enter into
repurchase agreements; (2) acquire publicly-distributed or
privately-placed debt securities; (3) lend its portfolio
securities under certain conditions; and (4) participate in an
interfund lending program with other Stein Roe Funds and
Portfolios. Neither may borrow money, except for non-leveraging,
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.
Balanced Fund and Balanced Portfolio may invest in repurchase
agreements, provided that neither will 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 common investment objective of Balanced
Fund and Balanced Portfolio is non-fundamental and, as such, may
be changed by the Board of Trustees without shareholder approval,
subject, however, to at least 30 days' advance written notice to
Balanced Fund's shareholders. Any such change may result in
Balanced Fund having an investment objective different from the
objective the shareholder considered appropriate at the time of
investment in Balanced Fund. All of the investment restrictions
are set forth in the Statement of Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Balanced Fund is
designed for long-term investors who can accept the fluctuations
in portfolio value and other risks associated with seeking long-
term capital appreciation through investments in securities.
Balanced Portfolio usually allocates its investments among a
number of different industries rather than concentrating in a
particular industry or group of industries; however, under
abnormal circumstances, it may invest up to 25% of net assets in a
particular industry or group of industries. There can be no
guarantee that Balanced Fund will achieve its objective.
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers, different accounting, auditing and
financial reporting standards, different settlement practices,
less market liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition of
exchange controls and withholding taxes on dividends, and seizure
or nationalization of investments owned by non-residents. Foreign
investments also tend to involve higher transaction and custody
costs.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of Balanced Fund through your employer or limitations on
the amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at Balanced
Fund's net asset value (see Net Asset Value) next determined after
receipt of an order in good form, including receipt of payment by
Balanced Fund. Each purchase of Balanced Fund shares through a
broker-dealer, bank, or other intermediary ("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.
Each purchase order for Balanced 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 Balanced
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 interest of
Investment Trust or of Balanced Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed
quarterly. All other purchases and redemptions will be confirmed
as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Balanced
Fund shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of
Balanced Fund through your employer's plan, including any charges
that may be imposed by the plan, please consult with your
employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Balanced Fund shares and use the proceeds to
purchase shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. Balanced Fund reserves the right to suspend,
limit, modify, or terminate the Exchange Privilege or its use in
any manner by any person or class; shareholders would be notified
of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by Investment Trust. Investment
Trust cannot accept a redemption request that specifies a
particular date or price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon Balanced Fund's net
asset value per share at the time of redemption, it may be more or
less than the price you originally paid for the shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of Balanced Fund's shares is its
net asset value per share. The net asset value of a share of
Balanced Fund is determined as of the close of trading on the New
York Stock Exchange (currently 3:00 p.m., central time) by
dividing the difference between the values of its assets and
liabilities by the number of shares outstanding. Net asset value
will not be determined on days when the Exchange is closed unless,
in the judgment of the Board of Trustees, the net asset value
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., central time. Balanced
Portfolio allocates net asset value, income, and expenses to
Balanced Fund and any other of its feeder funds in proportion to
their respective interests in Balanced Portfolio.
Each security traded on a national stock exchange is valued at its
last sale price on that exchange on the day of valuation or, if
there are no sales that day, at the latest bid quotation. Each
over-the-counter security for which the last sale price on the day
of valuation is available from NASDAQ is valued at that price.
All other over-the-counter securities for which reliable
quotations are available are valued at the latest bid quotation.
Long-term straight-debt obligations and securities convertible
into stocks are valued at a fair value using a procedure
determined in good faith by the Board of Trustees. Pricing
services approved by the Board provide valuations (some of which
may be "readily available market quotations"). These valuations
are reviewed by the Adviser. If the Adviser believes that a
valuation received from the service does not represent a fair
value, it values the obligation using a method that the Board
believes represents fair value. The Board may approve the use of
other pricing services and any pricing service used may employ
electronic data processing techniques, including a so-called
"matrix" system, to determine valuations. Other assets and
securities are valued by a method that the Board believes
represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid each calendar
quarter. However, because Balanced Fund is required to distribute
at least 98% of its net investment income by the end of the
calendar year, an additional dividend may be declared near year
end. Balanced Fund intends to distribute by the end of each
calendar year at least 98% of any net capital gains realized from
the sale of securities during the twelve-month period ended
October 31 in that year. Balanced Fund intends to distribute any
undistributed net investment income and net realized capital gains
in the following year.
The terms of your plan will govern how you may receive
distributions from Balanced Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares of
Balanced Fund.
INCOME TAXES.
Balanced Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal
taxes on income and gain it distributes. Balanced Fund will
distribute substantially all of its ordinary income and net
capital gains on a current basis. Generally, Balanced Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by Balanced Fund to employer-
sponsored defined contribution plans that qualify for tax-exempt
treatment under federal income tax laws will not be taxable.
Special tax rules apply to investments through such plans. You
should consult your tax advisor to determine the suitability of
Balanced Fund as an investment through such a plan and the tax
treatment of distributions (including distributions of amounts
attributable through an investment in Balanced Fund) from such a
plan. This section is not intended to be a full discussion of
income tax laws and their effect on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in Balanced 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 Balanced Fund's total return with alternative
investments should consider differences between Balanced 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. Balanced Fund's total return does not
reflect any charges or expenses related to your employer's plan.
Of course, past performance is not necessarily indicative of
future results.
__________________________
MANAGEMENT
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of Investment Trust and the Board of Base
Trust have overall management responsibility for Balanced Fund and
Balanced Portfolio, respectively. See the Statement of Additional
Information for the names of and additional information about the
trustees and officers. Since Investment Trust and Base Trust have
the same trustees, the trustees have adopted conflict of interest
procedures to monitor and address potential conflicts between the
interests of Balanced Fund and Balanced Portfolio.
The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
Balanced Fund and Balanced Portfolio, subject to the direction of
the respective Board of Trustees. The Adviser is registered as an
investment adviser under the Investment Advisers Act of 1940. The
Adviser was organized in 1986 to succeed to the business of Stein
Roe & Farnham, a partnership that had advised and managed mutual
funds since 1949. The Adviser is a wholly owned indirect
subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which in turn is a majority owned indirect subsidiary
of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
Harvey B. Hirschhorn has been portfolio manager of Balanced
Portfolio since its inception in 1997 and had been portfolio
manager of Balanced Fund since April, 1996. Mr. Hirschhorn is
Executive Vice President and Chief Economist & Investment
Strategist of the Adviser, which he joined in 1973. He received
an A.B. degree from Rutgers College (1971) and an M.B.A. from the
University of Chicago (1973), and is a chartered financial
analyst. As of December 31, 1996, Mr. Hirschhorn was responsible
for managing $557 million in mutual fund net assets. William
Garrison and Sandra L. Knight are the associate portfolio
managers. Mr. Garrison joined the Adviser in 1989. He received
his A.B. from Princeton University (1988). Ms. Knight earned a
B.S. degree from Lawrence Technological University (1984) and an
M.B.A. from Loyola University of Chicago (1991). She has been
employed by the Adviser as an economic analyst since 1991.
FEES AND EXPENSES.
In return for its services, the Adviser is entitled to receive a
management fee from Balanced Portfolio based on an annual rate of
.55% of the first $500 million of average net assets, .50% of the
next $500 million, and .45% thereafter; and an administrative fee
from Balanced Fund based on an annual rate of .15% of the first
$500 million of average net assets, .125% of the next $500
million, and .10% thereafter. Prior to conversion to the master
fund/feeder fund structure on February 3, 1997, the management fee
was paid by Balanced Fund. For the year ended September 30,
1996, the fees for Balanced Fund amounted to 1.05% of average net
assets.
Under a separate agreement with each Trust, the Adviser provides
certain accounting and bookkeeping services to Balanced Fund and
Balanced Portfolio, 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.
DISTRIBUTOR.
The shares of Balanced Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to Balanced 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 Balanced Fund
correspondence (including purchase and redemption orders) should
be mailed to SteinRoe Services Inc. at P.O. Box 8900, Boston,
Massachusetts 02205. 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 Balanced
Fund and Balanced Portfolio. Foreign securities are maintained in
the custody of foreign banks and trust companies that are members
of the Bank's Global Custody Network or foreign depositories used
by such members. (See Custodian in the Statement of Additional
Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
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, nine 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 is also believed to be remote, because it would be limited
to claims to which the disclaimer did not apply and to
circumstances in which the other series was unable to meet its
obligations.
__________________________
SPECIAL CONSIDERATIONS REGARDING
MASTER FUND/FEEDER FUND STRUCTURE
Commencing February 3, 1997, Balanced Fund, which is an open-end
management investment company, seeks to achieve its objective by
investing all of its assets in shares of another mutual fund
having an investment objective identical to that of Balanced Fund.
The shareholders of Balanced Fund approved this policy of
permitting Balanced Fund to act as a feeder fund by investing in
Balanced Portfolio. Please refer to Investment Policies,
Portfolio Investments and Strategies, and Investment Restrictions
for a description of the investment objectives, policies, and
restrictions of Balanced Fund and Balanced Portfolio. The
management fees and expenses of Balanced Fund and Balanced
Portfolio are described under the Fee Table and Management.
Balanced Fund bears its proportionate share of Balanced
Portfolio's expenses.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
Balanced Portfolio is a separate series of SR&F Base Trust (
"Base Trust"), a Massachusetts common law trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
August 23, 1993. The Declaration of Trust of Base Trust
provides that Balanced Fund and other investors in Balanced
Portfolio will be liable for all obligations of Balanced Portfolio
that are not satisfied by Balanced Portfolio. However, the risk
of Balanced Fund incurring financial loss on account of such
liability is limited to circumstances in which liability was
inadequately insured and Balanced Portfolio was unable to meet its
obligations. Accordingly, the Trustees of Investment Trust
believe that neither Balanced Fund nor its shareholders will be
adversely affected by reason of Balanced Fund's investing in
Balanced Portfolio.
The Declaration of Trust of Base Trust provides that Balanced
Portfolio will terminate 120 days after the withdrawal of Balanced
Fund or any other investor in Balanced Portfolio, unless the
remaining investors vote to agree to continue the business of
Balanced Portfolio. The Trustees of Investment Trust may vote
Balanced Fund's interests in Balanced Portfolio for such
continuation without approval of Balanced Fund's shareholders.
The common investment objective of Balanced Fund and Balanced
Portfolio is non-fundamental and may be changed without
shareholder approval, subject, however, to at least 30 days'
advance written notice to Balanced Fund's shareholders.
The fundamental policies of Balanced Fund and the corresponding
fundamental policies of Balanced Portfolio can be changed only
with shareholder approval. If Balanced Fund, as a Portfolio
investor, is requested to vote on a change in a fundamental policy
of Balanced Portfolio or any other matter pertaining to Balanced
Portfolio (other than continuation of the business of Balanced
Portfolio after withdrawal of another investor), Balanced Fund
will solicit proxies from its shareholders and vote its interest
in Balanced Portfolio for and against such matters proportionately
to the instructions to vote for and against such matters received
from Fund shareholders. Balanced Fund will vote shares for which
it receives no voting instructions in the same proportion as the
shares for which it receives voting instructions. If there are
other investors in Balanced Portfolio, there can be no assurance
that any matter receiving a majority of votes cast by Fund
shareholders will receive a majority of votes cast by all
investors. If other investors hold a majority interest in
Balanced Portfolio, they could have voting control over Balanced
Portfolio.
In the event that Balanced Portfolio's fundamental policies were
changed so as to be inconsistent with those of Balanced Fund, the
Board of Trustees of Investment Trust would consider what action
might be taken, including changes to Balanced Fund's fundamental
policies, withdrawal of Balanced Fund's assets from Balanced
Portfolio and investment of such assets in another pooled
investment entity, or the retention of an investment adviser to
invest those assets directly in a portfolio of securities. Any of
these actions would require the approval of Balanced Fund's
shareholders. Balanced Fund's inability to find a substitute
master fund or comparable investment management could have a
significant impact upon its shareholders' investments. Any
withdrawal of Balanced Fund's assets could result in a
distribution in kind of portfolio securities (as opposed to a cash
distribution) to Balanced Fund. Should such a distribution occur,
Balanced Fund would incur brokerage fees or other transaction
costs in converting such securities to cash. In addition, a
distribution in kind could result in a less diversified portfolio
of investments for Balanced Fund and could affect the liquidity of
Balanced Fund.
Each investor in Balanced Portfolio, including Balanced Fund, may
add to or reduce its investment in Balanced Portfolio on each day
the NYSE is open for business. The investor's percentage of the
aggregate interests in Balanced Portfolio will be computed as the
percentage equal to the fraction (i) the numerator of which is the
beginning of the day value of such investor's investment in
Balanced Portfolio on such day plus or minus, as the case may be,
the amount of any additions to or withdrawals from the investor's
investment in Balanced Portfolio effected on such day; and (ii)
the denominator of which is the aggregate beginning of the day net
asset value of Balanced Portfolio on such day plus or minus, as
the case may be, the amount of the net additions to or withdrawals
from the aggregate investments in Balanced Portfolio by all
investors in Balanced Portfolio. The percentage so determined
will then be applied to determine the value of the investor's
interest in Balanced Portfolio as of the close of business.
Base Trust may permit other investment companies and/or other
institutional investors to invest in Balanced Portfolio, but
members of the general public may not invest directly in Balanced
Portfolio. Other investors in Balanced Portfolio are not required
to sell their shares at the same public offering price as Balanced
Fund, might incur different administrative fees and expenses than
Balanced Fund, and might charge a sales commission. Therefore,
Balanced Fund shareholders might have different investment returns
than shareholders in another investment company that invests
exclusively in Balanced Portfolio. Investment by such other
investors in Balanced Portfolio would provide funds for the
purchase of additional portfolio securities and would tend to
reduce the operating expenses as a percentage of Balanced
Portfolio's net assets. Conversely, large-scale redemptions by
any such other investors in Balanced Portfolio could result in
untimely liquidations of Balanced Portfolio's security holdings,
loss of investment flexibility, and increases in the operating
expenses of Balanced Portfolio as a percentage of Balanced
Portfolio's net assets. As a result, Balanced Portfolio's
security holdings may become less diverse, resulting in increased
risk.
Information regarding other investors in Balanced Portfolio may be
obtained by writing to SR&F Base Trust at Suite 3200, One South
Wacker Drive, Chicago, IL 60606, or by calling 800-338-2550. The
Adviser may provide administrative or other services to one or
more of such investors.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about Balanced Fund.
________________
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE GROWTH STOCK FUND
The investment objective of Growth Stock Fund is to provide long-
term capital appreciation. Growth Stock Fund invests all of its
net investable assets in shares of SR&F Growth Stock Portfolio,
which has the same investment objective and substantially the same
investment policies as Growth Stock Fund. (See Special
Considerations Regarding Master Fund/Feeder Fund Structure.)
Growth Stock Portfolio invests in common stocks and other equity-
type securities.
This prospectus relates only to shares of Growth Stock Fund
purchased through eligible employer-sponsored defined contribution
plans ("defined contribution plans").
Growth Stock Fund is a "no-load" fund. There are no sales or
redemption charges, and Growth Stock Fund has no 12b-1 plan.
Growth Stock Fund is a series of the Stein Roe Investment Trust
and Growth Stock Portfolio is a series of SR&F Base Trust. Each
Trust is a diversified open-end management investment company.
This prospectus contains information you should know before
investing in Growth Stock Fund. Please read it carefully and
retain it for future reference.
A Statement of Additional Information dated February 3, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the Stein
Roe Mutual Funds at Suite 3200, One South Wacker Drive, Chicago,
IL 60606 or by calling 800-322-1130. The Statement of Additional
Information contains information relating to other series of the
Stein Roe Investment Trust that may not be available as investment
vehicles for your defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 3, 1997
TABLE OF CONTENTS
Page
Fee Table ..............................2
Financial Highlights....................2
The Fund................................3
Investment Policies.....................4
Portfolio Investments and Strategies....4
Investment Restrictions.................6
Risks and Investment Considerations ....7
How to Purchase Shares..................7
How to Redeem Shares ...................7
Net Asset Value ........................8
Distributions and Income Taxes..........8
Investment Return.......................9
Management .............................9
Organization and Description of Shares.10
Special Considerations Regarding
Master Fund/Feeder Fund Structure....11
For More Information ..................12
<PAGE>
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (as a
percentage of average net assets)
Management and Administrative Fees 0.75%
12b-1 Fees None
Other Expenses 0.33%
-----
Total Operating Expenses 1.08%
======
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$11 $34 $60 $132
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in Growth Stock Fund. The table is
based upon actual expenses incurred in the last fiscal year.
Growth Stock Fund pays the Adviser an administrative fee based on
the Fund's average daily net assets, and Growth Stock Portfolio
pays the Adviser a management fee based on its average daily net
assets. The expenses of both Growth Stock Fund and Growth Stock
Portfolio are summarized in the Fee Table. (The fees are
described under Management.) Growth Stock Fund bears its
proportionate share of Portfolio expenses. The trustees of
Investment Trust have considered whether the annual operating
expenses of Growth Stock Fund, including its share of the expenses
of Growth Stock Portfolio, would be more or less than if Growth
Stock Fund invested directly in the securities held by Growth
Stock Portfolio, and concluded that Growth Stock Fund's expenses
would not be greater in such case.
For purposes of the Example above, the figures assume that the
percentage amounts listed for Growth Stock Fund under Annual Fund
Operating Expenses remain the same in each of the periods; that
all income dividends and capital gain distributions are reinvested
in additional Growth Stock Fund shares; and that, for purposes of
fee breakpoints, Growth Stock Fund's net assets remain at the same
level as in the most recently completed fiscal year. The figures
in the Example are not necessarily indicative of past or future
expenses, and actual expenses may be greater or less than those
shown. Although information such as that shown in the Example and
Fee Table is useful in reviewing Growth Stock Fund's expenses and
in providing a basis for comparison with other mutual funds, it
should not be used for comparison with other investments using
different assumptions or time periods. The example does not
reflect any charges or expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of Growth Stock
Fund for the periods shown on a per-share basis and has been
audited by Arthur Andersen LLP, independent public accountants.
This table should be read in conjunction with Growth Stock Fund's
financial statements and notes thereto. Growth Stock Fund's
annual report, which may be obtained from Investment Trust without
charge upon request, contains additional performance information.
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept.30, Years Ended September 30,
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $17.43 $16.97 $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58 $26.13
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net investment income..... 0.26 0.24 0.19 0.34 0.39 0.33 0.18 0.15 0.13 0.12 0.08
Net realized and un-
realized gains (losses)
on investments........... 2.75 0.46 (0.11) 4.51 (1.17) 5.90 3.01 1.14 0.41 5.60 5.01
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations.............. 3.01 0.70 0.08 4.85 (0.78) 6.23 3.19 1.29 0.54 5.72 5.09
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions
Net investment income.... (0.25) (0.29) (0.15) (0.34) (0.37) (0.42) (0.16) (0.10) (0.12) (0.15) (0.10)
Net realized capital
gains................... (3.22) (2.71) -- (0.06) -- (0.92) (1.17) (0.95) (1.73) (3.02) (2.33)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions..... (3.47) (3.00) (0.15) (0.40) (0.37) (1.34) (1.33) (1.05) (1.85) (3.17) (2.43)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End
of Period...............$16.97 $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58 $26.13 $28.79
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net expenses to
average net assets.......0.67% 0.65% *0.76% 0.77% 0.73% 0.79% 0.92% 0.93% 0.94% 0.99% 1.08%
Ratio of net investment
income to average
net assets...............1.34% 1.25% *1.62% 2.05% 2.03% 1.63% 0.75% 0.59% 0.50% 0.56% 0.32%
Portfolio turnover rate... 137% 143% 84% 47% 40% 34% 23% 29% 27% 36% 39%
Average commissions
(per share)............ -- -- -- -- -- -- -- -- -- -- $0.0528
Total return.............16.91% 5.57% 0.54% 33.86% (4.17%) 36.64% 14.37% 5.09% 2.10% 28.18% 21.04%
Net assets, end of
period (000 omitted)..$226,604 $232,658 $195,641 $206,476 $206,031 $291,767 $372,758 $373,921 $321,502 $360,336 $417,964
</TABLE>
*Annualized
(a) For the periods indicated below, bank borrowing activity was
as follows:
Debt
outstanding Average debt Average shares Average debt
at end of outstanding outstanding per share
period (in during period during period during
Period Ended thousands) (in thousands) (in thousands) period
- ------------- ---------- -------------- ------------- ------------
9/30/89 -- 124 11,745 0.0106
Growth Stock Fund had no bank borrowings during any other periods.
__________________________
THE FUND
STEIN ROE GROWTH STOCK FUND ("Growth Stock 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 Stock Fund
does not impose commissions or charges when shares are purchased
or redeemed.
Growth Stock 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
investment management, administrative, and bookkeeping and
accounting services to Growth Stock Fund and Growth Stock
Portfolio. The Adviser also manages 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 opening a regular account in any of these mutual funds, please
call 800-338-2550.
On February 3, 1997, Growth Stock Fund became a "feeder fund"--
that is, it invested all of its assets in SR&F Growth Stock
Portfolio ("Growth Stock Portfolio"), a "master fund" that has an
investment objective identical to that of Growth Stock Fund.
Growth Stock Portfolio is a series of SR&F Base Trust ("Base
Trust"). Before converting to a feeder fund, Growth Stock Fund
invested its assets in a diversified group of securities. Under
the "master fund/feeder fund structure," a feeder fund and one or
more feeder funds pool their assets in a master portfolio that has
the same investment objective and substantially the same
investment policies as the feeder funds. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. The assets of Growth Stock Portfolio, Growth Stock
Fund's master fund, are managed by the Adviser in the same manner
as the assets of Growth Stock Fund were managed before conversion
to the master fund/feeder fund structure. (For more information,
see Special Considerations Regarding Master Fund/Feeder Fund
Structure.)
__________________________
INVESTMENT POLICIES
The investment objective of Growth Stock Fund is long-term capital
appreciation. Growth Stock Fund invests all of its net investable
assets in Growth Stock Portfolio, which has the same investment
objective and substantially the same investment policies as Growth
Stock Fund. Growth Stock Portfolio attempts to achieve this
objective by normally investing at least 65% of its total assets
in common stock and other equity-type securities (such as
preferred stocks, securities convertible into or exchangeable for
common stocks, and warrants or rights to purchase common stocks)
that, in the opinion of the Adviser, have long-term appreciation
possibilities.
Further information on portfolio investments and strategies may be
found under Portfolio Investments and Strategies in this
prospectus and in the Statement of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, Growth Stock Portfolio may
invest up to 35% of its total assets in debt securities of
corporate and governmental issuers. Investment in debt securities
is limited to those that are rated within the four highest grades
(generally referred to as investment grade). Securities in the
fourth highest grade may possess speculative characteristics, and
changes in economic conditions are more likely to affect the
issuer's capacity to pay interest and repay principal. If the
rating of a security held by Growth Stock Portfolio is lost or
reduced below investment grade, Growth Stock Portfolio is not
required to dispose of the security--the Adviser will, however,
consider that fact in determining whether Growth Stock Portfolio
should continue to hold the security. When the Adviser deems a
temporary defensive position advisable, Growth Stock Portfolio may
invest, without limitation, in high-quality fixed income
securities, or hold assets in cash or cash equivalents.
FOREIGN SECURITIES.
Growth Stock Portfolio may invest in foreign securities. Other
than American Depositary Receipts (ADRs), foreign debt securities
denominated in U.S. dollars, or securities guaranteed by a U.S.
person, Growth Stock Portfolio is limited to investing no more
than 25% of its total assets in foreign securities. (See Risks
and Investment Considerations.) Growth Stock Portfolio may invest
in sponsored or unsponsored ADRs. In addition to, or in lieu of,
such direct investment, Growth Stock Portfolio may construct a
synthetic foreign debt position by (a) purchasing a debt
instrument denominated in one currency, generally U.S. dollars;
and (b) concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign debt position
utilizing such U.S. dollar instruments may offer greater liquidity
than direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, Growth Stock
Portfolio may contract to purchase an amount of foreign currency
sufficient to pay the purchase price of the securities at the
settlement date. Such a contract involves the risk that the value
of the foreign currency may decline relative to the value of the
dollar prior to the settlement date--this risk is in addition to
the risk that the value of the foreign security purchased may
decline. Growth Stock Portfolio also may enter into foreign
currency contracts as a hedging technique to limit or reduce
exposure to currency fluctuations. In addition, Growth Stock
Portfolio may use options and futures contracts, as described
below, to limit or reduce exposure to currency fluctuations. As
of September 30, 1996, Growth Stock Fund's holdings of foreign
companies, as a percentage of net assets, were 5.0% (1.4% in
foreign securities and 3.6% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
Growth Stock Portfolio may invest in securities purchased on a
when-issued or delayed-delivery basis. Although the payment terms
of these securities are established at the time Growth Stock
Portfolio enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase,
when their value may have changed. Growth Stock Portfolio will
make such commitments only with the intention of actually
acquiring the securities, but may sell the securities before
settlement date if it is deemed advisable for investment reasons.
Growth Stock Portfolio may make loans of its portfolio securities
to broker-dealers and banks subject to certain restrictions
described in the Statement of Additional Information. It may also
participate in an interfund lending program, subject to certain
restrictions described in the Statement of Additional Information.
DERIVATIVES
Consistent with its objective, Growth Stock Portfolio may invest
in a broad array of financial instruments and securities,
including conventional exchange-traded and non-exchange-traded
options, futures contracts, futures options, securities
collateralized by underlying pools of mortgages or other
receivables, floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each case,
the value of the instrument or security is "derived" from the
performance of an underlying asset or a "benchmark" such as a
security index, an interest rate, or a currency. Growth Stock
Portfolio does not expect to invest more than 5% of its net assets
in any type of Derivative except for options, futures contracts,
and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, Growth Stock
Portfolio may: (1) purchase and write both call options and put
options on securities, indexes and foreign currencies; (2) enter
into interest rate, index and foreign currency futures contracts;
(3) write options on such futures contracts; and (4) purchase
other types of forward or investment contracts linked to
individual securities, indexes or other benchmarks. Growth Stock
Portfolio may write a call or put option only if the option is
covered. As the writer of a covered call option, Growth Stock
Portfolio foregoes, during the option's life, the opportunity to
profit from increases in market value of the security covering the
call option above the sum of the premium and the exercise price of
the call. There can be no assurance that a liquid market will
exist when Growth Stock Portfolio seeks to close out a position.
In addition, because futures positions may require low margin
deposits, the use of futures contracts involves a high degree of
leverage and may result in losses in excess of the amount of the
margin deposit.
SHORT SALES AGAINST THE BOX.
Growth Stock Portfolio 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 Stock Portfolio against the risk of losses
in the value of its portfolio securities because any unrealized
losses with respect to such securities should be wholly or partly
offset by a corresponding gain in the short position. However,
any potential gains in such securities should be wholly or
partially offset by a corresponding loss in the short position.
Short sales against the box may be used to lock in a profit on a
security when, for tax reasons or otherwise, the Adviser does not
want to sell the security. For a more complete explanation,
please refer to the Statement of Additional Information.
PORTFOLIO TURNOVER.
Although Growth Stock Portfolio does not purchase securities with
a view to rapid turnover, there are no limitations on the length
of time portfolio securities must be held. The turnover rate may
vary significantly from year to year. A high rate of portfolio
turnover may result in increased transaction expenses and the
realization of capital gains and losses. (See Financial
Highlights and Distributions and Income Taxes.) Growth Stock Fund
is not intended to be an income-producing investment, although it
may produce varying amounts of income.
__________________________
INVESTMENT RESTRICTIONS
Neither Growth Stock Fund nor Growth Stock Portfolio will 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 Stock Fund from investing 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
Stock Portfolio in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a specified
time. In the event of bankruptcy of the seller, Growth Stock
Portfolio could experience both losses and delays in liquidating
its collateral.
- ------------------
Neither Growth Stock Fund nor Growth Stock Portfolio will acquire
more than 10% of the outstanding voting securities of any one
issuer. Growth Stock Fund may, however, invest all of its assets
in shares of another investment company having the identical
investment objective.
Neither Growth Stock Fund nor Growth Stock Portfolio may make
loans except that each may (1) purchase money market instruments
and enter into repurchase agreements; (2) acquire publicly-
distributed or privately-placed debt securities; (3) lend its
portfolio securities under certain conditions; and (4) participate
in an interfund lending program with other Stein Roe Funds and
Portfolios. Neither may borrow money, except for non-leveraging,
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 Stock Fund and Growth Stock Portfolio may invest in
repurchase agreements, provided that neither will 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 common investment objective of Growth
Stock Fund and Growth Stock Portfolio is non-fundamental and, as
such, may be changed by the Board of Trustees without shareholder
approval, subject, however, to at least 30 days' advance written
notice to Growth Stock Fund's shareholders. Any such change may
result in Growth Stock Fund having an investment objective
different from the objective the shareholder considered
appropriate at the time of investment in Growth Stock Fund. All
of the investment restrictions are set forth in the Statement of
Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Growth Stock Fund is
designed for long-term investors who desire to participate in the
stock market with more investment risk and volatility than the
stock market in general, but with less investment risk and
volatility than aggressive capital appreciation funds. Growth
Stock Portfolio seeks to reduce risk by investing in a diversified
portfolio, but this does not eliminate all risk. It may,
however, under abnormal circumstances, invest up to 25% of net
assets in a particular industry or group of industries. There can
be no guarantee that Growth Stock Fund will achieve its objective.
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers, different accounting, auditing and
financial reporting standards, different settlement practices,
less market liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition of
exchange controls and withholding taxes on dividends, and seizure
or nationalization of investments owned by non-residents. Foreign
investments also tend to involve higher transaction and custody
costs.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of Growth Stock Fund through your employer or limitations
on the amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at Growth
Stock Fund's net asset value (see Net Asset Value) next determined
after receipt of an order in good form, including receipt of
payment by Growth Stock Fund. Each purchase of Growth Stock Fund
shares through a broker-dealer, bank, or other intermediary
("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.
Each purchase order for Growth Stock 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 Growth
Stock 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 interest of
Investment Trust or of Growth Stock Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed
quarterly. All other purchases and redemptions will be confirmed
as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Growth
Stock Fund shares may be redeemed any day the New York Stock
Exchange is open. For more information about how to redeem your
shares of Growth Stock Fund through your employer's plan,
including any charges that may be imposed by the plan, please
consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Growth Stock Fund shares and use the proceeds to
purchase shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. Growth Stock Fund reserves the right to
suspend, limit, modify, or terminate the Exchange Privilege or its
use in any manner by any person or class; shareholders would be
notified of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by Investment Trust. Investment
Trust cannot accept a redemption request that specifies a
particular date or price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon Growth Stock Fund's net
asset value per share at the time of redemption, it may be more or
less than the price you originally paid for the shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of Growth Stock Fund's shares is
its net asset value per share. The net asset value of a share of
Growth Stock Fund is determined as of the close of trading on the
New York Stock Exchange (currently 3:00 p.m., central time) by
dividing the difference between the values of its assets and
liabilities by the number of shares outstanding. Net asset value
will not be determined on days when the Exchange is closed unless,
in the judgment of the Board of Trustees, the net asset value
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., central time. Growth
Stock Portfolio allocates net asset value, income, and expenses to
Growth Stock Fund and any other of its feeder funds in proportion
to their respective interests in Growth Stock Portfolio.
Each security traded on a national stock exchange is valued at its
last sale price on that exchange on the day of valuation or, if
there are no sales that day, at the latest bid quotation. Each
over-the-counter security for which the last sale price on the day
of valuation is available from NASDAQ is valued at that price.
All other over-the-counter securities for which reliable
quotations are available are valued at the latest bid quotation.
