<PAGE>
Prospectus Feb. 2, 1998
Stein Roe Mutual Funds
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
Stein Roe Growth Stock Fund
Stein Roe Growth Opportunities Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
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. This
Fund is closed to purchases by new investors except for purchases
by eligible investors as described under How to Purchase Shares.
Growth Opportunities Fund seeks long-term capital
appreciation. It invests in a diversified portfolio of common
stocks of large, mid-sized, and small companies that, in the view
of the Adviser, have the ability to generate and sustain earnings
growth at an above-average rate.
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.
*Growth & Income Fund, Balanced Fund, Growth Stock Fund,
Special Fund, and Special Venture Fund each seek to achieve
their respective objectives 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. The investment
experience of each Fund will correspond to its respective
Portfolio. (See Master Fund/Feeder Fund: Structure and Risk
Factors.)
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 an 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 Feb. 2, 1998,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. That
information, material incorporated by reference, and other
information regarding registrants that file electronically with the
SEC is available at the SEC's website, www.sec.gov. This
prospectus is also available electronically by using Stein Roe's
Internet address: 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, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TABLE OF CONTENTS
Page
Summary ...............................3
Fee Table............................. 6
Financial Highlights.................. 7
The Funds............................ 16
Investment Policies.................. 17
Growth & Income Fund...............17
Balanced Fund......................17
Growth Stock Fund..................17
Growth Opportunities Fund..........17
Special Fund.......................18
Special Venture Fund...............19
Capital Opportunities Fund.........19
Portfolio Investments and Strategies..20
Investment Restrictions.............. 23
Risks and Investment Considerations...24
How to Purchase Shares................25
Growth Stock Fund Accounts.........26
By Check...........................26
By Wire............................27
By Electronic Transfer............ 27
By Exchange....................... 27
Conditions of Purchase............ 28
Purchases Through Third Parties....28
Purchase Price and Effective Date. 28
How to Redeem Shares................. 29
By Written Request................ 29
By Exchange....................... 29
Special Redemption Privileges..... 30
General Redemption Policies....... 31
Shareholder Services................. 33
Net Asset Value...................... 35
Distributions and Income Taxes....... 35
Investment Return.................... 37
Management............................37
Organization and Description of
Shares.............................41
Master Fund/Feeder Fund: Structure and
Risk Factors.......................42
Certificate of Authorization..........45
SUMMARY
The mutual funds described in this prospectus are series of the
Stein Roe Investment Trust ("Investment Trust"), an open-end
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 Growth
Opportunities Fund and 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.
Growth Opportunities Fund seeks long-term capital appreciation.
Growth Opportunities Fund invests in a diversified portfolio of
common stocks of large, mid-sized, and small companies that, in the
view of the Adviser, have the ability to generate and sustain
earnings growth at an above-average rate. Growth Opportunities
Fund's investments include securities of both established companies
that the Adviser believes have appreciation potential and emerging
companies. Investment in established companies tends to moderate
the investment risks associated with investments in emerging,
generally smaller companies. Growth Opportunities Fund invests a
portion of its assets in the securities of small and mid-sized
companies. These companies may present greater opportunities for
capital appreciation because of high potential earnings growth, but
also may involve greater risks. Securities of smaller companies
may be subject to greater price volatility and tend to be less
liquid than securities of larger companies. Small companies, as
compared to large companies, may have a shorter history of
operations, may not have as great an ability to raise additional
capital, may have a less diversified product line making them more
susceptible to market pressure, and may have a smaller public
market for their shares. In addition, many smaller companies are
less well known to the investing public and may not be as widely
followed by the investment community.
Growth Opportunities Fund seeks to make investment decisions based
on a long-term growth philosophy; that is, it generally makes
investment decisions on the basis of an individual company's
ability to generate and sustain earnings growth over the long term,
rather than on the basis of the near-term growth prospects of a
particular company or economic sector.
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 or 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. Growth Opportunities Fund
is designed for long-term investors who can accept the fluctuations
in portfolio value and other risks associated with seeking long-
term capital appreciation by investing in a diversified portfolio
of common stocks of large, mid-sized and small companies. 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 carefully consider the
risks involved in foreign investing. Investing in foreign
securities involves certain risks and opportunities not typically
associated with investing in U.S. securities. Such risks include
fluctuations in foreign currency exchange rates, possible
imposition of exchange controls, less complete financial
information, political instability, less liquidity, and greater
price volatility.
Please see Investment Policies, Portfolio Investments and
Strategies, and Risks and Investment Considerations for further
information.
Purchases. The minimum initial investment for each Fund is $2,500,
and additional investments must be at least $100 (only $50 for
purchases by electronic transfer). Lower initial investment
minimums apply to IRAs, UGMAs, and automatic investment plans.
Shares may be purchased by check, by bank wire, by electronic
transfer, or by exchange from another no-load Stein Roe Fund.
Growth Stock 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
no-load 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 a Stein Roe account representative
by calling 800-338-2550.
FEE TABLE
Growth Growth
Capital
& & Growth Oppor- Special Oppor-
Income Balanced Stock tunities Special Venture tunities
Fund Fund Fund Fund Fund Fund Fund
Shareholder Trans-
action Expenses
Sales Load Imposed
on Purchases None None None None None None None
Sales Load Imposed on
Reinvested
Dividends None None None None None None None
Deferred Sales
Load None None None None None None None
Redemption Fees* None None None None None None None
Exchange Fees None None None None None None None
Annual Fund Operating
Expenses (after fee
waiver in the case of
Growth Opportunities Fund;
as a percentage of
average net assets)
Management and Adminis-
trative Fees (after
fee waiver in the case
of Growth Opportunities
Fund) 0.75% 0.70% 0.75% 0.41% 0.86% 0.90% 0.85%
12b-1 Fees None None None None None None None
Other Expenses 0.38% 0.35% 0.32% 0.84% 0.28% 0.39% 0.32%
Total Fund Operating ----- ----- ----- ----- ----- ----- -----
Expenses (after fee
waiver in the case
of Growth Opportun-
ities Fund) 1.13% 1.05% 1.07% 1.25% 1.14% 1.29% 1.17%
===== ===== ===== ===== ===== ===== =====
___________________
* 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 $36 $62 $137
Balanced Fund 11 33 58 128
Growth Stock Fund 11 34 59 131
Growth Opportunities Fund 13 40 69 151
Special Fund 12 36 63 139
Special Venture Fund 13 41 71 156
Capital Opportunities Fund 12 37 64 142
The purpose of the Fee Table is to assist you in understanding
the various costs and expenses that you will bear directly or
indirectly as an investor in a Fund. The table is based on
expenses incurred in the last fiscal year.
From time to time, the Adviser may voluntarily undertake to
reimburse a Fund for a portion of its operating expenses. The
Adviser has undertaken to reimburse Growth Opportunities Fund for
its operating expenses to the extent such expenses exceed 1.25% of
its annual average net assets. This commitment expires on January
31, 1999, subject to earlier termination by the Adviser on 30 days'
notice to Growth Opportunities Fund. Absent such reimbursement,
the Management and Administrative Fees and Total Operating Expenses
would have been 0.85% and 1.74%, respectively. Any such
reimbursement will lower Growth Opportunities Fund's overall
expense ratio and increase its overall return to investors. (Also
see Management--Fees and Expenses.)
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. The trustees 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 gains 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 following tables 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 accountants. These tables
should be read in conjunction with the respective Fund's financial
statements and notes thereto. The Funds' annual reports, which may
be obtained from Investment Trust without charge upon request,
contain additional performance information.
Balanced Fund
<TABLE>
<CAPTION>
Nine
Year Months
Ended Ended
Dec. 31, Sept. 30,
Years Ended Sept. 30,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $25.07 $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78 $27.82 $30.07
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Income from
Investment Operations
Net investment
income 1.32 0.97 1.37 1.28 1.32 1.31 1.26 1.15 1.33 1.00 0.95
Net realized and
unrealized gains
(losses) on invest-
ments (1.06) 0.45 3.10 (2.92) 4.85 1.48 2.37 (1.06) 2.22 2.96 5.61
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Total from invest-
ment operations 0.26 1.42 4.47 (1.64) 6.17 2.79 3.63 0.09 3.55 3.96 6.56
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Distributions
Net investment income (1.63) (0.90) (1.34) (1.36) (1.26) (1.34) (1.30) (1.17) (1.23) (1.01) (0.96)
Net realized capital
gains (1.45) (0.11) (0.38) (0.73) (0.51) (0.62) (1.67) (0.71) (0.28) (0.70) (2.26)
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (3.08) (1.01) (1.72) (2.09) (1.77) (1.96) (2.97) (1.88) (1.51) (1.71) (3.22)
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78 $27.82 $30.07 $33.41
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net expenses
to average net assets 0.80% *0.87% 0.90% 0.88% 0.87% 0.85% 0.81% 0.83% 0.87% 1.05% 1.05%
Ratio of net invest-
ment income to
average net assets 5.12% *5.68% 5.83% 5.36% 5.50% 4.94% 4.69% 4.53% 5.14% 3.45% 3.02%
Portfolio turnover
rate 86% 85% 93% 75% 71% 59% 53% 29% 45% 87% 15%(a)
Average commissions
(per share) -- -- -- -- -- -- -- -- -- $0.0537 $0.0594(a)
Total return 0.74% 6.51% 20.76% (6.86%) 29.67% 11.13% 14.57% 0.36% 14.49% 14.83% 23.60%
Net assets, end of
period (000 omitted) $140,279 $134,225 $144,890 $124,592 $150,689 $173,417 $222,292 $229,274 $228,560 $231,063 $284,846
</TABLE>
Growth & Income Fund
<TABLE>
<CAPTION>
Nine
Months
Ended
Sept. 30, Years Ended Sept. 30,
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $10.49 $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54 $16.65 $18.39
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net investment income 0.17 0.22 0.26 0.26 0.19 0.17 0.18 0.34 0.27 0.30
Net realized and
unrealized gains
(losses) on
investments (1.64) 2.46 (0.85) 2.17 1.49 2.16 0.40 2.56 3.22 5.15
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from invest-
ment operations (1.47) 2.68 (0.59) 2.43 1.68 2.33 0.58 2.90 3.49 5.45
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions
Net investment
Income (0.14) (0.22) (0.26) (0.29) (0.18) (0.16) (0.16) (0.20) (0.32) (0.28)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net realized capital
gains -- -- -- (0.36) (0.35) (0.76) (0.71) (0.59) (1.43) (0.65)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.14) (0.22) (0.26) (0.65) (0.53) (0.92) (0.87) (0.79) (1.75) (0.93)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End
of Period $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54 $16.65 $18.39 $22.91
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net expenses
to average net
assets (b) 1.47% 1.24% 1.08% 1.00% 0.97% 0.88% 0.90% 0.96% 1.18% 1.13%
Ratio of net
investment income
to average net
assets (c) 2.03% 2.28% 2.40% 2.27% 1.46% 1.23% 1.18% 1.78% 1.65% 1.52%
Portfolio turnover
rate 105% 63% 51% 48% 40% 50% 85% 70% 13% 2%(a)
Average commissions
(per share) -- -- -- -- -- -- -- -- $0.0683 $0.0647(a)
Total return (13.90%) 30.63% (5.25%) 24.12% 14.00% 17.98% 4.03% 21.12% 22.67% 30.81%
Net assets,
end of period
(000 omitted) $23,002 $32,562 $43,446 $54,820 $70,724 $100,365 $129,680 $139,539 $204,387 $337,466
</TABLE>
Growth Stock Fund
<TABLE>
<CAPTION>
Nine
Year Months
Ended Ended
Dec. 31, Sept. 30, Years Ended Sept. 30,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $16.97 $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58 $26.13 $28.79
------ ------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Income from Investment
Operations
Net investment
income 0.24 0.19 0.34 0.39 0.33 0.18 0.15 0.13 0.12 0.08 0.01
Net realized and
unrealized gains
(losses) on
investments 0.46 (0.11) 4.51 (1.17) 5.90 3.01 1.14 0.41 5.60 5.01 8.79
------ ------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Total from investment
operations 0.70 0.08 4.85 (0.78) 6.23 3.19 1.29 0.54 5.72 5.09 8.80
------ ------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Distributions
Net investment
Income (0.29) (0.15) (0.34) (0.37) (0.42) (0.16) (0.10) (0.12) (0.15) (0.10) (0.07)
Net realized capital
gains (2.71) -- (0.06) -- (0.92) (1.17) (0.95) (1.73) (3.02) (2.33) (2.23)
------ ------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Total distributions (3.00) (0.15) (0.40) (0.37) (1.34) (1.33) (1.05) (1.85) (3.17) (2.43) (2.30)
------ ------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Net Asset Value,
End of Period $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58 $26.13 $28.79 $35.29
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net
expenses to average
net assets 0.65% *0.76% 0.77% 0.73% 0.79% 0.92% 0.93% 0.94% 0.99% 1.08% 1.07%
Ratio of net
investment income
to average net
assets 1.25% *1.62% 2.05% 2.03% 1.63% 0.75% 0.59% 0.50% 0.56% 0.32% 0.04%
Portfolio turnover
rate 143% 84% 47% 40% 34% 23% 29% 27% 36% 39% 5%(a)
Average commissions
(per share) -- -- -- -- -- -- -- -- -- $0.0528 $0.0582(a)
Total return 5.57% 0.54% 33.86% (4.17%) 36.64% 14.37% 5.09% 2.10% 28.18% 21.04% 33.10%
Net assets,
end of period
(000 omitted) $232,658 $195,641 $206,476 $206,031 $291,767 $372,758 $373,921 $321,502 $360,336 $417,964 $607,699
</TABLE>
Growth Opportunities Fund
Period Ended
Sept. 30,
1997 (d)
-----------
Net Asset Value, Beginning of Period $10.00
------
Income from Investment Operations
Net investment income (loss) --
Net realized and unrealized gains on investments .77
------
Total from investment operations .77
------
Distributions
Net investment income --
Net realized capital gains --
-----
Total distributions --
------
Net Asset Value, End of Period $10.77
======
Ratio of net expenses to average net assets (b) 1.25%*
Ratio of net investment income to average net
assets (c) 0.02%*
Portfolio turnover rate 3%
Average commissions (per share) $0.0708
Total return 7.70%
Net assets, end of period (000 omitted) $49,830
Special Fund
<TABLE>
<CAPTION>
Nine
Year Months
Ended Ended
Dec. 31, Sept. 30, Years Ended Sept. 30,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $16.95 $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54 $25.26 $27.39
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net investment income
(loss) 0.23 0.14 0.36 0.42 0.34 0.21 0.17 0.15 0.13 0.01 (0.06)
Net realized and
unrealized gains
(losses) on
investments 0.12 2.16 5.58 (2.10) 4.55 1.50 5.31 0.33 3.05 4.14 8.57
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.35 2.30 5.94 (1.68) 4.89 1.71 5.48 0.48 3.18 4.15 8.51
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions
Net investment
income (0.57) (0.01) (0.21) (0.39) (0.34) (0.37) (0.18) (0.21) (0.15) (0.11) --
Net realized capital
gains (3.90) -- (0.06) (2.08) (1.32) (0.31) (1.16) (1.77) (1.31) (1.91) (2.11)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (4.47) (0.01) (0.27) (2.47) (1.66) (0.68) (1.34) (1.98) (1.46) (2.02) (2.11)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54 $25.26 $27.39 $33.79
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net expenses
to average net
assets 0.96% *0.99% 0.96% 1.02% 1.04% 0.99% 0.97% 0.96% 1.02% 1.18% 1.14%
Ratio of net invest-
ment income (loss)
to average net
assets 1.32% *1.31% 2.12% 2.33% 2.11% 0.99% 0.92% 0.91% 0.56% 0.03% (0.17%)
Portfolio turnover
rate 103% 42% 85% 70% 50% 40% 42% 58% 41% 32% 7%(a)
Average commissions
(per share) -- -- -- -- -- -- -- -- -- $0.0482 $0.0382(a)
Total return 4.27% 17.94% 40.00% (8.78%) 32.18% 8.96% 27.35% 2.02% 14.60% 17.89% 33.67%
Net assets,
end of period
(000 omitted) $187,997 $224,628 $322,056 $361,065 $587,259 $626,080 $1,076,818 $1,243,885 $1,201,469 $1,158,498 $1,327,578
</TABLE>
Special Venture Fund
Period
Ended
Sept. 30, Years Ended Sept.