Long-term straight-debt obligations and securities convertible
into stocks are valued at a fair value using a procedure
determined in good faith by the Board of Trustees. Pricing
services approved by the Board provide valuations (some of which
may be "readily available market quotations"). These valuations
are reviewed by the Adviser. If the Adviser believes that a
valuation received from the service does not represent a fair
value, it values the obligation using a method that the Board
believes represents fair value. The Board may approve the use of
other pricing services and any pricing service used may employ
electronic data processing techniques, including a so-called
"matrix" system, to determine valuations. Other assets and
securities are valued by a method that the Board believes
represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually. Growth
Stock Fund intends to distribute by the end of each calendar year
at least 98% of any net capital gains realized from the sale of
securities during the twelve-month period ended October 31 in that
year. Growth Stock Fund intends to distribute any undistributed
net investment income and net realized capital gains in the
following year.
The terms of your plan will govern how you may receive
distributions from Growth Stock Fund. Generally, dividend and
capital gains distributions will be reinvested in additional
shares of Growth Stock Fund.
INCOME TAXES.
Growth Stock Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal
taxes on income and gain it distributes. Growth Stock Fund will
distribute substantially all of its ordinary income and net
capital gains on a current basis. Generally, Growth Stock Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by Growth Stock Fund to employer-
sponsored defined contribution plans that qualify for tax-exempt
treatment under federal income tax laws will not be taxable.
Special tax rules apply to investments through such plans. You
should consult your tax advisor to determine the suitability of
Growth Stock Fund as an investment through such a plan and the tax
treatment of distributions (including distributions of amounts
attributable through an investment in Growth Stock Fund) from such
a plan. This section is not intended to be a full discussion of
income tax laws and their effect on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in Growth Stock 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 Stock Fund's total return with alternative
investments should consider differences between Growth Stock 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. Growth Stock Fund's total return does
not reflect any charges or expenses related to your employer's
plan. Of course, past performance is not necessarily indicative
of future results.
__________________________
MANAGEMENT
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of Investment Trust and the Board of Base
Trust have overall management responsibility for Growth Stock Fund
and Growth Stock Portfolio, respectively. See the Statement of
Additional Information for the names of and additional information
about the trustees and officers. Since Investment Trust and Base
Trust have the same trustees, the trustees have adopted conflict
of interest procedures to monitor and address potential conflicts
between the interests of Growth Stock Fund and Growth Stock
Portfolio.
The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing Growth
Stock Fund and Growth Stock Portfolio, subject to the direction of
the respective Board of Trustees. The Adviser is registered as an
investment adviser under the Investment Advisers Act of 1940. The
Adviser was organized in 1986 to succeed to the business of Stein
Roe & Farnham, a partnership that had advised and managed mutual
funds since 1949. The Adviser is a wholly owned indirect
subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which in turn is a majority owned indirect subsidiary
of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
Erik P. Gustafson has been portfolio manager of Growth Stock
Portfolio since its inception in 1997. He had been manager of
Growth Stock Fund since 1994. Mr. Gustafson is a vice president
of the Adviser, having joined it in 1992. From 1989 to 1992 he
was an attorney with Fowler, White, Burnett, Hurley, Banick &
Strickroot. He holds a B.A. from the University of Virginia
(1985) and M.B.A. and J.D. degrees from Florida State University
(1989). As of December 31, 1996, Ms. Gustafson was responsible
for managing $877 million in mutual fund net assets. David P.
Brady is associate portfolio manager. Mr. Brady, who joined the
Adviser in 1993, was an equity investment analyst with State Farm
Mutual Automobile Insurance Company from 1986 to 1993. A
chartered financial analyst, Mr. Brady earned a B.S. in Finance,
graduating Magna Cum Laude, from the University of Arizona (1986),
and an M.B.A. from the University of Chicago (1989).
FEES AND EXPENSES.
In return for its services, the Adviser is entitled to receive a
management fee from Growth Stock Portfolio based on an annual rate
of 60% of the first $500 million of average net assets, .55% of
the next $500 million, and .50% thereafter; and an administrative
fee from Growth Stock Fund based on an annual rate of .15% of the
first $500 million of average net assets, .125% of the next $500
million, and .10% thereafter. Prior to conversion to the master
fund/feeder fund structure on February 3, 1997, the management fee
was paid by Growth Stock Fund. For the year ended September 30,
1996, the fees for Growth Stock Fund amounted to 1.08% of average
net assets.
Under a separate agreement with each Trust, the Adviser provides
certain accounting and bookkeeping services to Growth Stock Fund
and Growth Stock Portfolio 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.
DISTRIBUTOR.
The shares of Growth Stock Fund are offered for sale through
Liberty Securities Corporation ("Distributor") without any sales
commissions or charges to Growth Stock 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 Growth
Stock Fund correspondence (including purchase and redemption
orders) should be mailed to SteinRoe Services Inc. at P.O. Box
8900, Boston, Massachusetts 02205. 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
Stock Fund and Growth Stock Portfolio. Foreign securities are
maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
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, nine 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 is also believed to be remote, because it would be limited
to claims to which the disclaimer did not apply and to
circumstances in which the other series was unable to meet its
obligations.
__________________________
SPECIAL CONSIDERATIONS REGARDING
MASTER FUND/FEEDER FUND STRUCTURE
Commencing February 3, 1997, Growth Stock Fund, which is an open-
end management investment company, seeks to achieve its objective
by investing all of its assets in shares of another mutual fund
having an investment objective identical to that of Growth Stock
Fund. The shareholders of Growth Stock Fund approved this policy
of permitting Growth Stock Fund to act as a feeder fund by
investing in Growth Stock Portfolio. Please refer to Investment
Policies, Portfolio Investments and Strategies, and Investment
Restrictions for a description of the investment objectives,
policies, and restrictions of Growth Stock Fund and Growth Stock
Portfolio. The management fees and expenses of Growth Stock Fund
and Growth Stock Portfolio are described under the Fee Table and
Management. Growth Stock Fund bears its proportionate share of
Growth Stock Portfolio's expenses.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
Growth Stock Portfolio is a separate series of SR&F Base Trust
("Base Trust"), a Massachusetts common law trust organized under
an Agreement and Declaration of Trust ("Declaration of Trust")
dated August 23, 1993. The Declaration of Trust of Base Trust
provides that Growth Stock Fund and other investors in Growth
Stock Portfolio will be liable for all obligations of Growth Stock
Portfolio that are not satisfied by Growth Stock Portfolio.
However, the risk of Growth Stock Fund incurring financial loss on
account of such liability is limited to circumstances in which
liability was inadequately insured and Growth Stock Portfolio was
unable to meet its obligations. Accordingly, the Trustees of
Investment Trust believe that neither Growth Stock Fund nor its
shareholders will be adversely affected by reason of Growth Stock
Fund's investing in Growth Stock Portfolio.
The Declaration of Trust of Base Trust provides that Growth Stock
Portfolio will terminate 120 days after the withdrawal of Growth
Stock Fund or any other investor in Growth Stock Portfolio, unless
the remaining investors vote to agree to continue the business of
Growth Stock Portfolio. The Trustees of Investment Trust may vote
Growth Stock Fund's interests in Growth Stock Portfolio for such
continuation without approval of Growth Stock Fund's shareholders.
The common investment objective of Growth Stock Fund and Growth
Stock Portfolio is non-fundamental and may be changed without
shareholder approval, subject, however, to at least 30 days'
advance written notice to Growth Stock Fund's shareholders.
The fundamental policies of Growth Stock Fund and the
corresponding fundamental policies of Growth Stock Portfolio can
be changed only with shareholder approval. If Growth Stock Fund,
as a Portfolio investor, is requested to vote on a change in a
fundamental policy of Growth Stock Portfolio or any other matter
pertaining to Growth Stock Portfolio (other than continuation of
the business of Growth Stock Portfolio after withdrawal of another
investor), Growth Stock Fund will solicit proxies from its
shareholders and vote its interest in Growth Stock Portfolio for
and against such matters proportionately to the instructions to
vote for and against such matters received from Fund shareholders.
Growth Stock Fund will vote shares for which it receives no voting
instructions in the same proportion as the shares for which it
receives voting instructions. If there are other investors in
Growth Stock Portfolio, there can be no assurance that any matter
receiving a majority of votes cast by Fund shareholders will
receive a majority of votes cast by all investors. If other
investors hold a majority interest in Growth Stock Portfolio, they
could have voting control over Growth Stock Portfolio.
In the event that Growth Stock Portfolio's fundamental policies
were changed so as to be inconsistent with those of Growth Stock
Fund, the Board of Trustees of Investment Trust would consider
what action might be taken, including changes to Growth Stock
Fund's fundamental policies, withdrawal of Growth Stock Fund's
assets from Growth Stock Portfolio and investment of such assets
in another pooled investment entity, or the retention of an
investment adviser to invest those assets directly in a portfolio
of securities. Any of these actions would require the approval of
Growth Stock Fund's shareholders. Growth Stock Fund's inability
to find a substitute master fund or comparable investment
management could have a significant impact upon its shareholders'
investments. Any withdrawal of Growth Stock Fund's assets could
result in a distribution in kind of portfolio securities (as
opposed to a cash distribution) to Growth Stock Fund. Should such
a distribution occur, Growth Stock Fund would incur brokerage fees
or other transaction costs in converting such securities to cash.
In addition, a distribution in kind could result in a less
diversified portfolio of investments for Growth Stock Fund and
could affect the liquidity of Growth Stock Fund.
Each investor in Growth Stock Portfolio, including Growth Stock
Fund, may add to or reduce its investment in Growth Stock
Portfolio on each day the NYSE is open for business. The
investor's percentage of the aggregate interests in Growth Stock
Portfolio will be computed as the percentage equal to the fraction
(i) the numerator of which is the beginning of the day value of
such investor's investment in Growth Stock Portfolio on such day
plus or minus, as the case may be, the amount of any additions to
or withdrawals from the investor's investment in Growth Stock
Portfolio effected on such day; and (ii) the denominator of which
is the aggregate beginning of the day net asset value of Growth
Stock Portfolio on such day plus or minus, as the case may be, the
amount of the net additions to or withdrawals from the aggregate
investments in Growth Stock Portfolio by all investors in Growth
Stock Portfolio. The percentage so determined will then be
applied to determine the value of the investor's interest in
Growth Stock Portfolio as of the close of business.
Base Trust may permit other investment companies and/or other
institutional investors to invest in Growth Stock Portfolio, but
members of the general public may not invest directly in Growth
Stock Portfolio. Other investors in Growth Stock Portfolio are
not required to sell their shares at the same public offering
price as Growth Stock Fund, might incur different administrative
fees and expenses than Growth Stock Fund, and might charge a sales
commission. Therefore, Growth Stock Fund shareholders might have
different investment returns than shareholders in another
investment company that invests exclusively in Growth Stock
Portfolio. Investment by such other investors in Growth Stock
Portfolio would provide funds for the purchase of additional
portfolio securities and would tend to reduce the operating
expenses as a percentage of Growth Stock Portfolio's net assets.
Conversely, large-scale redemptions by any such other investors in
Growth Stock Portfolio could result in untimely liquidations of
Growth Stock Portfolio's security holdings, loss of investment
flexibility, and increases in the operating expenses of Growth
Stock Portfolio as a percentage of Growth Stock Portfolio's net
assets. As a result, Growth Stock Portfolio's security holdings
may become less diverse, resulting in increased risk.
Information regarding other investors in Growth Stock Portfolio
may be obtained by writing to SR&F Base Trust at Suite 3200, One
South Wacker Drive, Chicago, IL 60606, or by calling 800-338-2550.
The Adviser may provide administrative or other services to one or
more of such investors.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about Growth Stock Fund.
________________
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE CAPITAL OPPORTUNITIES FUND
The Fund seeks long-term capital appreciation by investing in
aggressive growth companies. THIS FUND IS CLOSED TO PURCHASES BY
NEW INVESTORS EXCEPT FOR PURCHASES BY ELIGIBLE INVESTORS AS
DESCRIBED UNDER HOW TO PURCHASE SHARES.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the Stein Roe Investment Trust.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated February 3, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the Stein
Roe Mutual Funds at Suite 3200, One South Wacker Drive, Chicago,
IL 60606 or by calling 800-322-1130. The Statement of Additional
Information contains information relating to other series of the
Stein Roe Investment Trust that may not be available as investment
vehicles for your defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 3, 1997
TABLE OF CONTENTS
Page
Fee Table ..............................2
Financial Highlights....................2
The Fund................................3
Investment Policies.....................4
Portfolio Investments and Strategies....4
Investment Restrictions ................6
Risks and Investment Considerations ....6
How to Purchase Shares .................7
How to Redeem Shares ...................8
Net Asset Value ........................8
Distributions and Income Taxes..........9
Investment Return.......................9
Management .............................9
Organization and Description of Shares.10
For More Information...................11
<PAGE>
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (as a percentage
of average net assets)
Management and Administrative Fees 0.85%
12b-1 Fees None
Other Expenses 0.37%
-----
Total Operating Expenses 1.22%
======
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$12 $39 $67 $148
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The table is based upon
actual expenses incurred in the last fiscal year.
For purposes of the Example above, the figures assume that the
percentage amounts listed for the Fund under Annual Fund Operating
Expenses remain the same in each of the periods; that all income
dividends and capital gain distributions are reinvested in
additional Fund shares; and that, for purposes of fee breakpoints,
the Fund's net assets remain at the same level as in the most
recently completed fiscal year. The figures in the Example are
not necessarily indicative of past or future expenses, and actual
expenses may be greater or less than those shown. Although
information such as that shown in the Example and Fee Table is
useful in reviewing the Fund's expenses and in providing a basis
for comparison with other mutual funds, it should not be used for
comparison with other investments using different assumptions or
time periods. The Example does not reflect any charges or
expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund for
the periods shown on a per-share basis and has been audited by
Arthur Andersen LLP, independent public accountants. This table
should be read in conjunction with the Fund's financial statements
and notes thereto. The Fund's annual report, which may be
obtained from the Trust without charge upon request, contains
additional performance information.
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept.30, Years Ended September 30,
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
Beginning of Period..... $11.91 $13.38 $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 $15.79 $21.69
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net investment income.
(loss).................... 0.03 0.03 0.03 0.05 0.06 0.11 0.06 0.01 0.02 0.01 (0.06)
Net realized and un-
realized gains (losses)
on investments............ 1.97 0.62 0.13 3.86 (4.72) 3.73 0.60 3.91 0.34 5.91 10.41
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations............... 2.00 0.65 0.16 3.91 (4.66) 3.84 0.66 3.92 0.36 5.92 10.35
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions
Net investment income..... (0.10) (0.05) -- (0.05) (0.06) (0.08) (0.10) (0.04) (0.01) (0.02) (0.01)
Net realized capital
gains.................... (0.43) (3.36) -- (0.06) (2.54) (0.08) -- -- -- -- (0.99)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions...... (0.53) (3.41) -- (0.11) (2.60) (0.16) (0.10) (0.04) (0.01) (0.02) (1.00)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End
of Period............... $13.38 $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 $15.79 $21.69 $31.04
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net expenses to
average net assets....... 0.95% 0.95% *1.01% 1.09% 1.14% 1.18% 1.06% 1.06% 0.97% 1.05% 1.22%
Ratio of net investment
income to average
net assets............... 0.19% 0.18% *0.34% 0.42% 0.43% 1.19% 0.42% 0.09% 0.04% 0.08% (0.40%)
Portfolio turnover rate... 116% 133% 164% 245% 171% 69% 46% 55% 46% 60% 22%
Average commissions
(per share)............ -- -- -- -- -- -- -- -- -- -- $0.0555
Total return............ 16.77% 9.38% 1.51% 36.68% (37.51%) 53.51% 5.99% 34.01% 2.31% 37.46% 49.55%
Net assets, end of
period (000 omitted).. $191,415 $171,973 $194,160 $272,805 $86,342 $129,711 $118,726 $153,101 $175,687 $242,381 $1,684,538
</TABLE>
*Annualized
(a) All per share amounts and Average Shares Outstanding During
Period on the debt table reflect a two-for-one stock split
effective August 25, 1995.
(b) For the periods indicated below, bank borrowing activity was
as follows:
Debt
outstanding Average debt Average shares Average debt
at end of outstanding outstanding per share
period (in during period during period during
Period Ended thousands) (in thousands) (in thousands) period
- ------------- ---------- -------------- ------------- ------------
12/31/86 -- 55 13,906 0.0039
12/31/87 -- 292 16,008 0.0183
9/30/88 -- 56 17,206 0.0033
9/30/89 -- 422 16,066 0.0263
9/30/90 200 1,042 15,944 0.0654
The Fund had no bank borrowings during any other periods.
__________________________
THE FUND
STEIN ROE CAPITAL OPPORTUNITIES FUND (the "Fund") is a no-load,
diversified "mutual fund." Mutual funds sell their own shares to
investors and use the money they receive to invest in a portfolio
of securities such as common stocks. A mutual fund allows you to
pool your money with that of other investors in order to obtain
professional investment management. Mutual funds generally make
it possible for you to obtain greater diversification of your
investments and simplify your recordkeeping. The Fund does not
impose commissions or charges when shares are purchased or
redeemed.
The Fund is a series of the STEIN ROE INVESTMENT TRUST (the
"Trust"), an open-end management investment company, which is
authorized to issue shares of beneficial interest in separate
series. Each series represents interests in a separate portfolio
of securities and other assets, with its own investment objectives
and policies.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory, administrative, and bookkeeping and
accounting services to the Fund. The Adviser also manages several
other 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 opening a regular account in any of these
mutual funds, please call 800-338-2550.
__________________________
INVESTMENT POLICIES
The Fund's investment objective is long-term capital appreciation,
which it attempts to achieve by investing in selected companies
that, in the opinion of the Adviser, offer opportunities for
capital appreciation.
The Fund pursues its objective by investing in aggressive growth
companies. An aggressive growth company, in general, is one that
appears to have the ability to increase its earnings at an above-
average rate. These may include securities of smaller emerging
companies as well as securities of well-seasoned companies of any
size that offer strong earnings growth potential. Such companies
may benefit from new products or services, technological
developments, or changes in management. Securities of smaller
companies may be subject to greater price volatility than
securities of larger companies. In addition, many smaller
companies are less well known to the investing public and may not
be as widely followed by the investment community. Although it
invests primarily in common stocks, the Fund may invest in all
types of equity securities, including preferred stocks and
securities convertible into common stocks. Further information on
portfolio investments and strategies may be found under Portfolio
Investments and Strategies in this prospectus and in the Statement
of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, the Fund may invest in debt
securities of corporate and governmental issuers. The Fund may
invest up to 35% of its net assets in debt securities, but does
not expect to invest more than 5% of its net assets in debt
securities that are rated below investment grade and that, on
balance, are considered predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal
according to the terms of the obligation and, therefore, carry
greater investment risk, including the possibility of issuer
default and bankruptcy. When the Adviser deems a temporary
defensive position advisable, the Fund may invest, without
limitation, in high-quality fixed income securities, or hold
assets in cash or cash equivalents.
FOREIGN SECURITIES.
The Fund may invest in foreign securities. Other than American
Depositary Receipts (ADRs), foreign debt securities denominated in
U.S. dollars, or securities guaranteed by a U.S. person, the Fund
is limited to investing no more than 25% of its total assets in
foreign securities. (See Risks and Investment Considerations.)
The Fund may invest in sponsored and unsponsored ADRs. In
addition to, or in lieu of, such direct investment, a Fund may
construct a synthetic foreign 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, the Fund may contract to purchase an amount of foreign
currency sufficient to pay the purchase price of the securities at
the settlement date. Such a contract involves the risk that the
value of the foreign currency may decline relative to the value of
the dollar prior to the settlement date--this risk is in addition
to the risk that the value of the foreign security purchased may
decline. The Fund also may enter into foreign currency contracts
as a hedging technique to limit or reduce exposure to currency
fluctuations. In addition, the Fund may use options and futures
contracts, as described below, to limit or reduce exposure to
currency fluctuations. As of September 30, 1996, the Fund's
holdings of foreign companies, as a percentage of net assets, were
3.1% (none in foreign securities and 3.1% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
The Fund may invest in securities purchased on a when-issued or
delayed-delivery basis. Although the payment terms of these
securities are established at the time the Fund enters into the
commitment, the securities may be delivered and paid for a month
or more after the date of purchase, when their value may have
changed. The Fund will make such commitments only with the
intention of actually acquiring the securities, but may sell the
securities before settlement date if it is deemed advisable for
investment reasons. The Fund may make loans of its portfolio
securities to broker-dealers and banks subject to certain
restrictions described in the Statement of Additional Information.
It may participate in an interfund lending program, subject to
certain restrictions described in the Statement of Additional
Information.
DERIVATIVES.
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized by
underlying pools of mortgages or other receivables, floating rate
instruments, and other instruments that securitize assets of
various types ("Derivatives"). In each case, the value of the
instrument or security is "derived" from the performance of an
underlying asset or a "benchmark" such as a security index, an
interest rate, or a currency. The Fund does not expect to invest
more than 5% of its net assets in any type of Derivative except
for options, futures contracts, and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, the Fund may: (1)
purchase and write both call options and put options on
securities, indexes and foreign currencies; (2) enter into
interest rate, index and foreign currency futures contracts; (3)
write options on such futures contracts; and (4) purchase other
types of forward or investment contracts linked to individual
securities, indexes or other benchmarks. The Fund may write a
call or put option only if the option is covered. As the writer
of a covered call option, the Fund foregoes, during the option's
life, the opportunity to profit from increases in market value of
the security covering the call option above the sum of the premium
and the exercise price of the call. There can be no assurance
that a liquid market will exist when the Fund seeks to close out a
position. In addition, because futures positions may require low
margin deposits, the use of futures contracts involves a high
degree of leverage and may result in losses in excess of the
amount of the margin deposit.
SHORT SALES AGAINST THE BOX.
The 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
the 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. However, any potential gains in such
securities should be wholly or partially offset by a corresponding
loss in the short position. Short sales against the box may be
used to lock in a profit on a security when, for tax reasons or
otherwise, the Adviser does not want to sell the security. For a
more complete explanation, please refer to the Statement of
Additional Information.
PORTFOLIO TURNOVER.
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
portfolio securities must be held. The turnover rate may vary
significantly from year to year. At times, the Fund may invest
for short-term capital appreciation. Flexibility of investment
and emphasis on capital appreciation may involve greater portfolio
turnover than that of mutual funds that have the objectives of
income or maintenance of a balanced investment position. A high
rate of portfolio turnover may result in increased transaction
expenses and the realization of capital gains and losses. (See
Financial Highlights and Distributions and Income Taxes.) The
Fund is not intended to be an income-producing investment,
although it may produce varying amounts of income.
__________________________
INVESTMENT RESTRICTIONS
The Fund will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to
75% of the Fund's portfolio, but does not apply to securities of
the U.S. Government or repurchase agreements /1/ for such
securities, and would not prevent the Fund from investing all of
its assets in shares of another investment company having the
identical investment objective.
- ----------------------
/1/ A repurchase agreement involves a sale of securities to the
Fund in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, the Fund could experience both losses
and delays in liquidating its collateral.
- ----------------------
The Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer. It may, however, invest all of its
assets in shares of another investment company having the
identical investment objective.
The Fund may not make loans except that each may (1) purchase
money market instruments and enter into repurchase agreements; (2)
acquire publicly-distributed or privately-placed debt securities;
(3) lend its portfolio securities under certain conditions; and
(4) participate in an interfund lending program with other Stein
Roe Funds. It may not borrow money, except for non-leveraging,
temporary, or emergency purposes or in connection with
participation in the interfund lending program. Neither the
Fund's 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.
The Fund may invest in repurchase agreements, provided that the
Fund 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" of the Fund as defined in the
Investment Company Act of 1940. The Fund's investment objective
is non-fundamental and, as such, may be changed by the Board of
Trustees without shareholder approval. Any such change may result
in the Fund having an investment objective different from the
objective the shareholder considered appropriate at the time of
investment in the Fund. All of the investment restrictions are
set forth in the Statement of Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. The Fund is designed
for long-term investors who can accept the fluctuations in
portfolio value and other risks associated with seeking long-term
capital appreciation through investments in common stocks. The
Fund usually allocates its investments among a number of different
industries rather than concentrating in a particular industry or
group of industries. It may, however, under abnormal
circumstances, invest up to 25% of net assets in a particular
industry or group of industries. There can be no guarantee that
the Fund will achieve its objective.
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers, different accounting, auditing and
financial reporting standards, different settlement practices,
less market liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition of
exchange controls and withholding taxes on dividends, and seizure
or nationalization of investments owned by non-residents. Foreign
investments also tend to involve higher transaction and custody
costs.
MASTER FUND/FEEDER FUND OPTION.
Rather than invest in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with assets of other investment companies for investment in
another investment company having the same investment objective
and substantially the same investment policies as the Fund. The
purpose of such an arrangement is to achieve greater operational
efficiencies and to reduce costs. It is expected that any such
investment company would be managed by the Adviser in
substantially the same manner as the Fund. Shareholders of the
Fund will be given at least 30 days' prior notice of any such
investment. Such investment would be made only if the Trustees
determine it to be in the best interests of the Fund and its
shareholders.
__________________________
HOW TO PURCHASE SHARES
THE FUND IS CLOSED TO PURCHASES (INCLUDING EXCHANGES) BY NEW
INVESTORS EXCEPT FOR PURCHASES BY ELIGIBLE INVESTORS AS DESCRIBED
BELOW. The Trust has taken this step to facilitate management of
the Fund's portfolio. If you are already a shareholder of the
Fund, you may continue to add to your account or open another
account with the Fund in your name. In addition, you may open a
new account if:
- - you participate in Stein Roe Counselor [SERVICE MARK] or Stein
Roe Personal Counselor [SERVICE MARK] or another investment
advisory service sponsored by the Adviser;
- - you are a trustee of Investment Trust; an employee of the
Adviser, or any of its affiliated companies; or a member of the
immediate family of any trustee or employee;
- - you are a client of the Adviser and, in the judgment of the
Adviser, your proposed investment in the Fund would not
adversely affect the Adviser's ability to manage the Fund
effectively;
- - the Board of Trustees of Investment Trust determines that your
proposed investment in the Fund would not adversely affect the
Adviser's ability to manage the Fund effectively;
- - you purchased shares under an asset allocation program sponsored
by a financial advisor, broker-dealer, bank, trust company, or
other intermediary under an investment program with the Fund as
of September 30, 1996;
- - you purchase shares for an individual retirement account or an
employee benefit plan, the records for which are maintained by a
trust company or plan administrator under an investment program
with the Fund as of September 30, 1996.
The Board of Trustees of the Trust concluded that permitting the
additional investments described above would not adversely affect
the ability of the Adviser to manage the Fund effectively. If you
have questions about your eligibility to purchase shares of the
Fund, please call 800-338-2550.
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of the Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at the
Fund's net asset value (see Net Asset Value) next determined after
receipt of an order in good form, including receipt of payment by
the Fund. Each purchase of the Fund shares through a broker-
dealer, bank, or other intermediary ("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.
Each purchase order for the Fund must be accepted by an authorized
officer of the 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. The Trust reserves the right
not to accept any purchase order that it determines not to be in
the best interest of the Trust or of the Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed
quarterly. All other purchases and redemptions will be confirmed
as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Fund
shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of the
Fund through your employer's plan, including any charges that may
be imposed by the plan, please consult with your employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Fund shares and use the proceeds to purchase
shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. The Fund reserves the right to suspend, limit,
modify, or terminate the Exchange Privilege or its use in any
manner by any person or class; shareholders would be notified of
such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon the Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of the Fund's shares is its net
asset value per share. The net asset value of a share of the Fund
is determined as of the close of trading on the New York Stock
Exchange (currently 3:00 p.m., central time) by dividing the
difference between the values of the Fund's assets and liabilities
by the number of shares outstanding. Net asset value will not be
determined on days when the Exchange is closed unless, in the
judgment of the Board of Trustees, the net asset value of the Fund
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., central time.
Each security traded on a national stock exchange is valued at its
last sale price on that exchange on the day of valuation or, if
there are no sales that day, at the latest bid quotation. Each
over-the-counter security for which the last sale price on the day
of valuation is available from NASDAQ is valued at that price.
All other over-the-counter securities for which reliable
quotations are available are valued at the latest bid quotation.
Long-term straight-debt obligations and securities convertible
into stocks are valued at a fair value using a procedure
determined in good faith by the Board of Trustees. Pricing
services approved by the Board provide valuations (some of which
may be "readily available market quotations"). These valuations
are reviewed by the Adviser. If the Adviser believes that a
valuation received from the service does not represent a fair
value, it values the obligation using a method that the Board
believes represents fair value. The Board may approve the use of
other pricing services and any pricing service used may employ
electronic data processing techniques, including a so-called
"matrix" system, to determine valuations. Other assets and
securities are valued by a method that the Board believes
represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually. The
Fund intends to distribute by the end of each calendar year at
least 98% of any net capital gains realized from the sale of
securities during the twelve-month period ended October 31 in that
year. The Fund intends to distribute any undistributed net
investment income and net realized capital gains in the following
year.
The terms of your plan will govern how you may receive
distributions from the Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares of the
Fund.
INCOME TAXES.
The Fund intends to qualify as a "regulated investment company"
for federal income tax purposes and to meet all other requirements
that are necessary for it to be relieved of federal taxes on
income and gain it distributes. The Fund will distribute
substantially all of its ordinary income and net capital gains on
a current basis. Generally, Fund distributions are taxable as
ordinary income, except that any distributions of net long-term
capital gains will be taxed as such. However, distributions by
the Fund to employer-sponsored defined contribution plans that
qualify for tax-exempt treatment under federal income tax laws
will not be taxable. Special tax rules apply to investments
through such plans. You should consult your tax advisor to
determine the suitability of the Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in the
Fund) from such a plan. This section is not intended to be a full
discussion of income tax laws and their effect on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in the Fund is measured by the
distributions received (assuming reinvestment), plus or minus the
change in the net asset value per share for a given period. A
total return percentage may be calculated by dividing the value of
a share at the end of the period (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one. For a given period, an average annual
total return may be calculated by finding the average annual
compounded rate that would equate a hypothetical $1,000 investment
to the ending redeemable value.
Comparison of the Fund's total return with alternative investments
should consider differences between the Fund and the alternative
investments, the periods and methods used in calculation of the
return being compared, and the impact of taxes on alternative
investments. The Fund's total return does not reflect any charges
or expenses related to your employer's plan. Of course, past
performance is not necessarily indicative of future results.
__________________________
MANAGEMENT OF THE FUND
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. See the Statement of
Additional Information for the names of and other information
about the trustees and officers. The Fund's Adviser, Stein Roe &
Farnham Incorporated, One South Wacker Drive, Chicago, Illinois
60606, is responsible for managing the Fund's investment portfolio
and the business affairs of the Fund and the Trust, subject to the
direction of the Board of Trustees. The Adviser is registered as
an investment adviser under the Investment Advisers Act.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had advised and managed
mutual funds since 1949. The Adviser is a wholly owned indirect
subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which in turn is a majority owned indirect subsidiary
of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
Gloria J. Santella and Eric S. Maddix are co-portfolio managers of
the Fund. Ms. Santella has been portfolio manager since October,
1994, and had been co-portfolio manager of the Fund since March,
1991. Ms. Santella is a senior vice president of the Adviser,
having been associated with the Adviser since 1979. She received
her B.B.A. from Loyola University (1979) and M.B.A. from the
University of Chicago (1983). Mr. Maddix became co-portfolio
manager of the Fund in 1996; he was previously associate portfolio
manager of the Fund. Mr. Maddix is a vice president of the
Adviser, which he joined in 1987. He received his B.B.A. degree
from Iowa State University (1986) and his M.B.A. from the
University of Chicago (1992). As of December 31, 1996, Ms.
Santella and Mr. Maddix co-managed $1.4 billion in mutual fund net
assets.
FEES AND EXPENSES.
The Adviser is entitled to receive a monthly management fee from
the Fund based on an annual rate of .75% of the first $500 million
of the Fund's average net assets, .70% of the next $500 million,
.65 of the next $500 million, and .60% thereafter; and a monthly
administrative fee based on an annual rate of .15% of the first
$500 million, .125% of the next $500 million, .10% of the next
$500 million, and .075% thereafter. For the year ended September
30, 1996, the fees amounted to 1.22% of average net assets.
Under a separate agreement with the Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund, including
computation of the Fund's net asset value and calculation of its
net income and capital gains and losses on disposition of Fund
assets.
PORTFOLIO TRANSACTIONS.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions for the
Fund. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number of
judgmental factors.
TRANSFER AGENT.
SteinRoe Services Inc., One South Wacker Drive, Chicago, Illinois
60606, a wholly owned subsidiary of Liberty Financial, is the
agent of the Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
DISTRIBUTOR.
The shares of the Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a wholly owned subsidiary of Liberty Financial.
The business address of the Distributor is 600 Atlantic Avenue,
Boston, Massachusetts 02210; however, all Fund correspondence
(including purchase and redemption orders) should be mailed to
SteinRoe Services Inc. at P.O. Box 8900, Boston, Massachusetts
02205. All distribution and promotional expenses are paid by the
Adviser, including payments to the Distributor for sales of Fund
shares.
CUSTODIAN.
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for the
Fund. Foreign securities are maintained in the custody of foreign
banks and trust companies that are members of the Bank's Global
Custody Network or foreign depositories used by such members.
(See Custodian in the Statement of Additional Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, nine series are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, trustees and officers of the
Trust shall have no personal liability therefor. The Declaration
of Trust requires that notice of such disclaimer of liability be
given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or
having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and the
Trust was unable to meet its obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the Trust is
also believed to be remote, because it would be limited to claims
to which the disclaimer did not apply and to circumstances in
which the other series was unable to meet its obligations.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about this Fund.
_______________
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS
DEFINED CONTRIBUTION PLANS
STEIN ROE SPECIAL FUND
The investment objective of Special Fund is to provide capital
appreciation. Special Fund invests all of its net investable
assets in shares of SR&F Special Portfolio, which has the same
investment objective and substantially the same investment
policies as Special Fund. (See Special Considerations Regarding
Master Fund/Feeder Fund Structure.) Special Portfolio invests in
securities that are considered to have limited downside risk
relative to their potential for above-average growth, including
securities of undervalued, underfollowed, or out-of-favor
companies.
This prospectus relates only to shares of Special Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
Special Fund is a "no-load" fund. There are no sales or
redemption charges, and Special Fund has no 12b-1 plan. Special
Fund is a series of the Stein Roe Investment Trust and Special
Portfolio is a series of SR&F Base Trust. Each Trust is a
diversified open-end management investment company.
This prospectus contains information you should know before
investing in Special Fund. Please read it carefully and retain it
for future reference.
A Statement of Additional Information dated February 3, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information and the most recent financial
statements may be obtained without charge by writing to the Stein
Roe Mutual Funds at Suite 3200, One South Wacker Drive, Chicago,
IL 60606 or by calling 800-322-1130. The Statement of Additional
Information contains information relating to other series of the
Stein Roe Investment Trust that may not be available as investment
vehicles for your defined contribution plan.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 3, 1997
TABLE OF CONTENTS
Page
Fee Table ..............................2
Financial Highlights....................2
The Fund................................3
Investment Policies.....................4
Portfolio Investments and Strategies....4
Investment Restrictions.................6
Risks and Investment Considerations ....7
How to Purchase Shares..................7
How to Redeem Shares ...................8
Net Asset Value ........................8
Distributions and Income Taxes..........9
Investment Return.......................9
Management..............................9
Organization and Description of Shares.11
Special Considerations Relating to
Master Fund/Feeder Fund Structure....11
For More Information ..................13
<PAGE>
__________________________
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES (as a percentage
of average net assets; after fee waiver)
Management and Administrative Fees (after
fee waiver) 0.80%
12b-1 Fees None
Other Expenses 0.34%
-----
Total Operating Expenses (after fee waiver) 1.14%
=====
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$12 $36 $63 $138
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 Special Fund. The table is based
upon actual expenses incurred in the last fiscal year. For the 12
months ending June 30, 1997, the Adviser has agreed to reduce the
portion of Special Fund's fee payable by Special Portfolio by
subtracting 0.05% from the applicable annual rate of management
fee. Absent that waiver, Special Fund's proportionate share of
Special Portfolio's Management Fee and Special Fund's
Administrative Fees (combined) and Total Operating Expenses would
be 0.85% and 1.19%, respectively.
Special Fund pays the Adviser an administrative fee based on the
Fund's average daily net assets, and Special Portfolio pays the
Adviser a management fee based on its average daily net assets.
The expenses of both Special Fund and Special Portfolio are
summarized in the Fee Table. (The fees are described under
Management.) Special Fund bears its proportionate share of
Portfolio expenses. The trustees of Investment Trust have
considered whether the annual operating expenses of Special Fund,
including its share of the expenses of Special Portfolio, would be
more or less than if Special Fund invested directly in the
securities held by Special Portfolio, and concluded that Special
Fund's expenses would not be greater in such case.
For purposes of the Example above, the figures assume that the
percentage amounts listed for Special Fund under Annual Fund
Operating Expenses remain the same in each of the periods; that
all income dividends and capital gain distributions are reinvested
in additional Special Fund shares; and that, for purposes of fee
breakpoints, Special Fund's net assets remain at the same level as
in the most recently completed fiscal year. The figures in the
Example are not necessarily indicative of past or future expenses,
and actual expenses may be greater or less than those shown.
Although information such as that shown in the Example and Fee
Table is useful in reviewing Special Fund's expenses and in
providing a basis for comparison with other mutual funds, it
should not be used for comparison with other investments using
different assumptions or time periods. The Example does not
reflect any charges or expenses related to your employer's plan.
__________________________
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of Special Fund
for the periods shown on a per-share basis and has been audited by
Arthur Andersen LLP, independent public accountants. This table
should be read in conjunction with Special Fund's financial
statements and notes thereto. Special Fund's annual report, which
may be obtained from Investment Trust without charge upon request,
contains additional performance information.
<TABLE>
<CAPTION>
Nine
Months
Years Ended Ended
December 31, Sept.30, Years Ended September 30,
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ ------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period... $18.41 $16.95 $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54 $25.26
------ ------ ------ ------ ------ ------ ------ ------- ------- ------ ------
Income from Investment
Operations
Net investment income... 0.35 0.23 0.14 0.36 0.42 0.34 0.21 0.17 0.15 0.13 0.01
Net realized and un-
realized gains (losses)
on investments...........2.33 0.12 2.16 5.58 (2.10) 4.55 1.50 5.31 0.33 3.05 4.14
------ ------ ------ ------ ------ ------ ------ ------- ------- ------ ------
Total from investment
operations.............. 2.68 0.35 2.30 5.94 (1.68) 4.89 1.71 5.48 0.48 3.18 4.15
------ ------ ------ ------ ------ ------ ------ ------- ------- ------ ------
Distributions
Net investment income... (0.34) (0.57) (0.01) (0.21) (0.39) (0.34) (0.37) (0.18) (0.21) (0.15) (0.11)
Net realized capital
gains.................. (3.80) (3.90) -- (0.06) (2.08) (1.32) (0.31) (1.16) (1.77) (1.31) (1.91)
------ ------ ------ ------ ------ ------ ------ ------- ------- ------ ------
Total distributions.... (4.14) (4.47) (0.01) (0.27) (2.47) (1.66) (0.68) (1.34) (1.98) (1.46) (2.02)
------ ------ ------ ------ ------ ------ ------ ------- ------- ------ ------
Net Asset Value, End
of Period..............$16.95 $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54 $25.26 $27.39
====== ====== ====== ====== ====== ====== ====== ======= ======= ====== ======
Ratio of net expenses to
average net assets..... 0.92% 0.96% *0.99% 0.96% 1.02% 1.04% 0.99% 0.97% 0.96% 1.02% 1.18%
Ratio of net investment
income to average
net assets............. 1.75% 1.32% *1.31% 2.12% 2.33% 2.11% 0.99% 0.92% 0.91% 0.56% 0.03%
Portfolio turnover rate 116% 103% 42% 85% 70% 50% 40% 42% 58% 41% 32%
Average commissions
(per share)............ . -- -- -- -- -- -- -- -- -- -- $0.0482
Total return........ .. 14.70% 4.27% 17.94% 40.00% (8.78%) 32.18% 8.96% 27.35% 2.02% 14.60% 17.89%
Net assets, end
of period
(000 omitted)..... . $253,693 $187,997 $224,628 $322,056 $361,065 $587,259 $626,080 $1,076,818 $1,243,885 $1,201,469 $1,158,498
</TABLE>
*Annualized
(a) For the period indicated below, bank borrowing activity was as
follows:
Debt
outstanding Average debt Average shares Average debt
at end of outstanding outstanding per share
period (in during period during period during
Period Ended thousands) (in thousands) (in thousands) period
- ------------- ---------- -------------- ------------- ------------
12/31/86 -- 203 15,251 0.0133
Special Fund had no bank borrowings during any other periods.
__________________________
THE FUND
STEIN ROE SPECIAL FUND ("Special 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. Special Fund does
not impose commissions or charges when shares are purchased or
redeemed.
Special 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
investment management, administrative, and bookkeeping and
accounting services to Special Fund and Special Portfolio. The
Adviser also manages 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 opening a regular
account in any of these mutual funds, please call 800-338-2550.
On February 3, 1997, Special Fund became a "feeder fund"--that is,
it invested all of its assets in SR&F Special Portfolio ("Special
Portfolio"), a "master fund" that has an investment objective
identical to that of Special Fund. Special Portfolio is a series
of SR&F Base Trust ("Base Trust"). Before converting to a feeder
fund, Special Fund invested its assets in a diversified group of
securities. Under the "master fund/feeder fund structure," a
feeder fund and one or more feeder funds pool their assets in a
master portfolio that has the same investment objective and
substantially the same investment policies as the feeder funds.
The purpose of such an arrangement is to achieve greater
operational efficiencies and reduce costs. The assets of Special
Portfolio, Special Fund's master fund, are managed by the Adviser
in the same manner as the assets of Special Fund were managed
before conversion to the master fund/feeder fund structure. (For
more information, see Special Considerations Regarding Master
Fund/Feeder Fund Structure.)
__________________________
INVESTMENT POLICIES
The investment objective of Special Fund is to invest in
securities selected for capital appreciation. Special Fund
invests all of its net investable assets in Special Portfolio,
which has the same investment objective and substantially the same
investment policies as Special Fund. Particular emphasis is
placed on securities that are considered to have limited downside
risk relative to their potential for above-average growth--
including securities of undervalued, underfollowed or out-of-favor
companies, and companies that are low-cost producers of goods or
services, financially strong, or run by well-respected managers.
Special Portfolio may invest in securities of seasoned,
established companies that appear to have appreciation potential,
as well as securities of relatively small, new companies. In
addition, it may invest in securities with limited marketability;
new issues of securities; securities of companies that, in the
Adviser's opinion, will benefit from management change, new
technology, new product or service development, or change in
demand; and other securities that the Adviser believes have
capital appreciation possibilities. However, Special Portfolio
does not currently intend to invest, nor has it invested in the
past fiscal year, more than 5% of its net assets in any of these
types of securities. Securities of smaller, newer companies may
be subject to greater price volatility than securities of larger,
well-established companies. In addition, many smaller companies
are less well known to the investing public and may not be as
widely followed by the investment community. Although Special
Portfolio invests primarily in common stocks, it may also invest
in other equity-type securities, including preferred stocks and
securities convertible into equity securities. Further
information on portfolio investments and strategies may be found
under Portfolio Investments and Strategies in this prospectus and
in the Statement of Additional Information.
__________________________
PORTFOLIO INVESTMENTS AND STRATEGIES
DEBT SECURITIES.
In pursuing its investment objective, Special Portfolio may invest
in debt securities of corporate and governmental issuers. Special
Portfolio may invest up to 35% of its net assets in debt
securities, but does not expect to invest more than 5% of its net
assets in debt securities that are rated below investment grade
and that, on balance, are considered predominantly speculative
with respect to the issuer's capacity to pay interest and repay
principal according to the terms of the obligation and, therefore,
carry greater investment risk, including the possibility of issuer
default and bankruptcy. When the Adviser deems a temporary
defensive position advisable, Special Portfolio may invest,
without limitation, in high-quality fixed income securities, or
hold assets in cash or cash equivalents.
FOREIGN SECURITIES.
Special Portfolio may invest in foreign securities. Other than
American Depositary Receipts (ADRs), foreign debt securities
denominated in U.S. dollars, or securities guaranteed by a U.S.
person, Special Portfolio is limited to investing no more than 25%
of its total assets in foreign securities. (See Risks and
Investment Considerations.) Special Portfolio may invest in
sponsored and unsponsored ADRs. In addition to, or in lieu of,
such direct investment, Special Portfolio may construct a
synthetic foreign debt position by (a) purchasing a debt
instrument denominated in one currency, generally U.S. dollars;
and (b) concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign debt position
utilizing such U.S. dollar instruments may offer greater liquidity
than direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, Special
Portfolio may contract to purchase an amount of foreign currency
sufficient to pay the purchase price of the securities at the
settlement date. Such a contract involves the risk that the value
of the foreign currency may decline relative to the value of the
dollar prior to the settlement date--this risk is in addition to
the risk that the value of the foreign security purchased may
decline. Special Portfolio also may enter into foreign currency
contracts as a hedging technique to limit or reduce exposure to
currency fluctuations. In addition, Special Portfolio may use
options and futures contracts, as described below, to limit or
reduce exposure to currency fluctuations. As of September 30,
1996, Special Fund's holdings of foreign companies, as a
percentage of net assets, were 6.9% (6.5% in foreign securities
and 0.4% in ADRs).
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES.
Special Portfolio may invest in securities purchased on a when-
issued or delayed-delivery basis. Although the payment terms of
these securities are established at the time Special Portfolio
enters into the commitment, the securities may be delivered and
paid for a month or more after the date of purchase, when their
value may have changed. Special Portfolio will make such
commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
it is deemed advisable for investment reasons. Special Portfolio
may make loans of its portfolio securities to broker-dealers and
banks subject to certain restrictions described in the Statement
of Additional Information. It may participate in an interfund
lending program, subject to certain restrictions described in the
Statement of Additional Information.
DERIVATIVES.
Consistent with its objective, Special Portfolio may invest in a
broad array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized by
underlying pools of mortgages or other receivables, floating rate
instruments, and other instruments that securitize assets of
various types ("Derivatives"). In each case, the value of the
instrument or security is "derived" from the performance of an
underlying asset or a "benchmark" such as a security index, an
interest rate, or a currency. Special Portfolio does not expect
to invest more than 5% of its net assets in any type of Derivative
except for options, futures contracts, and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
In seeking to achieve its desired investment objective, provide
additional revenue, or to hedge against changes in security
prices, interest rates or currency fluctuations, Special Portfolio
may: (1) purchase and write both call options and put options on
securities, indexes and foreign currencies; (2) enter into
interest rate, index and foreign currency futures contracts; (3)
write options on such futures contracts; and (4) purchase other
types of forward or investment contracts linked to individual
securities, indexes or other benchmarks. Special Portfolio may
write a call or put option only if the option is covered. As the
writer of a covered call option, Special Portfolio foregoes,
during the option's life, the opportunity to profit from increases
in market value of the security covering the call option above the
sum of the premium and the exercise price of the call. There can
be no assurance that a liquid market will exist when Special
Portfolio seeks to close out a position. In addition, because
futures positions may require low margin deposits, the use of
futures contracts involves a high degree of leverage and may
result in losses in excess of the amount of the margin deposit.
SHORT SALES AGAINST THE BOX.
Special Portfolio 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 Special Portfolio against the risk of losses in the value
of its portfolio securities because any unrealized losses with
respect to such securities should be wholly or partly offset by a
corresponding gain in the short position. However, any potential
gains in such securities should be wholly or partially offset by a
corresponding loss in the short position. Short sales against the
box may be used to lock in a profit on a security when, for tax
reasons or otherwise, the Adviser does not want to sell the
security. For a more complete explanation, please refer to the
Statement of Additional Information.
PORTFOLIO TURNOVER.
Although Special Portfolio does not purchase securities with a
view to rapid turnover, there are no limitations on the length of
time portfolio securities must be held. The turnover rate may
vary significantly from year to year. At times, Special Portfolio
may invest for short-term capital appreciation. Flexibility of
investment and emphasis on capital appreciation may involve
greater portfolio turnover than that of mutual funds that have the
objectives of income or maintenance of a balanced investment
position. A high rate of portfolio turnover may result in
increased transaction expenses and the realization of capital
gains and losses. (See Financial Highlights and Distributions and
Income Taxes.) Special Fund is not intended to be an income-
producing investment, although it may produce varying amounts of
income.
__________________________
INVESTMENT RESTRICTIONS
Neither Special nor Special Portfolio will 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 Special
Fund from investing 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
Special Portfolio in which the seller agrees to repurchase the
securities at a higher price, which includes an amount
representing interest on the purchase price, within a specified
time. In the event of bankruptcy of the seller, Special Portfolio
could experience both losses and delays in liquidating its
collateral.
- ----------------
Neither Special Fund nor Special Portfolio will acquire more than
10% of the outstanding voting securities of any one issuer.
Special Fund may, however, invest all of its assets in shares of
another investment company having the identical investment
objective.
Neither Special Fund nor Special Portfolio may make loans except
that each may (1) purchase money market instruments and enter into
repurchase agreements; (2) acquire publicly-distributed or
privately-placed debt securities; (3) lend its portfolio
securities under certain conditions; and (4) participate in an
interfund lending program with other Stein Roe Funds and
Portfolios. Neither may borrow money, except for non-leveraging,
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.
Special Fund and Special Portfolio may invest in repurchase
agreements, provided that neither will invest more than 15% of its
net assets in illiquid securities, including repurchase agreements
maturing in more than seven days.
The policy described in the third paragraph of this section and
the policy with respect to concentration of investments in any one
industry described under Risks and Investment Considerations are
fundamental policies and, as such, can be changed only with the
approval of a "majority of the outstanding voting securities" as
defined in the Investment Company Act of 1940. The common
investment objective of Special Fund and Special Portfolio is non-
fundamental and, as such, may be changed by the Board of Trustees
without shareholder approval, subject, however, to at least 30
days' advance written notice to Special Fund's shareholders. Any
such change may result in Special Fund having an investment
objective different from the objective the shareholder considered
appropriate at the time of investment in Special Fund. All of the
investment restrictions are set forth in the Statement of
Additional Information.
__________________________
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Special Fund is
designed for long-term investors who desire to participate in the
stock market with more investment risk and volatility than the
stock market in general, but with less investment risk and
volatility than aggressive capital appreciation funds. Special
Portfolio usually allocates its investments among a number of
different industries rather than concentrating in a particular
industry or group of industries. It may, however, under abnormal
circumstances, invest up to 25% of net assets in a particular
industry or group of industries. (See Investment Policies.)
There can be no guarantee that Special Fund will achieve its
objective.
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers, different accounting, auditing and
financial reporting standards, different settlement practices,
less market liquidity, more market volatility, less developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition of
exchange controls and withholding taxes on dividends, and seizure
or nationalization of investments owned by non-residents. Foreign
investments also tend to involve higher transaction and custody
costs.
__________________________
HOW TO PURCHASE SHARES
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares of Special Fund through your employer or limitations on the
amount that may be purchased, please consult your employer.
Shares are sold to eligible defined contribution plans at Special
Fund's net asset value (see Net Asset Value) next determined after
receipt of an order in good form, including receipt of payment by
Special Fund. Each purchase of Special Fund shares through a
broker-dealer, bank, or other intermediary ("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.
Each purchase order for Special 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 Special
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 interest of
Investment Trust or of Special Fund's shareholders.
Shares purchased by reinvestment of dividends will be confirmed
quarterly. All other purchases and redemptions will be confirmed
as transactions occur.
__________________________
HOW TO REDEEM SHARES
Subject to restrictions imposed by your employer's plan, Special
Fund shares may be redeemed any day the New York Stock Exchange is
open. For more information about how to redeem your shares of
Special Fund through your employer's plan, including any charges
that may be imposed by the plan, please consult with your
employer.
EXCHANGE PRIVILEGE.
Subject to your plan's restrictions, you may redeem all or any
portion of your Special Fund shares and use the proceeds to
purchase shares of any other Stein Roe Fund available through your
employer's defined contribution plan. (An exchange is commonly
referred to as a "transfer.") Before exercising the Exchange
Privilege, you should obtain the prospectus for the Stein Roe Fund
in which you wish to invest and read it carefully. Contact your
plan administrator for instructions on how to exchange your shares
or to obtain prospectuses of other Stein Roe Funds available
through your plan. Special Fund reserves the right to suspend,
limit, modify, or terminate the Exchange Privilege or its use in
any manner by any person or class; shareholders would be notified
of such a change.
GENERAL REDEMPTION POLICIES.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by Investment Trust. Investment
Trust cannot accept a redemption request that specifies a
particular date or price for redemption or any special conditions.
The price at which your redemption order will be executed is the
net asset value next determined after proper redemption
instructions are received. (See Net Asset Value.) Because the
redemption price you receive depends upon Special Fund's net asset
value per share at the time of redemption, it may be more or less
than the price you originally paid for the shares.
__________________________
NET ASSET VALUE
The purchase and redemption price of Special Fund's shares is its
net asset value per share. The net asset value of a share of
Special Fund is determined as of the close of trading on the New
York Stock Exchange (currently 3:00 p.m., central time) by
dividing the difference between the values of its assets and
liabilities by the number of shares outstanding. Net asset value
will not be determined on days when the Exchange is closed unless,
in the judgment of the Board of Trustees, the net asset value
should be determined on any such day, in which case the
determination will be made at 3:00 p.m., central time. Special
Portfolio allocates net asset value, income, and expenses to
Special Fund and any other of its feeder funds in proportion to
their respective interests in Special Portfolio.
Each security traded on a national stock exchange is valued at its
last sale price on that exchange on the day of valuation or, if
there are no sales that day, at the latest bid quotation. Each
over-the-counter security for which the last sale price on the day
of valuation is available from NASDAQ is valued at that price.
All other over-the-counter securities for which reliable
quotations are available are valued at the latest bid quotation.
Long-term straight-debt obligations and securities convertible
into stocks are valued at a fair value using a procedure
determined in good faith by the Board of Trustees. Pricing
services approved by the Board provide valuations (some of which
may be "readily available market quotations"). These valuations
are reviewed by the Adviser. If the Adviser believes that a
valuation received from the service does not represent a fair
value, it values the obligation using a method that the Board
believes represents fair value. The Board may approve the use of
other pricing services and any pricing service used may employ
electronic data processing techniques, including a so-called
"matrix" system, to determine valuations. Other assets and
securities are valued by a method that the Board believes
represents fair value.
__________________________
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS.
Income dividends are normally declared and paid annually. Special
Fund intends to distribute by the end of each calendar year at
least 98% of any net capital gains realized from the sale of
securities during the twelve-month period ended October 31 in that
year. Special Fund intends to distribute any undistributed net
investment income and net realized capital gains in the following
year.
The terms of your plan will govern how you may receive
distributions from Special Fund. Generally, dividend and capital
gains distributions will be reinvested in additional shares of
Special Fund.
INCOME TAXES.
Special Fund intends to qualify as a "regulated investment
company" for federal income tax purposes and to meet all other
requirements that are necessary for it to be relieved of federal
taxes on income and gain it distributes. Special Fund will
distribute substantially all of its ordinary income and net
capital gains on a current basis. Generally, Special Fund
distributions are taxable as ordinary income, except that any
distributions of net long-term capital gains will be taxed as
such. However, distributions by Special Fund to employer-
sponsored defined contribution plans that qualify for tax-exempt
treatment under federal income tax laws will not be taxable.
Special tax rules apply to investments through such plans. You
should consult your tax advisor to determine the suitability of
Special Fund as an investment through such a plan and the tax
treatment of distributions (including distributions of amounts
attributable through an investment in Special Fund) from such a
plan. This section is not intended to be a full discussion of
income tax laws and their effect on shareholders.
__________________________
INVESTMENT RETURN
The total return from an investment in Special 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 Special Fund's total return with alternative
investments should consider differences between Special 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. Special Fund's total return does not
reflect any charges or expenses related to your employer's plan.
Of course, past performance is not necessarily indicative of
future results.
__________________________
MANAGEMENT
TRUSTEES AND INVESTMENT ADVISER.
The Board of Trustees of Investment Trust and the Board of Base
Trust have overall management responsibility for Special Fund and
Special Portfolio, respectively. See the Statement of Additional
Information for the names of and additional information about the
trustees and officers. Since Investment Trust and Base Trust have
the same trustees, the trustees have adopted conflict of interest
procedures to monitor and address potential conflicts between the
interests of Special Fund and Special Portfolio.
The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing
Special Fund and Special Portfolio, subject to the direction of
the respective Board of Trustees. The Adviser is registered as an
investment adviser under the Investment Advisers Act of 1940. The
Adviser was organized in 1986 to succeed to the business of Stein
Roe & Farnham, a partnership that had advised and managed mutual
funds since 1949. The Adviser is a wholly owned indirect
subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which in turn is a majority owned indirect subsidiary
of Liberty Mutual Insurance Company.
PORTFOLIO MANAGERS.
E. Bruce Dunn and Richard B. Peterson have been co-portfolio
managers of Special Portfolio since its inception in 1997, and had
been managers of Special Fund since 1991. Each is a senior vice
president of the Adviser. Mr. Dunn has been associated with the
Adviser since 1964. He received his A.B. degree from Yale
University (1956) and his M.B.A. from Harvard University (1958)
and is a chartered investment counselor. Mr. Peterson, who began
his investment career at Stein Roe & Farnham in 1965 after
graduating with a B.A. from Carleton College (1962) and the
Woodrow Wilson School at Princeton University with a Masters in
Public Administration (1964), rejoined the Adviser in 1991 after
15 years of equity research and portfolio management experience
with State Farm Investment Management Corp. As of December 31,
1996, Messrs. Dunn and Peterson were responsible for co-managing
$1.5 billion in mutual fund net assets.
FEES AND EXPENSES.
In return for its services, the Adviser is entitled to receive a
management fee from Special Portfolio based on 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; and an administrative fee from Special Fund based on
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. Prior to conversion to the master
fund/feeder fund structure on February 3, 1997, the management fee
was paid by Special Fund. For the year ended September 30, 1996,
the fees for Special Fund amounted to 1.18% of average net assets.
Please refer to Fee Table for a description of the fee waiver in
effect through June 30, 1997.
Under a separate agreement with each Trust, the Adviser provides
certain accounting and bookkeeping services to Special Fund and
Special Portfolio, 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.
DISTRIBUTOR.
The shares of Special Fund are offered for sale through Liberty
Securities Corporation ("Distributor") without any sales
commissions or charges to Special 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 Special Fund
correspondence (including purchase and redemption orders) should
be mailed to SteinRoe Services Inc. at P.O. Box 8900, Boston,
Massachusetts 02205. 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 Special
Fund and Special Portfolio. Foreign securities are maintained in
the custody of foreign banks and trust companies that are members
of the Bank's Global Custody Network or foreign depositories used
by such members. (See Custodian in the Statement of Additional
Information.)
__________________________
ORGANIZATION AND DESCRIPTION OF SHARES
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, nine 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 is also believed to be remote, because it would be limited
to claims to which the disclaimer did not apply and to
circumstances in which the other series was unable to meet its
obligations.
__________________________
SPECIAL CONSIDERATIONS REGARDING
MASTER FUND/FEEDER FUND STRUCTURE
Commencing February 3, 1997, Special Fund, which is an open-end
management investment company, seeks to achieve its objective by
investing all of its assets in shares of another mutual fund
having an investment objective identical to that of Special Fund.
The shareholders of Special Fund approved this policy of
permitting Special Fund to act as a feeder fund by investing in
Special Portfolio. Please refer to Investment Policies, Portfolio
Investments and Strategies, and Investment Restrictions for a
description of the investment objectives, policies, and
restrictions of Special Fund and Special Portfolio. The
management fees and expenses of Special Fund and Special Portfolio
are described under the Fee Table and Management. Special Fund
bears its proportionate share of Special Portfolio's expenses.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
Special Portfolio is a separate series of SR&F Base Trust (
"Base Trust"), a Massachusetts common law trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
August 23, 1993. The Declaration of Trust of Base Trust
provides that Special Fund and other investors in Special
Portfolio will be liable for all obligations of Special Portfolio
that are not satisfied by Special Portfolio. However, the risk of
Special Fund incurring financial loss on account of such liability
is limited to circumstances in which liability was inadequately
insured and Special Portfolio was unable to meet its obligations.
Accordingly, the Trustees of Investment Trust believe that neither
Special Fund nor its shareholders will be adversely affected by
reason of Special Fund's investing in Special Portfolio.
The Declaration of Trust of Base Trust provides that Special
Portfolio will terminate 120 days after the withdrawal of Special
Fund or any other investor in Special Portfolio, unless the
remaining investors vote to agree to continue the business of
Special Portfolio. The Trustees of Investment Trust may vote
Special Fund's interests in Special Portfolio for such
continuation without approval of Special Fund's shareholders.
The common investment objective of Special Fund and Special
Portfolio is non-fundamental and may be changed without
shareholder approval, subject, however, to at least 30 days'
advance written notice to Special Fund's shareholders.
The fundamental policies of Special Fund and the corresponding
fundamental policies of Special Portfolio can be changed only with
shareholder approval. If Special Fund, as a Portfolio investor,
is requested to vote on a change in a fundamental policy of
Special Portfolio or any other matter pertaining to Special
Portfolio (other than continuation of the business of Special
Portfolio after withdrawal of another investor), Special Fund will
solicit proxies from its shareholders and vote its interest in
Special Portfolio for and against such matters proportionately to
the instructions to vote for and against such matters received
from Fund shareholders. Special Fund will vote shares for which
it receives no voting instructions in the same proportion as the
shares for which it receives voting instructions. If there are
other investors in Special Portfolio, there can be no assurance
that any matter receiving a majority of votes cast by Fund
shareholders will receive a majority of votes cast by all
investors. If other investors hold a majority interest in Special
Portfolio, they could have voting control over Special Portfolio.
In the event that Special Portfolio's fundamental policies were
changed so as to be inconsistent with those of Special Fund, the
Board of Trustees of Investment Trust would consider what action
might be taken, including changes to Special Fund's fundamental
policies, withdrawal of Special Fund's assets from Special
Portfolio and investment of such assets in another pooled
investment entity, or the retention of an investment adviser to
invest those assets directly in a portfolio of securities. Any of
these actions would require the approval of Special Fund's
shareholders. Special Fund's inability to find a substitute
master fund or comparable investment management could have a
significant impact upon its shareholders' investments. Any
withdrawal of Special Fund's assets could result in a distribution
in kind of portfolio securities (as opposed to a cash
distribution) to Special Fund. Should such a distribution occur,
Special Fund would incur brokerage fees or other transaction costs
in converting such securities to cash. In addition, a
distribution in kind could result in a less diversified portfolio
of investments for Special Fund and could affect the liquidity of
Special Fund.
Each investor in Special Portfolio, including Special Fund, may
add to or reduce its investment in Special Portfolio on each day
the NYSE is open for business. The investor's percentage of the
aggregate interests in Special Portfolio will be computed as the
percentage equal to the fraction (i) the numerator of which is the
beginning of the day value of such investor's investment in
Special Portfolio on such day plus or minus, as the case may be,
the amount of any additions to or withdrawals from the investor's
investment in Special Portfolio effected on such day; and (ii) the
denominator of which is the aggregate beginning of the day net
asset value of Special Portfolio on such day plus or minus, as the
case may be, the amount of the net additions to or withdrawals
from the aggregate investments in Special Portfolio by all
investors in Special Portfolio. The percentage so determined will
then be applied to determine the value of the investor's interest
in Special Portfolio as of the close of business.