30,
1995(d) 1996 1997
-------- ------ ------
Net Asset Value, Beginning of Period $10.00 $12.60 $15.87
------ ------ ------
Income from Investment Operations
Net investment income (loss) 0.01 (0.02) (0.02)
Net realized and unrealized gains on
investments 2.67 3.86 3.12
------ ------ ------
Total from investment operations 2.68 3.84 3.10
------ ------ ------
Distributions
Net investment income (0.03) -- --
Net realized capital gains (0.05) (0.57) (1.52)
------ ------ ------
Total distributions (0.08) (0.57) (1.52)
------ ------ ------
Net Asset Value, End of Period $12.60 $15.87 $17.45
====== ====== ======
Ratio of net expenses to average net
assets (b) *1.25% 1.25%
1.29%
Ratio of net investment income(loss)
to average net assets (c) *0.12% (2.19%)
(0.18%)
Portfolio turnover rate 84% 72%
44%(a)
Average commissions (per share) -- $0.0378
$0.0390(a)
Total return 26.96% 31.81%
21.73%
Net assets, end of period (000
omitted) $60,533 $144,528
$235,755
Capital Opportunities Fund
<TABLE>
<CAPTION>
Nine
Year Months
Ended Ended
Dec. 31, Sept. 30, Years Ended Sept. 30,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $13.38 $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 $15.79 $21.69 $31.04
------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------
Income from
Investment
Operations
Net investment
income (loss) 0.03 0.03 0.05 0.06 0.11 0.06 0.01 0.02 0.01 (0.06) (0.17)
Net realized and
unrealized gains
(losses) on
investments 0.62 0.13 3.86 (4.72) 3.73 0.60 3.91 0.34 5.91 10.41 (1.77)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------
Total from invest-
ment operations 0.65 0.16 3.91 (4.66) 3.84 0.66 3.92 0.36 5.92 10.35 (1.94)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------
Distributions
Net investment
income (0.05) -- (0.05) (0.06) (0.08) (0.10) (0.04) (0.01) (0.02) (0.01) --
Net realized
capital gains (3.36) -- (0.06) (2.54) (0.08) -- -- -- -- (0.99) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------
Total distribu-
tions (3.41) -- (0.11) (2.60) (0.16) (0.10) (0.04) (0.01) (0.02) (1.00) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------
Net Asset Value,
End of Period $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 $15.79 $21.69 $31.04 $29.10
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net
expenses to
average net
assets 0.95% *1.01% 1.09% 1.14% 1.18% 1.06% 1.06% 0.97% 1.05% 1.22% 1.17%
Ratio of net invest-
ment income (loss)
to average net
assets 0.18% *0.34% 0.42% 0.43% 1.19% 0.42% 0.09% 0.04% 0.08% (0.40%) (0.69%)
Portfolio turnover
rate 133% 164% 245% 171% 69% 46% 55% 46% 60% 22% 35%
Average commissions
(per share) -- -- -- -- -- -- -- -- -- $0.0555 $0.0487
Total return 9.38% 1.51% 36.68% (37.51%) 53.51% 5.99% 34.01% 2.31% 37.46% 49.55% (6.25%)
Net assets,
end of period
(000 omitted) $171,973 $194,160 $272,805 $86,342 $129,711 $118,726 $153,101 $175,687 $242,381 $1,684,538 $1,110,642
</TABLE>
- --------
*Annualized.
(a) Prior to commencement of operations of the Portfolio. The
portfolio turnover rates for the Portfolios from Feb. 3, 1997,
were as follows: Balanced Portfolio, 21%; Growth & Income
Portfolio, 7%; Growth Stock Portfolio, 22%; Special Portfolio,
8%; and Special Venture Portfolio, 58%.
(b) If the Funds had paid all of their expenses and there had been
no reimbursement by the Adviser, this ratio would have been
1.09% for the year ended Sept. 30, 1990 for Growth & Income
Fund; 2.87% for the period ended Sept. 30, 1995 and 1.34% for
the year ended Sept. 30, 1996 for Special Venture Fund; and
1.74% for the period ended Sept. 30, 1997 for Growth
Opportunities Fund.
(c) Computed giving effect to the Adviser's fee waiver.
(d) From the commencement of operations: Oct. 17, 1994 for Special
Venture Fund and June 30, 1997 for Growth Opportunities Fund.
(e) 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 Aug. 25, 1995.
(f) For the periods indicated below, bank borrowing activity was as
follows:
Average debt Average shares Average
Period Ended Debt outstanding outstanding outstanding debt per
at end of period during period during period share
(in thousands) (in thousands) (in thousands) during period
- --------------- ---------------- ------------- -------------- ------------
Growth Stock Fund
9/30/89 $-- $ 124 11,745 $0.0106
Capital Opportun-
ities Fund
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 Growth Opportunities Fund ("Growth Opportunities
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 "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 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 Feb. 3, 1997, Growth & Income Fund, Balanced Fund, Growth Stock
Fund, Special Fund and Special Venture Fund became "feeder funds"-
- -that is, each invested all of its respective 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 other 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. Growth
Opportunities Fund and Capital Opportunities Fund may at some time
in the future convert into feeder funds. (For more information,
see Master Fund/Feeder Fund: Structure and Risk Factors.)
INVESMENT POLICIES
The Funds invest as described in the section 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 the potential both 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 its
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 Growth Opportunities Fund is long-
term capital appreciation. Growth Opportunities Fund attempts to
achieve its objective by investing in a diversified portfolio of
common stocks of large, mid-sized, and small companies that, in the
view of the Adviser, have the ability to generate and sustain
earnings growth at an above-average rate.
Growth Opportunities Fund's investments include securities of
both established companies that the Adviser believes have
appreciation potential and emerging companies. Investment in
established companies tends to moderate the investment risks
associated with investments in emerging, generally smaller,
companies. Growth Opportunities Fund invests a portion of its
assets in the securities of small and mid-sized companies. These
companies may present greater opportunities for capital
appreciation because of high potential earnings growth, but also
may involve greater risks. Securities of smaller companies may be
subject to greater price volatility and tend to be less liquid than
securities of larger companies. Small companies, as compared to
large companies, may have a shorter history of operations, may not
have as great an ability to raise additional capital, may have a
less diversified product line making them more susceptible to
market pressure, and may have a smaller public market for their
shares. In addition, many smaller companies are less well known to
the investing public and may not be as widely followed by the
investment community. Although it invests primarily in common
stocks, Growth Opportunities Fund may invest in all types of equity
securities, including preferred stocks and securities convertible
into common stocks.
Growth Opportunities Fund seeks to make investment decisions
based on a long-term growth philosophy; that is, Growth
Opportunities Fund generally makes investment decisions on the
basis of an individual company's ability to generate and sustain
earnings growth over the long term, rather than on the basis of the
near-term growth prospects of a particular company or economic
sector.
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. Special
Portfolio does not, however, 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, through personal visits, their
business judgment and strategies. 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. Investments 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. Growth Opportunities Fund,
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 security, 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; and
- - May be more thinly traded due to such securities being less well
known to investors than investment grade convertible securities,
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 Sept. 30, 1997, holdings of foreign companies, as a
percentage of net assets, were as follows: Balanced Portfolio,
11.4% (3.9% in foreign securities and 7.5% in ADRs); Growth &
Income Portfolio, 3.1% (0.5% in foreign securities and 2.6% in
ADRs); Growth Stock Portfolio, 4.8% (1.6% in foreign securities and
3.2% in ADRs); Growth Opportunities Fund, 2.2% (none in foreign
securities and 2.2% in ADRs); Special Portfolio, 7.8% (5.3% in
foreign securities and 2.5% in ADSs); Special Venture Portfolio,
3.2% (1.7% in foreign securities and 1.5% in ADRs); and Capital
Opportunities Fund, 2.2% (none in foreign securities and 2.2% 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 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
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 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
Each Fund and Portfolio is diversified as that term is defined in
the Investment Company Act of 1940.
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 under a master/feeder structure.
- --------
/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 under a
master/feeder structure.
While no Fund or Portfolio may make loans, each may (1)
purchase money market instruments and enter into repurchase
agreements; (2) acquire publicly distributed or privately placed
debt securities; (3) lend 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 nonleveraging, temporary, or
emergency purposes or in connection with participation in the
interfund lending program. Neither aggregate borrowings
(including reverse repurchase agreements) nor aggregate loans at
any one time may exceed 33 1/3% of the value of total assets.
Additional securities may not be purchased when borrowings, less
proceeds receivable from sales of portfolio securities, exceed
5% of total assets.
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 second, third, and fourth
paragraphs under this section (except for the second and third
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" as
defined in the Investment Company Act of 1940. The investment
objectives of the Funds and the Portfolios are nonfundamental 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. Growth
Opportunities Fund is designed for long-term investors who can
accept the fluctuations in portfolio value and other risks
associated with seeking long-term capital appreciation by investing
in a diversified portfolio of common stocks of large, mid-sized and
small companies. 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, Growth Opportunities
Fund, and Capital Opportunities Fund do not attempt to reduce or
limit risk through wide industry diversification of investment,
they usually allocate their investments among a number of different
industries rather than concentrating in a particular industry or
group of industries. Growth Stock 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
nonresidents may apply, including imposition of exchange controls
and withholding taxes on dividends, and seizure or nationalization
of investments owned by nonresidents. Foreign investments also
tend to involve higher transaction and custody costs.
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
no-load 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} program 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.)
Growth Stock Fund Accounts. Growth Stock 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 Growth Stock 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 are a shareholder of any other Stein Roe Fund, having
purchased shares directly from Stein Roe, as of Oct. 15, 1997
and you are opening a new account by exchange or by dividend
reinvestment as described in the prospectus;
- - you are a client of 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 purchase shares (i) under an asset allocation program
sponsored by a financial advisor, broker-dealer, bank, trust
company or other intermediary or (ii) from certain financial
advisors who charge a fee for services and who, as of Oct. 15,
1997, have one or more clients who were Growth Stock Fund
shareholders; or
- - you purchase shares for an employee benefit plan, the records for
which are maintained by a trust company or third party
administrator under an investment program with Growth Stock
Fund.
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 Growth Stock
Fund effectively. If you have questions about your eligibility to
purchase shares of Growth Stock 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}
program 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.
Money orders will not be accepted for initial purchases into new
accounts. Credit card convenience checks will not be accepted for
initial or subsequent purchases into your account. 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
20--Growth Opportunities Fund
34--Special Fund
16--Special Venture Fund
33--Capital Opportunities Fund
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. ___; 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 prescheduled
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 no-load 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 interests
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 certain broker-dealers, banks, or other
intermediaries ("Intermediaries"). These Intermediaries may charge
for their services or place limitations on the extent to which you
may use the services offered by Investment Trust. There are no
charges or limitations imposed by Investment Trust, other than
those described in this prospectus, if shares are purchased (or
redeemed) directly from Investment Trust.
An Intermediary, who accepts orders that are processed at the
net asset value next determined after receipt of the order by the
Intermediary, accepts such orders as agent of the Funds. The
Intermediary is required to segregate any orders received on a
business day after the close of regular session trading on the New
York Stock Exchange and transmit those orders separately for
execution at the net asset value next determined after that
business day.