Base Trust may permit other investment companies and/or other
institutional investors to invest in Special Portfolio, but
members of the general public may not invest directly in Special
Portfolio. Other investors in Special Portfolio are not required
to sell their shares at the same public offering price as Special
Fund, might incur different administrative fees and expenses than
Special Fund, and might charge a sales commission. Therefore,
Special Fund shareholders might have different investment returns
than shareholders in another investment company that invests
exclusively in Special Portfolio. Investment by such other
investors in Special Portfolio would provide funds for the
purchase of additional portfolio securities and would tend to
reduce the operating expenses as a percentage of Special
Portfolio's net assets. Conversely, large-scale redemptions by
any such other investors in Special Portfolio could result in
untimely liquidations of Special Portfolio's security holdings,
loss of investment flexibility, and increases in the operating
expenses of Special Portfolio as a percentage of Special
Portfolio's net assets. As a result, Special Portfolio's security
holdings may become less diverse, resulting in increased risk.
Information regarding other investors in Special Portfolio may be
obtained by writing to SR&F Base Trust at Suite 3200, One South
Wacker Drive, Chicago, IL 60606, or by calling 800-338-2550. The
Adviser may provide administrative or other services to one or
more of such investors.
__________________________
FOR MORE INFORMATION
Contact a Stein Roe Retirement Plan Representative at 800-322-1130
for more information about Special Fund.
________________
<PAGE>
Statement of Additional Information Dated February 3, 1997
STEIN ROE INVESTMENT TRUST
Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
800-338-2550
GROWTH AND INCOME FUNDS
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
GROWTH FUNDS
Stein Roe Growth Stock Fund
Stein Roe Young Investor Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
Stein Roe International Fund
This Statement of Additional Information is not a prospectus,
but provides additional information that should be read in
conjunction with the Funds' prospectuses dated February 3, 1997,
and any supplements thereto ("Prospectuses"). The Prospectuses
may be obtained at no charge by telephoning 800-338-2550.
TABLE OF CONTENTS
Page
General Information and History..........................2
Investment Policies......................................3
Stein Roe Balanced Fund...............................3
Stein Roe Growth & Income Fund........................3
Stein Roe Growth Stock Fund...........................4
Stein Roe Young Investor Fund.........................4
Stein Roe Special Fund................................4
Stein Roe Special Venture Fund........................5
Stein Roe Capital Opportunities Fund..................5
Stein Roe International Fund..........................6
Portfolio Investments and Strategies.....................7
Investment Restrictions.................................24
Additional Investment Considerations....................27
Purchases and Redemptions...............................28
Management..............................................29
Financial Statements....................................33
Principal Shareholders..................................33
Investment Advisory Services............................35
Distributor.............................................38
Transfer Agent..........................................38
Custodian...............................................38
Independent Public Accountants..........................39
Portfolio Transactions..................................39
Additional Income Tax Considerations....................42
Investment Performance..................................43
Appendix--Ratings.......................................48
<PAGE>
GENERAL INFORMATION AND HISTORY
The eight mutual funds listed on the cover page (referred to
collectively as the "Funds") are separate series of Stein Roe
Investment Trust ("Investment Trust"). On February 1, 1996, the
name of each Fund and of Investment Trust was changed to separate
"SteinRoe" into two words. Prior to February 1, 1995, the name of
Stein Roe Growth Stock Fund was SteinRoe Stock Fund; prior to
February 1, 1996, Stein Roe Growth & Income Fund was named
SteinRoe Prime Equities; and prior to April 17, 1996, the name of
Stein Roe Balanced Fund was Stein Roe Total Return Fund.
As of the date of this Statement of Additional Information,
nine 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
Investment Trust's 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.
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND STRUCTURE
Rather than invest in securities directly, each Fund other
than Stein Roe Capital Opportunities Fund converted into a "feeder
fund" on February 3, 1997; that is, it seeks to achieve its
objective by pooling its assets with assets of other investment
companies and/or institutional investors for investment in a
separate "master fund" having the same investment objective and
substantially the same investment policies and restrictions as the
Fund. Stein Roe Capital Opportunities Fund may at some time in
the future convert to the master fund/feeder fund structure. The
purpose of such an arrangement is to achieve greater operational
efficiencies and reduce costs. Each master fund is a series of
SR&F Base Trust ("Base Trust") (the master funds are referred to
collectively as the "Portfolios"). For more information, please
refer to the Prospectuses under the caption Special Considerations
Regarding the Master Fund/Feeder Fund Structure.
Stein Roe & Farnham Incorporated (the "Adviser") provides
administrative and accounting and recordkeeping services to each
Fund and each Portfolio and provides investment management
services to each Portfolio and to Capital Opportunities Fund.
INVESTMENT POLICIES
In pursuing its respective objective, each Fund or Portfolio
will invest as described below and may employ the investment
techniques described in its Prospectus and elsewhere in this
Statement of Additional Information. Investments and strategies
that are common to two or more Funds or Portfolios are described
under Portfolio Investments and Strategies. Each investment
objective is a non-fundamental policy and may be changed by the
Board of Trustees without the approval of a "majority of the
outstanding voting securities." /1/
- --------------
/1/ A "majority of the outstanding voting securities" means the
approval of the lesser of (i) 67% or more of the shares at a
meeting if the holders of more than 50% of the outstanding shares
of the Fund or Portfolio are present or represented by proxy or
(ii) more than 50% of the outstanding shares of the Fund or
Portfolio.
- ---------------
.c2.STEIN ROE BALANCED FUND
Stein Roe Balanced Fund ("Balanced Fund") seeks to achieve
its objective by investing in SR&F Balanced Portfolio ("Balanced
Portfolio"). Their common investment objective is to seek long-
term growth of capital and current income, consistent with
reasonable investment risk. Balanced Portfolio allocates its
investments among equities, debt securities and cash. The
portfolio manager determines those allocations based on the views
of the Adviser's investment strategists regarding economic, market
and other factors relative to investment opportunities.
The equity portion of Balanced Portfolio is invested
primarily in well-established companies having market
capitalizations in excess of $1 billion. Fixed-income senior
securities will make up at least 25% of Balanced Portfolio's total
assets. Investments in debt securities are limited to those that
are within the four highest grades (generally referred to as
"investment grade") assigned by a nationally recognized
statistical rating organization or, if unrated, determined by the
Adviser to be of comparable quality.
.c2.STEIN ROE GROWTH & INCOME FUND
Stein Roe Growth & Income Fund ("Growth & Income Fund") seeks
to achieve its objective by investing in SR&F Growth & Income
Portfolio ("Growth & Income "Portfolio"). Their common investment
objective is to provide both growth of capital and current income.
Growth & Income Fund is designed for investors seeking a
diversified portfolio of securities that offers the opportunity
for long-term growth of capital while also providing a steady
stream of income. Growth & Income Portfolio invests primarily in
well-established companies whose common stocks are believed to
have both the potential to appreciate in value and to pay
dividends to shareholders.
Although it may invest in a broad range of securities
(including common stocks, preferred stocks, securities convertible
into or exchangeable for common stocks, and warrants or rights to
purchase common stocks), normally Growth & Income Portfolio will
emphasize investments in equity securities of companies having
market capitalizations in excess of $1 billion. Securities of
these well-established companies are believed to be generally less
volatile than those of companies with smaller capitalizations
because companies with larger capitalizations tend to have
experienced management; broad, highly diversified product lines;
deep resources; and easy access to credit.
.c2.STEIN ROE GROWTH STOCK FUND
Stein Roe Growth Stock Fund ("Growth Stock Fund") seeks to
achieve its objective by investing in SR&F Growth Stock Portfolio
("Growth Stock Portfolio"). Their common investment objective is
long-term capital appreciation. Growth Stock Portfolio attempts
to achieve this objective by normally investing at least 65% of
its total assets in common stocks and other equity-type securities
(such as preferred stocks, securities convertible into or
exchangeable for common stocks, and warrants or rights to purchase
common stocks) that, in the opinion of the Adviser, have long-term
appreciation possibilities.
.c2.STEIN ROE YOUNG INVESTOR FUND
Stein Roe Young Investor Fund ("Young Investor Fund") seeks
to achieve its objective by investing in SR&F Growth Investor
Portfolio ("Growth Investor Portfolio"). Their common investment
objective is long-term capital appreciation. Growth Investor
Portfolio invests primarily in common stocks and other equity-type
securities that, in the opinion of the Adviser, have long-term
appreciation potential.
Under normal circumstances, at least 65% of the total assets
of Growth Investor Portfolio will be invested in securities of
companies that, in the opinion of the Adviser, directly or through
one or more subsidiaries, affect the lives of young people. Such
companies may include companies that produce products or services
that young people use, are aware of, or could potentially have an
interest in. Although Growth Investor Portfolio invests primarily
in common stocks and other equity-type securities (such as
preferred stocks, securities convertible into or exchangeable for
common stocks, and warrants or rights to purchase common stocks),
it may invest up to 35% of its total assets in debt securities.
.c2.STEIN ROE SPECIAL FUND
Stein Roe Special Fund ("Special Fund") seeks to achieve its
objective by investing in SR&F Special Portfolio ("Special
Portfolio"). Their common investment objective is to invest in
securities selected for possible capital appreciation. Particular
emphasis is placed on securities that are considered to have
limited downside risk relative to their potential for above-
average growth, including securities of undervalued, underfollowed
or out-of-favor companies, and companies that are low-cost
producers of goods or services, financially strong or run by well-
respected managers. Special Portfolio may invest more than 5% of
its net assets in securities of seasoned, established companies
that appear to have appreciation potential, as well as securities
of relatively small, new companies. In addition, it may invest in
securities with limited marketability, new issues of securities,
securities of companies that, in the Adviser's opinion, will
benefit from management change, new technology, new product or
service development or change in demand, and other securities that
the Adviser believes have capital appreciation possibilities;
however, Special Portfolio does not currently intend to invest
more than 5% of its net assets in any of these types of
securities. Securities of smaller, newer companies may be subject
to greater price volatility than securities of larger more well-
established companies. In addition, many smaller companies are
less well known to the investing public and may not be as widely
followed by the investment community. Although Special Portfolio
will invest primarily in common stocks, it may also invest in
other equity-type securities, including preferred stocks and
securities convertible into equity securities.
.c2.STEIN ROE SPECIAL VENTURE FUND
Stein Roe Special Venture Fund ("Special Venture Fund") seeks
to achieve its objective by investing in SR&F Special Venture
Portfolio ("Special Venture Portfolio"). Their common investment
objective is to seek long-term capital appreciation. Special
Venture Portfolio invests primarily in a diversified portfolio of
common stocks and other equity-type securities (such as preferred
stocks, securities convertible or exchangeable for common stocks,
and warrants or rights to purchase common stocks) of
entrepreneurially managed companies that the Adviser believes
represent special opportunities. Special Venture Portfolio
emphasizes investments in financially strong small and medium-
sized companies based principally on appraisal of their management
and stock valuations. The Adviser considers "small" and "medium-
sized" companies to be those with market capitalizations of less
than $1 billion and $1 to $3 billion, respectively.
In both its initial and ongoing appraisals of a company's
management, the Adviser seeks to know both the principal owners
and senior management and to assess their business judgment and
strategies through personal visits. The Adviser favors companies
whose management has an owner/operator, risk-averse orientation
and a demonstrated ability to create wealth for investors.
Attractive company characteristics include unit growth, favorable
cost structures or competitive positions, and financial strength
that enables management to execute business strategies under
difficult conditions. A company is attractively valued when its
stock can be purchased at a meaningful discount to the value of
the underlying business.
.c2.STEIN ROE CAPITAL OPPORTUNITIES FUND
The investment objective of Stein Roe Capital Opportunities
Fund ("Capital Opportunities Fund") is long-term capital
appreciation, which it attempts to achieve by investing in
selected companies that, in the opinion of the Adviser, offer
opportunities for capital appreciation.
Capital Opportunities Fund pursues its objective by investing
in aggressive growth companies. An aggressive growth company, in
general, is one that appears to have the ability to increase its
earnings at an above-average rate. These may include securities
of smaller emerging companies as well as securities of well-
seasoned companies of any size that offer strong earnings growth
potential. Such companies may benefit from new products or
services, technological developments, or changes in management.
Securities of smaller companies may be subject to greater price
volatility than securities of larger companies. In addition, many
smaller companies are less well known to the investing public and
may not be as widely followed by the investment community.
Although it invests primarily in common stocks, Capital
Opportunities Fund may invest in all types of equity securities,
including preferred stocks and securities convertible into common
stocks.
.c2.STEIN ROE INTERNATIONAL FUND
Stein Roe International Fund ("International Fund") pursues
its objective by investing in SR&F International Portfolio
("International Portfolio"). Their common investment objective is
to seek long-term growth of capital. International Portfolio
seeks to achieve this objective by investing primarily in a
diversified portfolio of foreign securities. Current income is
not a primary factor in the selection of portfolio securities.
International Portfolio invests primarily in common stocks and
other equity-type securities (such as preferred stocks, securities
convertible or exchangeable for common stocks, and warrants or
rights to purchase common stocks). International Portfolio may
invest in securities of smaller emerging companies as well as
securities of well-seasoned companies of any size. Smaller
companies, however, involve higher risks in that they typically
have limited product lines, markets, and financial or management
resources. In addition, the securities of smaller companies may
trade less frequently and have greater price fluctuation than
larger companies, particularly those operating in countries with
developing markets.
International Portfolio diversifies its investments among
several countries and does not concentrate investments in any
particular industry. In pursuing its objective, International
Portfolio varies the geographic allocation and types of securities
in which it invests based on the Adviser's continuing evaluation
of economic, market, and political trends throughout the world.
While International Portfolio has not established limits on
geographic asset distribution, it ordinarily invests in the
securities markets of at least three countries outside the United
States, including but not limited to Western European countries
(such as Belgium, France, Germany, Ireland, Italy, The
Netherlands, the countries of Scandinavia, Spain, Switzerland, and
the United Kingdom); countries in the Pacific Basin (such as
Australia, Hong Kong, Japan, Malaysia, the Philippines, Singapore,
and Thailand); and countries in the Americas (such as Argentina,
Brazil, Colombia, and Mexico). In addition, it does not currently
intend to invest more than 2% of its total assets in Russian
securities.
Under normal market conditions, International Portfolio will
invest at least 65% of its total assets (taken at market value) in
foreign securities. If, however, investments in foreign
securities appear to be relatively unattractive in the judgment of
the Adviser because of current or anticipated adverse political or
economic conditions, International Portfolio may hold cash or
invest any portion of its assets in securities of the U.S.
Government and equity and debt securities of U.S. companies, as a
temporary defensive strategy. To meet liquidity needs,
International Portfolio may also hold cash in domestic and foreign
currencies and invest in domestic and foreign money market
securities (including repurchase agreements and "synthetic"
foreign money market positions).
In the past, the U.S. Government has from time to time
imposed restrictions, through taxation and otherwise, on foreign
investments by U.S. investors such as International Portfolio. If
such restrictions should be reinstated, it might become necessary
for International Portfolio to invest all or substantially all of
its assets in U.S. securities. In such an event, International
Portfolio would review its investment objective and policies to
determine whether changes are appropriate.
PORTFOLIO INVESTMENTS AND STRATEGIES
For purposes of discussion under Portfolio Investments and
Strategies, the term "Fund" refers to each Fund and each
Portfolio.
DEBT SECURITIES
In pursuing its investment objective, each Fund may invest in
debt securities of corporate and governmental issuers. The risks
inherent in debt securities depend primarily on the term and
quality of the obligations in a Fund's portfolio as well as on
market conditions. A decline in the prevailing levels of interest
rates generally increases the value of debt securities, while an
increase in rates usually reduces the value of those securities.
Investments in debt securities by Growth & Income Portfolio,
Balanced Portfolio, Growth Stock Portfolio, and International
Portfolio are limited to those that are within the four highest
grades (generally referred to as "investment grade") assigned by a
nationally recognized statistical rating organization or, if
unrated, deemed to be of comparable quality by the Adviser.
Growth Investor Portfolio, Special Venture Portfolio, Capital
Opportunities Fund, and Special Portfolio may invest up to 35% of
their net assets in debt securities, but do not expect to invest
more than 5% of their net assets in debt securities that are rated
below investment grade.
Securities in the fourth highest grade may possess
speculative characteristics, and changes in economic conditions
are more likely to affect the issuer's capacity to pay interest
and repay principal. If the rating of a security held by a Fund
is lost or reduced below investment grade, the Fund is not
required to dispose of the security, but the Adviser will consider
that fact in determining whether that Fund should continue to hold
the security.
Securities that are rated below investment grade are
considered predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal according to the
terms of the obligation and therefore carry greater investment
risk, including the possibility of issuer default and bankruptcy.
When the Adviser determines that adverse market or economic
conditions exist and considers a temporary defensive position
advisable, the Funds may invest without limitation in high-quality
fixed income securities or hold assets in cash or cash
equivalents.
DERIVATIVES
Consistent with its objective, each Fund may invest in a
broad array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, securities collateralized by
underlying pools of mortgages or other receivables, floating rate
instruments, and other instruments that securitize assets of
various types ("Derivatives"). In each case, the value of the
instrument or security is "derived" from the performance of an
underlying asset or a "benchmark" such as a security index, an
interest rate, or a currency.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because it is more
efficient or less costly than direct investment that cannot be
readily established directly due to portfolio size, cash
availability, or other factors. They also may be used in an
effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and directions
of movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives.
No Fund, other than International Portfolio, currently
intends to invest more than 5% of its net assets in any type of
Derivative except for options, futures contracts, and futures
options. International Portfolio currently intends to invest no
more than 5% of its net assets in any type of Derivative other
than options, futures contracts, futures options, and forward
contracts. (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 the
Fund on purchase of such securities; in addition, the proceeds of
prepayment would likely be invested at lower interest rates.
Mortgage-backed securities provide either a pro rata interest
in underlying mortgages or an interest in collateralized mortgage
obligations ("CMOs") that represent a right to interest and/or
principal payments from an underlying mortgage pool. CMOs are not
guaranteed by either the U.S. Government or by its agencies or
instrumentalities, and are usually issued in multiple classes each
of which has different payment rights, prepayment risks, and yield
characteristics. Mortgage-backed securities involve the risk of
prepayment on the underlying mortgages at a faster or slower rate
than the established schedule. Prepayments generally increase
with falling interest rates and decrease with rising rates but
they also are influenced by economic, social, and market factors.
If mortgages are pre-paid during periods of declining interest
rates, there would be a resulting loss of the full-term benefit of
any premium paid by the Fund on purchase of the CMO, and the
proceeds of prepayment would likely be invested at lower interest
rates.
Non-mortgage asset-backed securities usually have less
prepayment risk than mortgage-backed securities, but have the risk
that the collateral will not be available to support payments on
the underlying loans that finance payments on the securities
themselves.
Floating rate instruments provide for periodic adjustments in
coupon interest rates that are automatically reset based on
changes in amount and direction of specified market interest
rates. In addition, the adjusted duration of some of these
instruments may be materially shorter than their stated
maturities. To the extent such instruments are subject to
lifetime or periodic interest rate caps or floors, such
instruments may experience greater price volatility than debt
instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and
refers to the approximate percentage change in price for a 100
basis point change in yield. For example, if interest rates
decrease by 100 basis points, a market price of a security with an
adjusted duration of 2 would increase by approximately 2%.
CONVERTIBLE SECURITIES
By investing in convertible securities, a Fund obtains the
right to benefit from the capital appreciation potential in the
underlying stock upon exercise of the conversion right, while
earning higher current income than would be available if the stock
were purchased directly. In determining whether to purchase a
convertible, the Adviser will consider substantially the same
criteria that would be considered in purchasing the underlying
stock. While convertible securities purchased by a Fund are
frequently rated investment grade, each 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 tends
to be more important in the purchase of such securities than other
factors.
FOREIGN SECURITIES
Each Fund (other than International Portfolio, which invests
primarily in foreign securities) 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. The Funds may
invest in sponsored or unsponsored ADRs. In the case of an
unsponsored ADR, a Fund is likely to bear its proportionate share
of the expenses of the depositary and it may have greater
difficulty in receiving shareholder communications than it would
have with a sponsored ADR. No Fund intends to invest, nor during
the past fiscal year has any Fund invested, more than 5% of its
net assets in unsponsored ADRs. International Portfolio may also
purchase foreign securities in the form of European Depositary
Receipts (EDRs) or other securities representing underlying shares
of foreign issuers. Positions in these securities are not
necessarily denominated in the same currency as the common stocks
into which they may be converted. EDRs are European receipts
evidencing a similar arrangement. Generally, ADRs, in registered
form, are designed for the U.S. securities markets and EDRs, in
bearer form, are designed for use in European securities markets.
As of September 30, 1996, the Funds' holdings of foreign
companies, as a percentage of net assets, were as follows: Growth
& Income Fund, 3.2% (0.7% in foreign securities and 2.5% in ADRs);
Balanced Fund, 13.6% (11.3% in foreign securities and 2.3% in
ADRs); Growth Stock Fund, 5.0% (1.4% in foreign securities and
3.6% in ADRs); Young Investor Fund, 3.8% (0.7% in foreign
securities; 3.1% in ADRs); Special Fund, 6.9% (6.5% in foreign
securities and 0.4% in ADRs); Special Venture Fund, 7.0% (3.5% in
foreign securities and 3.5% in ADRs); and Capital Opportunities
Fund, 3.1% (none in foreign securities and 3.1% in ADRs).
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, a Fund's
investment performance is affected by the strength or weakness of
the U.S. dollar against these currencies. For example, if the
dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise
even though the price of the stock remains unchanged. Conversely,
if the dollar rises in value relative to the yen, the dollar value
of the yen-denominated stock will fall. (See discussion of
transaction hedging and portfolio hedging under Currency Exchange
Transactions.)
Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities,
positions in which are generally denominated in foreign
currencies, and utilization of forward foreign currency exchange
contracts involve certain considerations comprising both risks and
opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and issuers of securities; lack of uniform accounting, auditing,
and financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment
in securities of companies in developing as well as developed
countries; and sometimes less advantageous legal, operational, and
financial protections applicable to foreign sub-custodial
arrangements.
Although the Funds will try to invest in companies and
governments of countries having stable political environments,
there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of
foreign government restrictions, or other adverse political,
social or diplomatic developments that could affect investment in
these nations.
Currency Exchange Transactions. Currency exchange
transactions may be conducted either on a spot (i.e., cash) basis
at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market or through forward currency exchange
contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at
a specified future date (or within a specified time period) and
price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not
exchange traded, and are usually for less than one year, but may
be renewed.
The Funds' 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 a Fund arising in connection with the
purchase and sale of its portfolio securities. Portfolio hedging
is the use of forward contracts with respect to portfolio security
positions denominated or quoted in a particular foreign currency.
Portfolio hedging allows the Fund to limit or reduce its exposure
in a foreign currency by entering into a forward contract to sell
such foreign currency (or 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. A Fund may not engage in portfolio hedging
with respect to the currency of a particular country to an extent
greater than the aggregate market value (at the time of making
such sale) of the securities held in its portfolio denominated or
quoted in that particular currency, except that a Fund may hedge
all or part of its foreign currency exposure through the use of a
basket of currencies or a proxy currency where such currencies or
currency act as an effective proxy for other currencies. In such
a case, a Fund may enter into a forward contract where the amount
of the foreign currency to be sold exceeds the value of the
securities denominated in such currency. The use of this basket
hedging technique may be more efficient and economical than
entering into separate forward contracts for each currency held in
a Fund. No Fund may engage in "speculative" currency exchange
transactions.
At the maturity of a forward contract to deliver a particular
currency, a Fund may either sell the portfolio security related to
such contract and make delivery of the currency, or it may retain
the security and either acquire the currency on the spot market or
terminate its contractual obligation to deliver the currency by
purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same
amount of the currency.
It is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of a
forward contract. Accordingly, it may be necessary for a Fund to
purchase additional currency on the spot market (and bear the
expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver
and if a decision is made to sell the security and make delivery
of the currency. Conversely, it may be necessary to sell on the
spot market some of the currency received upon the sale of the
portfolio security if its market value exceeds the amount of
currency a Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to
the extent that there has been movement in forward contract
prices. If a Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between
a Fund's entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for
the purchase of the currency, the Fund will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward
prices increase, a Fund will suffer a loss to the extent the price
of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell. A default on the contract would
deprive the Fund of unrealized profits or force the Fund to cover
its commitments for purchase or sale of currency, if any, at the
current market price.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for a Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it
anticipates. The cost to a Fund of engaging in currency exchange
transactions varies with such factors as the currency involved,
the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually
conducted on a principal basis, no fees or commissions are
involved.
Synthetic Foreign Money Market Positions. International
Portfolio may invest in money market instruments denominated in
foreign currencies. In addition to, or in lieu of, such direct
investment, International Portfolio may construct a synthetic
foreign money market position by (a) purchasing a money market
instrument denominated in one currency, generally U.S. dollars,
and (b) concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
For example, a synthetic money market position in Japanese yen
could be constructed by purchasing a U.S. dollar money market
instrument, and entering concurrently into a forward contract to
deliver a corresponding amount of U.S. dollars in exchange for
Japanese yen on a specified date and at a specified rate of
exchange. Because of the availability of a variety of highly
liquid short-term U.S. dollar money market instruments, a
synthetic money market position utilizing such U.S. dollar
instruments may offer greater liquidity than direct investment in
foreign currency money market instruments. The result of a direct
investment in a foreign currency and a concurrent construction of
a synthetic position in such foreign currency, in terms of both
income yield and gain or loss from changes in currency exchange
rates, in general should be similar, but would not be identical
because the components of the alternative investments would not be
identical. Except to the extent a synthetic foreign money market
position consists of a money market instrument denominated in a
foreign currency, the synthetic foreign money market position
shall not be deemed a "foreign security" for purposes of the
policy that, under normal conditions, International Portfolio will
invest at least 65% of its total assets in foreign securities.
LENDING OF PORTFOLIO SECURITIES
Subject to restriction (5) under Investment Restrictions in
this Statement of Additional Information, each Fund may lend its
portfolio securities to broker-dealers and banks. Any such loan
must be continuously secured by collateral in cash or cash
equivalents maintained on a current basis in an amount at least
equal to the market value of the securities loaned by the Fund.
The Fund would continue to receive the equivalent of the interest
or dividends paid by the issuer on the securities loaned, and
would also receive an additional return that may be in the form of
a fixed fee or a percentage of the collateral. The Fund would
have the right to call the loan and obtain the securities loaned
at any time on notice of not more than five business days. The
Fund would not have the right to vote the securities during the
existence of the loan but would call the loan to permit voting of
the securities if, in the Adviser's judgment, a material event
requiring a shareholder vote would otherwise occur before the loan
was repaid. In the event of bankruptcy or other default of the
borrower, the Fund could experience both delays in liquidating the
loan collateral or recovering the loaned securities and losses,
including (a) possible decline in the value of the collateral or
in the value of the securities loaned during the period while the
Fund seeks to enforce its rights thereto, (b) possible subnormal
levels of income and lack of access to income during this period,
and (c) expenses of enforcing its rights. No Fund loaned
portfolio securities during the fiscal year ended September 30,
1996 nor does it currently intend to loan more than 5% of its net
assets.
REPURCHASE AGREEMENTS
Each 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 a
Fund in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, a Fund could experience both losses and
delays in liquidating its collateral.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE
AGREEMENTS
Each Fund may purchase securities on a when-issued or
delayed-delivery basis. Although the payment and interest terms
of these securities are established at the time a Fund enters into
the commitment, the securities may be delivered and paid for a
month or more after the date of purchase, when their value may
have changed. The Funds make such commitments only with the
intention of actually acquiring the securities, but may sell the
securities before settlement date if the Adviser deems it
advisable for investment reasons. No Fund had during its last
fiscal year, nor does any Fund currently intend to have,
commitments to purchase when-issued securities in excess of 5% of
its net assets. International Portfolio may utilize spot and
forward foreign currency exchange transactions to reduce the risk
inherent in fluctuations in the exchange rate between one currency
and another when securities are purchased or sold on a when-issued
or delayed-delivery basis.
Each Fund may enter into reverse repurchase agreements with
banks and securities dealers. A reverse repurchase agreement is a
repurchase agreement in which a Fund is the seller of, rather than
the investor in, securities and agrees to repurchase them at an
agreed-upon time and price. Use of a reverse repurchase agreement
may be preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and transaction
costs. No Fund entered into reverse repurchase agreements during
the fiscal year ended September 30, 1996.
At the time a Fund enters into a binding obligation to
purchase securities on a when-issued basis or enters into a
reverse repurchase agreement, liquid assets (cash, U.S. Government
securities or other "high-grade" debt obligations) of the Fund
having a value at least as great as the purchase price of the
securities to be purchased will be segregated on the books of the
Fund and held by the custodian throughout the period of the
obligation. The use of these investment strategies, as well as
borrowing under a line of credit as described below, may increase
net asset value fluctuation.
SHORT SALES "AGAINST THE BOX"
Each 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. A Fund may make
short sales of securities only if at all times when a short
position is open the Fund 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, a Fund does not deliver from
its portfolio the securities sold. Instead, the 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 the Fund, to the purchaser of such securities. The
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, the Fund must deposit and continuously maintain in a
separate account with the Fund's custodian an equivalent amount of
the securities sold short or securities convertible into or
exchangeable for such securities at no additional cost. A Fund is
said to have a short position in the securities sold until it
delivers to the broker-dealer the securities sold. A 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 a 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 the Fund owns, either directly or indirectly, and, in
the case where the Fund 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 a Fund replaces the borrowed security, the Fund
will incur a loss and if the price declines during this period,
the Fund 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 the Fund may have to pay in connection
with such short sale. Certain provisions of the Internal Revenue
Code may limit the degree to which a Fund is able to enter into
short sales. There is no limitation on the amount of each 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. Up to 20% of its assets of Balanced Portfolio may be
involved in short sales against the box, but no other Fund
currently expects that more than 5% of its total assets would be
involved in short sales against the box.
RULE 144A SECURITIES
Each Fund may purchase securities that have been privately
placed but that are eligible for purchase and sale under Rule 144A
under the 1933 Act. That Rule permits certain qualified
institutional buyers, such as the Fund, to trade in privately
placed securities that have not been registered for sale under the
1933 Act. The Adviser, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the Fund's restriction of
investing no more than 15% of its net assets in illiquid
securities. A determination of whether a Rule 144A security is
liquid or not is a question of fact. In making this
determination, the Adviser will consider the trading markets for
the specific security, taking into account the unregistered nature
of a Rule 144A security. In addition, the Adviser could consider
the (1) frequency of trades and quotes, (2) number of dealers and
potential purchasers, (3) dealer undertakings to make a market,
and (4) nature of the security and of marketplace trades (e.g.,
the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). The liquidity
of Rule 144A securities would be monitored and if, as a result of
changed conditions, it is determined that a Rule 144A security is
no longer liquid, the Fund's holdings of illiquid securities would
be reviewed to determine what, if any, steps are required to
assure that the Fund does not invest more than 15% of its assets
in illiquid securities. Investing in Rule 144A securities could
have the effect of increasing the amount of a Fund's assets
invested in illiquid securities if qualified institutional buyers
are unwilling to purchase such securities. No Fund expects to
invest as much as 5% of its total assets in Rule 144A securities
that have not been deemed to be liquid by the Adviser. (See
restriction (n) under Investment Restrictions.)
LINE OF CREDIT
Subject to restriction (6) under Investment Restrictions in
this Statement of Additional Information, each Fund may establish
and maintain a line of credit with a major bank in order to permit
borrowing on a temporary basis to meet share redemption requests
in circumstances in which temporary borrowing may be preferable to
liquidation of portfolio securities.
INTERFUND BORROWING AND LENDING PROGRAM
Pursuant to an exemptive order issued by the Securities and
Exchange Commission, each Fund has received permission to lend
money to, and borrow money from, other mutual funds advised by the
Adviser. A Fund will borrow through the program when borrowing is
necessary or appropriate and the costs are equal to or lower than
the costs of bank loans.
PORTFOLIO TURNOVER
Although the Funds do not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
that portfolio securities must be held. At times, Special
Portfolio and Capital Opportunities Fund may invest for short-term
capital appreciation. Portfolio turnover can occur for a number
of reasons such as general conditions in the securities markets,
more favorable investment opportunities in other securities, or
other factors relating to the desirability of holding or changing
a portfolio investment. Because of the Funds' flexibility of
investment and emphasis on growth of capital, they may have
greater portfolio turnover than that of mutual funds that have
primary objectives of income or maintenance of a balanced
investment position. The future turnover rate may vary greatly
from year to year. A high rate of portfolio turnover in a Fund,
if it should occur, would result in increased transaction
expenses, which must be borne by that Fund. High portfolio
turnover may also result in the realization of capital gains or
losses and, to the extent net short-term capital gains are
realized, any distributions resulting from such gains will be
considered ordinary income for federal income tax purposes. (See
Risks and Investment Considerations and Distributions and Income
Taxes in the Prospectuses, and Additional Income Tax
Considerations in this Statement of Additional Information.)
OPTIONS ON SECURITIES AND INDEXES
Each Fund may purchase and sell put options and call options
on securities, indexes or foreign currencies in standardized
contracts traded on recognized securities exchanges, boards of
trade, or similar entities, or quoted on Nasdaq. Each Fund may
purchase agreements, sometimes called cash puts, that may
accompany the purchase of a new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives
the purchaser (holder) of the option, in return for a premium, the
right to buy from (call) or sell to (put) the seller (writer) of
the option the security underlying the option (or the cash value
of the index) at a specified exercise price at any time during the
term of the option (normally not exceeding nine months). The
writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver
the underlying security or foreign currency upon payment of the
exercise price or to pay the exercise price upon delivery of the
underlying security or foreign currency. Upon exercise, the
writer of an option on an index is obligated to pay the difference
between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An
index is designed to reflect specified facets of a particular
financial or securities market, a specific group of financial
instruments or securities, or certain economic indicators.)
A Fund will write call options and put options only if they
are "covered." For example, in the case of a call option on a
security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or,
if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its
custodian) upon conversion or exchange of other securities held in
its portfolio.
If an option written by a Fund expires, the Fund realizes a
capital gain equal to the premium received at the time the option
was written. If an option purchased by a Fund expires, the Fund
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may
be closed out by an offsetting purchase or sale of an option of
the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when a Fund desires.
A Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to purchase
the option, the Fund will realize a capital gain or, if it is
less, the Fund will realize a capital loss. The principal factors
affecting the market value of a put or a call option include
supply and demand, interest rates, the current market price of the
underlying security or index in relation to the exercise price of
the option, the volatility of the underlying security or index,
and the time remaining until the expiration date.
A put or call option purchased by a Fund is an asset of the
Fund, valued initially at the premium paid for the option. The
premium received for an option written by a Fund is recorded as a
deferred credit. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or
no closing price is available, at the mean between the last bid
and asked prices.
Risks Associated with Options on Securities and Indexes.
There are several risks associated with transactions in options.
For example, there are significant differences between the
securities markets, the currency markets, and the options markets
that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use options
involves the exercise of skill and judgment, and even a well-
conceived transaction may be unsuccessful to some degree because
of market behavior or unexpected events.
There can be no assurance that a liquid market will exist
when a Fund seeks to close out an option position. If a Fund were
unable to close out an option that it had purchased on a security,
it would have to exercise the option in order to realize any
profit or the option would expire and become worthless. If a Fund
were unable to close out a covered call option that it had written
on a security, it would not be able to sell the underlying
security until the option expired. As the writer of a covered
call option on a security, a Fund foregoes, during the option's
life, the opportunity to profit from increases in the market value
of the security covering the call option above the sum of the
premium and the exercise price of the call.
If trading were suspended in an option purchased or written
by a Fund, the Fund would not be able to close out the option. If
restrictions on exercise were imposed, the Fund might be unable to
exercise an option it has purchased.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each Fund may use interest rate futures contracts, index
futures contracts, and foreign currency futures contracts. An
interest rate, index or foreign currency futures contract provides
for the future sale by one party and purchase by another party of
a specified quantity of a financial instrument or the cash value
of an index /2/ at a specified price and time. A public market
exists in futures contracts covering a number of indexes
(including, but not limited to: the Standard & Poor's 500 Index,
the Value Line Composite Index, and the New York Stock Exchange
Composite Index) as well as financial instruments (including, but
not limited to: U.S. Treasury bonds, U.S. Treasury notes,
Eurodollar certificates of deposit, and foreign currencies).
Other index and financial instrument futures contracts are
available and it is expected that additional futures contracts
will be developed and traded.
- ----------------
/2/ A futures contract on an index is an agreement pursuant to
which two parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at
which the index contract was originally written. Although the
value of a securities index is a function of the value of certain
specified securities, no physical delivery of those securities is
made.
- ----------------
The Funds may purchase and write call and put futures
options. Futures options possess many of the same characteristics
as options on securities, indexes and foreign currencies
(discussed above). A futures option gives the holder the right,
in return for the premium paid, to assume a long position (call)
or short position (put) in a futures contract at a specified
exercise price at any time during the period of the option. Upon
exercise of a call option, the holder acquires a long position in
the futures contract and the writer is assigned the opposite short
position. In the case of a put option, the opposite is true. A
Fund might, for example, use futures contracts to hedge against or
gain exposure to fluctuations in the general level of stock
prices, anticipated changes in interest rates or currency
fluctuations that might adversely affect either the value of the
Fund's securities or the price of the securities that the Fund
intends to purchase. Although other techniques could be used to
reduce or increase that Fund's exposure to stock price, interest
rate and currency fluctuations, the Fund may be able to achieve
its exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.
Each Fund will only enter into futures contracts and futures
options that are standardized and traded on an exchange, board of
trade, or similar entity, or quoted on an automated quotation
system.
The success of any futures transaction depends on the Adviser
correctly predicting changes in the level and direction of stock
prices, interest rates, currency exchange rates and other factors.
Should those predictions be incorrect, a Fund's return might have
been better had the transaction not been attempted; however, in
the absence of the ability to use futures contracts, the Adviser
might have taken portfolio actions in anticipation of the same
market movements with similar investment results but, presumably,
at greater transaction costs.
When a purchase or sale of a futures contract is made by a
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the broker
("initial margin"). The margin required for a futures contract is
set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is
in the nature of a performance bond or good faith deposit on the
futures contract, which is returned to the Fund upon termination
of the contract, assuming all contractual obligations have been
satisfied. A Fund expects to earn interest income on its initial
margin deposits. A futures contract held by a Fund is valued
daily at the official settlement price of the exchange on which it
is traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking-to-market."
Variation margin paid or received by a Fund does not represent a
borrowing or loan by the Fund but is instead settlement between
the Fund and the broker of the amount one would owe the other if
the futures contract had expired at the close of the previous day.
In computing daily net asset value, each Fund will mark-to-market
its open futures positions.
Each Fund is also required to deposit and maintain margin
with respect to put and call options on futures contracts written
by it. Such margin deposits will vary depending on the nature of
the underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying securities, usually these obligations
are closed out prior to delivery by offsetting purchases or sales
of matching futures contracts (same exchange, underlying security
or index, and delivery month). If an offsetting purchase price is
less than the original sale price, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund
realizes a capital loss. Conversely, if an offsetting sale price
is more than the original purchase price, the Fund engaging in the
transaction realizes a capital gain, or if it is less, the Fund
realizes a capital loss. The transaction costs must also be
included in these calculations.
RISKS ASSOCIATED WITH FUTURES
There are several risks associated with the use of futures
contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in
the futures contract. In trying to increase or reduce market
exposure, there can be no guarantee that there will be a
correlation between price movements in the futures contract and in
the portfolio exposure sought. In addition, there are significant
differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a
given transaction not to achieve its objectives. The degree of
imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures
options and the related securities, including technical influences
in futures and futures options trading and differences between the
securities market and the securities underlying the standard
contracts available for trading. For example, in the case of
index futures contracts, the composition of the index, including
the issuers and the weighting of each issue, may differ from the
composition of the Fund's portfolio, and, in the case of interest
rate futures contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures contract may
differ from the financial instruments held in the Fund's
portfolio. A decision as to whether, when and how to use futures
contracts involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree
because of market behavior or unexpected stock price or interest
rate trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit governs
only price movements during a particular trading day and therefore
does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses. Stock
index futures contracts are not normally subject to such daily
price change limitations.
There can be no assurance that a liquid market will exist at
a time when a Fund seeks to close out a futures or futures option
position. The Fund would be exposed to possible loss on the
position during the interval of inability to close, and would
continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed
above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active
secondary market will develop or continue to exist.
LIMITATIONS ON OPTIONS AND FUTURES
If other options, futures contracts, or futures options of
types other than those described herein are traded in the future,
each Fund may also use those investment vehicles, provided the
Board of Trustees determines that their use is consistent with the
Fund's investment objective.
A Fund will not enter into a futures contract or purchase an
option thereon if, immediately thereafter, the initial margin
deposits for futures contracts held by that Fund plus premiums
paid by it for open futures option positions, less the amount by
which any such positions are "in-the-money," /3/ would exceed 5%
of the Fund's total assets.
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/3/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
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When purchasing a futures contract or writing a put option on
a futures contract, a Fund must maintain with its custodian (or
broker, if legally permitted) cash or cash equivalents (including
any margin) equal to the market value of such contract. When
writing a call option on a futures contract, the Fund similarly
will maintain with its custodian cash or cash equivalents
(including any margin) equal to the amount by which such option is
in-the-money until the option expires or is closed out by the
Fund.
A Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the
positions. For this purpose, to the extent the Fund has written
call options on specific securities in its portfolio, the value of
those securities will be deducted from the current market value of
the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," each Fund will use commodity futures or commodity
options contracts solely for bona fide hedging purposes within the
meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of 1.3(z), the
aggregate initial margin and premiums required to establish such
positions will not exceed 5% of the fair market value of the
assets of a Fund, after taking into account unrealized profits and
unrealized losses on any such contracts it has entered into [in
the case of an option that is in-the-money at the time of
purchase, the in-the-money amount (as defined in Section 190.01(x)
of the Commission Regulations) may be excluded in computing such
5%].
TAXATION OF OPTIONS AND FUTURES
If a Fund exercises a call or put option that it holds, the
premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the
security sold (put). For cash settlement options and futures
options exercised by a Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
If a call or put option written by a Fund is exercised, the
premium is included in the proceeds of the sale of the underlying
security (call) or reduces the cost basis of the security
purchased (put). For cash settlement options and futures options
written by a Fund, the difference between the cash paid at
exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by a Fund was in-the-
money at the time it was written and the security covering the
option was held for more than the long-term holding period prior
to the writing of the option, any loss realized as a result of a
closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
If a Fund writes an equity call option /4/ other than a
"qualified covered call option," as defined in the Internal
Revenue Code, any loss on such option transaction, to the extent
it does not exceed the unrealized gains on the securities covering
the option, may be subject to deferral until the securities
covering the option have been sold.
- -------------
/4/ An equity option is defined to mean any option to buy or sell
stock, and any other option the value of which is determined by
reference to an index of stocks of the type that is ineligible to
be traded on a commodity futures exchange (e.g., an option
contract on a sub-index based on the price of nine hotel-casino
stocks). The definition of equity option excludes options on
broad-based stock indexes (such as the Standard & Poor's 500
index).
- -------------
A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If a Fund
delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities.
For federal income tax purposes, a Fund generally is required
to recognize as income for each taxable year its net unrealized
gains and losses as of the end of the year on futures, futures
options and non-equity options positions ("year-end mark-to-
market"). Generally, any gain or loss recognized with respect to
such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and
40% short-term, without regard to the holding periods of the
contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options
positions, the related securities and certain successor positions
thereto) may be deferred to a later taxable year. Sale of futures
contracts or writing of call options (or futures call options) or
buying put options (or futures put options) that are intended to
hedge against a change in the value of securities held by a Fund:
(1) will affect the holding period of the hedged securities; and
(2) may cause unrealized gain or loss on such securities to be
recognized upon entry into the hedge.
If a Fund were to enter into a short index future, short
index futures option or short index option position and the Fund's
portfolio were deemed to "mimic" the performance of the index
underlying such contract, the option or futures contract position
and the Fund's stock positions would be deemed to be positions in
a mixed straddle, subject to the above-mentioned loss deferral
rules.
In order for a Fund to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of
its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). In addition,
gains realized on the sale or other disposition of securities held
for less than three months must be limited to less than 30% of the
Fund's annual gross income. Any net gain realized from futures
(or futures options) contracts will be considered gain from the
sale of securities and therefore be qualifying income for purposes
of the 90% requirement. In order to avoid realizing excessive
gains on securities held less than three months, the Fund may be
required to defer the closing out of certain positions beyond the
time when it would otherwise be advantageous to do so.
Each Fund distributes to shareholders annually any net
capital gains that have been recognized for federal income tax
purposes (including year-end mark-to-market gains) on options and
futures transactions. Such distributions are combined with
distributions of capital gains realized on the Fund's other
investments, and shareholders are advised of the nature of the
payments.
INVESTMENT RESTRICTIONS
The Funds and the Portfolios operate under the following
investment restrictions. No Fund or Portfolio may:
(1) with respect to 75% of its total assets, invest more than
5% of its total assets, taken at market value at the time of a
particular purchase, in the securities of a single issuer, except
for securities issued or guaranteed by the U. S. Government or any
of its agencies or instrumentalities or repurchase agreements for
such securities, and [Funds only] except that all or substantially
all of the assets of the Fund may be invested in another
registered investment company having the same investment objective
and substantially similar investment policies as the Fund;
(2) acquire more than 10%, taken at the time of a particular
purchase, of the outstanding voting securities of any one issuer,
[Funds only] except that all or substantially all of the assets of
the Fund may be invested in another registered investment company
having the same investment objective and substantially similar
investment policies as the Fund;
(3) act as an underwriter of securities, except insofar as it
may be deemed an underwriter for purposes of the Securities Act of
1933 on disposition of securities acquired subject to legal or
contractual restrictions on resale, [Funds only] except that all
or substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate or
interests therein), commodities, or commodity contracts, except
that it may enter into (a) futures and options on futures and (b)
forward contracts;
(5) make loans, although it may (a) lend portfolio securities
and participate in an interfund lending program with other Stein
Roe Funds and Portfolios provided that no such loan may be made
if, as a result, the aggregate of such loans would exceed 33 1/3%
of the value of its total assets (taken at market value at the
time of such loans); (b) purchase money market instruments and
enter into repurchase agreements; and (c) acquire publicly-
distributed or privately-placed debt securities;
(6) borrow except that it may (a) borrow for 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, /5/ except that this restriction does not apply to
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, and [Funds only] except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund; or
- ------------
/5/ For purposes of this investment restriction, International
Portfolio uses industry classifications contained in Morgan
Stanley Capital International Perspective, which is published by
Morgan Stanley, an international investment banking and brokerage
firm.
- ------------
(8) issue any senior security except to the extent permitted
under the Investment Company Act of 1940.
The above restrictions (other than bracketed portions thereof
and, in the case of Special Fund and Special Portfolio, other than
1 and 2) are fundamental policies and may not be changed without
the approval of a "majority of the outstanding voting securities"
as defined above. Each Fund and, in the case of Special Fund and
Special Portfolio, together with restrictions 1 and 2 above, is
also subject to the following non-fundamental restrictions and
policies, which may be changed by the Board of Trustees. None of
the following restrictions shall prevent a Fund from investing all
or substantially all of its assets in another investment company
having the same investment objective and substantially the same
investment policies as the Fund. No Fund or Portfolio may:
(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 or [International Fund and International Portfolio] a
recognized foreign exchange;
(g) write an option on a security unless the option is issued
by the Options Clearing Corporation, an exchange, or similar
entity;
(h) [all Funds and Portfolios except International Fund and
International Portfolio] invest more than 25% of its total assets
(valued at time of purchase) in securities of foreign issuers
(other than securities represented by American Depositary Receipts
(ADRs) or securities guaranteed by a U.S. person);
(i) buy or sell an option on a security, a futures contract,
or an option on a futures contract unless the option, the futures
contract, or the option on the futures contract is offered through
the facilities of a recognized securities association or listed on
a recognized exchange or similar entity;
(j) purchase a put or call option if the aggregate premiums
paid for all put and call options exceed 20% of its net assets
(less the amount by which any such positions are in-the-money),
excluding put and call options purchased as closing transactions;
(k) purchase securities on margin (except for use of short-
term credits as are necessary for the clearance of transactions),
or sell securities short unless (i) 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.
Notwithstanding the foregoing investment restrictions,
International Portfolio may purchase securities pursuant to the
exercise of subscription rights, subject to the condition that
such purchase will not result in its ceasing to be a diversified
investment company. Far Eastern and European corporations
frequently issue additional capital stock by means of subscription
rights offerings to existing shareholders at a price substantially
below the market price of the shares. The failure to exercise
such rights would result in the interest of International
Portfolio in the issuing company being diluted. The market for
such rights is not well developed in all cases and, accordingly,
International Portfolio may not always realize full value on the
sale of rights. The exception applies in cases where the limits
set forth in the investment restrictions would otherwise be
exceeded by exercising rights or would have already been exceeded
as a result of fluctuations in the market value of the portfolio
securities with the result that it would be forced either to sell
securities at a time when it might not otherwise have done so, to
forego exercising the rights.
ADDITIONAL INVESTMENT CONSIDERATIONS
The Adviser seeks to provide superior long-term investment
results through a disciplined, research-intensive approach to
investment selection and prudent risk management. 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:
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 Prospectuses
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 Prospectuses disclose 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.
Capital Opportunities Fund is closed to purchases by new
investors except for purchases by eligible investors as described
under How to Purchase Shares in the Prospectus.
Each Fund's net asset value is determined on days on which
the New York Stock Exchange (the "NYSE") is open for trading. The
NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in February, Good Friday, the last
Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or
Sunday, the NYSE will be closed on the preceding Friday or the
following Monday, respectively. Net asset value will not be
determined on days when the NYSE is closed unless, in the judgment
of the Board of Trustees, net asset value of a Fund should be
determined on any such day, in which case the determination will
be made at 3:00 p.m., Chicago time.
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 any Fund during any period when: (a)
trading on the NYSE is restricted, as determined by the Securities
and Exchange Commission, or the NYSE is closed for other than
customary weekend and holiday closings; (b) the Securities and
Exchange Commission has by order permitted such suspension; or (c)
an emergency, as determined by the Securities and Exchange
Commission, exists, making disposal of portfolio securities or
valuation of net assets of such Fund not reasonably practicable.
MANAGEMENT
The following table sets forth certain information with
respect to the trustees and officers of 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
(4) 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)(4) 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-President; General counsel and secretary of the Adviser since
(4) Secretary November 1995; senior vice president of the Adviser
since April, 1992; vice president of the Adviser
prior thereto
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 76 Trustee Chairman emeritus of A. T. Kearney, Inc.
(3)(4) (international management consultants)
William W. Boyd (3) 70 Trustee Chairman and director of Sterling Plumbing Group,
(4) Inc. (manufacturer of plumbing products) since
1992; chairman, president, and chief executive
officer of Sterling Plumbing Group, Inc. prior
thereto
David P. Brady 32 Vice-President Vice president of 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)(4) 44 Trustee Senior vice president of Liberty Financial
Companies, Inc. (the indirect parent of the
Adviser)
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 62 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 from April,
1992 to May, 1994; associate attorney with Fowler
White Burnett Hurley Banick & Strickroot prior
thereto
Douglas A. Hacker 41 Trustee Senior vice president and chief financial officer,
(3)(4) 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 strategeist of the Adviser;
director of research of the Adviser, 1991 to 1995
Janet Langford Kelly 39 Trustee Senior Vice President, Secretary and General
(3)(4) Counsel, Sara Lee Corporation (branded, packaged,
consumer-products manufacturer), since 1995;
partner, Sidley & Austin (law firm), 1991 through
1994
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
Francis W. Morley 76 Trustee Chairman of Employer Plan Administrators and
(3)(4) Consultants Co. (designer, administrator, and
communicator of employee benefit plans)
Charles R. Nelson 54 Trustee Van Voorhis Professor of Political Economy,
(3)(4) Department of Economics of the University of
Washington
Nicolette D. Parrish 47 Vice-President; Senior compliance administrator and assistant
(4) Assistant Secretary secretary of the Adviser since November, 1995;
senior legal assistant for the Adviser prior
thereto
Richard B. Peterson 56 Vice-President Senior vice president of the Adviser since June,
1991; officer of State Farm Investment Management
Corp. prior thereto
Cynthia A. Prah (4) 34 Vice-President Manager of Shareholder Transaction Processing for
the Adviser
Sharon R. Robertson 35 Controller Accounting manager for the Adviser's Mutual Funds
(4) division
Janet B. Rysz (4) 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
Thomas C. Theobald 59 Trustee Managing director, William Blair Capital Partners
(3)(4) (private equity fund) since 1994; chief executive
officer and chairman of the Board of Directors of
Continental Bank Corporation, 1987-1994
Heidi J. Walter (4) 29 Vice-President Legal counsel for the Adviser since March, 1995;
associate with Beeler Schad & Diamond, P.C., prior
thereto
Stacy H. Winick (4) 31 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 prior thereto
Hans P. Ziegler (4) 55 Executive Vice-President Chief executive officer of the Adviser since May,
1994; president of the Investment Counsel division
of the Adviser from July, 1993 to June, 1994;
president and chief executive officer, Pitcairn
Financial Management Group prior thereto
Margaret O. Zwick(4) 30 Treasurer Compliance manager for the Adviser's Mutual Funds
division since August 1995; compliance accountant,
January 1995 to July 1995; section manager, January
1994 to January 1995; supervisor, February 1990 to
December 1993
</TABLE>
_________________________
(1) Trustee who is an "interested person" of 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.
(4) This person holds the corresponding officer or trustee
position with Base Trust.
Certain of the trustees and officers of Investment Trust and
Base 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 the Fund's distributor, Liberty
Securities Corporation. The address of Mr. Block is 11 Woodley
Road, Winnetka, Illinois 60093; that of Mr. Boyd is 2900 Golf
Road, Rolling Meadows, Illinois 60008; that of Mr. Cook is 600
Atlantic Avenue, Boston, Massachusetts 02210; that of Mr. Hacker
is P.O. Box 66100, Chicago, IL 60666; that of 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 Funds of
Investment Trust) plus an attendance fee from each Fund for each
meeting of the Board or standing committee thereof attended at
which business for that Fund is conducted. The attendance fees
(other than for a Nominating Committee or Compensation Committee
meeting) are based on each Fund's net assets as of the preceding
December 31. For a Fund with net assets of less than $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 Fund participating in the master fund/feeder fund structure, the
trustees' attendance fee is 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 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.
FINANCIAL STATEMENTS
Please refer to the Funds' September 30, 1996 Financial
Statements (balance sheets and schedules of investments as of
September 30, 1996 and the statements of operations, changes in
net assets, and notes thereto) and the report of independent
auditors contained in the September 30, 1996 Annual Reports of the
Funds. The Financial Statements and the report of independent
auditors (but no other material from the Annual Reports ) are
incorporated herein by reference. The Annual Reports may be
obtained at no charge by telephoning 800-338-2550.
PRINCIPAL SHAREHOLDERS
As of October 31, 1996, the only persons known by Investment
Trust to own of record or "beneficially" 5% or more of the
outstanding shares of a Fund within the definition of that term as
contained in Rule 13d-3 under the Securities Exchange Act of 1934
were as follows:
Approximate Percentage
of Outstanding
Name and Address Fund Shares Held
- ------------------------------- ------------------- ----------------
First Bank National Association* Growth & Income Fund 15.50%
410 N. Michigan Avenue Balanced Fund 19.20%
Chicago, IL 60611 Growth Stock Fund 21.15%
Special Fund 17.41%
Special Venture Fund 7.55%
Capital Opportun-
ities Fund 9.57%
International Fund 8.96%
Charles Schwab & Co., Inc.* Growth & Income Fund 28.38%
Attn: Mutual Fund Dept. Balanced Fund 10.07%
101 Montgomery Street Growth Stock Fund 5.67%
San Francisco, CA 94104 Young Investor Fund 20.12%
Special Fund 17.93%
Special Venture Fund 5.13%
Capital Opportun-
ities Fund 42.82%
The Northern Trust Co.** Special Venture Fund 18.82%
F/B/O Liberty Mutual International Fund 5.03%
Daily Valuation Transitions
P.O. Box 92956
Chicago, IL 60675
Investors Fiduciary Trust Co., Balanced Fund 9.43%
Trustee for Retirement Plans*
127 W. 10th Street
Kansas City, MO 64105
National Financial Service Young Investor Fund 11.00%
Corporation for the Exclusive Capital Opportun- 10.81%
Benefit of our Customers* ities Fund
Attn: Mutual Funds
P.O. Box 3908
New York, NY 10008
____________________________________
*Shares held of record, but not beneficially.
**Northern Trust Company holds shares of record on behalf of the
Liberty Mutual Employees' Thrift-Incentive Plan.
The following table shows shares of the Funds held by the
categories of persons indicated as of October 31, 1996, and in
each case the approximate percentage of outstanding shares
represented:
Clients of the Adviser Trustees and
in their Client Accounts* Officers
------------------------ -------------------
Shares Held Percent Shares Held Percent
----------- ------- ----------- -------
Growth & Income Fund 1,933,064 16.59% 31,576 **
Balanced Fund 485,962 5.86 11,212 **
Growth Stock Fund 1,089,280 7.44 31,232 **
Young Investor Fund 24,608 ** 6,430 **
Special Fund 4,839,878 11.57 174,743 **
Special Venture Fund 4,730,627 50.73 58,412 **
Capital Opportunities
Fund 2,132,497 4.00 61,068 **
International Fund 8,681,573 69.48 117,344 **
_________________________
*The Adviser may have discretionary authority over such shares
and, accordingly, they could be deemed to be owned
"beneficially" by the Adviser under Rule 13d-3. However, the
Adviser disclaims actual beneficial ownership of such shares.
**Represents less than 1% of the outstanding shares.
. INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated provides investment
management services to each Portfolio and Capital Opportunities
Fund, and administrative services to each Fund and each Portfolio.
The Adviser is a wholly owned subsidiary of SteinRoe Services Inc.
("SSI"), the Fund's transfer agent, which is a wholly owned
subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which is a majority owned subsidiary of LFC Holdings,
Inc., which is a wholly owned subsidiary of Liberty Mutual Equity
Corporation, which is a wholly owned subsidiary of Liberty Mutual
Insurance Company. Liberty Mutual Insurance Company is a mutual
insurance company, principally in the property/casualty insurance
field, organized under the laws of Massachusetts in 1912.
The directors of the Adviser are Kenneth R. Leibler, Harold
W. Cogger, C. Allen Merritt, Jr., Timothy K. Armour, and Hans P.
Ziegler. Mr. Leibler is President and Chief Executive Officer of
Liberty Financial; Mr. Cogger is Executive Vice President of
Liberty Financial; Mr. Merritt is Senior 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 the 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, management
agreement, administrative agreement, fees, expense limitations,
and transfer agency services under Fee Table and Management in the
Prospectuses, which are incorporated herein by reference. The
advisory agreement relating to Special Venture Fund was replaced
with a management agreement and an administrative agreement on
July 1, 1996; the advisory agreements of the other Funds were
replaced on September 1, 1995. When the feeder Funds converted to
the master fund/feeder fund structure on February 3, 1997, the
management agreement relating to those Funds was terminated and
each Portfolio began paying a management fee to the Adviser. The
table below shows gross fees paid by the Funds for the three most
recent fiscal years and any expense reimbursements to them by the
Adviser:
FUND TYPE OF YEAR ENDED YEAR ENDED YEAR ENDED
PAYMENT 9/30/96 9/30/95 9/30/94
- ------------------- -------------- ----------- ----------- -------------
Growth & Income Fund Advisory fee N/A $ 680,210 $ 688,242
Administrative
and management
fee $1,236,769 84,030 N/A
Balanced Fund Advisory fee N/A 1,131,735 1,262,296
Administrative
and management
fee 1,586,725 131,565 N/A
Growth Stock Fund Advisory fee N/A 2,177,363 2,544,530
Administrative
and management
fee 2,895,415 219,495 N/A
Young Investor Fund Advisory fee N/A 126,150 17,155
Administrative
and management
fee 635,747 4,832 N/A
Reimbursement 663,230 322,803 82,109
Special Fund Advisory fee N/A 8,268,281 8,804,952
Administrative
and management
fee 9,420,040 841,041 N/A
Special Venture Fund Advisory fee 567,637 295,409 N/A
Administrative
and management
fee 286,496 N/A N/A
Reimbursement 85,898 127,482 N/A
Capital Opportuni- Advisory fee N/A 1,303,175 1,240,569
ties Fund Administrative
and management
fee 6,759,641 175,449 N/A
International Fund Advisory fee 767,062 736,882 343,107
Administrative
and management
fee 336,632 N/A N/A
The Adviser provides office space and executive and other
personnel to the Funds, and bears any sales or promotional
expenses. Each Fund pays all expenses other than those paid by
the Adviser, including but not limited to printing and postage
charges and securities registration and custodian fees and
expenses incidental to its organization.
Each Fund's administrative agreement provides that the
Adviser shall reimburse the Fund to the extent that total annual
expenses of the Fund (including fees paid to the Adviser, but
excluding taxes, interest, commissions and other normal charges
incident to the purchase and sale of portfolio securities, and
expenses of litigation to the extent permitted under applicable
state law) exceed the applicable limits prescribed by any state in
which shares of the Fund are being offered for sale to the public;
provided, however, the Adviser is not required to reimburse a Fund
an amount in excess of fees paid by the Fund under that agreement
for such year. In addition, in the interest of further limiting
expenses of a Fund, the Adviser may voluntarily waive its
management fee and/or absorb certain expenses for a Fund, as
described under Fee Table in the Prospectuses. Any such
reimbursement will enhance the yield of such Fund.
Each 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 a Fund shall be paid
solely out of that Fund's assets. Any expenses incurred by
Investment Trust that are not solely attributable to a particular
Fund are apportioned in such manner as the Adviser determines is
fair and appropriate, unless otherwise specified by the Board of
Trustees.
BOOKKEEPING AND ACCOUNTING AGREEMENT
Pursuant to separate agreements with Investment Trust and
Base Trust, the Adviser receives a fee for performing certain
bookkeeping and accounting services for each Fund and each
Portfolio. For services provided to the Funds, 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.
DISTRIBUTOR
Shares of each Fund are distributed by Liberty Securities
Corporation ("LSC") under a Distribution Agreement as described
under Management in the Prospectuses, 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 each Fund to investors in
states where the shares are qualified for sale, at net asset
value, without sales commissions or other sales load to the
investor. In addition, no sales commission or "12b-1" payment is
paid by any Fund. LSC offers the Funds' shares only on a best-
efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for Investment
Trust, as described under Management in the Prospectuses. For
performing these services, SSI receives from each Fund a fee based
on an annual rate of .22 of 1% of the Fund's average net assets.
Investment Trust believes the charges by SSI to the Funds are
comparable to those of other companies performing similar
services. (See Investment Advisory Services.)
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
Investment Trust and Base Trust. It is responsible for holding
all securities and cash of the Funds, receiving and paying for
securities purchased, delivering against payment securities sold,
receiving and collecting income from investments, making all
payments covering expenses of the Funds, and performing other
administrative duties, all as directed by authorized persons. The
custodian does not exercise any supervisory function in such
matters as purchase and sale of portfolio securities, payment of
dividends, or payment of expenses of the Funds.
Portfolio securities purchased in the U.S. are maintained in
the custody of the Bank or of other domestic banks or
depositories. Portfolio securities purchased outside of the U.S.
are maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network and foreign
depositories ("foreign sub-custodians"). Each of the domestic and
foreign custodial institutions holding portfolio securities has
been approved by the Board of Trustees in accordance with
regulations under the Investment Company Act of 1940.