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, in English and must indicate
the number of shares or the dollar amount to be redeemed and
identify the shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The 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 no-load 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 no-load 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 no-load Stein Roe Fund being
purchased. An exchange may be made by following the redemption
procedure described under By Written Request and indicating the no-
load 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 no-load 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, regardless of the number of telephone exchange
round-trips made by an investor, Investment Trust generally will
not honor requests for Telephone Exchanges by shareholders
identified by Investment Trust as "market-timers" if the officers
of Investment Trust determine the order not to be in the best
interests of Investment Trust or its shareholders. Investment
Trust generally identifies as a "market-timer" an investor whose
investment decisions appear to be based on actual or anticipated
near-term changes in the securities markets rather than for
investment considerations. 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 no-load 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 will
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 of record if the shares
in the account do not have a value of at least $1,000. If the
value of the account is more than $10, 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.
Investment Trust reserves the right to redeem any account with a
value of $10 or less without prior written notice to the
shareholder. Due to the proportionately higher costs of
maintaining small accounts, the transfer agent may charge and
deduct from the account a $5 per quarter minimum balance fee if the
account is a regular account with a balance below $2,000 or an UGMA
account with a balance below $800. This minimum balance fee does
not apply to Stein Roe IRAs, other Stein Roe prototype retirement
plans, accounts with automatic investment plans (unless regular
investments have been discontinued), or omnibus or nominee
accounts. The transfer agent may waive the fee, at its discretion,
in the event of significant market corrections.
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 you cause it to sustain
(such as loss from an uncollected check or electronic transfer for
the purchase of shares, or any 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.
To reduce the volume of mail you receive, only one copy of
certain materials, such as prospectuses and shareholder reports,
will be mailed to your household (same address). Please call 800-
338-2550 if you wish to receive additional copies free of charge.
This policy may not apply if you purchased shares through an
Intermediary.
Funds-on-Call [registered mark] Automated Telephone Service. To
access Stein Roe Funds-on-Call [registered mark], just call 800-
338-2550 on any touch-tone telephone and follow the recorded
instructions. Funds-on-Call [registered mark] 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 mark] 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.) Information regarding your account is available
to you via Funds-on-Call [registered mark] only after you follow an
activation process the first time you call. Your account
information is protected by a personal identification number (PIN)
that you establish.
Stein Roe Counselor [service mark} Program. The Stein Roe
Counselor [service mark} program is a professional investment
advisory service available to shareholders. This program is
designed to provide investment guidance in helping investors to
select a portfolio of Stein Roe Funds.
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 no-load 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--diversify your Fund investments by
having distributions from one no-load Stein Roe Fund account
automatically invested in another no-load Stein Roe Fund account.
Before establishing this option, you should obtain and carefully
read the prospectus of the Stein Roe Fund into which you wish to
have your distributions invested. The account from which
distributions are made must be of sufficient size to allow each
distribution to usually be at least $25. The account into which
distributions are to be invested may be opened with an initial
investment of only $1,000.
Automatic Dividend Deposit (electronic transfer)--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--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)--redeem shares
at any time and have the proceeds deposited directly to your bank
account ($50 minimum; $100,000 maximum).
Regular Investments (electronic transfer)--purchase Fund
shares at regular intervals directly from your bank account ($50
minimum; $100,000 maximum).
Special Investments (electronic transfer)--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--automatically redeem a fixed dollar
amount from your Fund account and invest it in another no-load
Stein Roe Fund account on a regular basis ($50 minimum; $100,000
maximum).
Automatic Redemptions (electronic transfer)--have a fixed
dollar amount redeemed and sent at regular intervals directly to
your bank account ($50 minimum; $100,000 maximum).
Systematic Withdrawals--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 or 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 regular session 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, Growth Opportunities 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 12-month period
ended Oct. 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 gains distributions
will be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by electronic
transfer into your bank account; (3) applied to purchase shares in
your account with another no-load Stein Roe Fund; or (4) applied to
purchase shares in a no-load 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 no-load Stein Roe
Fund account occurs on the payable date. If a shareholder elected
to receive dividends and/or capital gains distributions in cash and
the postal or other delivery service selected by the transfer agent
is unable to deliver checks to the shareholder's address of record,
such shareholder's distribution option will automatically be
converted to having all dividend and other distributions reinvested
in additional shares. 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. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
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 Jan. but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital gains.
Distributions of net long-term capital gains will be taxable to you
as long-term capital gains regardless of the length of time you
have held your shares.
You will be advised annually as to the source of distributions
for tax purposes. If you are not subject to tax on your income,
you will not be required to pay tax on these amounts.
If you realize a loss on the sale or exchange of Fund shares
held for six months or less, your short-term loss is
recharacterized as long-term to the extent of any long-term capital
gains distributions you have received with respect to those shares.
The Taxpayer Relief Act of 1997 (the "Act") reduced from 28%
to 20% the maximum tax rate on long-term capital gains. This
reduced rate generally applies to securities held for more than 18
months and sold after July 28, 1997, and securities held for more
than one year and sold between May 6, 1997 and July 29, 1997.
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 no
guarantee 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 and its predecessor have 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.
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 (1981) and an M.B.A. from the Wharton
School of the University of Pennsylvania (1985). As of Sept. 30,
1997, Mr. Cantor was responsible for managing $338 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 Apr., 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 (1971) and an M.B.A. from the University of Chicago
(1973), and is a chartered financial analyst. Mr. Hirschhorn was
responsible for managing $615 million in mutual fund net assets at
Sept. 30, 1997. 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 quantitative 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 manager 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 $1.3
billion in mutual fund net assets at Sept. 30, 1997. 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 and Growth Opportunities
Fund. Arthur J. McQueen also co-manages Growth Opportunities Fund.
They have managed Growth Opportunities Fund since its inception in
1997. Ms. Santella has been portfolio manager of Capital
Opportunities Fund since Oct. 1994, and had previously been co-
portfolio manager since Mar. 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 of Capital Opportunities Fund 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). Mr. McQueen, a senior vice
president of the Adviser, joined it in 1987. He received a B.S.
from Villanova University (1980) and an M.B.A. from the Wharton
School of the University of Pennsylvania (1987). As of Sept. 30,
1997, Ms. Santella and Mr. Maddix co-managed $1.1 billion in mutual
fund net assets and Mr. McQueen co-managed $50 million in mutual
fund net assets.
Richard B. Peterson has been co-manager of Special Venture
Portfolio since its inception in 1997 and had been portfolio
manager of Special Venture Fund since its inception in 1994; John
S. McLandsborough has been co-portfolio manager since July 1997.
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. Prior to
joining the Adviser in April 1996, Mr. McLandsborough was an equity
research analyst with CS First Boston from June 1994 until January
1996 and with National City Bank of Cleveland prior thereto. Mr.
McLandsborough, a chartered financial analyst, earned a bachelor's
degree in finance in 1989 from Miami University and a master's
degree in 1992 from Indiana University. As of Sept. 30, 1997,
Messrs. Peterson and McLandsborough were responsible for co-
managing $507 million in mutual fund net assets.
M. Gerard Sandel has been manager of Special Portfolio and
senior vice president and principal of the Adviser since July 1997.
Prior to joining the Adviser in July 1997, Mr. Sandel was portfolio
manager of the Marshall Mid-Cap Value Fund and its predecessor fund
and vice president of M&I Investment Management Corporation since
October 1993. Prior thereto, he was vice president of Acorn Asset
Management Corporation. A chartered financial analyst, Mr. Sandel
earned a bachelor's degree in 1977 from the University of Southern
Mississippi and a master's degree in 1984 from the American
Graduate School. As of Sept. 30, 1997, he was responsible for
managing $1.3 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 Growth
Opportunities Fund, and an administrative fee from each Fund.
Prior to the conversion to the master fund/feeder fund structure on
Feb. 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,
.55% next $500,
.50% thereafter N/A
Balanced Fund N/A .15% up to $500,
.125% next $500,
.10% thereafter
Balanced Portfolio .55% up to $500,
.50% next $500,
.45% thereafter N/A
Special Fund N/A .15% up to $500,
.125% next $500,
.10% next $500,
.075% thereafter
Special Portfolio .75% up to $500,
.70% next $500,
.65% next $500,
.60% thereafter N/A
Capital Opportunities
Fund; Growth
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 period ended Sept. 30., 1997, total expenses as a
percentage of average net assets, after the fee waiver for Growth
Opportunities Fund described under Fee Table, were 1.05%, 1.13%,
1.07%, 1.14%, 1.17%, 1.25% and 1.29% for Balanced Fund, Growth &
Income Fund, Growth Stock Fund, Special Fund, Capital Opportunities
Fund, Growth Opportunities Fund and Special Venture Fund,
respectively. At Sept. 30,1997, Balanced Fund owned 99.96% of
Balanced Portfolio, Growth & Income Fund owned 99.97% of Growth &
Income Portfolio, Growth Stock Fund owned 99.96% of Growth Stock
Portfolio, Special Fund owned 99.99% of Special Portfolio and
Special Venture Fund owned 99.95% of Special Venture Portfolio.
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. Fund shares are distributed by Liberty Financial
Investments, Inc. ("Distributor"), One Financial Center, Boston,
Massachusetts 02111. The Distributor is a subsidiary of Colonial
Management Associates, Inc., which is an indirect subsidiary of
Liberty Financial. Fund shares are offered for sale without any
sales commissions or charges to the Funds or to their shareholders.
All distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
All correspondence (including purchase and redemption orders)
should be mailed to SteinRoe Services Inc. at P.O. Box 8900,
Boston, Massachusetts 02205. Participants in the Stein Roe
Counselor [service mark} program should send orders to SteinRoe
Services Inc. at P.O. Box 803938, Chicago, Illinois 60680.
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 Jan. 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either Investment
Trust's shareholders or its trustees. Investment Trust may issue
an unlimited number of shares, in one or more series as the Board
may authorize. Currently, 10 series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as Investment Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides that
persons extending credit to, contracting with, or having any claim
against, Investment Trust or any particular series shall look only
to the assets of Investment Trust or of the respective series for
payment under such credit, contract or claim, and that the
shareholders, trustees and officers shall have no personal
liability therefor. The Declaration of Trust requires that notice
of such disclaimer of liability be given in each contract,
instrument or undertaking executed or made on behalf of Investment
Trust. The Declaration of Trust provides for indemnification of
any shareholder against any loss and expense arising from personal
liability solely by reason of being or having been a shareholder.
Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is believed to be remote, because it would
be limited to circumstances in which the disclaimer was inoperative
and Investment Trust was unable to meet its obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of Investment
Trust also is believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to circumstances
in which the other series was unable to meet its obligations.
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.
MASTER FUND/FEEDER FUND: STRUCTURE AND RISK FACTORS
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 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
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
Aug. 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 nonfundamental 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. 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 in a Portfolio. 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") and
that the following
(Name of Corporation/Association)
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*
Corporate
Seal
Here
*Only required if the person signing the Certificate is the only
person named as "Authorized Person."
<PAGE>
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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 Growth Opportunities 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 02205-0593
Financial Advisors call: 1-800-322-0593
Shareholders call: 1-800-338-2550
www.steinroe.com
In Chicago, visit our Fund Center at One South Wacker Drive, Suite 3200
Liberty Financial Investments, Inc., Distributor
Member SIPC
<PAGE>
Prospectus Feb. 2, 1998
Stein Roe Mutual Funds
Stein Roe International Fund
Stein Roe Emerging Markets Fund
International Fund seeks to provide long-term growth of capital.
It invests all of its net investable assets in SR&F International
Portfolio, which has the same investment objective and
substantially the same investment policies as International Fund.
The investment experience of International Fund will correspond to
International Portfolio. (See Master Fund/Feeder Fund: Structure
and Risk Factors.) International Portfolio invests in a diversified
portfolio of foreign securities.
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.
Each Fund is a "no-load" fund. There are no sales charges,
and the Funds have no 12b-1 plans. Emerging Markets Fund imposes a
1% redemption fee on redemptions of shares held less than 90 days.
Each Fund is a series of the Stein Roe Investment Trust and
International Portfolio is a series of SR&F Base Trust. Each Trust
is an 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 Feb. 2, 1998,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. That
information, material incorporated by reference, and other
information regarding registrants that file electronically with the
SEC is available at the SEC's website, www.sec.gov. This
prospectus is also available electronically by using Stein Roe's
Internet address: 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, 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.
TABLE OF CONTENTS
Page
Summary.............................. 2
Fee Table............................ 4
Financial Highlights..................5
The Funds.............................68
Investment Policies.................. 8
International Fund..................8
Emerging Markets Fund...............9
Portfolio Investments and Strategies.11
Investment Restrictions..............14
Risks and Investment Considerations..15
How to Purchase Shares.............. 17
By Check.......................... 18
By Wire........................... 18
By Electronic Transfer............ 18
By Exchange....................... 19
Conditions of Purchase............ 19
Purchases Through Third Parties....19
Purchase Price and Effective Date. 19
How to Redeem Shares................ 19
Redemption Fee.....................19
By Written Request................ 20
By Exchange....................... 20
Special Redemption Privileges..... 21
General Redemption Policies....... 22
Shareholder Services................ 23
Net Asset Value..................... 25
Distributions and Income Taxes...... 25
Investment Return................... 27
Management.......................... 27
Organization and Description of
Shares.............................29
Master Fund/Feeder Fund: Structure
and Risk Factors ..................29
Certificate of Authorization.........32
SUMMARY
Stein Roe International Fund ("International Fund") and Stein Roe
Emerging Markets Fund ("Emerging Markets Fund") are series of Stein
Roe Investment Trust ("Investment Trust"), an open-end management
investment company. (See The Funds and Organization and
Description of Shares.) The Funds are "no-load" funds. There are
no sales charges. There is a 1% redemption fee retained by
Emerging Markets Fund which is imposed only on redemptions of
shares of that Fund held less than 90 days. (See How to Redeem
Shares--Redemption Fee.) This prospectus is not a solicitation in
any jurisdiction in which shares of the Funds 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.