Each Board of Trustees reviews, at least annually, whether it
is in the best interest of each Fund, each Portfolio, and their
shareholders to maintain assets in each of the countries in which
a Fund or Portfolio invests with particular foreign sub-custodians
in such countries, pursuant to contracts between such respective
foreign sub-custodians and the Bank. The review includes an
assessment of the risks of holding Fund assets in any such country
(including risks of expropriation or imposition of exchange
controls), the operational capability and reliability of each such
foreign sub-custodian, and the impact of local laws on each such
custody arrangement. The Board of Trustees is aided in its review
by the Bank, which has assembled the network of foreign sub-
custodians utilized by the Funds, as well as by the Adviser and
counsel. However, with respect to foreign sub-custodians, there
can be no assurance that a Fund, and the value of its shares, will
not be adversely affected by acts of foreign governments,
financial or operational difficulties of the foreign sub-
custodians, difficulties and costs of obtaining jurisdiction over,
or enforcing judgments against, the foreign sub-custodians, or
application of foreign law to 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.
The Funds and Portfolios 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 and
each Portfolio are Arthur Andersen LLP, 33 West Monroe Street,
Chicago, Illinois 60603. The accountants audit and report on the
Funds' annual financial statements, review certain regulatory
reports and the Funds' federal income tax returns, and perform
other professional accounting, auditing, tax and advisory services
when engaged to do so by the Trust.
PORTFOLIO TRANSACTIONS
For purposes of discussion under Portfolio Transactions, the
term "Fund" refers to each Fund and each Portfolio.
The Adviser places the orders for the purchase and sale of
each Fund's portfolio securities and options and futures
contracts. The Adviser's overriding objective in effecting
portfolio transactions is to seek to obtain the best combination
of price and execution. The best net price, giving effect to
brokerage commissions, if any, and other transaction costs,
normally is an important factor in this decision, but a number of
other judgmental factors may also enter into the decision. These
include: the Adviser's knowledge of negotiated commission rates
currently available and other current transaction costs; the
nature of the security being traded; the size of the transaction;
the desired timing of the trade; the activity existing and
expected in the market for the particular security;
confidentiality; the execution, clearance and settlement
capabilities of the broker or dealer selected and others which are
considered; the Adviser's knowledge of the financial stability of
the broker or dealer selected and such other brokers or dealers;
and the Adviser's knowledge of actual or apparent operational
problems of any broker or dealer. Recognizing the value of these
factors, a Fund may pay a brokerage commission in excess of that
which another broker or dealer may have charged for effecting the
same transaction. Evaluations of the reasonableness of brokerage
commissions, based on the foregoing factors, are made on an
ongoing basis by the Adviser's staff while effecting portfolio
transactions. The general level of brokerage commissions paid is
reviewed by the Adviser, and reports are made annually to the
Board of Trustees.
With respect to issues of securities involving brokerage
commissions, when more than one broker or dealer is believed to be
capable of providing the best combination of price and execution
with respect to a particular portfolio transaction for a Fund, the
Adviser often selects a broker or dealer that has furnished it
with research products or services such as research reports,
subscriptions to financial publications and research compilations,
compilations of securities prices, earnings, dividends, and
similar data, and computer data bases, quotation equipment and
services, research-oriented computer software and services, and
services of economic and other consultants. Selection of brokers
or dealers is not made pursuant to an agreement or understanding
with any of the brokers or dealers; however, the Adviser uses an
internal allocation procedure to identify those brokers or dealers
who provide it with research products or services and the amount
of research products or services they provide, and endeavors to
direct sufficient commissions generated by its clients' accounts
in the aggregate, including the Funds, to such brokers or dealers
to ensure the continued receipt of research products or services
the Adviser feels are useful. In certain instances, the Adviser
receives from brokers and dealers products or services that are
used both as investment research and for administrative,
marketing, or other non-research purposes. In such instances, the
Adviser makes a good faith effort to determine the relative
proportions of such products or services which may be considered
as investment research. The portion of the costs of such products
or services attributable to research usage may be defrayed by the
Adviser (without prior agreement or understanding, as noted above)
through brokerage commissions generated by transactions by clients
(including the Funds), while the 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 a Fund is
authorized, in recognition of the value of research products or
services, to pay a commission in excess of that which another
broker or dealer might have charged for effecting the same
transaction. The Adviser may receive research in connection with
selling concessions and designations in fixed price offerings in
which the Funds participate. Research products or services
furnished by brokers and dealers may be used in servicing any or
all of the clients of the Adviser and not all such research
products or services are used in connection with the management of
the Funds.
With respect to a Fund's purchases and sales of portfolio
securities transacted with a broker or dealer on a net basis, the
Adviser may also consider the part, if any, played by the broker
or dealer in bringing the security involved to the Adviser's
attention, including investment research related to the security
and provided to the Fund.
The table below shows information on brokerage commissions
paid by the Funds:
<TABLE>
CAPITAL
GROWTH OPPOR-
& GROWTH YOUNG SPECIAL TUNI- INTER-
INCOME BALANCED STOCK INVESTOR SPECIAL VENTURE TIES NATIONAL
FUND FUND FUND FUND FUND FUND FUND FUND
-------- --------- ------- --------- --------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total amount of brokerage
commissions paid during
fiscal year ended 9/30/96 $76,692 $276,367 $259,829 $174,919 $1,519,821 $179,391 $709,905 $422,447
Amount of commissions paid
to brokers or dealers who
supplied research services
to the Adviser 69,931 256,747 242,384 156,002 1,285,979 161,792 604,076 396,619
Total dollar amount
involved in such
transactions (000 omitted) 105,947 143,983 185,573 126,110 807,264 76,577 453,339 113,817
Amount of commissions paid
to brokers or dealers that
were allocated to such
brokers or dealers by the
Fund's portfolio manager
because of research services
provided to the Fund 20,700 55,825 16,500 44,550 346,839 59,298 120,453 -0-
Total dollar amount
involved in such trans-
actions (000 omitted) 15,369 26,398 12,877 30,346 219,126 25,561 69,524 -0-
Total amount of brokerage
commissions paid during
fiscal year ended 9/30/95 249,668 123,109 311,583 38,043 1,728,795 137,260 226,682 208,432
Total amount of brokerage
commissions paid during
fiscal year ended 9/30/94 260,263 85,902 275,659 24,428 1,915,383 N/A 176,246 225,164
</TABLE>
Each Trust has arranged for its custodian to act as a
soliciting dealer to accept any fees available to the custodian as
a soliciting dealer in connection with any tender offer for
portfolio securities. The custodian will credit any such fees
received against its custodial fees. In addition, the Board of
Trustees has reviewed the legal developments pertaining to and the
practicability of attempting to recapture underwriting discounts
or selling concessions when portfolio securities are purchased in
underwritten offerings. However, the Board has been advised by
counsel that recapture by a mutual fund currently is not permitted
under the Rules of Fair Practice of the National Association of
Securities Dealers.
. ADDITIONAL INCOME TAX CONSIDERATIONS
Each Fund and Portfolio intends to comply with the special
provisions of the Internal Revenue Code that relieve it of federal
income tax to the extent of its net investment income and capital
gains currently distributed to shareholders.
Because dividend and capital gain distributions reduce net
asset value, a shareholder who purchases shares shortly before a
record date will, in effect, receive a return of a portion of his
investment in such distribution. The distribution would
nonetheless be taxable to him, even if the net asset value of
shares were reduced below his cost. However, for federal income
tax purposes the shareholder's original cost would continue as his
tax basis.
Each Fund expects that less than 100% of its dividends will
qualify for the deduction for dividends received by corporate
shareholders.
To the extent a Fund invests in foreign securities, it may be
subject to withholding and other taxes imposed by foreign
countries. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Investors may be
entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in
the Code. Specifically, if more than 50% of the Fund's total
assets at the close of any fiscal year consist of stock or
securities of foreign corporations, the Fund may file an election
with the Internal Revenue Service pursuant to which shareholders
of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their
pro rata shares of foreign income taxes paid by the Fund even
though not actually received, (ii) treat such respective pro rata
shares as foreign income taxes paid by them, and (iii) deduct such
pro rata shares in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to
applicable limitations, against their United States income taxes.
Shareholders who do not itemize deductions for federal income tax
purposes will not, however, be able to deduct their pro rata
portion of foreign taxes paid by the Fund, although such
shareholders will be required to include their share of such taxes
in gross income. Shareholders who claim a foreign tax credit may
be required to treat a portion of dividends received from the Fund
as separate category income for purposes of computing the
limitations on the foreign tax credit available to such
shareholders. Tax-exempt shareholders will not ordinarily benefit
from this election relating to foreign taxes. Each year, the Fund
will notify shareholders of the amount of (i) each shareholder's
pro rata share of foreign income taxes paid by the Fund and (ii)
the portion of Fund dividends which represents income from each
foreign country, if the Fund qualifies to pass along such credit.
Passive Foreign Investment Companies. International
Portfolio may purchase the securities of certain foreign
investment funds or trusts called passive foreign investment
companies ("PFICs"). In addition to bearing their proportionate
share of International Portfolio's expenses (management fees and
operating expenses), shareholders will also indirectly bear
similar expenses of PFICs. Capital gains on the sale of PFIC
holdings will be deemed to be ordinary income regardless of how
long International Portfolio holds its investment. In addition,
International Portfolio may be subject to corporate income tax and
an interest charge on certain dividends and capital gains earned
from PFICs, regardless of whether such income and gains are
distributed to shareholders.
In accordance with tax regulations, International Portfolio
intends to treat PFICs as sold on the last day of International
Portfolio's fiscal year and recognize any gains for tax purposes
at that time; losses will not be recognized. Such gains will be
considered ordinary income which International Portfolio will be
required to distribute even though it has not sold the security
and received cash to pay such distributions.
INVESTMENT PERFORMANCE
A Fund may quote certain total return figures from time to
time. A "Total Return" on a per share basis is the amount of
dividends distributed per share plus or minus the change in the
net asset value per share for a period. A "Total Return
Percentage" may be calculated by dividing the value of a share at
the end of a period by the value of the share at the beginning of
the period and subtracting one. For a given period, an "Average
Annual Total Return" may be computed by finding the average annual
compounded rate that would equate a hypothetical initial amount
invested of $1,000 to the ending redeemable value.
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).
For example, for a $1,000 investment in a Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at September 30, 1996 were:
TOTAL RETURN AVERAGE ANNUAL
TOTAL RETURN PERCENTAGE TOTAL RETURN
Growth & Income Fund
1 year $1,227 22.67% 22.67%
5 years 2,079 107.90 15.76
Life of Fund* 2,893 189.30 11.80
Balanced Fund
1 year 1,148 14.83 14.83
5 years 1,680 67.99 10.93
10 years 2,735 173.47 10.58
Growth Stock Fund
1 year 1,210 21.04 21.04
5 years 1,584 58.40 13.75
10 years 3,745 274.49 14.12
Young Investor Fund
1 year 1,356 35.55 35.55
Life of Fund* 1,951 95.13 31.82
Special Fund
1 year 1,179 17.89 17.89
5 years 1,913 91.27 13.85
10 years 4,236 323.62 15.53
Special Venture Fund
1 year 1,318 31.81 31.81
Life of Fund* 1,674 67.35 30.22
Capital Opportunities
Fund
1 year 1,496 49.55 49.55
5 years 2,987 198.72 24.47
10 years 4,537 353.69 16.33
International Fund
1 year 1,082 8.23 8.23
Life of Fund* 1,134 13.37 4.98
______________________________________
*Life of Fund is from its date of public offering: 3/23/87 for
Growth & Income Fund, 10/17/94 for Special Venture Fund, 4/29/94
for Young Investor Fund, and 3/1/94 for International Fund.
Investment performance figures assume reinvestment of all
dividends and distributions and do not take into account any
federal, state, or local income taxes which shareholders must pay
on a current basis. They are not necessarily indicative of future
results. The performance of a Fund is a result of conditions in
the securities markets, portfolio management, and operating
expenses. Although investment performance information is useful
in reviewing a Fund's performance and in providing some basis for
comparison with other investment alternatives, it should not be
used for comparison with other investments using different
reinvestment assumptions or time periods.
In advertising and sales literature, a Fund may compare its
performance with that of other mutual funds, indexes or averages
of other mutual funds, indexes of related financial assets or
data, and other competing investment and deposit products
available from or through other financial institutions. The
composition of these indexes or averages differs from that of the
Funds. Comparison of a Fund to an alternative investment should
be made with consideration of differences in features and expected
performance.
All of the indexes and averages noted below will be obtained
from the indicated sources or reporting services, which the Funds
believe to be generally accurate. A Fund may also note its
mention or recognition in newspapers, magazines, or other media
from time to time. However, the Funds assume no responsibility
for the accuracy of such data. Newspapers and magazines which
might mention the Funds include, but are not limited to, the
following:
Architectural Digest
Arizona Republic
Atlanta Constitution
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
All of the Funds may compare their performance to the
Consumer Price Index (All Urban), a widely recognized measure of
inflation. Each Fund's performance may be compared to the
following indexes or averages:
Dow-Jones Industrial Average New York Stock Exchange Composite Index
Standard & Poor's 500 Stock Index American Stock Exchange Composite Index
Standard & Poor's 400 Industrials NASDAQ Composite
Wilshire 5000 NASDAQ Industrials
(These indexes are widely (These indexes generally reflect
recognized indicators of the performance of stocks
general U.S. stock market traded in the indicated
results.) markets.)
In addition, the Funds may compare performance as indicated
below:
BENCHMARK FUND(S)
Lipper Balanced Fund Average Balanced Fund
Lipper Balanced Fund Index Balanced Fund
Lipper Capital Appreciation Fund Average Capital Opportunities Fund
Lipper Capital Appreciation Fund Index Capital Opportunities Fund
Lipper Equity Fund Average All Funds
Lipper General Equity Fund Average All Funds
Lipper Growth & Income Fund Average Growth & Income Fund
Lipper Growth & Income Fund Index Growth & Income Fund
Lipper Growth Fund Average Growth Stock Fund,
Young Investor Fund, Special Fund
Lipper Growth Fund Index Growth Stock Fund, Young Investor
Fund, Special Fund
Lipper International & Global Funds Average International Fund
Lipper International Fund Index International Fund
Lipper Small Company Growth Fund Average Special Venture Fund
Lipper Small Company Growth Fund Index Special Venture Fund
Morningstar Aggressive Growth Fund Average Capital Opportunities Fund
Morningstar All Equity Funds Average Young Investor Fund,
International Fund
Morningstar Advisor Balanced Fund Average Balanced Fund
Morningstar Domestic Stock Average All Funds except International
Fund
Morningstar Equity Fund Average Young Investor Fund,
International Fund
Morningstar General Equity Average* Young Investor Fund,
International Fund
Morningstar Growth & Income Fund Average Growth & Income Fund
Morningstar Growth Fund Average Growth Stock Fund, Young Investor
Fund, Special Fund
Morningstar Hybrid Fund Average Balanced Fund, Young Investor
Fund, International Fund
Morningstar International Stock Average International Fund
Morningstar Small Company Growth Fund Average Special Venture Fund
Morningstar Total Fund Average All Funds
Morningstar U.S. Diversified Average Young Investor Fund,
International Fund
Value Line Index Capital Opportunities Fund,
(Widely recognized indicator of the Special Fund, Special Venture
performance of small- and medium-sized Fund
company stocks)
*Includes Morningstar Aggressive Growth, Growth, Balanced, Equity
Income, and Growth and Income Averages.
The Lipper averages are unweighted averages of total return
performance as classified, calculated, and published by Lipper.
Lipper Growth Fund index reflects the net asset value weighted
total return of the largest thirty growth funds and thirty growth
and income funds, respectively, as calculated and published by
Lipper. The Lipper International Fund index reflects the net
asset value weighted return of the ten largest international
funds.
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. The Funds may also use
comparative performance as computed in a ranking by Lipper or
category averages and rankings provided by another independent
service. Should Lipper or another service reclassify a Fund to a
different category or develop (and place a Fund into) a new
category, that Fund may compare its performance or ranking with
those of other funds in the newly assigned category, as published
by the service.
A Fund may also cite its rating, recognition, or other
mention by Morningstar or any other entity. Morningstar's rating
system is based on risk-adjusted total return performance and is
expressed in a star-rating format. The risk-adjusted number is
computed by subtracting a fund's risk score (which is a function
of the fund's monthly returns less the 3-month T-bill return) from
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, the Funds may use historical data provided by
Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based investment
firm. Ibbotson constructs (or obtains) very long-term (since
1926) total return data (including, for example, total return
indexes, total return percentages, average annual total returns
and standard deviations of such returns) for the following asset
types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
_____________________
A Fund may also use hypothetical returns to be used as an
example in a mix of asset allocation strategies. One such example
is reflected in the chart below, which shows the effect of tax
deferral on a hypothetical investment. This chart assumes that an
investor invested $2,000 a year on January 1, for any specified
period, in both a Tax-Deferred Investment and a Taxable
Investment, that both investments earn either 6%, 8% or 10%
compounded annually, and that the investor withdrew the entire
amount at the end of the period. (A tax rate of 39.6% is applied
annually to the Taxable Investment and on the withdrawal of
earnings on the Tax-Deferred Investment.)
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
INTEREST RATE 6% 8% 10% 6% 8% 10%
Compounding
Years Tax-Deferred Investment Taxable Investment
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 150,484 82,067 97,780 117,014
20 62,943 75,543 91,947 59,362 68,109 78,351
15 41,684 47,304 54,099 40,358 44,675 49,514
10 24,797 26,820 29,098 24,453 26,165 28,006
5 11,178 11,613 12,072 11,141 11,546 11,965
1 2,072 2,096 2,121 2,072 2,096 2,121
Dollar Cost Averaging. Dollar cost averaging is an
investment strategy that requires investing a fixed amount of
money in Fund shares at set intervals. This allows you to
purchase more shares when prices are low and fewer shares when
prices are high. Over time, this tends to lower your average cost
per share.
Like any investment strategy, dollar cost averaging can't
guarantee a profit or protect against losses in a steadily
declining market. Dollar cost averaging involves uninterrupted
investing regardless of share price and therefore may not be
appropriate for every investor.
From time to time, a Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe Counselor
[SERVICE MARK] and the Stein Roe 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 in which a Fund invests should be continuously reviewed
and that individual analysts give different weightings to the
various factors involved in credit analysis. A rating is not a
recommendation to purchase, sell or hold a security because it
does not take into account market value or suitability for a
particular investor. When a security has received a rating from
more than one service, each rating should be evaluated
independently. Ratings are based on current information furnished
by the issuer or obtained by the rating services from other
sources which they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability
of such information, or for other reasons.
The following is a description of the characteristics of
ratings of corporate debt securities used by Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").
RATINGS BY MOODY'S
Aaa. Bonds rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or an exceptionally stable margin and principal is secure.
Although the various protective elements are likely to change,
such changes as can be visualized are more unlikely to impair the
fundamentally strong position of such bonds.
Aa. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa bonds.
A. Bonds rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa. Bonds rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any
long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Ca. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in
each generic rating classification from Aa through B in its
corporate bond rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
RATINGS BY S&P
AAA. Debt rated AAA has the highest rating. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A. Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than for debt in higher rated categories.
BB, B, CCC, CC, and C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no interest
is being paid.
D. Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears. The D rating is also used
upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
NOTES:
The ratings from AA to CCC may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the
major rating categories. Foreign debt is rated on the same basis
as domestic debt measuring the creditworthiness of the issuer;
ratings of foreign debt do not take into account currency exchange
and related uncertainties.
The "r" is attached to highlight derivative, hybrid, and certain
other obligations that S&P believes may experience high volatility
or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or
interest return is indexed to equities, commodities, or
currencies; certain swaps and options; and interest only and
principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will
exhibit no volatility or variability in total return.
_______________________
<PAGE>
STEIN ROE INVESTMENT TRUST
STEIN ROE EMERGING MARKETS FUND
SUPPLEMENT TO STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 3, 1997
The distributor of Emerging Markets Fund, Liberty Securities
Corporation, is soliciting subscriptions for Fund shares during an
initial offering period currently scheduled from February 3, 1997
to February 27, 1997 (the "Subscription Period"). The
subscription price will be the Fund's initial net asset value of
$10.00 per share. Orders to purchase shares of the Fund received
during the Subscription Period will be accepted when the Fund
commences operations. Checks accompanying orders received during
the Subscription Period will be held uninvested until the close
of business on February 27, 1997.
This Supplement is Dated February 3, 1997
<PAGE>
Statement of Additional Information Dated February 3, 1997
STEIN ROE INVESTMENT TRUST
Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
800-338-2550
STEIN ROE EMERGING MARKETS FUND
This Statement of Additional Information is not a prospectus,
but provides additional information that should be read in
conjunction with the Fund's prospectus dated February 3, 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
Special Considerations...............................3
Portfolio Investments and Strategies.................7
Investment Restrictions.............................24
Additional Investment Considerations................27
Purchases and Redemptions...........................28
Management..........................................29
Principal Shareholders..............................33
Investment Advisory Services........................33
Distributor.........................................35
Transfer Agent......................................36
Custodian...........................................36
Independent Public Accountants......................37
Portfolio Transactions..............................37
Additional Income Tax Considerations................38
Appendix--Ratings...................................43
GENERAL INFORMATION AND HISTORY
Stein Roe Emerging Markets Fund (the "Fund") is a series of
the Stein Roe Investment Trust (the "Trust"). Each series of the
Trust represents shares of beneficial interest in a separate
portfolio of securities and other assets, with its own objectives
and policies. On February 1, 1996, the name of the Trust was
changed from SteinRoe Investment Trust to Stein Roe Investment
Trust.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment advisory and administrative services to the Fund
through its Global Capital Management division.
As of the date of this Statement of Additional Information,
nine series of the 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, the
Trust is not required to hold annual shareholder meetings.
However, special meetings may be called for purposes such as
electing or removing trustees, changing fundamental policies, or
approving an investment advisory contract. If requested to do so
by the holders of at least 10% of the Trust's outstanding shares,
the Trust will call a special meeting for the purpose of voting
upon the question of removal of a trustee or trustees and will
assist in the communications with other shareholders as if the
Trust were subject to Section 16(c) of the Investment Company Act
of 1940. All shares of all series of the Trust are voted together
in the election of trustees. On any other matter submitted to a
vote of shareholders, shares are voted in the aggregate and not by
individual series, except that shares are voted by individual
series when required by the Investment Company Act of 1940 or
other applicable law, or when the Board of Trustees determines
that the matter affects only the interests of one or more series,
in which case shareholders of the unaffected series are not
entitled to vote on such matters.
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND STRUCTURE
The Fund may in the future seek to achieve its objective by
pooling its assets with assets of other investment companies for
investment in another investment company having the same
investment objective and substantially the same investment
policies as the Fund. The purpose of such an arrangement is to
achieve greater operational efficiencies and reduce costs. The
Adviser is expected to manage any such mutual fund in which a Fund
would invest. Such investment would be subject to determination
by the trustees that it was in the best interests of the Fund and
its shareholders, and shareholders would receive advance notice of
any such change.
INVESTMENT POLICIES
In pursuing its objective, the Fund will invest as described
below and may employ the investment techniques described in the
Prospectus and under Portfolio Investments and Strategies in this
Statement of Additional Information. The Fund's investment
objective is non-fundamental and may be changed by the Board of
Trustees without the approval of a "majority of the outstanding
voting securities" /1/ of the Fund.
- -------------
/1/ A "majority of the outstanding voting securities" means the
approval of the lesser of (i) 67% or more of the shares at a
meeting if the holders of more than 50% of the outstanding shares
of the Fund are present or represented by proxy or (ii) more than
50% of the outstanding shares of the Fund.
- --------------
The Fund's investment objective is to seek capital
appreciation primarily through investing in companies in emerging
markets. Under normal markets conditions, the Fund will invest at
least 65% of its total assets (taken at market value) in equity
securities of emerging market issuers. The Fund does not intend
to concentrate investments in any particular industry. In
addition, there is no limitation on the amount the Fund can invest
in a specific country or region of the world. However, the Fund
intends to diversify its investment among several countries.
The Fund is intended for long-term investors and not for
short-term trading purposes. It should not be considered a
complete investment program. Many investments in emerging markets
can be considered speculative, and the value of those investments
can be more volatile than is typical in more developed foreign
markets.
The Fund considers "emerging markets" to include any country
that is defined as an emerging or developing country by (i) the
World Bank, (ii) the International Finance Corporation or (iii)
the United Nations or its authorities. The Fund's investments
will include, but are not limited to, securities of companies
located within countries in Asia, Africa, Latin America and
certain parts of Europe. The Fund considers an issuer to be an
"emerging markets issuer" if:
- - the issuer is organized under the laws of an emerging market
country;
- - the principal securities trading market for the issuer's
securities is in an emerging market country;
- - the issuer derives at least 50% of its revenue from goods
produced or services rendered in emerging market countries; or
- - at least 50% of the issuer's assets are located in emerging
market countries.
SPECIAL CONSIDERATIONS
FOREIGN INVESTING
The Fund invests primarily in foreign securities (including
emerging market 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. The Fund may also purchase
foreign securities in the form of American Depositary Receipts
(ADRs), European Depositary Receipts (EDRs), or other securities
representing underlying shares of foreign issuers. Positions in
these securities are not necessarily denominated in the same
currency as the common stocks into which they may be converted.
ADRs are receipts typically issued by an American bank or trust
company evidencing ownership of the underlying securities. EDRs
are European receipts evidencing a similar arrangement.
Generally, ADRs, in registered form, are designed for the U.S.
securities markets and EDRs, in bearer form, are designed for use
in European securities markets. The Fund may invest in sponsored
or unsponsored ADRs. In the case of an unsponsored ADR, the Fund
is likely to bear its proportionate share of the expenses of the
depositary and it may have greater difficulty in receiving
shareholder communications than it would have with a sponsored
ADR.
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, the Fund's
investment performance is affected by the strength or weakness of
the U.S. dollar against these currencies. For example, if the
dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise
even though the price of the stock remains unchanged. Conversely,
if the dollar rises in value relative to the yen, the dollar value
of the yen-denominated stock will fall. (See discussion of
transaction hedging and portfolio hedging under Portfolio
Investments and Strategies--Currency Exchange Transactions.)
Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities,
positions in which are generally denominated in foreign
currencies, and utilization of forward foreign currency exchange
contracts involve certain considerations comprising both risks and
opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and issuers of securities; lack of uniform accounting, auditing,
and financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment
in securities of companies in developing as well as developed
countries; and sometimes less advantageous legal, operational, and
financial protections applicable to foreign sub-custodial
arrangements. The risks are greater for emerging market
countries.
INVESTING IN EMERGING MARKETS
Investments in emerging markets securities include special
risks in addition to those generally associated with foreign
investing. Many investments in emerging markets can be considered
speculative, and the value of those investments can be more
volatile than in more developed foreign markets. This difference
reflects the greater uncertainties of investing in less
established markets and economies. Emerging markets also have
different clearance and settlement procedures, and in certain
markets there have been times when settlements have not kept pace
with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in
temporary periods when a portion of the assets of the Fund is
uninvested and no return is earned thereon. The inability of the
Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due
to settlement problems could result either in losses to the Fund
due to subsequent declines in the value of those securities or, if
the Fund has entered into a contract to sell a security, in
possible liability to the purchaser. Costs associated with
transactions in emerging markets securities are typically higher
than costs associated with transactions in U.S. securities. Such
transactions also involve additional costs for the purchase or
sale of foreign currency.
Certain foreign markets (including emerging markets) may
require governmental approval for the repatriation of investment
income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in an emerging
market's balance of payments or for other reasons, a country could
impose temporary restrictions on foreign capital remittances. The
Fund could be adversely affected by delays in, or a refusal to
grant, required governmental approval for repatriation of capital,
as well as by the application to the Fund of any restrictions on
investments.
The risk also exists that an emergency situation may arise in
one or more emerging markets. As a result, trading of securities
may cease or may be substantially curtailed and prices for the
Fund's securities in such markets may not be readily available.
The Fund may suspend redemption of its shares for any period
during which an emergency exists, as determined by the Securities
and Exchange Commission (the "SEC"). Accordingly, if the Fund
believes that appropriate circumstances exist, it will promptly
apply to the SEC for a determination that such an emergency is
present. During the period commencing from the Fund's
identification of such condition until the date of the SEC action,
the Fund's securities in the affected markets will be valued at
fair value determined in good faith by or under the direction of
the Trust's Board of Trustees.
Volume and liquidity in most foreign markets are lower than
in the U.S. Fixed commissions on foreign securities exchanges are
generally higher than negotiated commissions on U.S. exchanges,
although the Fund endeavors to achieve the most favorable net
results on its portfolio transactions. There is generally less
government supervision and regulation of business and industry
practices, securities exchanges, brokers, dealers and listed
companies than in the U.S. Mail service between the U.S. and
foreign countries may be slower or less reliable than within the
U.S., thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. In
addition, with respect to certain emerging markets, there is the
possibility of expropriation or confiscatory taxation, political
or social instability, or diplomatic developments which could
affect the Fund's investments in those countries. Moreover,
individual emerging market economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.
Income from securities held by the Fund could be reduced by a
withholding tax on the source or other taxes imposed by the
emerging market countries in which the Fund invests. The Fund's
net asset value may also be affected by changes in the rates of
methods or taxation applicable to the Fund or to entities in which
the Fund has invested. The Adviser will consider the cost of any
taxes in determining whether to acquire any particular
investments, but can provide no assurance that the taxes will not
be subject to change.
Many emerging markets have experienced substantial rates of
inflation for many years. Inflation and rapid fluctuations in
inflation rates have had and may continue to have adverse effects
on the economies and securities markets of certain emerging market
countries. In an attempt to control inflation, wage and price
controls have been imposed in certain countries. Of these
countries, some, in recent years, have begun to control inflation
through prudent economic policies.
Emerging market governmental issuers are among the largest
debtors to commercial banks, foreign governments, international
financial organizations and other financial institutions. Certain
emerging market governmental issuers have not been able to make
payments of interest or principal on debt obligations as those
payments have come due. Obligations arising from past
restructuring agreements may affect the economic performance and
political and social stability of those issuers.
Governments of many emerging market countries have exercised
and continue to exercise substantial influence over many aspects
of the private sector through ownership or control of many
companies, including some of the largest in any given country. As
a result, government actions in the future could have a
significant effect on economic conditions in emerging markets,
which in turn, may adversely affect companies in the private
sector, general market conditions and prices and yields of certain
of the securities in the Fund's portfolio. Expropriation,
confiscatory taxation, nationalization, political, economic or
social instability or other similar developments have occurred
frequently over the history of certain emerging markets and could
adversely affect the Fund's assets should these conditions recur.
The ability of emerging market country governmental issuers
to make timely payments on their obligations is likely to be
influenced strongly by the issuer's balance of payments, including
export performance, and its access to international credits and
investments. An emerging market whose exports are concentrated in
a few commodities could be vulnerable to a decline in the
international prices of one or more of those commodities.
Increased protectionism on the part of an emerging market's
trading partners could also adversely affect the country's exports
and diminish its trade account surplus, if any. To the extent
that emerging markets receive payment for their exports in
currencies other than dollars or non-emerging market currencies,
their ability to make debt payments denominated in dollars or non-
emerging market currencies could be affected.
Another factor bearing on the ability of an emerging market
country to repay debt obligations is the level of international
reserves of the country. Fluctuations in the level of these
reserves affect the amount of foreign exchange readily available
for external debt payments and thus could have a bearing on the
capacity of emerging market countries to make payments on these
debt obligations.
To the extent that an emerging market country cannot generate
a trade surplus, it must depend on continuing loans from foreign
governments, multilateral organizations or private commercial
banks, aid payments from foreign governments and on inflows of
foreign investment. The access of emerging markets to these forms
of external funding may not be certain, and a withdrawal of
external funding could adversely affect the capacity of emerging
market country governmental issuers to make payments on their
obligations. In addition, the cost of servicing emerging market
debt obligations can be affected by a change in international
interest rates since the majority of these obligations carry
interest rates that are adjusted periodically based upon
international rates.
PORTFOLIO INVESTMENTS AND STRATEGIES
MEDIUM- AND LOWER-QUALITY DEBT SECURITIES
The Fund may invest in medium- and lower-quality debt
securities. Medium-quality debt securities, although considered
investment grade, have some speculative characteristics. Lower-
quality securities, commonly referred to as "junk bonds," are
those rated below the fourth highest rating category or those of
comparable quality.
Investment in medium- and lower-quality debt securities
involves greater investment risk, including the possibility of
issuer default or bankruptcy. The Fund will diversify its
holdings among a number of issuers to help minimize this risk. An
economic downturn could severely disrupt this market and adversely
affect the value of outstanding bonds and the ability of the
issuers to repay principal and interest. In addition, lower-
quality bonds are less sensitive to interest rate changes than
higher-quality instruments and generally are more sensitive to
adverse economic changes or individual corporate developments.
During a period of adverse economic changes, including a period of
rising interest rates, issuers of such bonds may experience
difficulty in servicing their principal and interest payment
obligations.
Lower-quality debt securities are obligations of issuers that
are considered predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal according to
the terms of the obligation. These securities carry greater
investment risk, including the possibility of issuer default and
bankruptcy, and are commonly referred to as "junk bonds." The
lowest rating assigned by Moody's is for bonds that can be
regarded as having extremely poor prospects of ever attaining any
real investment standing.
Achievement of the investment objective will be more
dependent on the Adviser's credit analysis than would be the case
if the Fund were investing in higher-quality debt securities.
Since the ratings of rating services (which evaluate the safety of
principal and interest payments, not market risks) are used only
as preliminary indicators of investment quality, the Adviser
employs its own credit research and analysis, from which it has
developed a proprietary credit rating system based upon
comparative credit analyses of issuers within the same industry.
These analyses may take into consideration such quantitative
factors as an issuer's present and potential liability,
profitability, internal capability to generate funds, debt/equity
ratio and debt servicing capabilities, and such qualitative
factors as an assessment of management, industry characteristics,
accounting methodology, and foreign business exposure.
Medium- and lower-quality debt securities tend to be less
marketable than higher-quality debt securities because the market
for them is less broad. The market for unrated debt securities is
even narrower. During periods of thin trading in these markets,
the spread between bid and asked prices is likely to increase
significantly, and the Fund may have greater difficulty selling
its portfolio securities. The market value of these securities
and their liquidity may be affected by adverse publicity and
investor perceptions.
DERIVATIVES
Consistent with its objective, the Fund may invest in a broad
array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options,
futures contracts, futures options, forward contracts, securities
collateralized by underlying pools of mortgages or other
receivables, floating rate instruments, and other instruments that
securitize assets of various types ("Derivatives"). In each case,
the value of the instrument or security is "derived" from the
performance of an underlying asset or a "benchmark" such as a
security index, an interest rate, or a currency.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because it is more
efficient or less costly than direct investment that cannot be
readily established directly due to portfolio size, cash
availability, or other factors. They also may be used in an
effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's
ability to correctly predict changes in the levels and directions
of movements in currency exchange rates, security prices, interest
rates and other market factors affecting the Derivative itself or
the value of the underlying asset or benchmark. In addition,
correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately
negotiated and over-the-counter Derivatives may not be as well
regulated and may be less marketable than exchange-traded
Derivatives.
The Fund does not currently intend to invest more than 5% of
its net assets in any type of Derivative.
DEFENSIVE INVESTMENTS
When the Adviser considers a temporary defensive position
advisable, the Fund may invest, without limitation, in high-
quality fixed income securities or hold assets in cash or cash
equivalents.
FOREIGN SECURITIES
Currency Exchange Transactions. Currency exchange
transactions may be conducted either on a spot (i.e., cash) basis
at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market or through forward currency exchange
contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at
a specified future date (or within a specified time period) and
price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not
exchange traded, and are usually for less than one year, but may
be renewed.
The Fund's foreign currency exchange transactions are limited
to transaction hedging and portfolio hedging involving either
specific transactions or portfolio positions, except to the extent
described below under "Synthetic Foreign Money Market Positions."
Transaction hedging is the purchase or sale of forward contracts
with respect to specific receivables or payables of the Fund
arising in connection with the purchase and sale of its portfolio
securities. Portfolio hedging is the use of forward contracts
with respect to portfolio security positions denominated or quoted
in a particular foreign currency. Portfolio hedging allows the
Fund to limit or reduce its exposure in a foreign currency by
entering into a forward contract to sell such foreign currency (or
another foreign currency that acts as a proxy for that currency)
at a future date for a price payable in U.S. dollars so that the
value of the foreign-denominated portfolio securities can be
approximately matched by a foreign-denominated liability. The
Fund may not engage in portfolio hedging with respect to the
currency of a particular country to an extent greater than the
aggregate market value (at the time of making such sale) of the
securities held in its portfolio denominated or quoted in that
particular currency, except that the Fund may hedge all or part of
its foreign currency exposure through the use of a basket of
currencies or a proxy currency where such currencies or currency
act as an effective proxy for other currencies. In such a case,
the Fund may enter into a forward contract where the amount of the
foreign currency to be sold exceeds the value of the securities
denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into
separate forward contracts for each currency held in the Fund.
The Fund may not engage in "speculative" currency exchange
transactions.
At the maturity of a forward contract to deliver a particular
currency, the Fund may either sell the portfolio security related
to such contract and make delivery of the currency, or it may
retain the security and either acquire the currency on the spot
market or terminate its contractual obligation to deliver the
currency by purchasing an offsetting contract with the same
currency trader obligating it to purchase on the same maturity
date the same amount of the currency.
It is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of a
forward contract. Accordingly, it may be necessary for the Fund
to purchase additional currency on the spot market (and bear the
expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver
and if a decision is made to sell the security and make delivery
of the currency. Conversely, it may be necessary to sell on the
spot market some of the currency received upon the sale of the
portfolio security if its market value exceeds the amount of
currency the Fund is obligated to deliver.
If the Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to
the extent that there has been movement in forward contract
prices. If the Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between
the Fund's entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for
the purchase of the currency, the Fund will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent the
price of the currency it has agreed to purchase exceeds the price
of the currency it has agreed to sell. A default on the contract
would deprive the Fund of unrealized profits or force the Fund to
cover its commitments for purchase or sale of currency, if any, at
the current market price.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it
anticipates. The cost to the Fund of engaging in currency
exchange transactions varies with such factors as the currency
involved, the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually
conducted on a principal basis, no fees or commissions are
involved.
Synthetic Foreign Money Market Positions. The Fund may
invest in money market instruments denominated in foreign
currencies. In addition to, or in lieu of, such direct
investment, the Fund may construct a synthetic foreign money
market position by (a) purchasing a money market instrument
denominated in one currency, generally U.S. dollars, and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
For example, a synthetic money market position in Japanese yen
could be constructed by purchasing a U.S. dollar money market
instrument, and entering concurrently into a forward contract to
deliver a corresponding amount of U.S. dollars in exchange for
Japanese yen on a specified date and at a specified rate of
exchange. Because of the availability of a variety of highly
liquid short-term U.S. dollar money market instruments, a
synthetic money market position utilizing such U.S. dollar
instruments may offer greater liquidity than direct investment in
foreign currency money market instruments. The result of a direct
investment in a foreign currency and a concurrent construction of
a synthetic position in such foreign currency, in terms of both
income yield and gain or loss from changes in currency exchange
rates, in general should be similar, but would not be identical
because the components of the alternative investments would not be
identical. Except to the extent a synthetic foreign money market
position consists of a money market instrument denominated in a
foreign currency, the synthetic foreign money market position
shall not be deemed a "foreign security" for purposes of the
policy that, under normal conditions, the Fund will invest at
least 65% of its total assets in foreign securities.
BRADY BONDS
The Fund may invest in "Brady Bonds," which are debt
securities issued under the framework of the Brady Plan as a
mechanism for debtor countries to restructure their outstanding
bank loans. Most "Brady Bonds" have their principal
collateralized by zero coupon U.S. Treasury bonds. Brady Bonds
have been issued only in recent years, and, accordingly, do not
have a long payment history.
U.S. dollar-denominated, collateralized Brady Bonds, which
may be fixed rate par bonds or floating rate discount bonds, are
generally collateralized in full as to principal due at maturity
by U.S. Treasury zero coupon obligations which have the same
maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an
amount that, in the case of fixed rate bonds, is equal to at least
one year of rolling interest payments or, in the case of floating
rate bonds, initially is equal to at least one year's rolling
interest payments based on the applicable interest rate at the
time and is adjusted at regular intervals thereafter. Certain
Brady Bonds are entitled to "value recovery payments" in certain
circumstances, which in effect constitute supplemental interest
payments but generally are not collateralized. Brady Bonds are
often viewed as having three or four valuation components: (i)
the collateralized repayment of principal at final maturity; (ii)
the collateralized interest payments; (iii) the uncollateralized
interest payments; and (iv) any uncollateralized repayment of
principal at maturity (these uncollateralized amounts constitute
the "residual risk"). In the event of a default with respect to
collateralized Brady Bonds as a result of which the payment
obligations of the issuer are accelerated, the U.S. Treasury zero
coupon obligations held as collateral for the payment of principal
will not be distributed to investors, nor will such obligations be
sold and the proceeds distributed. The collateral will be held to
the scheduled maturity of the defaulted Brady Bonds by the
collateral agent, at which time the face amount of the collateral
will equal the principal payments which would have then been due
on the Brady Bonds in the normal course. In addition, in light of
the residual risk of the Brady Bonds and, among other factors, the
history of defaults with respect to commercial bank loans by
public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds will be viewed as speculative.
SOVEREIGN DEBT OBLIGATIONS
The Fund may purchase sovereign debt instruments issued or
guaranteed by foreign governments or their agencies, including
debt of emerging market countries. Sovereign debt of emerging
market countries may involve a high degree of risk, and may be in
default or present the risk of default. Governmental entities
responsible for repayment of the debt may be unable or unwilling
to repay principal and interest when due, and may require
renegotiation or rescheduling of debt payments. In addition,
prospects for repayment of principal and interest may depend on
political as well as economic factors.
LENDING OF PORTFOLIO SECURITIES
Subject to restriction (5) under Investment Restrictions in
this Statement of Additional Information, the Fund may lend its
portfolio securities to broker-dealers and banks. Any such loan
must be continuously secured by collateral in cash or cash
equivalents maintained on a current basis in an amount at least
equal to the market value of the securities loaned by the Fund.
The Fund would continue to receive the equivalent of the interest
or dividends paid by the issuer on the securities loaned, and
would also receive an additional return that may be in the form of
a fixed fee or a percentage of the collateral. The Fund would
have the right to call the loan and obtain the securities loaned
at any time on notice of not more than five business days. The
Fund would not have the right to vote the securities during the
existence of the loan but would call the loan to permit voting of
the securities if, in the Adviser's judgment, a material event
requiring a shareholder vote would otherwise occur before the loan
was repaid. In the event of bankruptcy or other default of the
borrower, the Fund could experience both delays in liquidating the
loan collateral or recovering the loaned securities and losses,
including (a) possible decline in the value of the collateral or
in the value of the securities loaned during the period while the
Fund seeks to enforce its rights thereto, (b) possible subnormal
levels of income and lack of access to income during this period,
and (c) expenses of enforcing its rights.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements, provided that
it will not invest more than 15% of net assets in repurchase
agreements maturing in more than seven days and any other illiquid
securities. A repurchase agreement is a sale of securities to the
Fund in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, the Fund could experience both losses
and delays in liquidating its collateral.
STRUCTURED NOTES
Structured Notes are Derivatives on which the amount of
principal repayment and or interest payments is based upon the
movement of one or more factors. These factors include, but are
not limited to, currency exchange rates, interest rates (such as
the prime lending rate and the London Interbank Offered Rate
("LIBOR")) and stock indices such as the S&P 500 Index. In some
cases, the impact of the movements of these factors may increase
or decrease through the use of multipliers or deflators. The use
of Structured Notes allows the Fund to tailor its investments to
the specific risks and returns the Adviser wishes to accept while
avoiding or reducing certain other risks.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE
AGREEMENTS
The Fund may purchase securities on a when-issued or delayed-
delivery basis. Although the payment and interest terms of these
securities are established at the time the Fund enters into the
commitment, the securities may be delivered and paid for a month
or more after the date of purchase, when their value may have
changed. The Fund makes such commitments only with the intention
of actually acquiring the securities, but may sell the securities
before settlement date if the Adviser deems it advisable for
investment reasons. The Fund may utilize spot and forward foreign
currency exchange transactions to reduce the risk inherent in
fluctuations in the exchange rate between one currency and another
when securities are purchased or sold on a when-issued or delayed-
delivery basis.
The Fund may enter into reverse repurchase agreements with
banks and securities dealers. A reverse repurchase agreement is a
repurchase agreement in which the Fund is the seller of, rather
than the investor in, securities and agrees to repurchase them at
an agreed-upon time and price. Use of a reverse repurchase
agreement may be preferable to a regular sale and later repurchase
of securities because it avoids certain market risks and
transaction costs.
At the time the Fund enters into a binding obligation to
purchase securities on a when-issued basis or enters into a
reverse repurchase agreement, liquid assets (cash, U.S. Government
securities or other "high-grade" debt obligations) of the Fund
having a value at least as great as the purchase price of the
securities to be purchased will be segregated on the books of the
Fund and held by the custodian throughout the period of the
obligation. The use of these investment strategies, as well as
borrowing under a line of credit as described below, may increase
net asset value fluctuation.
CONVERTIBLE SECURITIES
By investing in convertible securities, the Fund obtains the
right to benefit from the capital appreciation potential in the
underlying stock upon exercise of the conversion right, while
earning higher current income than would be available if the stock
were purchased directly. In determining whether to purchase a
convertible, the Adviser will consider substantially the same
criteria that would be considered in purchasing the underlying
stock. While convertible securities purchased by the Fund are
frequently rated investment grade, the Fund also may purchase
unrated securities or securities rated below investment grade if
the securities meet the Adviser's other investment criteria.
Convertible securities rated below investment grade (a) tend to be
more sensitive to interest rate and economic changes, (b) may be
obligations of issuers who are less creditworthy than issuers of
higher quality convertible securities, and (c) may be more thinly
traded due to such securities being less well known to investors
than either common stock or conventional debt securities. As a
result, the Adviser's own investment research and analysis tends
to be more important in the purchase of such securities than other
factors.
SHORT SALES AGAINST THE BOX
The 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. The Fund may make
short sales of securities only if at all times when a short
position is open the Fund 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, a Fund does not deliver from
its portfolio the securities sold. Instead, the 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 the Fund, to the purchaser of such securities. The
Fund is required to pay to the broker-dealer the amount of any
dividends paid on shares sold short. Finally, to secure its
obligations to deliver to such broker-dealer the securities sold
short, the 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. The Fund
is said to have a short position in the securities sold until it
delivers to the broker-dealer the securities sold. The 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 the 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 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 relative to the
amount the Fund owns, either directly or indirectly, and, in the
case where the Fund 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 the Fund replaces the borrowed security, the
Fund will incur a loss and if the price declines during this
period, the Fund 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 the Fund may have to pay
in connection with such short sale. Certain provisions of the
Internal Revenue Code may limit the degree to which the Fund is
able to enter into short sales. There is no limitation on the
amount of the 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. The Fund does not
currently expect that more than 5% of its total assets would be
involved in short sales against the box.
CLOSED-END INVESTMENT COMPANIES
The Fund may also invest in closed-end investment companies
investing primarily in the emerging markets. To the extent the
Fund invests in such closed-end investment companies, shareholders
will incur certain duplicate fees and expenses. Such closed-end
investment company investments will generally only be made when
market access or liquidity restricts direct investment in the
market.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately
placed but that are eligible for purchase and sale under Rule 144A
under the 1933 Act. That Rule permits certain qualified
institutional buyers, such as the Fund, to trade in privately
placed securities that have not been registered for sale under the
1933 Act. The Adviser, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the Fund's restriction of
investing no more than 15% of its net assets in illiquid
securities. A determination of whether a Rule 144A security is
liquid or not is a question of fact. In making this
determination, the Adviser will consider the trading markets for
the specific security, taking into account the unregistered nature
of a Rule 144A security. In addition, the Adviser could consider
the (1) frequency of trades and quotes, (2) number of dealers and
potential purchasers, (3) dealer undertakings to make a market,
and (4) nature of the security and of marketplace trades (e.g.,
the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). The liquidity
of Rule 144A securities would be monitored and, if as a result of
changed conditions, it is determined that a Rule 144A security is
no longer liquid, the Fund's holdings of illiquid securities would
be reviewed to determine what, if any, steps are required to
assure that the Fund does not invest more than 15% of its assets
in illiquid securities. Investing in Rule 144A securities could
have the effect of increasing the amount of the Fund's assets
invested in illiquid securities if qualified institutional buyers
are unwilling to purchase such securities. The Fund does not
expect to invest as much as 5% of its total assets in Rule 144A
securities that have not been deemed to be liquid by the Adviser.
(See restriction (m) under Investment Restrictions.)
SWAPS, CAPS, FLOORS AND COLLARS
The Fund may enter into interest rate, currency and index
swaps and the purchase or sale of related caps, floors and
collars. The Fund would enter into these transactions primarily
to preserve a return or spread on a particular investment or
portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect
against any increase in the price of securities the Fund
anticipates purchasing at a later date. The Fund intends to use
these techniques as hedges and not as speculative investments and
will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the
exchange by the Fund with another party of their respective
commitments to pay or receive interest; e.g., an exchange of
floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to
exchange cash flows on a notional amount of two or more currencies
based on the relative value differential among them and an index
swap is an agreement to swap cash flows on a notional amount based
on changes in the values of the reference indices. The purchase
of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent
that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive
payments on a notional principal amount from the party selling
such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
The Fund will usually enter into swaps on a net basis; i.e.,
the two payment streams are netted out in a cash settlement on the
payment date or dates specified in the instrument, with the Fund
receiving or paying, as the case may be, only the net amount of
the two payments. Inasmuch as these swaps, caps, floors and
collars are entered into for good faith hedging purposes, the
Adviser and the Fund believe such obligations do not constitute
senior securities under the Investment Company Act of 1940 and,
accordingly, will not treat them as being subject to its borrowing
restrictions. The Fund will not enter into any swap, cap, floor
or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the counterparty,
combined with any credit enhancements, is rated at least A by
Standard & Poor's Corporation or Moody's or has an equivalent
rating from a nationally recognized statistical rating
organization or is determined to be of equivalent credit quality
by the Adviser. If there is a default by the counterparty, the
Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are
more recent innovations for which standardized documentation has
not yet been fully developed and, accordingly, they are less
liquid than swaps. At the time the Fund enters into swap
arrangements or purchases or sells caps, floors or collars, liquid
assets of the Fund having a value at least as great as the
commitment underlying the obligations will be segregated on the
books of the Fund and held by the custodian throughout the period
of the obligation.
EURODOLLAR INSTRUMENTS
The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to LIBOR, although
foreign currency-denominated instruments are available from time
to time. Eurodollar future contracts enable purchasers to obtain
a fixed rate for the lending of funds and sellers to obtain a
fixed rate for borrowings. The Fund might use Eurodollar futures
contracts and options thereon to hedge against changes in LIBOR,
to which many interest rate swaps and fixed income instruments are
linked.
LINE OF CREDIT
Subject to restriction (6) under Investment Restrictions in
this Statement of Additional Information, the Fund may establish
and maintain a line of credit with a major bank in order to permit
borrowing on a temporary basis to meet share redemption requests
in circumstances in which temporary borrowing may be preferable to
liquidation of portfolio securities.
INTERFUND BORROWING AND LENDING PROGRAM
Pursuant to an exemptive order issued by the Securities and
Exchange Commission, the Fund has received permission to lend
money to, and borrow money from, other mutual funds advised by the
Adviser. The Fund will borrow through the program when borrowing
is necessary or appropriate and the costs are equal to or lower
than the costs of bank loans.
PORTFOLIO TURNOVER
Although the Fund does not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
that portfolio securities must be held. Accordingly, the
portfolio turnover rate may vary significantly from year to year,
but is not expected to exceed 100% under normal market conditions.
Portfolio turnover can occur for a number of reasons such as
general conditions in the securities markets, more favorable
investment opportunities in other securities, or other factors
relating to the desirability of holding or changing a portfolio
investment. Because of the Fund's flexibility of investment and
emphasis on growth of capital, it may have greater portfolio
turnover than that of mutual funds that have primary objectives of
income or maintenance of a balanced investment position. A high
rate of portfolio turnover in the Fund, if it should occur, would
result in increased transaction expense, which must be borne by
the Fund. High portfolio turnover may also result in the
realization of capital gains or losses and, to the extent net
short-term capital gains are realized, any distributions resulting
from such gains will be considered ordinary income for federal
income tax purposes. (See Risks and Investment Considerations and
Distributions and Income Taxes in the Prospectus, and Additional
Income Tax Considerations in this Statement of Additional
Information.)
OPTIONS ON SECURITIES AND INDEXES
The Fund may purchase and sell put options and call options
on securities, indexes or foreign currencies in standardized
contracts traded on recognized securities exchanges, boards of
trade, or similar entities, or quoted on Nasdaq. The Fund may
purchase agreements, sometimes called cash puts, that may
accompany the purchase of a new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives
the purchaser (holder) of the option, in return for a premium, the
right to buy from (call) or sell to (put) the seller (writer) of
the option the security underlying the option (or the cash value
of the index) at a specified exercise price at any time during the
term of the option (normally not exceeding nine months). The
writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver
the underlying security or foreign currency upon payment of the
exercise price or to pay the exercise price upon delivery of the
underlying security or foreign currency. Upon exercise, the
writer of an option on an index is obligated to pay the difference
between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An
index is designed to reflect specified facets of a particular
financial or securities market, a specific group of financial
instruments or securities, or certain economic indicators.)
The Fund will write call options and put options only if they
are "covered." For example, in the case of a call option on a
security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or,
if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its
custodian) upon conversion or exchange of other securities held in
its portfolio.
If an option written by the Fund expires, the Fund realizes a
capital gain equal to the premium received at the time the option
was written. If an option purchased by the Fund expires, the Fund
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may
be closed out by an offsetting purchase or sale of an option of
the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when the Fund desires.
The Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to purchase
the option, the Fund will realize a capital gain or, if it is
less, the Fund will realize a capital loss. The principal factors
affecting the market value of a put or a call option include
supply and demand, interest rates, the current market price of the
underlying security or index in relation to the exercise price of
the option, the volatility of the underlying security or index,
and the time remaining until the expiration date.
A put or call option purchased by the Fund is an asset of the
Fund, valued initially at the premium paid for the option. The
premium received for an option written by the Fund is recorded as
a deferred credit. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or
no closing price is available, at the mean between the last bid
and asked prices.
Risks Associated with Options. There are several risks
associated with transactions in options. For example, there are
significant differences between the securities markets, the
currency markets, and the options markets that could result in an
imperfect correlation between these markets, causing a given
transaction not to achieve its objectives. A decision as to
whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or
unexpected events.
There can be no assurance that a liquid market will exist
when the Fund seeks to close out an option position. If the Fund
were unable to close out an option that it had purchased on a
security, it would have to exercise the option in order to realize
any profit or the option would expire and become worthless. If
the Fund were unable to close out a covered call option that it
had written on a security, it would not be able to sell the
underlying security until the option expired. As the writer of a
covered call option on a security, the Fund foregoes, during the
option's life, the opportunity to profit from increases in the
market value of the security covering the call option above the
sum of the premium and the exercise price of the call.
If trading were suspended in an option purchased or written
by the Fund, the Fund would not be able to close out the option.
If restrictions on exercise were imposed, the Fund might be unable
to exercise an option it has purchased.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
The Fund may use interest rate futures contracts, index
futures contracts, and foreign currency futures contracts. An
interest rate, index or foreign currency futures contract provides
for the future sale by one party and purchase by another party of
a specified quantity of a financial instrument or the cash value
of an index /2/ at a specified price and time. A public market
exists in futures contracts covering a number of indexes
(including, but not limited to: the Standard & Poor's 500 Index,
the Value Line Composite Index, and the New York Stock Exchange
Composite Index) as well as financial instruments (including, but
not limited to: U.S. Treasury bonds, U.S. Treasury notes,
Eurodollar certificates of deposit, and foreign currencies).
Other index and financial instrument futures contracts are
available and it is expected that additional futures contracts
will be developed and traded.
- ----------------
/2/ A futures contract on an index is an agreement pursuant to
which two parties agree to take or more delivery of an amount of
cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at
which the index contract was originally written. Although the
value of a securities index is a function of the value of certain
specified securities, no physical delivery of those securities is
made.
- ----------------
The Fund may purchase and write call and put futures options.
Futures options possess many of the same characteristics as
options on securities, indexes and foreign currencies (discussed
above). A futures option gives the holder the right, in return
for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price
at any time during the period of the option. Upon exercise of a
call option, the holder acquires a long position in the futures
contract and the writer is assigned the opposite short position.
In the case of a put option, the opposite is true. The Fund
might, for example, use futures contracts to hedge against or gain
exposure to fluctuations in the general level of stock prices,
anticipated changes in interest rates or currency fluctuations
that might adversely affect either the value of the Fund's
securities or the price of the securities that the Fund intends to
purchase. Although other techniques could be used to reduce or
increase the Fund's exposure to stock price, interest rate and
currency fluctuations, the Fund may be able to achieve its
exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.
The Fund will only enter into futures contracts and futures
options that are standardized and traded on an exchange, board of
trade, or similar entity, or quoted on an automated quotation
system.
The success of any futures transaction depends on the Adviser
correctly predicting changes in the level and direction of stock
prices, interest rates, currency exchange rates and other factors.
Should those predictions be incorrect, the Fund's return might
have been better had the transaction not been attempted; however,
in the absence of the ability to use futures contracts, the
Adviser might have taken portfolio actions in anticipation of the
same market movements with similar investment results but,
presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by the
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the broker
("initial margin"). The margin required for a futures contract is
set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is
in the nature of a performance bond or good faith deposit on the
futures contract, which is returned to the Fund upon termination
of the contract, assuming all contractual obligations have been
satisfied. The Fund expects to earn interest income on its
initial margin deposits. A futures contract held by the Fund is
valued daily at the official settlement price of the exchange on
which it is traded. Each day the Fund pays or receives cash,
called "variation margin," equal to the daily change in value of
the futures contract. This process is known as "marking-to-
market." Variation margin paid or received by the Fund does not
represent a borrowing or loan by the Fund but is instead
settlement between the Fund and the broker of the amount one would
owe the other if the futures contract had expired at the close of
the previous day. In computing daily net asset value, the Fund
will mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin with
respect to put and call options on futures contracts written by
it. Such margin deposits will vary depending on the nature of the
underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying securities, usually these obligations
are closed out prior to delivery by offsetting purchases or sales
of matching futures contracts (same exchange, underlying security
or index, and delivery month). If an offsetting purchase price is
less than the original sale price, the Fund realizes a capital
gain, or if it is more, the Fund realizes a capital loss.
Conversely, if an offsetting sale price is more than the original
purchase price, the Fund realizes a capital gain, or if it is
less, the Fund realizes a capital loss. The transaction costs
must also be included in these calculations.
RISKS ASSOCIATED WITH FUTURES
There are several risks associated with the use of futures
contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in
the futures contract. In trying to increase or reduce market
exposure, there can be no guarantee that there will be a
correlation between price movements in the futures contract and in
the portfolio exposure sought. In addition, there are significant
differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a
given transaction not to achieve its objectives. The degree of
imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures
options and the related securities, including technical influences
in futures and futures options trading and differences between the
securities markets and the securities underlying the standard
contracts available for trading. For example, in the case of
index futures contracts, the composition of the index, including
the issuers and the weighting of each issue, may differ from the
composition of the Fund's portfolio, and, in the case of interest
rate futures contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures contract may
differ from the financial instruments held in the Fund's
portfolio. A decision as to whether, when and how to use futures
contracts involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree
because of market behavior or unexpected stock price or interest
rate trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit governs
only price movements during a particular trading day and therefore
does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses. Stock
index futures contracts are not normally subject to such daily
price change limitations.
There can be no assurance that a liquid market will exist at
a time when the Fund seeks to close out a futures or futures
option position. The Fund would be exposed to possible loss on
the position during the interval of inability to close, and would
continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed
above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active
secondary market will develop or continue to exist.
LIMITATIONS ON OPTIONS AND FUTURES
If other options, futures contracts, or futures options of
types other than those described herein are traded in the future,
the Fund may also use those investment vehicles, provided the
Board of Trustees determines that their use is consistent with the
Fund's investment objective.
The Fund will not enter into a futures contract or purchase
an option thereon if, immediately thereafter, the initial margin
deposits for futures contracts held by the Fund plus premiums paid
by it for open futures option positions, less the amount by which
any such positions are "in-the-money," /3/ would exceed 5% of the
Fund's total assets.
- -------------
/3/ A call option is "in-the-money" if the value of the futures
contract that is the subject to the option exceeds the exercise
price A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
- -------------
When purchasing a futures contract or writing a put option on
a futures contract, the Fund must maintain with its custodian (or
broker, if legally permitted) cash or cash equivalents (including
any margin) equal to the market value of such contract. When
writing a call option on a futures contract, the Fund similarly
will maintain with its custodian cash or cash equivalents
(including any margin) equal to the amount by which such option is
in-the-money until the option expires or is closed out by the
Fund.
The Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the
positions. For this purpose, to the extent the Fund has written
call options on specific securities in its portfolio, the value of
those securities will be deducted from the current market value of
the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," the Fund will use commodity futures or commodity
options contracts solely for bona fide hedging purposes within the
meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of 1.3(z), the
aggregate initial margin and premiums required to establish such
positions will not exceed 5% of the fair market value of the
assets of the Fund, after taking into account unrealized profits
and unrealized losses on any such contracts it has entered into in
the case of an option that is in-the-money at the time of
purchase, the in-the-money amount (as defined in Section 190.01(x)
of the Commission Regulations) may be excluded in computing such
5%.
TAXATION OF OPTIONS AND FUTURES
If the Fund exercises a call or put option that it holds, the
premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the
security sold (put). For cash settlement options and futures
options exercised by the Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
If a call or put option written by the Fund is exercised, the
premium is included in the proceeds of the sale of the underlying
security (call) or reduces the cost basis of the security
purchased (put). For cash settlement options and futures options
written by the Fund, the difference between the cash paid at
exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by the Fund was in-
the-money at the time it was written and the security covering the
option was held for more than the long-term holding period prior
to the writing of the option, any loss realized as a result of a
closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
If the Fund writes an equity call option /4/ other than a
"qualified covered call option," as defined in the Internal
Revenue Code, any loss on such option transaction, to the extent
it does not exceed the unrealized gains on the securities covering
the option, may be subject to deferral until the securities
covering the option have been sold.
- -------------
/4/ An equity option is defined to mean any option to buy or sell
stock, and any other option the value of which is determined by
reference to an index of stocks of the type that is ineligible to
be traded on a commodity futures exchange (e.g., an option
contract on a sub-index based on the price of nine hotel-casino
stocks). The definition of equity option excludes options on
broad-based stock indexes (such as the Standard & Poor's 500
index).
- -------------
A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If the
Fund delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities.
For federal income tax purposes, the Fund generally is
required to recognize as income for each taxable year its net
unrealized gains and losses as of the end of the year on futures,
futures options and non-equity options positions ("year-end mark-
to-market"). Generally, any gain or loss recognized with respect
to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and
40% short-term, without regard to the holding periods of the
contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options
positions, the related securities and certain successor positions
thereto) may be deferred to a later taxable year. Sale of futures
contracts or writing of call options (or futures call options) or
buying put options (or futures put options) that are intended to
hedge against a change in the value of securities held by the
Fund: (1) will affect the holding period of the hedged securities;
and (2) may cause unrealized gain or loss on such securities to be
recognized upon entry into the hedge.