Emerging Markets 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. It is designed to provide investors an
efficient mechanism for investing in companies within, and
participating in the growth of, emerging markets throughout the
world. Emerging Markets 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, it intends to diversify its investments among
several countries.
There can be no guarantee that the Funds or International
Portfolio will achieve their investment objectives. 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. Emerging Markets 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 Funds invest primarily in foreign securities, investors
should understand and consider carefully the risks involved in
foreign investing. Investing in foreign securities involves
certain risks and opportunities not typically associated with
investing in U.S. securities. Such risks include fluctuations in
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 each Fund is $2,500
and additional investments must be at least $100 (only $50 for
purchases by electronic transfer). Lower initial investment
minimums apply to IRAs, UGMAs, and automatic investment plans.
Shares may be purchased by check, by bank wire, by electronic
transfer, or by exchange from another no-load 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 Emerging Market Fund's
redemption fee, see How to Redeem Shares.
Net Asset Value. The purchase price of a Fund's shares is its net
asset value per share. The redemption price of shares of Emerging
Markets Fund is its 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 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
no-load 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 Emerging Markets Fund and provides administrative and
bookkeeping and accounting services to International Portfolio and
each Fund. 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 a Stein Roe account representative
by calling 800-338-2550.
FEE TABLE
International Emerging Markets
Shareholder Transaction Expenses Fund Fund
Sales Load Imposed on Purchases None None
Sales Load Imposed on Reinvested Dividends None None
Deferred Sales Load None None
Redemption Fees* None None
Exchange Fees None None
Annual Fund Operating Expenses (as a
percentage of average net assets; after
fee waiver in the case of
Emerging Markets Fund)
Management and Administrative Fees
(after fee waiver in the case of
Emerging Markets Fund) 1.00% 0.98%
12b-1 Fees None None
Other Expenses 0.55% 1.02%
Total Fund Operating Expenses (after ----- -----
fee waiver in the case of Emerging
Markets Fund) 1.55% 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 of that Fund 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 5 years 10 years
------ ------- ------- --------
International Fund $16 $49 $ 84 $185
Emerging Markets Fund 20 63 108 233
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.
From time to time, the Adviser may voluntarily undertake to
reimburse a Fund for a portion of its operating expenses. The
Adviser has undertaken to reimburse Emerging Markets 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 Jan. 31, 1999, subject to earlier review and possible
termination by the Adviser on 30 days' notice to the Fund. Any
such reimbursement will lower the overall expense ratio and
increase the overall return to investors. Absent such
reimbursement, the Management and Administrative Fees and Total
Operating Expenses for Emerging Markets Fund would be 1.25% and
2.27%, respectively. (Also see Management--Fees and Expenses.)
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 fees and 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. The trustees 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 under Annual Fund Operating Expenses
remain the same in each of the periods and that all income
dividends and capital gains 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 Fund 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 following tables reflect the results of operations of the Funds
on a per-share basis for the period shown and have been audited by
Arthur Andersen LLP, independent public accountants. The tables
should be read in conjunction with the Funds' financial statements
and notes thereto. The annual report, which may be obtained from
Investment Trust without charge upon request, contains additional
performance information.
International Fund
Period Ended
Sept. 30, Years Ended Sept. 30,
1994 (a) 1995 1996 1997
------------ ------- ------ -------
Net Asset Value, Beginning
of Period $10.00 $10.61 $10.25 $10.96
------ ------ ------ ------
Income from Investment
Operations
Net investment income 0.03 0.12 0.09 0.06
Net realized and un-
realized gains (losses)
on investments 0.58 (0.26) 0.74 0.99
----- ----- ----- -----
Total from investment
operations 0.61 (0.14) 0.83 1.05
----- ----- ----- ----
Distributions
Net investment income -- (0.05) (0.12) (0.08)
Net realized capital
gains -- (0.17) -- (0.14)
----- ----- ----- ----
Total distributions -- (0.22) (0.12) (0.22)
----- ----- ----- ----
Net Asset Value, End of
Period $10.61 $10.25 $10.96 $11.79
====== ====== ====== ======
Ratio of net expenses to
average net assets *1.61% 1.59% 1.51% 1.55%
Ratio of net investment
income to average net
assets *0.61% 1.41% 1.01% 0.55%
Portfolio turnover rate 48% 59% 42% 11%(b)
Average commissions
(per share) (c) -- -- $0.0010 $0.0067(b)
Total return 6.10% (1.28%) 8.23% 9.84%
Net assets, end of
period (000 omitted) $74,817 $83,020 $135,545 $166,088
Emerging Markets Fund
Period Ended
Sept. 30,
1997 (a)
------------
Net Asset Value, Beginning of Period $10.00
Income from Investment Operations ------
Net investment income 0.06
Net realized and unrealized gains
(losses) on investments 0.18
-----
Total from investment operations 0.24
------
Net Asset Value, End of Period $10.24
======
Ratio of net expenses to average net
assets (d) *2.00%
Ratio of net investment income to average
net assets (e) *1.04%
Portfolio turnover rate 30%
Average commissions (per share) (c) $0.0007
Total return 2.40%
Net assets, end of period (000 omitted) $41,617
- ----------
*Annualized.
(a) From commencement of operations: Mar. 1, 1994 for International
Fund, and Feb. 28, 1997 for Emerging Markets Fund.
(b) Prior to commencement of operations of International Portfolio.
(c) Foreign commissions usually are lower than U.S. commissions when
expressed as cents per share due to the lower per share price of
many non-U.S. securities.
(d) If Emerging Markets Fund had paid all of its expenses and there
had been no reimbursement of expenses by the Adviser, this ratio
would have been 2.27% for the period ended Sept. 30, 1997.
(e) Computed giving effect to the Adviser's expense limitation
undertaking.
THE FUNDS
Stein Roe International Fund ("International Fund") and Stein Roe
Emerging Markets Fund ("Emerging Markets Fund") are no-load "mutual
funds." 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. There is a 1% redemption fee retained
by Emerging Markets Fund which is imposed only on redemptions of
shares of that Fund held less than 90 days. (See How to Redeem
Shares-Redemption Fee.)
Each Fund is a series of 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 the Funds 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 Feb. 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 other 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. Emerging Markets Fund
may at some time in the future convert into a feeder fund. (For
more information, see Master Fund/Feeder Fund: Structure and Risk
Factors.)
INVESTMENT POLICIES
The Funds invest as described in the section 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.
International Fund seeks 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 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. As of Sept. 30, 1997,
International Portfolio had more than 5% of its total assets in
each of the following countries:.
Countries Market Value Percentage of
(in 000s) Total Assets
Japan $27,678 16.44%
United Kingdom 16,881 10.02
Germany 12,204 7.25
France 11,503 6.83
Finland 11,144 6.62
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).
Emerging Markets Fund seeks capital appreciation primarily through
investing in stocks of companies in emerging markets. Under normal
market conditions, Emerging Markets Fund will invest at least 65%
of its total assets (taken at market value) in equity securities of
emerging market issuers. Emerging Markets Fund does not intend to
concentrate investments in any particular industry. In addition,
there is no limitation on the amount it can invest in a specific
country or region of the world. However, Emerging Markets Fund
intends to diversify its investment among several countries.
Emerging Markets Fund has no current intent of investing more than
5% of its total assets in Russian securities. As of Sept. 30,
1997, Emerging Markets Fund had investments in each of the
following countries:
Market Value Percentage of
Countries (in 000s) Total Assets
Argentina $2,019 4.79%
Brazil 2,593 6.15
China 843 2.00
Great Britain 407 0.97
Greece 802 1.90
Hong Kong 5,169 12.26
India 1,336 3.17
Indonesia 3,187 7.56
Israel 928 2.20
Lebanon 1,011 2.40
Malaysia 1,133 2.69
Mexico 243 0.58
Middle East/
Africa 1,094 2.59
Panama 806 1.91
Peru 2,116 5.02
Philippines 2,204 5.23
Portugal 782 1.85
Russia 806 1.91
South Korea 5,934 14.07
Thailand 3,572 8.47
Venezuela 824 1.95
Emerging Markets Fund considers an "emerging market" country
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.
Emerging Markets 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.
Emerging Markets 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.
Emerging Markets 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). Emerging Markets 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.
Emerging Markets 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.
Emerging Markets Fund will seek to take advantage of these
opportunities on behalf of investors by investing in companies that
offer superior relative growth.
Emerging Markets 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,
Emerging Markets 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, Emerging Markets 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).
PORTFOLIO INVESTMENTS AND STRATEGIES
Unless otherwise noted, for purposes of discussion under Portfolio
Investments and Strategies, the term "Fund" refers to International
Fund, International Portfolio and Emerging Markets Fund.
Foreign Investing. 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 Funds. 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 Funds would review their
investment objectives and policies to determine whether changes are
appropriate.
Each 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. Each Fund may invest in sponsored or unsponsored
ADRs. (For a description of ADRs and EDRs, see the Statement of
Additional Information.)
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; 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. No Fund expects
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 hedge against changes in security
prices, interest rates or currency fluctuations, 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. Each 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.
Debt Securities. In pursuing its investment objective, each Fund
may invest up to 35% of its total assets in debt securities.
Investments by International Portfolio 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 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 to
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.
Emerging Markets 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. Emerging
Markets Fund does not intend to purchase debt securities that are
in default or which the Adviser believes will be in default.
Emerging Markets 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 Emerging Markets
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. Emerging Markets Fund does not expect to
invest more than 5% of its net assets in high-yield ("junk") bonds.
Settlement Transactions. When a 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, a 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 a 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, a 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 a Fund seeks to move investments denominated in one
currency to investments denominated in another.
Currency Hedging. Most of each Fund's portfolio will be invested
in foreign securities. As a result, in addition to the risk of
change in the market value of portfolio securities, the value of
the portfolio in U.S. dollars is subject to fluctuations in the
exchange rate between the foreign currencies and the U.S. dollar.
When, in the opinion of the Adviser, it is desirable to limit or
reduce exposure in a foreign currency to moderate potential changes
in the U.S. dollar value of the portfolio, a Fund may enter into a
forward currency exchange contract to sell or buy such foreign
currency (or another foreign currency that acts as a proxy for that
currency)--through the contract, the U.S. dollar value of certain
underlying foreign portfolio securities can be approximately
matched by an equivalent U.S. dollar liability. This technique is
known as "currency hedging." By locking in a rate of exchange,
currency hedging is intended to moderate or reduce the risk of
change in the U.S. dollar value of the 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 a Fund 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 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. Each 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 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 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. 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 Funds
are not intended to be income-producing investments.
Other Techniques. 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,
though the Funds do not have a current intent to do so. 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 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. 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. Each 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. Each Fund may participate in an interfund lending program,
subject to certain restrictions described in the Statement of
Additional Information.
The Funds may also invest in synthetic money market
instruments and may invest in structured notes, swaps and
Eurodollar instruments. Emerging Markets Fund may also invest in
closed-end investment companies investing primarily in the emerging
markets. To the extent it 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
Each of Emerging Markets Fund, International Fund, and
International Portfolio is diversified as that term is defined in
the Investment Company Act of 1940.
Emerging Markets Fund, International Fund, and International
Portfolio will not invest more than 5% of its assets in the
securities of any one issuer. This restriction applies only to 75%
of the investment portfolio, but does not apply to securities of
the U.S. Government or repurchase agreements /1/ for such
securities, and would not prevent International Fund or Emerging
Markets Fund from investing all of its assets in shares of another
investment company having the identical investment objective under
a master/feeder structure.
- ------
/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.
- ------
Emerging Markets Fund, International Fund, and International
Portfolio will not invest acquire more than 10% of the outstanding
voting securities of any one issuer. International Fund and
Emerging Markets Fund may, however, invest all of its assets in
shares of another investment company having the identical investment
objective under a master/feeder structure.
While Emerging Markets Fund, International Fund and
International Portfolio may not make loans, each may (1) purchase
money market instruments and enter into repurchase agreements; (2)
acquire publicly distributed or privately placed debt securities;
(3) lend portfolio securities under certain conditions; and (4)
participate in an interfund lending program with other Stein Roe
Funds and Portfolios. They may not borrow money, except for
nonleveraging, temporary, or emergency purposes or in connection
with participation in the interfund lending program. Neither
aggregate borrowings (including reverse repurchase agreements) nor
aggregate loans at any one time may exceed 33 1/3% of the value of
total assets. Additional securities may not be purchased when
borrowings, less proceeds receivable from sales of portfolio
securities, exceed 5% of total assets.
Emerging Markets Fund, International Fund and International
Portfolio 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 second, third, and fourth
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 investment objective of Emerging Markets
Fund and the common investment objective of International Fund and
International Portfolio are nonfundamental 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.
Nothing in the investment restrictions outlined here shall be
deemed to prohibit a Fund from purchasing the securities of any
issuer pursuant to the exercise of subscription rights distributed
to it by the issuer. No such purchase may be made if, as a result,
a Fund 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.
Emerging Markets Fund seeks capital appreciation primarily
through investing in stocks of companies in emerging markets. It
is intended for long-term investors and not for short-term trading
purposes. It should not be considered a complete investment
program. While Emerging Markets 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 Emerging Markets Fund for the benefit of remaining
shareholders on shares held less than 90 days. Of course, there
can be no guarantee that it will achieve its objective. Emerging
Markets Fund does not concentrate investments in any particular
industry. In addition, there is no limitation on the amount it can
invest in a specific country or region of the world. However,
Emerging Markets Fund intends to diversify its investments among
several countries. It has no current intent of investing more than
5% of its total assets in Russian securities.
Foreign Investing. The Funds provide 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. 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. There can be no assurance, however, that these conditions
will continue. International diversification also allows a 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 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.
Investments in foreign securities expose a 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 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 considered 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, 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, 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. A
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.
HOW TO PURCHASE SHARES
You may purchase Fund shares by check, by wire, by electronic
transfer, or by exchange from your account with another no-load
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} program 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 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} program 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.
Money orders will not be accepted for initial purchases into new
accounts. Credit card convenience checks will not be accepted for
initial or subsequent purchases into your account. 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 Fund shares 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 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:
12--International Fund
18--Emerging Markets Fund
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. ___; Stein Roe _______ 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 prescheduled
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 Fund shares 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 no-load 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 must be accepted by an
authorized officer of Investment Trust or its authorized agent and
is not binding until accepted and entered on the books of the
Funds. 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 a 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 certain broker-dealers, banks, or other
intermediaries ("Intermediaries"). These Intermediaries may charge
for their services or place limitations on the extent to which you
may use the services offered by Investment Trust. There are no
charges or limitations imposed by Investment Trust, other than
those described in this prospectus, if shares are purchased (or
redeemed) directly from Investment Trust.
An Intermediary, who accepts orders that are processed at the
net asset value next determined after receipt of the order by the
Intermediary, accepts such orders as agent of the Funds. The
Intermediary is required to segregate any orders received on a
business day after the close of regular session trading on the New
York Stock Exchange and transmit those orders separately for
execution at the net asset value next determined after that
business day.
Some Intermediaries that maintain nominee accounts with a 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
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 shares made
directly with a 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 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 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
Redemption Fee. Upon the redemption of shares of Emerging Markets
Fund 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
Emerging Markets 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. Emerging Markets
Fund reserves the right to modify the terms of, terminate or waive
this fee at any time.
The redemption fee applies to redemptions from Emerging
Markets Fund, but not to dividend or capital gains distributions
which have been automatically reinvested in that 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
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, in English and must indicate
the number of shares or the dollar amount to be redeemed and
identify the shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as the
shares are registered;
(3) The signatures on the written redemption request must be
guaranteed (a signature guarantee is not a notarization, but is
a widely accepted way to protect you and the Funds 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 no-load 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 no-load 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 no-load Stein Roe Fund being
purchased. An exchange may be made by following the redemption
procedure described under By Written Request and indicating the no-
load Stein Roe Fund to be purchased--a signature guarantee normally
is not required. (See also the discussion below of the Telephone
Exchange Privilege and Automatic Exchanges.)
Special Redemption Privileges. The Telephone Exchange Privilege
and the Telephone Redemption by Check Privilege will be established
automatically for you when you open your account unless you decline
these Privileges on your application. Other Privileges must be
specifically elected. If you do not want the Telephone Exchange
and Redemption Privileges, check the box(es) under the section
"Telephone Redemption Options" when completing your application.
In addition, a signature guarantee may be required to establish a
Privilege after you open your account. If you establish both the
Telephone Redemption by Wire Privilege and the Electronic Transfer
Privilege, the bank account that you designate for both Privileges
must be the same.
The Telephone Redemption by Check Privilege, Telephone
Redemption by Wire Privilege, and Special Electronic Transfer
Redemptions are not available to redeem shares held by a tax-
sheltered retirement plan sponsored by the Adviser. (See also
General Redemption Policies.)
Telephone Exchange Privilege. You may use the Telephone
Exchange Privilege to exchange an amount of $50 or more from your
account by calling 800-338-2550 or by sending a telegram; new
accounts opened by exchange are subject to the initial purchase
minimum for the Fund being purchased. Generally, you will be
limited to four Telephone Exchange round-trips per year and the
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 no-load 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, regardless of the number of telephone exchange
round-trips made by an investor, Investment Trust generally will
not honor requests for Telephone Exchanges by shareholders
identified by Investment Trust as "market-timers" if the officers
of Investment Trust determine the order not to be in the best
interests of Investment Trust or its shareholders. Investment
Trust generally identifies as a "market-timer" an investor whose
investment decisions appear to be based on actual or anticipated
near-term changes in the securities markets rather than for
investment considerations. 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 no-load 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 the net asset value per
share at the time of redemption, it may be more or less than the
price you originally paid for the shares and may result in a
realized capital gain or loss.
Investment Trust will generally mail payment for shares
redeemed within seven days after proper instructions are received.
However, Investment Trust normally intends to pay proceeds of a
Telephone Redemption paid by wire on the next business day. If you
attempt to redeem shares within 15 days after they have been
purchased by check or electronic transfer, Investment Trust will
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. 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 of record if the shares
in the account do not have a value of at least $1,000. If the
value of the account is more than $10, 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.
Investment Trust reserves the right to redeem any account with a
value of $10 or less without prior written notice to the
shareholder. Due to the proportionately higher costs of
maintaining small accounts, the transfer agent may charge and
deduct from the account a $5 per quarter minimum balance fee if the
account is a regular account with a balance below $2,000 or an UGMA
account with a balance below $800. This minimum balance fee does
not apply to Stein Roe IRAs, other Stein Roe prototype retirement
plans, accounts with automatic investment plans (unless regular
investments have been discontinued), or omnibus or nominee
accounts. The transfer agent may waive the fee, at its discretion,
in the event of significant market corrections.
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 you cause it to sustain
(such as loss from an uncollected check or electronic transfer for
the purchase of shares, or any 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 Fund
shares, 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, Investment Trust will send you semiannual and annual
reports showing portfolio holdings and will provide you annually
with tax information.
To reduce the volume of mail you receive, only one copy of
certain materials, such as prospectuses and shareholder reports,
will be mailed to your household (same address). Please call 800-
338-2550 if you wish to receive additional copies free of charge.
This policy may not apply if you purchased shares through an
Intermediary.
Funds-on-Call [registered mark] Automated Telephone Service. To
access Stein Roe Funds-on-Call [registered mark], just call 800-
338-2550 on any touch-tone telephone and follow the recorded
instructions. Funds-on-Call [registered mark] 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 mark] 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.) Information regarding your account is available
to you via Funds-on-Call [registered mark] only after you follow an
activation process the first time you call. Your account
information is protected by a personal identification number (PIN)
that you establish.
Stein Roe Counselor [service mark} Program. The Stein Roe
Counselor [service mark} program is a professional investment
advisory service available to shareholders. This program is
designed to provide investment guidance in helping investors to
select a portfolio of Stein Roe Funds.
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 no-load 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--diversify your Fund investments by
having distributions from one Fund account automatically invested
in another no-load Stein Roe Fund account. Before establishing
this option, you should obtain and carefully read the prospectus of
the Stein Roe Fund into which you wish to have your distributions
invested. The account from which distributions are made must be of
sufficient size to allow each distribution to usually be at least
$25. The account into which distributions are to be invested may
be opened with an initial investment of only $1,000.
Automatic Dividend Deposit (electronic transfer)--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*--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)--redeem
shares at any time and have the proceeds deposited directly to your
bank account ($50 minimum; $100,000 maximum).
Regular Investments (electronic transfer)--purchase Fund
shares at regular intervals directly from your bank account ($50
minimum; $100,000 maximum).
Special Investments (electronic transfer)--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*--automatically redeem a fixed dollar
amount from your Fund account and invest it in another no-load
Stein Roe Fund account on a regular basis ($50 minimum; $100,000
maximum).
Automatic Redemptions* (electronic transfer)--have a fixed
dollar amount redeemed and sent at regular intervals directly to
your bank account ($50 minimum; $100,000 maximum).
Systematic Withdrawals*--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 of
Emerging Markets Fund held less than 90 days.
NET ASSET VALUE
The purchase or redemption price of a Fund's shares is its net
asset value per share. The redemption price of Emerging Market
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 each Fund is determined as of the
close of regular session 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 a Fund may not
be purchased or redeemed.
DISTRIBUTIONS AND INCOME TAXES
Distributions. Income dividends 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 12-month period ended Oct. 31 in
that year. 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 gains distributions
will be reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by electronic
transfer into your bank account; (3) applied to purchase shares in
your account with another no-load Stein Roe Fund; or (4) applied to
purchase shares in a no-load 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 a shareholder elected to
receive dividends and/or capital gains distributions in cash and
the postal or other delivery service selected by the transfer agent
is unable to deliver checks to the shareholder's address of record,
such shareholder's distribution option will automatically be
converted to having all dividend and other distributions reinvested
in additional shares. 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. No interest will accrue on amounts
represented by uncashed distribution or redemption checks.
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 Jan. but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital gains.
Distributions of net long-term capital gains will be taxable to you
as long-term capital gains regardless of the length of time you
have held your shares.
You will be advised annually as to the source of distributions
for tax purposes. If you are not subject to tax on your income,
you will not be required to pay tax on these amounts.
If you realize a loss on the sale or exchange of Fund shares
held for six months or less, your short-term loss is
recharacterized as long-term to the extent of any long-term capital
gains distributions you have received with respect to those shares.
The Taxpayer Relief Act of 1997 (the "Act") reduced from 28%
to 20% the maximum tax rate on long-term capital gains. This
reduced rate generally applies to securities held for more than 18
months and sold after July 28, 1997, and securities held for more
than one year and sold between May 6, 1997 and July 29, 1997.
For federal income tax purposes, each Fund is treated as a
separate taxable entity distinct from the other series of
Investment Trust.
Foreign Income Taxes. Investment income received by a 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 a 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 assets to be invested within various
countries will fluctuate and the extent to which tax refunds will
be recovered is uncertain. Each Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
To the extent that a 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 shareholders the 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 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. Each Fund
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 no
guarantee 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 Emerging Markets Fund and 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
Emerging Markets Fund, 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 and its
predecessor have 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 Manager. David P. Harris has been portfolio manager of
International Portfolio and Emerging Markets Fund since their inception
in 1997 and was manager of International Fund since its inception in
1994 (he served as an associate portfolio manager until May 1995.) He
joined the Adviser in 1995 as vice president to create Stein Roe
Global Capital Management, a dedicated global and international equity
management unit. Mr. Harris is also employed by Colonial Management
Associates, Inc., a subsidiary of Liberty Financial and an affiliate
of the Adviser, as vice president. Mr. Harris was a portfolio
manager with Rockefeller & Co.("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 Sept. 30, 1997, Mr. Harris was
responsible for managing $207 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; a management fee
from International Portfolio of .85% of average net assets; a
management fee from Emerging Markets Fund of 1.10% of average net
assets; and an administrative fee from Emerging Markets Fund of
.15% of average net assets. Prior to the conversion of
International Fund to the master fund/feeder fund structure on Feb.
3, 1997, the management fee was paid by International Fund. For
the fiscal year ended Sept. 30, 1997, total expenses as a
percentage of average net assets amounted to 1.55% for
International Fund and 2.00% for Emerging Markets Fund, after the
fee reimbursement described under Fee Table. At Sept. 30, 1997,
International Fund owned 99.94% of International Portfolio.
Under a separate agreement with each Trust, the Adviser
provides certain accounting and bookkeeping services to each 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. Fund shares are distributed by Liberty Financial
Investments, Inc. ("Distributor"), One Financial Center, Boston,
Massachusetts 02111. The Distributor is a subsidiary of Colonial
Management Associates, Inc., which is an indirect subsidiary of
Liberty Financial. Fund shares are offered for sale without any
sales commissions or charges to the Funds or to their shareholders.
All distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund shares.
All correspondence (including purchase and redemption orders)
should be mailed to SteinRoe Services Inc. at P.O. Box 8900,
Boston, Massachusetts 02205. Participants in the Stein Roe
Counselor [service mark} program should send orders to SteinRoe
Services Inc. at P.O. Box 803938, Chicago, Illinois 60680.
Custodian. State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
each 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 Jan. 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either Investment
Trust's shareholders or its trustees. Investment Trust may issue
an unlimited number of shares, in one or more series as the Board
may authorize. Currently, 10 series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as Investment Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides that
persons extending credit to, contracting with, or having any claim
against, Investment Trust or any particular series shall look only
to the assets of Investment Trust or of the respective series for
payment under such credit, contract or claim, and that the
shareholders, trustees and officers shall have no personal
liability therefor. The Declaration of Trust requires that notice
of such disclaimer of liability be given in each contract,
instrument or undertaking executed or made on behalf of Investment
Trust. The Declaration of Trust provides for indemnification of
any shareholder against any loss and expense arising from personal
liability solely by reason of being or having been a shareholder.
Thus, the risk of a shareholder incurring financial loss on account
of shareholder liability is believed to be remote, because it would
be limited to circumstances in which the disclaimer was inoperative
and Investment Trust was unable to meet its obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of Investment
Trust also is believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to circumstances
in which the other series was unable to meet its obligations.
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.
MASTER FUND/FEEDER FUND: STRUCTURE AND RISKS
International Fund, which is an open-end management investment
company, seeks to achieve its objective by investing all of its
assets in 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 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 Aug. 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 nonfundamental 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. 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 in the Portfolio. 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.
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") and
that the following
(Name of Corporation/Association)
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 a (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*
Corporate
Seal
Here
*Only required if the person signing the Certificate is the only
person named as "Authorized Person."
[STEIN ROE MUTUAL FUNDS LOGO]
The Stein Roe Funds
Stein Roe Cash Reserves Fund
Stein Roe Intermediate Bond Fund
Stein Roe Income Fund
Stein Roe High Yield Fund
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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 Growth Opportunities 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 02205-0593
Financial Advisors call: 1-800-322-0593
Shareholders call: 1-800-338-2550
www.steinroe.com
In Chicago, visit our Fund Center at One South Wacker Drive, Suite 3200
Liberty Financial Investments, Inc., Distributor
Member SIPC
<PAGE>
Prospectus Feb. 2, 1998
Stein Roe Mutual Funds
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 SR&F Growth Investor Portfolio
("Growth Investor Portfolio"), which has the same investment
objective and substantially the same investment policies as Young
Investor Fund. The investment experience of Young Investor Fund
will correspond to Growth Investor Portfolio. (See Master Fund/
Feeder Fund: Structure and Risk Factors.) Growth Investor Portfolio
invests primarily in securities of companies that are believed to
have above-average growth prospects, many of which affect the lives
of young people. Young Investor Fund also has an educational
objective. It seeks to provide education and insight about mutual
funds, basic economic principles, and personal finance through a
variety of educational materials prepared and paid for by Young
Investor Fund.