If the Fund were to enter into a short index future, short
index futures option or short index option position and the Fund's
portfolio were deemed to "mimic" the performance of the index
underlying such contract, the option or futures contract position
and the Fund's stock positions would be deemed to be positions in
a mixed straddle, subject to the above-mentioned loss deferral
rules.
In order for the Fund to continue to qualify for federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). In addition,
gains realized on the sale or other disposition of securities held
for less than three months must be limited to less than 30% of the
Fund's annual gross income. Any net gain realized from futures
(or futures options) contracts will be considered gain from the
sale of securities and therefore be qualifying income for purposes
of the 90% requirement. In order to avoid realizing excessive
gains on securities held less than three months, the Fund may be
required to defer the closing out of certain positions beyond the
time when it would otherwise be advantageous to do so.
The Fund distributes to shareholders annually any net capital
gains that have been recognized for federal income tax purposes
(including year-end mark-to-market gains) on options and futures
transactions. Such distributions are combined with distributions
of capital gains realized on the Fund's other investments, and
shareholders are advised of the nature of the payments.
INVESTMENT RESTRICTIONS
The Fund operates under the following investment
restrictions. The Fund may not:
(1) with respect to 75% of its total assets, invest more than
5% of its total assets, taken at market value at the time of a
particular purchase, in the securities of a single issuer, except
for securities issued or guaranteed by the U.S. Government, or any
of its agencies or instrumentalities or repurchase agreements for
such securities and except that all or substantially all of the
assets of the Fund may be invested in another registered
investment company having the same investment objective and
substantially similar investment policies as the Fund;
(2) acquire more than 10%, taken at the time of a particular
purchase, of the outstanding voting securities of any one issuer,
except that all or substantially all of the assets of the Fund may
be invested in another registered investment company having the
same investment objective and substantially similar investment
policies as the Fund;
(3) act as an underwriter of securities, except insofar as it
may be deemed an underwriter for purposes of the Securities Act of
1933 on disposition of securities acquired subject to legal or
contractual restrictions on resale, except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate or
interests therein), commodities, or commodity contracts, except
that it may enter into (a) futures and options on futures and (b)
forward contracts;
(5) make loans, 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, /5/ except that this restriction does not apply to
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities and except that all or substantially
all of the assets of the Fund may be invested in another
registered investment company having the same investment objective
and substantially similar investment policies as the Fund; or
- -----------------
/5/ For purposes of this investment restriction, the Fund uses
industry classifications contained in Morgan Stanley Capital
International Perspective, which is published by Morgan Stanley,
an international investment banking and brokerage firm.
- -----------------
(8) issue any senior security except to the extent permitted
under the Investment Company Act of 1940.
The above restrictions are fundamental policies and may not
be changed without the approval of a "majority of the outstanding
voting securities," as defined above. The Fund is also subject to
the following non-fundamental restrictions and policies, which may
be changed by the Board of Trustees. None of the following
restrictions shall prevent the Fund from investing all or
substantially all of its assets in another investment company
having the same investment objective and substantially the same
investment policies as the Fund. The Fund may not:
(a) invest in any of the following: (i) interests in oil,
gas, or other mineral leases or exploration or development
programs (except readily marketable securities, including but not
limited to master limited partnership interests, that may
represent indirect interests in oil, gas, or other mineral
exploration or development programs); (ii) puts, calls, straddles,
spreads, or any combination thereof (except that 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 or a recognized foreign exchange;
(g) write an option on a security unless the option is issued
by the Options Clearing Corporation, an exchange, or similar
entity;
(h) buy or sell an option on a security, a futures contract,
or an option on a futures contract unless the option, the futures
contract, or the option on the futures contract is offered through
the facilities of a recognized securities association or listed on
a recognized exchange or similar entity;
(i) purchase a put or call option if the aggregate premiums
paid for all put and call options exceed 20% of its net assets
(less the amount by which any such positions are in-the-money),
excluding put and call options purchased as closing transactions;
(j) purchase securities on margin (except for use of short-
term credits as are necessary for the clearance of transactions),
or sell securities short unless (i) 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;
(k) invest more than 5% of its total assets (taken at market
value at the time of a particular investment) in securities of
issuers (other than issuers of federal agency obligations or
securities issued or guaranteed by any foreign country or asset-
backed securities) that, together with any predecessors or
unconditional guarantors, have been in continuous operation for
less than three years ("unseasoned issuers");
(l) invest more than 10% of its total assets (taken at
market value at the time of a particular investment) in restricted
securities, other than securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933;
(m) invest more than 15% of its total assets (taken at
market value at the time of a particular investment) in restricted
securities and securities of unseasoned issuers;
(n) invest more than 15% of its net assets (taken at market
value at the time of a particular investment) in illiquid
securities, including repurchase agreements maturing in more than
seven days.
Notwithstanding the foregoing investment restrictions, the
Fund may purchase securities pursuant to the exercise of
subscription rights, subject to the condition that such purchase
will not result in the Fund's ceasing to be a diversified
investment company. Far Eastern and European corporations
frequently issue additional capital stock by means of subscription
rights offerings to existing shareholders at a price substantially
below the market price of the shares. The failure to exercise
such rights would result in the Fund's interest in the issuing
company being diluted. The market for such rights is not well
developed in all cases and, accordingly, the Fund may not always
realize full value on the sale of rights. The exception applies
in cases where the limits set forth in the investment restrictions
would otherwise be exceeded by exercising rights or would have
already been exceeded as a result of fluctuations in the market
value of the Fund's portfolio securities with the result that the
Fund would be forced either to sell securities at a time when it
might not otherwise have done so, to forego exercising the rights.
ADDITIONAL INVESTMENT CONSIDERATIONS
The Adviser seeks to provide superior long-term investment
results through a disciplined, research-intensive approach to
investment selection and prudent risk management. 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:
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 higher 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 the Trust of any such purchase order.
The Fund's net asset value is determined on days on which the
New York Stock Exchange (the "NYSE") is open for trading. The
NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in February, Good Friday, the last
Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or
Sunday, the NYSE will be closed on the preceding Friday or the
following Monday, respectively. Net asset value will not be
determined on days when the NYSE is closed unless, in the judgment
of the Board of Trustees, net asset value of the Fund should be
determined on any such day, in which case the determination will
be made at 3:00 p.m., Chicago time.
The Trust intends to pay all redemptions in cash and is
obligated to redeem shares solely in cash up to the lesser of
$250,000 or one percent of the net assets of the Trust during any
90-day period for any one shareholder. However, redemptions in
excess of such limit may be paid wholly or partly by a
distribution in kind of securities. If redemptions were made in
kind, the redeeming shareholders might incur transaction costs in
selling the securities received in the redemptions.
Due to the relatively high cost of maintaining smaller
accounts, the Trust reserves the right to redeem shares in any
account for their then-current value (which will be promptly paid
to the investor) if at any time the shares in the account do not
have a value of at least $1,000. An investor will be notified
that the value of his account is less than that minimum and
allowed at least 30 days to bring the value of the account up to
at least $1,000 before the redemption is processed. The Agreement
and Declaration of Trust also authorizes the Trust to redeem
shares under certain other circumstances as may be specified by
the Board of Trustees.
The Trust reserves the right to suspend or postpone
redemptions of shares of the Fund during any period when: (a)
trading on the NYSE is restricted, as determined by the SEC, or
the NYSE is closed for other than customary weekend and holiday
closings; (b) the SEC has by order permitted such suspension; or
(c) an emergency, as determined by the SEC, exists, making
disposal of portfolio securities or valuation of net assets of the
Fund not reasonably practicable.
MANAGEMENT
The following table sets forth certain information with
respect to the trustees and officers of the Trust:
<TABLE>
<CAPTION>
POSITION(S) HELD 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-President; General counsel and secretary of the Adviser since
Secretary November 1995; senior vice president of the Adviser
since April, 1992; vice president of the Adviser
prior thereto
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 76 Trustee Chairman emeritus of A. T. Kearney, Inc.
(3) (international management consultants)
William W. Boyd (3) 70 Trustee Chairman and director of Sterling Plumbing Group,
Inc. (manufacturer of plumbing products) since
1992; chairman, president, and chief executive
officer of Sterling Plumbing Group, Inc. prior
thereto
David P. Brady 32 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) 44 Trustee Senior vice president of Liberty Financial
Companies, Inc. (the indirect parent of the
Adviser)
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 62 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 from April,
1992 to May, 1994; associate attorney with Fowler
White Burnett Hurley Banick & Strickroot prior
thereto
Douglas A. Hacker 41 Trustee Senior vice president and chief financial officer,
(3) 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 strategeist of the Adviser;
director of research of the Adviser, 1991 to 1995
Janet Langford Kelly 39 Trustee Senior Vice President, Secretary and General
(3) Counsel, Sara Lee Corporation (branded, packaged,
consumer-products manufacturer), since 1995;
partner, Sidley & Austin (law firm), 1991 through
1994
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
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; Senior compliance administrator and assistant
Assistant Secretary secretary of the Adviser since November, 1995;
senior legal assistant for the Adviser prior
thereto
Richard B. Peterson 56 Vice-President Senior vice president of the Adviser since June,
1991; officer of State Farm Investment Management
Corp. prior thereto
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
Thomas C. Theobald 59 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, P.C., prior
thereto
Stacy H. Winick 31 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 prior thereto
Hans P. Ziegler 55 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 Compliance manager for the Adviser's Mutual Funds
division since August 1995; compliance accountant,
January 1995 to July 1995; section manager, January
1994 to January 1995; supervisor, February 1990 to
December 1993
</TABLE>
______________________________
(1) Trustee who is an "interested person" of the Trust and of the
Adviser, as defined in the Investment Company Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope and
results of the audit.
Certain of the trustees and officers of the Trust are
trustees or officers of other investment companies managed by the
Adviser. Mr. Armour, Ms. Bauer, Mr. Cook, and Ms. Walter are vice
presidents of the Fund's distributor, Liberty Securities
Corporation. The address of Mr. Block is 11 Woodley Road,
Winnetka, Illinois 60093; that of Mr. Boyd is 2900 Golf Road,
Rolling Meadows, Illinois 60008; that of Mr. Cook is 600 Atlantic
Avenue, Boston, Massachusetts 02210; that of Mr. Hacker is P.O.
Box 66100, Chicago, IL 60666; that of 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 the Trust. In compensation for
their services to the Trust, trustees who are not "interested
persons" of the Trust or the Adviser are paid an annual retainer
of $8,000 (divided equally among the series of the Trust) plus an
attendance fee from each series for each meeting of the Board or
standing committee thereof attended at which business for that
series is conducted. The attendance fees (other than for a
Nominating Committee or Compensation Committee meeting) are based
on each series' net assets as of the preceding 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 fee is paid solely by the master portfolio.
Each non-interested trustee also receives $500 from the Trust for
attending each meeting of the Nominating Committee or Compensation
Committee. The Trust has no retirement or pension plan. The
following table sets forth compensation paid by the 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 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,
the Fund had no shareholders.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated, the Fund's investment
adviser, is a wholly owned subsidiary of SteinRoe Services Inc.
("SSI"), the Fund's transfer agent, which is a wholly owned
subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which is a majority owned subsidiary of LFC Holdings,
Inc., which is a wholly owned subsidiary of Liberty Mutual Equity
Corporation, which is a wholly owned subsidiary of Liberty Mutual
Insurance Company. Liberty Mutual Insurance Company is a mutual
insurance company, principally in the property/casualty insurance
field, organized under the laws of Massachusetts in 1912.
The directors of the Adviser are Kenneth R. Leibler, Harold
W. Cogger, C. Allen Merritt, Jr., Timothy K. Armour, and Hans P.
Ziegler. Mr. Leibler is President and Chief Executive Officer of
Liberty Financial; Mr. Cogger is Executive Vice President of
Liberty Financial; Mr. Merritt is Senior 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 the Fund
and other mutual funds managed by the Adviser. Shareholders
participating in Stein Roe Counselor [SERVICE MARK] are free to
self direct their investments while considering the Adviser's
recommendations; shareholders participating in Stein Roe 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,
administrative agreement, management agreement, fees, expense
limitation, and transfer agency services under Fee Table and
Management of the Fund in the Prospectus, which is incorporated
herein by reference.
The Adviser provides office space and executive and other
personnel to the Fund and bears any sales or promotional expenses.
The Fund pays all expenses other than those paid by the Adviser,
including but not limited to printing and postage charges and
securities registration and custodian fees and expenses incidental
to its organization.
The administrative agreement provides that the Adviser shall
reimburse the Fund to the extent that total annual expenses of the
Fund (including fees paid to the Adviser, but excluding taxes,
interest, brokers' commissions and other normal charges incident
to the purchase and sale of portfolio securities and expenses of
litigation to the extent permitted under applicable state law)
exceed the applicable limits prescribed by any state in which
shares of the Fund are being offered for sale to the public;
provided, however, that the Adviser shall not be required to
reimburse the Fund an amount in excess of the management fee from
the Fund for such year. In addition, in the interest of further
limiting expenses of the Fund, the Adviser may voluntarily waive
its management fee and/or absorb certain expenses for the Fund, as
described under Fee Table in the Prospectus. Any such
reimbursement will enhance the yield of the Fund.
The management agreement also provides that neither the
Adviser nor any of its directors, officers, stockholders (or
partners of stockholders), agents, or employees shall have any
liability to the Trust or any shareholder of the Trust for any
error of judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance by
the Adviser of its duties under the agreement, except for
liability resulting from willful misfeasance, bad faith or gross
negligence on their part in the performance of its duties or from
reckless disregard by it of its obligations and duties under the
agreement.
Any expenses that are attributable solely to the
organization, operation, or business of the Fund shall be paid
solely out of the Fund's assets. Any expenses incurred by the
Trust that are not solely attributable to a particular series are
apportioned in such manner as the Adviser determines is fair and
appropriate, unless otherwise specified by the Board of Trustees.
BOOKKEEPING AND ACCOUNTING AGREEMENT
Pursuant to a separate agreement with the Trust, the Adviser
receives a fee for performing certain bookkeeping and accounting
services for the Fund. For these services, the Adviser receives
an annual fee of $25,000 per series 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.
DISTRIBUTOR
Shares of the Fund are distributed by Liberty Securities
Corporation ("LSC") under a Distribution Agreement as described
under Management of the Fund in the Prospectus, which is
incorporated herein by reference. The Distribution Agreement
continues in effect from year to year, provided such continuance
is approved annually (i) by a majority of the trustees or by a
majority of the outstanding voting securities of the Trust, and
(ii) by a majority of the trustees who are not parties to the
Agreement or interested persons of any such party. The Trust has
agreed to pay all expenses in connection with registration of its
shares with the Securities and Exchange Commission and auditing
and filing fees in connection with registration of its shares
under the various state blue sky laws and assumes the cost of
preparation of prospectuses and other expenses.
As agent, LSC offers shares of the Fund to investors in
states where the shares are qualified for sale, at net asset
value, without sales commissions or other sales load to the
investor. In addition, no sales commission or "12b-1" payment is
paid by the Fund. LSC offers the Fund's shares only on a best-
efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for the Trust,
as described under Management of the Fund in the Prospectus. For
performing these services, SSI receives from the Fund a fee based
on an annual rate of .22 of 1% of average net assets. The Trust
believes the charges by SSI to the Fund are comparable to those of
other companies performing similar services. (See Investment
Advisory Services.)
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
the Trust. It is responsible for holding all securities and cash
of the Fund, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering
expenses of the Fund, and performing other administrative duties,
all as directed by authorized persons. The custodian does not
exercise any supervisory function in such matters as purchase and
sale of portfolio securities, payment of dividends, or payment of
expenses of the Fund.
Portfolio securities purchased in the U.S. are maintained in
the custody of the Bank or of other domestic banks or
depositories. Portfolio securities purchased outside of the U.S.
are maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network and foreign
depositories ("foreign sub-custodians"). Each of the domestic and
foreign custodial institutions holding portfolio securities has
been approved by the Board of Trustees in accordance with
regulations under the Investment Company Act of 1940.
The Board of Trustees reviews, at least annually, whether it
is in the best interest of the Fund and its shareholders to
maintain Fund assets in each of the countries in which the Fund
invests with particular foreign sub-custodians in such countries,
pursuant to contracts between such respective foreign sub-
custodians and the Bank. The review includes an assessment of the
risks of holding Fund assets in any such country (including risks
of expropriation or imposition of exchange controls), the
operational capability and reliability of each such foreign sub-
custodian, and the impact of local laws on each such custody
arrangement. The Board of Trustees is aided in its review by the
Bank, which has assembled the network of foreign sub-custodians
utilized by the Fund, as well as by the Adviser and counsel.
However, with respect to foreign sub-custodians, there can be no
assurance that the Fund, and the value of its shares, will not be
adversely affected by acts of foreign governments, financial or
operational difficulties of the foreign sub-custodians,
difficulties and costs of obtaining jurisdiction over, or
enforcing judgments against, the foreign sub-custodians, or
application of foreign law to the Fund's foreign sub-custodial
arrangements. Accordingly, an investor should recognize that the
non-investment risks involved in holding assets abroad are greater
than those associated with investing in the United States.
The Fund may invest in obligations of the custodian and may
purchase or sell securities from or to the custodian.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Trust are Arthur
Andersen LLP, 33 West Monroe Street, Chicago, Illinois 60603. The
accountants audit and report on the Fund's annual financial
statements, review certain regulatory reports and the Fund's
federal income tax returns, and perform other professional
accounting, auditing, tax and advisory services when engaged to do
so by the Trust.
PORTFOLIO TRANSACTIONS
The Adviser places the orders for the purchase and sale of
the Fund's portfolio securities and options and futures contracts.
The Adviser's overriding objective in effecting portfolio
transactions is to seek to obtain the best combination of price
and execution. The best net price, giving effect to brokerage
commissions, if any, and other transaction costs, normally is an
important factor in this decision, but a number of other
judgmental factors may also enter into the decision. These
include: the Adviser's knowledge of negotiated commission rates
currently available and other current transaction costs; the
nature of the security being traded; the size of the transaction;
the desired timing of the trade; the activity existing and
expected in the market for the particular security;
confidentiality; the execution, clearance and settlement
capabilities of the broker or dealer selected and others which are
considered; the Adviser's knowledge of the financial stability of
the broker or dealer selected and such other brokers or dealers;
and the Adviser's knowledge of actual or apparent operational
problems of any broker or dealer. Recognizing the value of these
factors, the Fund may pay a brokerage commission in excess of that
which another broker or dealer may have charged for effecting the
same transaction. Evaluations of the reasonableness of brokerage
commissions, based on the foregoing factors, are made on an
ongoing basis by the Adviser's staff while effecting portfolio
transactions. The general level of brokerage commissions paid is
reviewed by the Adviser, and reports are made annually to the
Board of Trustees.
With respect to issues of securities involving brokerage
commissions, when more than one broker or dealer is believed to be
capable of providing the best combination of price and execution
with respect to a particular portfolio transaction for the Fund,
the Adviser often selects a broker or dealer that has furnished it
with research products or services such as research reports,
subscriptions to financial publications and research compilations,
compilations of securities prices, earnings, dividends, and
similar data, and computer data bases, quotation equipment and
services, research-oriented computer software and services, and
services of economic and other consultants. Selection of brokers
or dealers is not made pursuant to an agreement or understanding
with any of the brokers or dealers; however, the Adviser uses an
internal allocation procedure to identify those brokers or dealers
who provide it with research products or services and the amount
of research products or services they provide, and endeavors to
direct sufficient commissions generated by its clients' accounts
in the aggregate, including the Fund, to such brokers or dealers
to ensure the continued receipt of research products or services
the Adviser feels are useful. In certain instances, the Adviser
may receive from brokers and dealers products or services that are
used both as investment research and for administrative,
marketing, or other non-research purposes. In such instances, the
Adviser will make a good faith effort to determine the relative
proportions of such products or services which may be considered
as investment research. The portion of the costs of such products
or services attributable to research usage may be defrayed by the
Adviser (without prior agreement or understanding, as noted above)
through brokerage commissions generated by transactions by clients
(including the Fund), while the 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 the Fund is
authorized, in recognition of the value of research products or
services, to pay a commission in excess of that which another
broker or dealer might have charged for effecting the same
transaction. The Adviser may 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
the Fund.
With respect to the Fund's purchases and sales of portfolio
securities transacted with a broker or dealer on a net basis, the
Adviser may also consider the part, if any, played by the broker
or dealer in bringing the security involved to the Adviser's
attention, including investment research related to the security
and provided to the Fund.
The Trust has arranged for its custodian to act as a
soliciting dealer to accept any fees available to the custodian as
a soliciting dealer in connection with any tender offer for Fund
portfolio securities. The custodian will credit any such fees
received against its custodial fees. In addition, the Board of
Trustees has reviewed the legal developments pertaining to and the
practicability of attempting to recapture underwriting discounts
or selling concessions when portfolio securities are purchased in
underwritten offerings. The Board of Trustees has been advised by
counsel that recapture in foreign securities underwritings is
permitted and has directed the Adviser to attempt to recapture to
the extent consistent with best price and execution.
ADDITIONAL INCOME TAX CONSIDERATIONS
The Fund intends to comply with the special provisions of the
Internal Revenue Code that relieve it of federal income tax to the
extent of its net investment income and capital gains currently
distributed to shareholders.
Because dividend and capital gain distributions reduce net
asset value, a shareholder who purchases shares shortly before a
record date will, in effect, receive a return of a portion of his
investment in such distribution. The distribution would
nonetheless be taxable to him, even if the net asset value of
shares were reduced below his cost. However, for federal income
tax purposes the shareholder's original cost would continue as his
tax basis.
The Fund expects that less than 100% of its dividends will
qualify for the deduction for dividends received by corporate
shareholders.
To the extent the Fund invests in foreign securities, it may
be subject to withholding and other taxes imposed by foreign
countries. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Investors may be
entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in
the Code. Specifically, if more than 50% of the Fund's total
assets at the close of any fiscal year consist of stock or
securities of foreign corporations, the Fund may file an election
with the Internal Revenue Service pursuant to which shareholders
of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their
pro rata shares of foreign income taxes paid by the Fund even
though not actually received, (ii) treat such respective pro rata
shares as foreign income taxes paid by them, and (iii) deduct such
pro rata shares in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to
applicable limitations, against their United States income taxes.
Shareholders who do not itemize deductions for federal income tax
purposes will not, however, be able to deduct their pro rata
portion of foreign taxes paid by the Fund, although such
shareholders will be required to include their share of such taxes
in gross income. Shareholders who claim a foreign tax credit may
be required to treat a portion of dividends received from the Fund
as separate category income for purposes of computing the
limitations on the foreign tax credit available to such
shareholders. Tax-exempt shareholders will not ordinarily benefit
from this election relating to foreign taxes. Each year, the Fund
will notify shareholders of the amount of (i) each shareholder's
pro rata share of foreign income taxes paid by the Fund and (ii)
the portion of Fund dividends which represents income from each
foreign country, if the Fund qualifies to pass along such credit.
Passive Foreign Investment Companies. The Fund may purchase
the securities of certain foreign investment funds or trusts
called passive foreign investment companies ("PFICs"). In
addition to bearing their proportionate share of the Fund's
expenses (management fees and operating expenses), shareholders
will also indirectly bear similar expenses of PFICs. Capital gains
on the sale of PFIC holdings will be deemed to be ordinary income
regardless of how long the Fund holds its investment. In
addition, the Fund may be subject to corporate income tax and an
interest charge on certain dividends and capital gains earned from
PFICs, regardless of whether such income and gains are distributed
to shareholders.
In accordance with tax regulations, the Fund intends to treat
PFICs as sold on the last day of the Fund's fiscal year and
recognize any gains for tax purposes at that time; losses will not
be recognized. Such gains will be considered ordinary income
which the Fund will be required to distribute even though it has
not sold the security and received cash to pay such distributions.
INVESTMENT PERFORMANCE
The Fund may quote certain total return figures from time to
time. A "Total Return" on a per share basis is the amount of
dividends distributed per share plus or minus the change in the
net asset value per share for a period. A "Total Return
Percentage" may be calculated by dividing the value of a share at
the end of a period by the value of the share at the beginning of
the period and subtracting one. For a given period, an "Average
Annual Total Return" may be computed by finding the average annual
compounded rate that would equate a hypothetical initial amount
invested of $1,000 to the ending redeemable value.
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 the Fund is a result of conditions in
the securities markets, portfolio management, and operating
expenses. Although investment performance information is useful
in reviewing the Fund's performance and in providing some basis
for comparison with other investment alternatives, it should not
be used for comparison with other investments using different
reinvestment assumptions or time periods.
In advertising and sales literature, the Fund may compare its
performance with that of other mutual funds, indexes or averages
of other mutual funds, indexes of related financial assets or
data, and other competing investment and deposit products
available from or through other financial institutions. The
composition of these indexes or averages differs from that of the
Fund. Comparison of the Fund to an alternative investment should
be made with consideration of differences in features and expected
performance.
All of the indexes and averages noted below will be obtained
from the indicated sources or reporting services, which the Fund
believes to be generally accurate. The Fund may also note its
mention or recognition in newspapers, magazines, or other media
from time to time. However, the Fund assumes no responsibility
for the accuracy of such data. Newspapers and magazines which
might mention the Fund include, but are not limited to, the
following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Associated Press
Barron's
Bloomberg
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World
Forbes
Fortune
Fund Action
Fund Decoder
Gourmet
Individual Investor
Investment Adviser
Investment Dealers' Digest
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Lipper Analytical Services
Los Angeles Times
Louis Rukeyser's Wall Street
Money
Morningstar
Mutual Fund Market News
Mutual Fund News Service
Mutual Funds Magazine
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
The San Francisco Chronicle
Securities Industry Daily
Smart Money
Smithsonian
Strategic Insight
Time
Travel & Leisure
USA Today
U.S. News & World Report
Value Line
The Wall Street Journal
The Washington Post
Working Women
Worth
Your Money
The Fund may compare its performance to the Consumer Price
Index (All Urban), a widely recognized measure of inflation.
The Fund's performance may be compared to the following
indexes or averages:
Dow-Jones Industrial Average New York Stock Exchange Composite Index
Standard & Poor's 500 Stock Index American Stock Exchange Composite Index
Standard & Poor's 400 Industrials Nasdaq Composite
Wilshire 5000 Nasdaq Industrials
(These indexes are widely (These indexes generally reflect the
ecognized indicators of general performance of stocks traded in the
U.S. stock market results.) indicated markets.)
EAFE Index Financial Times Actuaries World Index
(Ex-U.S.)
Morgan Stanley Capital Morgan Stanley Capital International
International World Index Emerging Markets Global Index
(These indexes are widely recognized
indicators of the international markets)
In addition, the Fund may compare performance to the indices
indicated below:
Lipper International & Global Funds Average
Lipper General Equity Funds Average
Lipper Equity Funds Average
Lipper International Fund Index
(The Lipper averages are unweighted averages of total
return performance as classified, calculated, and
published by Lipper.)
Morningstar International Stock Average
Morningstar U.S. Diversified Average
Morningstar Equity Fund Average
Morningstar Hybrid Fund Average
Morningstar All Equity Funds Average
Morningstar General Equity Average*
*Includes Morningstar Aggressive Growth, Growth, Balanced,
Equity Income, and Growth & Income Averages.
The Lipper International Fund index reflects the net asset
value weighted return of the ten largest international funds.
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. The Fund may also use
comparative performance as computed in a ranking by Lipper or
category averages and rankings provided by another independent
service. Should Lipper or another service reclassify the Fund to
a different category or develop (and place the Fund into) a new
category, the Fund may compare its performance or ranking with
those of other funds in the newly assigned category, as published
by the service.
The Fund may also cite its rating, recognition, or other
mention by Morningstar or any other entity. Morningstar's rating
system is based on risk-adjusted total return performance and is
expressed in a star-rating format. The risk-adjusted number is
computed by subtracting a fund's risk score (which is a function
of the fund's monthly returns less the 3-month T-bill return) from
its load-adjusted total return score. This numerical score is
then translated into rating categories, with the top 10% labeled
five star, the next 22.5% labeled four star, the next 35% labeled
three star, the next 22.5% labeled two star, and the bottom 10%
one star. A high rating reflects either above-average returns or
below-average risk, or both.
Of course, past performance is not indicative of future
results.
____________________________
To illustrate the historical returns on various types of
financial assets, the Fund may use historical data provided by
Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based investment
firm. Ibbotson constructs (or obtains) very long-term (since
1926) total return data (including, for example, total return
indexes, total return percentages, average annual total returns
and standard deviations of such returns) for the following asset
types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
The Fund may also use hypothetical returns to be used as an
example in a mix of asset allocation strategies. One such example
is reflected in the chart below, which shows the effect of tax
deferral on a hypothetical investment. This chart assumes that an
investor invested $2,000 a year on January 1, for any specified
period, in both a Tax-Deferred Investment and a Taxable
Investment, that both investments earn either 6%, 8% or 10%
compounded annually, and that the investor withdrew the entire
amount at the end of the period. (A tax rate of 39.6% is applied
annually to the Taxable Investment and on the withdrawal of
earnings on the Tax-Deferred Investment.)
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
INTEREST RATE 6% 8% 10% 6% 8% 10%
Compounding
Years Tax-Deferred Investment Taxable Investment
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 150,484 82,067 97,780 117,014
20 62,943 75,543 91,947 59,362 68,109 78,351
15 41,684 47,304 54,099 40,358 44,675 49,514
10 24,797 26,820 29,098 24,453 26,165 28,006
5 11,178 11,613 12,072 11,141 11,546 11,965
1 2,072 2,096 2,121 2,072 2,096 2,121
Dollar Cost Averaging. Dollar cost averaging is an
investment strategy that requires investing a fixed amount of
money in Fund shares at set intervals. This allows you to
purchase more shares when prices are low and fewer shares when
prices are high. Over time, this tends to lower your average cost
per share.
Like any investment strategy, dollar cost averaging can't
guarantee a profit or protect against losses in a steadily
declining market. Dollar cost averaging involves uninterrupted
investing regardless of share price and therefore may not be
appropriate for every investor.
From time to time, the Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe Counselor
[SERVICE MARK] and the Stein Roe 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 in which the Fund invests should be continuously
reviewed and that individual analysts give different weightings to
the various factors involved in credit analysis. A rating is not
a recommendation to purchase, sell or hold a security because it
does not take into account market value or suitability for a
particular investor. When a security has received a rating from
more than one service, each rating should be evaluated
independently. Ratings are based on current information furnished
by the issuer or
obtained by the rating services from other sources which they
consider reliable. Ratings may be changed, suspended or withdrawn
as a result of changes in or unavailability of such information,
or for other reasons.
The following is a description of the characteristics of
ratings of corporate debt securities used by Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").
RATINGS BY MOODY'S
Aaa. Bonds rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or an exceptionally stable margin and principal is secure.
Although the various protective elements are likely to change,
such changes as can be visualized are more unlikely to impair the
fundamentally strong position of such bonds.
Aa. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa bonds.
A. Bonds rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa. Bonds rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any
long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Ca. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in
each generic rating classification from Aa through B in its
corporate bond rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
RATINGS BY S&P
AAA. Debt rated AAA has the highest rating. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A. Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than for debt in higher rated categories.
BB, B, CCC, CC, and C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no interest
is being paid.
D. Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears. The D rating is also used
upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
NOTES:
The ratings from AA to CCC may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the
major rating categories. Foreign debt is rated on the same basis
as domestic debt measuring the creditworthiness of the issuer;
ratings of foreign debt do not take into account currency exchange
and related uncertainties.
The "r" is attached to highlight derivative, hybrid, and certain
other obligations that S&P believes may experience high volatility
or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or
interest return is indexed to equities, commodities, or
currencies; certain swaps and options; and interest only and
principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will
exhibit no volatility or variability in total return.
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