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 an 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 Feb. 2, 1998,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. That
information, material incorporated by reference, and other
information regarding registrants that file electronically with
the SEC is available at the SEC's website, www.sec.gov.
This prospectus is also available electronically by using Stein
Roe's Internet address: 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, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TABLE OF CONTENTS
Page
Summary.................................... 2
Fee Table.................................. 4
Financial Highlights........................5
The Fund................................... 6
Investment Policies........................ 6
Portfolio Investments and Strategies........7
Investment Restrictions....................10
Risks and Investment Considerations........11
How to Purchase Shares.................... 12
By Check................................ 12
By Wire................................. 13
By Electronic Transfer...................13
By Exchange............................. 13
Conditions of Purchase...................13
Purchases Through Third Parties..........14
Purchase Price and Effective Date.......14
How to Redeem Shares...................... 15
By Written Request...................... 15
By Exchange............................. 15
Special Redemption Privileges........... 15
General Redemption Policies............. 17
Shareholder Services...................... 19
Net Asset Value........................... 21
Distributions and Income Taxes............ 21
Investment Return......................... 23
Management................................ 23
Organization and Description of Shares.....25
Master Fund/Feeder Fund:
Structure and Risk Factor................26
SUMMARY
Stein Roe Young Investor Fund ("Young Investor Fund") is a series
of the Stein Roe Investment Trust ("Investment Trust"), an open-end
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 Objective 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 are believed to have above-average growth prospects,
many of which that affect the lives of young people.
In addition to the investment objective and policies, Young
Investor Fund also has an educational objective. It seeks to
provide education and insight about mutual funds, basic economic
principles, and personal finance through a variety of educational
materials prepared and paid for by Young Investor Fund.
Young Investor Fund is designed to be appropriate for growth-
oriented investors of all ages. Its focus on companies that
affect the lives of young people and its educational objective and
materials may make it especially appropriate for young people and
investors for whom education is an important objective.
There can be no guarantee that Young Investor Fund or 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
carefully consider the risks involved in foreign investing.
Investing in foreign securities involves certain risks and
opportunities not typically associated with investing in U.S.
securities. 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. Lower initial investment minimums apply to IRAs,
and automatic investment plans. Shares may be purchased by check,
by bank wire, by electronic transfer, or by exchange from another
no-load 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
no-load 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 a Stein Roe account
representative by calling 800-338-2550.
FEE TABLE
Shareholder Transaction Expenses
Sales Load Imposed on Purchases.......................None
Sales Load Imposed on Reinvested Dividends............None
Deferred Sales Load...................................None
Redemption Fees*......................................None
Exchange Fees.........................................None
Annual Fund Operating Expenses (as a percentage
of average net assets)
Management and Administrative Fees................... 0.80%
12b-1 Fees............................................None
Other Expenses........................................0.69%
-----
Total Fund Operating Expenses.........................1.49%
=====
__________
*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 $81 $178
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 is based upon actual expenses incurred in the last fiscal
year.
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 fees and 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.
The trustees 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 gains 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 following table 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
Sept. 30, Years Ended Sept. 30,
1994 (a) 1995 1996 1997
Net Asset Value, Begin- --------- ------ ------ ------
ning of Period $10.00 $10.24 $14.29 $18.64
------ ------ ------ ------
Income from investment
operations
Net investment income
(loss) 0.03 0.06 0.05 (0.03)
Net realized and unrealized
gains on investments 0.21 4.07 4.86 4.78
------ ------ ------ ------
Total from investment
operations 0.24 4.13 4.91 4.75
Distributions
Net investment income -- (0.08) (0.05) (0.02)
Net realized capital gains -- -- (0.51) (0.62)
------ ------ ------ ------
Total Distributions -- (0.08) (0.56) (0.64)
------ ------ ------ ------
Net Asset Value, End of
Period $10.24 $14.29 $18.64 $22.75
====== ====== ====== ======
Ratio of net expenses to
average net assets (b) *0.99% 0.99% 1.21% 1.43%
Ratio of net investment
income to average net
assets (c) *1.07% 0.47% 0.30% (0.19%)
Portfolio turnover rate 12% 55% 98% 22%(d)
Average commissions (per
share) -- -- $0.0603 $0.0565(d)
Total return 2.40% 40.58% 35.55% 26.37%
Net assets, end of
period (000 omitted) $8,176 $31,401 $179,089 $475,506
________________________________
*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
Sept. 30, 1994, and 2.87%, 2.04% and 1.49% for the years ended
Sept. 30, 1995 through 1997, respectively.
(c) Computed giving effect to the investment adviser's expense
limitation undertaking.
(d) Prior to commencement of operations of Growth Investor
Portfolio.
THE FUND
Stein Roe Young Investor Fund ("Young Investor Fund") is a no-load
"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 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 Feb. 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"). Prior to converting to a feeder fund, Young Investor
Fund had invested its assets in a diversified group of securities.
Under the "master fund/feeder fund structure," a feeder fund and
one or more other 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 Master Fund/Feeder Fund: Structure and Risk
Factors.)
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. It seeks to
provide education and insight about mutual funds, basic economic
principles, and personal finance through a variety of educational
materials prepared and paid for by Young Investor Fund.
Young Investor Fund is designed to be appropriate for growth-
oriented investors of all ages. Its focus on companies that
affect the lives of young people and its educational objective and
materials may make it especially appropriate for young people and
investors for whom education is an important objective.
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 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.
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, 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 Sept. 30, 1997, Growth
Investor Portfolio's holdings of foreign companies amounted to
2.8% of average net assets (none in foreign securities; and 2.8%
in ADRs and ADSs).
Lending Portfolio Securities; 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. 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.
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 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 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.
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 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
Each of Young Investor Fund and Growth Investor Portfolio is
diversified as that term is defined in the Investment Company Act
of 1940.
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 under a master/feeder structure.
- -------
/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 under a master/feeder structure.
While neither Young Investor Fund nor Growth Investor Portfolio
may make loans, each may (1) purchase money market
instruments and enter into repurchase agreements; (2) acquire
publicly distributed or privately placed debt securities; (3) lend
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 nonleveraging,
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.
Growth Investor Portfolio may invest in repurchase
agreements, provided that it will not 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 second through
fifth 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 nonfundamental 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 are believed
to have above-average growth prospects, many of which affect the
lives of young people. 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 also has an educational objective.
It seeks to provide education and insight about mutual funds,
basic economic principles, and personal finance through a variety
of educational materials prepared and paid for by Young Investor
Fund.
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 nonresidents may apply, including imposition of
exchange controls and withholding taxes on dividends, and seizure
or nationalization of investments owned by nonresidents. Foreign
investments also tend to involve higher transaction and custody
costs.
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
no-load 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] program 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.
Money orders will not be accepted for initial purchases into new
accounts. Credit card convenience checks will not be accepted for
initial or subsequent purchases into your account. Each
individual check submitted for purchase must be at least $50, and
Young Investor Fund 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 no-load 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 certain broker-dealers, banks, or other
intermediaries ("Intermediaries"). These Intermediaries may
charge for their services or place limitations on the extent to
which you may use the services offered by Investment Trust. There
are no charges or limitations imposed by Investment Trust, other
than those described in this prospectus, if shares are purchased
(or redeemed) directly from Investment Trust.
An Intermediary, who accepts orders that are processed at the
net asset value next determined after receipt of the order by the
Intermediary, accepts such orders as agent of the Fund. The
Intermediary is required to segregate any orders received on a
business day after the close of regular session trading on the New
York Stock Exchange and transmit those orders separately for
execution at the net asset value next determined after that
business day.
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 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, in English, and must indicate the
number of shares or the dollar amount to be redeemed and identify
the shareholder's account number;
(2) The request must be signed by the shareholder(s) exactly as
the shares are registered;
(3) The signatures on the written redemption request must be
guaranteed (a signature guarantee is not a notarization, but
is a widely accepted way to protect you and 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 no-load
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 no-load
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 no-load Stein Roe Fund being
purchased. An exchange may be made by following the redemption
procedure described under By Written Request and indicating the no-
load 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 no-load 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, regardless of the number of
telephone exchange round-trips made by an investor, Investment
Trust generally will not honor requests for Telephone Exchanges by
shareholders identified by Investment Trust as "market-timers" if
the officers of the Trust determine the order not to be in the
best interests of the Trust or its shareholders. Investment Trust
generally identifies as a "market-timer" an investor whose
investment decisions appear to be based on actual or anticipated
near-term changes in the securities markets other than for
investment considerations. 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 no-load 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 the net asset value per
share at the time of redemption, it may be more or less than the
price you originally paid for the shares and may result in a
realized capital gain or loss.
Investment Trust will generally mail payment for shares
redeemed within seven days after proper instructions are received.
However, Investment Trust normally intends to pay proceeds of a
Telephone Redemption paid by wire on the next business day. If
you attempt to redeem shares within 15 days after they have been
purchased by check or electronic transfer, Investment Trust will
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 of record if the shares
in the account do not have a value of at least $1,000. If the
value of the account is more than $10, 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. Investment Trust reserves the right to redeem any
account with a value of $10 or less without prior written notice
to the shareholder. Due to the proportionately higher costs of
maintaining small accounts, the transfer agent may charge and
deduct from the account a $5 per quarter minimum balance fee if
the account is a regular account with a balance below $2,000 or an
UGMA account with a balance below $800. This minimum balance fee
does not apply to Stein Roe IRAs, other Stein Roe prototype
retirement plans, accounts with automatic investment plans (unless
regular investments have been discontinued), or omnibus or
nominee accounts. The transfer agent may waive the fee, at its
discretion, in the event of significant market corrections.
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 you cause it
to sustain (such as loss from an uncollected check or electronic
transfer for the purchase of shares, or any 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.
To reduce the volume of mail you receive, only one copy of
certain materials, such as prospectuses and shareholder reports,
will be mailed to your household (same address). Please call 800-
338-2550 if you wish to receive additional copies free of charge.
This policy may not apply if you purchased shares through an
Intermediary.
Funds-on-Call [registered mark] Automated Telephone Service. To
access Stein Roe Funds-on-Call [registered mark], just call 800-
338-2550 on any touch-tone telephone and follow the recorded
instructions. Funds-on-Call [registered mark] 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 mark] 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.) Information regarding your account is
available to you via Funds-on-Call [registered mark] only after
you follow an activation process the first time you call. Your
account information is protected by a personal identification
number (PIN) that you establish.
Stein Roe Counselor [service mark] Program. The Stein Roe
Counselor [service mark] program is a professional investment
advisory service available to shareholders. This program is
designed to provide investment guidance in helping investors to
select a portfolio of Stein Roe Funds.
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 no-load 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--diversify your Fund investments
by having distributions from one Fund account automatically
invested in another no-load Stein Roe Fund account. Before
establishing this option, you should obtain and read the prospectus
of the Stein Roe Fund into which you wish to have your distributions
invested. The account from which distributions are made must be
of sufficient size to allow each distribution to usually be at
least $25.
Automatic Dividend Deposit (electronic transfer)--have
income dividends and capital gains distributions deposited
directly into your bank account.
Telephone Redemption by Check Privilege ($1,000 minimum) and
Telephone Exchange Privilege ($50 minimum)--established
automatically when you open your account unless you decline them
on your application. (See How to Redeem Shares--Special
Redemption Privileges.)
Telephone Redemption by Wire Privilege--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)--redeem
shares at any time and have the proceeds deposited directly to
your bank account ($50 minimum; $100,000 maximum).
Regular Investments (electronic transfer)--purchase Fund
shares at regular intervals directly from your bank account ($50
minimum; $100,000 maximum).
Special Investments (electronic transfer)--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--automatically redeem a fixed
dollar amount from your Fund account and invest it in another
no-load Stein Roe Fund account on a regular basis ($50 minimum;
$100,000 maximum).
Automatic Redemptions (electronic transfer)--have a fixed
dollar amount redeemed and sent at regular intervals directly to
your bank account ($50 minimum; $100,000 maximum).
Systematic Withdrawals--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 or 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 regular session
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 12-month period ended Oct.
31 in that year. It intends to distribute any undistributed net
investment income and net realized capital gains in the following
year.
All of your income dividends and capital gains distributions
will be reinvested in additional shares 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 a shareholder elected to receive dividends and/or capital gains
distributions in cash and the postal or other delivery service
selected by the transfer agent is unable to deliver checks to the
shareholder's address of record, such shareholder's distribution
option will automatically be converted to having all dividend
and other distributions reinvested in additional shares. 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.
No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
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 Jan. but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to federal income tax at ordinary rates
on income dividends and distributions of net short-term capital
gains. Distributions of net long-term capital gains will be
taxable to you as long-term capital gains regardless of the length
of time you have held your shares.
You will be advised annually as to the source of
distributions for tax purposes. If you are not subject to tax on
your income, you 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 gains distributions you have received with respect to
those shares.
The Taxpayer Relief Act of 1997 (the "Act") reduced from 28%
to 20% the maximum tax rate on long-term capital gains. This
reduced rate generally applies to securities held for more than 18
months and sold after July 28, 1997, and securities held for more
than one year and sold between May 6, 1997 and July 29, 1997.
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 no guarantee 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 and David P. Brady have
been portfolio managers of Growth Investor Portfolio since its
inception in 1997. Mr. Gustafson had been portfolio manager of
Young Investor Fund since Feb. 1995 and Mr. Brady since Mar. 1995.
As of Sept. 30, 1997, Messrs. Gustafson and Brady were responsible
for co-managing $1.2 billion and $475 million in mutual fund net
assets, respectively.
Mr. Gustafson is a senior vice president 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).
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 Feb. 3, 1997, the management fee was
paid by Young Investor Fund. For the fiscal year ended Sept. 30,
1997, total expenses amounted to 1.49% of average net assets of
Young Investor Fund. At September 30, 1997, Young Investor Fund
owned 99.98% of Growth Investor Portfolio.
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., 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. Shares of Young Investor Fund are distributed by
Liberty Financial Investments, Inc., One Financial Center, Boston,
Massachusetts 02111, a subsidiary of Colonial Management
Associates, Inc., which is an indirect subsidiary of Liberty
Financial. Shares of Young Investor Fund are offered for sale
without any sales commissions or charges to the Fund or to its
shareholders. All distribution and promotional expenses are paid
by Stein Roe, including payments to the Distributor for sales of
shares. All correspondence (including purchase and redemption
orders) should be mailed to SteinRoe Services Inc. at P.O. Box
8900, Boston, Massachusetts 02205. Participants in the Stein Roe
Counselor [service mark] program should send orders to SteinRoe
Services Inc. at P.O. Box 803938, Chicago, Illinois 60680.
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 Jan. 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either Investment
Trust's shareholders or its trustees. Investment Trust may issue
an unlimited number of shares, in one or more series as the Board
may authorize. Currently, 10 series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as Investment Trust could, in some
circumstances, be held personally liable for unsatisfied
obligations of the trust. The Declaration of Trust provides that
persons extending credit to, contracting with, or having any claim
against, Investment Trust or any particular series shall look only
to the assets of Investment Trust or of the respective series for
payment under such credit, contract or claim, and that the
shareholders, trustees and officers shall have no personal
liability therefor. The Declaration of Trust requires that notice
of such disclaimer of liability be given in each contract,
instrument or undertaking executed or made on behalf of Investment
Trust. The Declaration of Trust provides for indemnification of
any shareholder against any loss and expense arising from personal
liability solely by reason of being or having been a shareholder.
Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is believed to be remote, because
it would be limited to circumstances in which the disclaimer was
inoperative and Investment Trust was unable to meet its
obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of Investment
Trust also is believed to be remote, because it would be limited
to claims to which the disclaimer did not apply and to
circumstances in which the other series was unable to meet its
obligations.
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.
MASTER FUND/FEEDER FUND: STRUCTURE AND RISK FACTORS
Young Investor Fund, which is an open-end management investment
company, seeks to achieve its objective by investing all of
its assets in 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 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 Aug. 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 nonfundamental 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. 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 in the Portfolio. 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>
[STEIN ROE MUTUAL FUNDS LOGO]
The Stein Roe Funds
Stein Roe Cash Reserves 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 Growth Opportunities 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 02205-0593
Financial Advisors call: 1-800-322-0593
Shareholders call: 1-800-338-2550
www.steinroe.com
In Chicago, visit our Fund Center at One South Wacker Drive, Suite 3200
Liberty Financial Investments, Inc., Distributor
Member SIPC
<PAGE>
[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS Feb. 2, 1998
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 SR&F Growth & Income Portfolio,
which has the same investment objective and substantially the same
investment policies as Growth & Income Fund. The investment experience
of Growth & Income fund will correspond to Growth & Income Portfolio.
(See Master Fund/Feeder Fund: Structure and Risk Factors.)
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 an 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 Feb. 2, 1998,
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, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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
Master Fund/Feeder Fund: Structure
and Risk Factors..................11
For More Information................ 13
__________________________
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 0.38%
-----
Total Operating Expenses 1.13%
=====
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 $62 $137
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 fees and expenses. The
trustees of Stein Roe Investment Trust ("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. The trustees 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 under Annual Fund Operating Expenses
remain the same in each of the periods; that all income dividends
and capital gains 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 following table 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. The annual report,
which may be obtained from Investment Trust without charge upon
request, contains additional performance information.
<TABLE>
<CAPTION>
Nine
Months
Ended
Sept. 30, Years Ended Sept. 30,
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $10.49 $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54 $16.65 $18.39
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net investment income 0.17 0.22 0.26 0.26 0.19 0.17 0.18 0.34 0.27 0.30
Net realized and
unrealized gains
(losses) on
investments (1.64) 2.46 (0.85) 2.17 1.49 2.16 0.40 2.56 3.22 5.15
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from invest-
ment operations (1.47) 2.68 (0.59) 2.43 1.68 2.33 0.58 2.90 3.49 5.45
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions
Net investment
Income (0.14) (0.22) (0.26) (0.29) (0.18) (0.16) (0.16) (0.20) (0.32) (0.28)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net realized capital
gains -- -- -- (0.36) (0.35) (0.76) (0.71) (0.59) (1.43) (0.65)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (0.14) (0.22) (0.26) (0.65) (0.53) (0.92) (0.87) (0.79) (1.75) (0.93)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End
of Period $ 8.88 $11.34 $10.49 $12.27 $13.42 $14.83 $14.54 $16.65 $18.39 $22.91
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net expenses
to average net
assets (b) 1.47% 1.24% 1.08% 1.00% 0.97% 0.88% 0.90% 0.96% 1.18% 1.13%
Ratio of net
investment income
to average net
assets (c) 2.03% 2.28% 2.40% 2.27% 1.46% 1.23% 1.18% 1.78% 1.65% 1.52%
Portfolio turnover
rate 105% 63% 51% 48% 40% 50% 85% 70% 13% 2%(a)
Average commissions
(per share) -- -- -- -- -- -- -- -- $0.0683 $0.0647(a)
Total return (13.90%) 30.63% (5.25%) 24.12% 14.00% 17.98% 4.03% 21.12% 22.67% 30.81%
Net assets,
end of period
(000 omitted) $23,002 $32,562 $43,446 $54,820 $70,724 $100,365 $129,680 $139,539 $204,387 $337,466
</TABLE>
*Annualized.
(a) Prior to commencement of operations of Growth & Income
Portfolio. The portfolio turnover rate for Growth & Income
Portfolio from Feb. 3, 1997 was 7%.
(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 1.09% for the year ended Sept. 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 "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 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 Feb. 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 other 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 Master Fund/Feeder Fund: Structure and Risk
Factors.)
__________________________
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 the potential both 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
Sept. 30, 1997, Growth & Income Portfolio's holdings of foreign
companies amounted to 3.1% of average net assets (0.5% in foreign
securities and 2.6% 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 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
Each of Growth & Income Fund and Growth & Income Portfolio is
diversified as that term is defined in the Investment Company Act
of 1940.
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 under a master/feeder structure.
- -------
/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 under a master/feeder structure.
While neither Growth & Income Fund nor Growth & Income Portfolio
may make loans, each may (1) purchase money market instruments and
enter into repurchase agreements; (2) acquire publicly distributed
or privately placed debt securities; (3) lend 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 nonleveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither aggregate borrowings (including reverse
repurchase agreements) nor aggregate loans at any one time may
exceed 33 1/3% of the value of total assets. Additional securities
may not be purchased when borrowings, less proceeds receivable from
sales of portfolio securities, exceed 5% of total assets.
Growth & Income Portfolio may invest in repurchase agreements,
provided that it will not invest more than 15% of its net assets in
illiquid securities, including repurchase agreements maturing in
more than seven days.
The policies summarized in the second, third and fourth 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 nonfundamental 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
nonresidents may apply, including imposition of exchange controls
and withholding taxes on dividends, and seizure or nationalization
of investments owned by nonresidents. Foreign investments also
tend to involve higher transaction and custody costs.
__________________________
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 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 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 interests 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 no-load 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 no-
load 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 no-load
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 or 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 regular
session 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. 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 12-month period ended Oct. 31 in
that year. It 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 no guarantee 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 and its predecessor have 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 Sept. 30,
1997, Mr. Cantor was responsible for managing $338 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 Feb. 3, 1997, the management fee was
paid by Growth & Income Fund. For the fiscal year ended Sept. 30,
1997, total expenses amounted to 1.13% of the average net assets of
Growth & Income Fund. At Sept. 30, 1997, Growth & Income Fund
owned 99.97% of Growth & Income Portfolio.
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 Financial Investments, Inc. ("Distributor") without any
sales commissions or charges to Growth & Income Fund or to its
shareholders. The Distributor is a subsidiary of Colonial
Management Associates, Inc., which is an indirect subsidiary of
Liberty Financial. The business address of the Distributor is One
Financial Center, Boston, Massachusetts 02111; 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 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 Jan. 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either Investment
Trust's shareholders or its trustees. Investment Trust may issue
an unlimited number of shares, in one or more series as the Board
may authorize. Currently, 10 series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as Investment Trust could, in some circumstances, be
held personally liable for unsatisfied obligations of the trust.
The Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, Investment Trust or
any particular series shall look only to the assets of Investment
Trust or of the respective series for payment under such credit,
contract or claim, and that the shareholders, trustees and officers
shall have no personal liability therefor. The Declaration of
Trust requires that notice of such disclaimer of liability be given
in each contract, instrument or undertaking executed or made on
behalf of Investment Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or having
been a shareholder. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is believed to
be remote, because it would be limited to circumstances in which
the disclaimer was inoperative and Investment Trust was unable to
meet its obligations.
The risk of a particular series incurring financial loss on account
of unsatisfied liability of another series of Investment Trust also
is believed to be remote, because it would be limited to claims to
which the disclaimer did not apply and to circumstances in which
the other series was unable to meet its obligations.
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.
__________________________
Master Fund/Feeder Fund:
Structure and Risk Factors
Growth & Income Fund, which is an open-end management investment
company, seeks to achieve its objective by investing all of its
assets in 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 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
Aug. 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 nonfundamental 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. 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 in the Portfolio. 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 Feb. 2, 1998
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 SR&F International Portfolio, which has the
same investment objective and substantially the same investment
policies as International Fund. The investment experience of
International Fund will correspond to International Portfolio. (See
Master Fund/Feeder Fund: Structure and Risk Factors.) 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 an 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 Feb. 2, 1998,
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, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Table of Contents
Page
Fee Table................................. 2
Financial Highlights.......................2
The Fund...................................3
Investment Policies........................4
Portfolio Investments and Strategies.......5
Investment Restrictions................... 7
Risks and Investment Considerations....... 8
How to Purchase Shares.................... 9
How to Redeem Shares...................... 9
Net Asset Value.......................... 10
Distributions and Income Taxes............10
Investment Return.........................11
Management................................11
Organization and Description of Shares....12
Master Fund/Feeder Fund: Structure
and Risk Factors.......................13
For More Information......................14
__________________________
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 0.55%
-----
Total Operating Expenses 1.55%
=====
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
$16 $49 $84 $185
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 Stein Roe Investment
Trust ("Investment Trust") have considered whether the annual
operating fees and 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. The trustees 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 under Annual Fund Operating Expenses
remain the same in each of the periods and that all income
dividends and capital gains 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 following table 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. The
annual report, which may be obtained from Investment Trust without
charge upon request, contains additional performance information.
Period Ended
Sept. 30, Years Ended Sept. 30,
1994 (a) 1995 1996 1997
------------ ------- ------ -------
Net Asset Value, Beginning
of Period $10.00 $10.61 $10.25 $10.96
------ ------ ------ ------
Income from Investment
Operations
Net investment income 0.03 0.12 0.09 0.06
Net realized and un-
realized gains (losses)
on investments 0.58 (0.26) 0.74 0.99
----- ----- ----- -----
Total from investment
operations 0.61 (0.14) 0.83 1.05
----- ----- ----- ----
Distributions
Net investment income -- (0.05) (0.12) (0.08)
Net realized capital
gains -- (0.17) -- (0.14)
----- ----- ----- ----
Total distributions -- (0.22) (0.12) (0.22)
----- ----- ----- ----
Net Asset Value, End of
Period $10.61 $10.25 $10.96 $11.79
====== ====== ====== ======
Ratio of net expenses to
average net assets *1.61% 1.59% 1.51% 1.55%
Ratio of net investment
income to average net
assets *0.61% 1.41% 1.01% 0.55%
Portfolio turnover rate 48% 59% 42% 11%(b)
Average commissions
(per share) (c) -- -- $0.0010 $0.0067(b)
Total return 6.10% (1.28%) 8.23% 9.84%
Net assets, end of
period (000 omitted) $74,817 $83,020 $135,545 $166,088
- ------------------
*Annualized.
(a) From commencement of operations on Mar. 1, 1994.
(b) Prior to commencement of operations of International Portfolio.
(c) Foreign commissions usually are lower than U.S. commissions
when expressed as cents per share due to the lower per share price
of many non-U.S. securities.
__________________________
The Fund
Stein Roe International Fund ("International Fund") is a no-load
"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 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 Feb. 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 other
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 Master
Fund/Feeder Fund: Structure and Risk Factors.)
__________________________
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. As of Sept. 30, 1997,
International Portfolio had more than 5% of its total assets in
each of the following countries:
Countries Market Value Percentage of
(in 000s) Total Assets
Japan $27,678 16.44%
United Kingdom 16,881 10.02
Germany 12,204 7.25
France 11,503 6.83
Finland 11,144 6.62
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 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 the 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. 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
Each of International Fund and International Portfolio is
diversified as that term is defined in the Investment Company Act
of 1940.
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 under a master/feeder structure.
- -------
/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 under a master/feeder structure.
While neither International Fund nor International Portfolio may
make loans, each may (1) purchase money market instruments and
enter into repurchase agreements; (2) acquire publicly distributed
or privately placed debt securities; (3) lend 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 nonleveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither aggregate borrowings (including reverse
repurchase agreements) nor aggregate loans at any one time may
exceed 33 1/3% of the value of total assets. Additional securities
may not be purchased when borrowings, less proceeds receivable from
sales of portfolio securities, exceed 5% of total assets.
International Portfolio may invest in repurchase agreements,
provided that it will not invest more than 15% of its net assets in
illiquid securities, including repurchase agreements maturing in
more than seven days.
The policies summarized in the second, third, and fourth 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 nonfundamental 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 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 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.
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 no-load 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 no-
load 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 no-load
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 or 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 regular session
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 12-month period ended Oct. 31 in
that year. It 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 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 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 Portfolio 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 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.
__________________________
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 no guarantee 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 and its predecessor have 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 Manager.
David P. Harris has been portfolio manager of International Portfolio
since its inception in 1997 and of International Fund since its
inception in 1994 (he served as an associate portfolio manager until
May 1995). In addition, he has been portfolio manager of Stein Roe
Emerging Markets Fund (another series of Investment Trust) since
its inception in 1997. He joined the Adviser in 1995 as vice
president to create Stein Roe Global Capital Management, a dedicated
global and international equity management unit. Mr. Harris is also
employed by Colonial Management Associates, Inc., a subsidiary of
Liberty Financial and an affiliate of the Adviser, as vice president.
Harris was a portfolio manager with Rockefeller & Co. 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 Sept. 30,
1997, Mr. Harris was responsible for managing $207 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 Feb. 3, 1997, the management fee was paid by
International Fund. For the fiscal year ended Sept. 30, 1997,
total expenses amounted to 1.55% of the average net assets of
International Fund. At Sept. 30, 1997, International Fund owned
99.94% of International Portfolio.
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 Financial Investments, Inc. ("Distributor") without any
sales commissions or charges to International Fund or to its
shareholders. The Distributor is a subsidiary of Colonial
Management Associates, Inc., which is an indirect subsidiary of
Liberty Financial. The business address of the Distributor is One
Financial Center, Boston, Massachusetts 02111; 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
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 Jan. 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either Investment
Trust's shareholders or its trustees. Investment Trust may issue
an unlimited number of shares, in one or more series as the Board
may authorize. Currently, 10 series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as Investment Trust could, in some circumstances, be
held personally liable for unsatisfied obligations of the trust.
The Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, Investment Trust or
any particular series shall look only to the assets of Investment
Trust or of the respective series for payment under such credit,
contract or claim, and that the shareholders, trustees and officers
shall have no personal liability therefor. The Declaration of
Trust requires that notice of such disclaimer of liability be given
in each contract, instrument or undertaking executed or made on
behalf of Investment Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or having
been a shareholder. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is believed to
be remote, because it would be limited to circumstances in which
the disclaimer was inoperative and Investment Trust was unable to
meet its obligations.
The risk of a particular series incurring financial loss on account
of unsatisfied liability of another series of Investment Trust also
is believed to be remote, because it would be limited to claims to
which the disclaimer did not apply and to circumstances in which
the other series was unable to meet its obligations.
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.
__________________________
Master Fund/Feeder Fund:
Structure and Risk Factors
International Fund, which is an open-end management investment
company, seeks to achieve its objective by investing all of its
assets in 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 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
Aug. 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 nonfundamental 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. 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 in the Portfolio.
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.
________________
[STEIN ROE MUTUAL FUNDS LOGO]
PROSPECTUS Feb. 2, 1998
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 SR&F Growth Investor Portfolio,
which has the same investment objective and substantially the same
investment policies as Young Investor Fund. The investment experience
of Young Investor Fund will correspond to Growth Investor Portfolio.
(See Master Fund/Feeder Fund Structure and Risk Factors.) Growth
Investor Portfolio invests primarily in securities of companies that
are believed to have above-average growth prospects, many of which
affect the lives of young people. It seeks to provide education
and insight about mutual funds, basic economic principles, and
personal finance through a variety of educational materials
prepared and paid for by Young Investor Fund.
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 an 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 Feb. 2, 1998,
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, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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
Master Fund/Feeder Fund: Structure
and Risk Factors.........................12
For More Information....................... 13
__________________________
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................... 0.80%
12b-1 Fees............................................None
Other Expenses........................................0.69%
-----
Total Fund Operating Expenses.........................1.49%
=====
__________
*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 $81 $178
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 is
based on expenses incurred in the last fiscal year.
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 fees and expenses. The
trustees of Stein Roe Investment Trust ("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. The trustees 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 gains 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 following table 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
Sept. 30, Years Ended Sept. 30,
1994 (a) 1995 1996 1997
Net Asset Value, Begin- --------- ------ ------ ------
ning of Period $10.00 $10.24 $14.29 $18.64
------ ------ ------ ------
Income from investment
operations
Net investment income
(loss) 0.03 0.06 0.05 (0.03)
Net realized and unrealized
gains on investments 0.21 4.07 4.86 4.78
------ ------ ------ ------
Total from investment
operations 0.24 4.13 4.91 4.75
Distributions
Net investment income -- (0.08) (0.05) (0.02)
Net realized capital gains -- -- (0.51) (0.62)
------ ------ ------ ------
Total Distributions -- (0.08) (0.56) (0.64)
------ ------ ------ ------
Net Asset Value, End of
Period $10.24 $14.29 $18.64 $22.75
====== ====== ====== ======
Ratio of net expenses to
average net assets (b) *0.99% 0.99% 1.21% 1.43%
Ratio of net investment
income to average net
assets (c) *1.07% 0.47% 0.30% (0.19%)
Portfolio turnover rate 12% 55% 98% 22%(d)
Average commissions (per
share) -- -- $0.0603 $0.0565(d)
Total return 2.40% 40.58% 35.55% 26.37%
Net assets, end of
period (000 omitted) $8,176 $31,401 $179,089 $475,506
________________________________
*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
Sept. 30, 1994, and 2.87%, 2.04% and 1.49% for the years ended
Sept. 30, 1995 through 1997, respectively.
(c) Computed giving effect to the investment adviser's expense
limitation undertaking.
(d) Prior to commencement of operations of Growth Investor
Portfolio.
__________________________
The Fund
Stein Roe Young Investor Fund ("Young Investor Fund") is a no-load
"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 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 Feb. 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"). Prior to converting to a feeder fund, Young Investor
Fund had invested its assets in a diversified group of securities.
Under the "master fund/feeder fund structure," a feeder fund and
one or more other 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 Master Fund/Feeder Fund: Structure and Risk
Factors.)
__________________________
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
Portfolio Investments and Strategies.)
In addition to the investment objective and policies, Young
Investor Fund also has an educational objective. It seeks to
provide education and insight about mutual funds, basic economic
principles, and personal finance through a variety of educational
materials prepared and paid for by Young Investor Fund.
Young Investor Fund is designed to be appropriate for growth-
oriented investors of all ages. Its focus on companies that
affect the lives of young people and its educational objective and
materials may make it especially appropriate for young people and
investors for whom education is an important objective.
__________________________
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 Sept. 30, 1997, Growth
Investor Portfolio's holdings of foreign companies amounted to
2.8% of net assets (none in foreign securities and 2.8% in ADRs
and ADSs).
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 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
Each of Young Investor Fund and Growth Investor Portfolio is
diversified as that term is defined in the Investment Company Act
of 1940.
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 under a master/feeder structure.
- ----------
/2/ 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 under a master/feeder structure.
While neither Young Investor Fund nor Growth Investor Portfolio
may make loans, each may (1) purchase money market instruments
and enter into repurchase agreements; (2) acquire publicly
distributed or privately placed debt securities; (3) lend
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 nonleveraging,
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.
Growth Investor Portfolio may invest in repurchase agreements,
provided that it will not invest more than 15% of its net assets
in illiquid securities, including repurchase agreements maturing
in more than seven days. An investment in illiquid securities
could involve relatively greater risks and costs.
The investment restrictions described in the second through fifth
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 are believed
to have above-average growth prospects, many of which affect the
lives of young people. 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 also has an educational objective.
It seeks to provide education and insight about mutual funds,
basic economic principles, and personal finance through a variety
of educational materials prepared and paid for by Young Investor
Fund.
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 nonresidents may apply, including imposition of
exchange controls and withholding taxes on dividends, and seizure
or nationalization of investments owned by nonresidents. Foreign
investments also tend to involve higher transaction and custody
costs.
__________________________
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
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. An
Intermediary, who accepts orders that are processed at the net
asset value next determined after receipt of the order by the
Intermediary, accepts such orders as agent of the Fund. The
Intermediary is required to segregate any orders received on a
business day after the close of regular session trading on the New
York Stock Exchange and transmit those orders separately for
execution at the net asset value next determined after that
business day.
Each purchase order 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.
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 no-load 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 no-load 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 no-load 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 or 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 regular
session 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 12-month period ended Oct. 31 in that
year. It 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 no guarantee
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 and its predecessor have 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 and David P. Brady have been portfolio managers
of Growth Investor Portfolio since its inception in 1997. Mr.
Gustafson had been portfolio manager of Young Investor Fund since
Feb. 1995 and Mr. Brady since Mar. 1995. As of Sept. 30, 1997,
Messrs. Gustafson and Brady were responsible for co-managing $1.2
billion and $475 million in mutual fund net assets, respectively.
Mr. Gustafson is a senior vice president 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).
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 Feb. 3, 1997, the management fee was paid by Young
Investor Fund. For the fiscal year ended Sept. 30, 1997, such
fees amounted to .34% and .39% of the average net assets of Young
Investor Fund and Growth Investor Portfolio, respectively. At
September 30, 1997, Young Investor Fund owned 99.98% of Growth
Investor Portfolio.
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, 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., 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 Financial Investments, Inc. ("Distributor") without any
sales commissions or charges to Young Investor Fund or to its
shareholders. The Distributor is a subsidiary of Colonial
Management Associates, Inc., which is an indirect subsidiary of
Liberty Financial. The business address of the Distributor is One
Financial Center, Boston, Massachusetts 02111; 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 Jan. 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either Investment
Trust's shareholders or its trustees. Investment Trust may issue
an unlimited number of shares, in one or more series as the Board
may authorize. Currently, 10 series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as Investment Trust could, in some circumstances, be
held personally liable for unsatisfied obligations of the trust.
The Declaration of Trust provides that persons extending credit
to, contracting with, or having any claim against, Investment
Trust or any particular series shall look only to the assets of
Investment Trust or of the respective series for payment under
such credit, contract or claim, and that the shareholders,
trustees and officers shall have no personal liability therefor.
The Declaration of Trust requires that notice of such disclaimer
of liability be given in each contract, instrument or undertaking
executed or made on behalf of Investment Trust. The Declaration
of Trust provides for indemnification of any shareholder against
any loss and expense arising from personal liability solely by
reason of being or having been a shareholder. Thus, the risk of a
shareholder incurring financial loss on account of shareholder
liability is believed to be remote, because it would be limited to
circumstances in which the disclaimer was inoperative and
Investment Trust was unable to meet its obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of Investment
Trust also is believed to be remote, because it would be limited
to claims to which the disclaimer did not apply and to
circumstances in which the other series was unable to meet its
obligations.
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.
__________________________
Master Fund/Feeder Fund:
Structure and Risk Factors
Commencing Feb. 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 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 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 Aug. 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. 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 in the Portfolio. 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 Feb. 2, 1998
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 SR&F Special Venture Portfolio,
which has the same investment objective and substantially the same
investment policies as Special Venture Fund. The investment
experience of special Venture Fund will correspond to Special
Venture Portfolio. (See Master Fund/Feeder Fund: Structure and
Risk Factors.) 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 an 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 Feb. 2, 1998,
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, 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.
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
Master Fund/Feeder Fund: Structure
and Risk Factors........................11
For More Information.......................13
__________________________
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 0.39%
Total Operating Expenses 1.29%
Example.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
$13 $41 $71 $156
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.
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 fees and expenses of Special Venture
Portfolio. The trustees of Stein Roe Investment Trust ("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. The trustees concluded that Special Venture
Fund's expenses would not be greater in such case.
For purposes of the Example above, the figures assume that the
percentage amounts listed under Annual Fund Operating Expenses
remain the same in each of the periods and that all income
dividends and capital gains 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 following table 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
Sept. 30, Years Ended Sept. 30,
1995(d) 1996 1997
-------- ------ ------
Net Asset Value, Beginning of Period $10.00 $12.60 $15.87
------ ------ ------
Income from Investment Operations
Net investment income (loss) 0.01 (0.02) (0.02)
Net realized and unrealized gains on
investments 2.67 3.86 3.12
------ ------ ------
Total from investment operations 2.68 3.84 3.10
------ ------ ------
Distributions
Net investment income (0.03) -- --
Net realized capital gains (0.05) (0.57) (1.52)
------ ------ ------
Total distributions (0.08) (0.57) (1.52)
------ ------ ------
Net Asset Value, End of Period $12.60 $15.87 $17.45
====== ====== ======
Ratio of net expenses to average net
assets (b) *1.25% 1.25% 1.29%
Ratio of net investment income(loss)
to average net assets (c) *0.12% (2.19%) (0.18%)
Portfolio turnover rate 84% 72% 44%(a)
Average commissions (per share) -- $0.0378 $0.0390(a)
Total return 26.96% 31.81% 21.73%
Net assets, end of period (000
omitted) $60,533 $144,528 $235,755
- -----------
*Annualized.
(a) From the commencement of operations on Oct. 17, 1994 . The
portfolio turnover of Special Venture Portfolio from Feb. 3,
1997 was 58%.
(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 Sept. 30, 1995 and 1.34% for
the year ended Sept. 30, 1996.
(c) Computed giving effect to the Adviser's fee waiver.
(d) Prior to commencement of operations of Special Venture
Portfolio.
__________________________
The Fund
Stein Roe Special Venture Fund ("Special Venture Fund") is a no-
load "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 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 Feb. 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 other 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 Master Fund/Feeder Fund: Structure and Risk
Factors.)
__________________________
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, through personal visits, their
business judgment and strategies. 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
Sept. 30, 1997, Special Venture Portfolio's holdings of foreign
companies amounted to 3.2% of net assets (1.7% in foreign
securities and 1.5% 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 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
Each of Special Venture Fund and Special Venture Portfolio is
diversified as that term is defined in the Investment Company Act
of 1940.
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 under a master/feeder structure.
- ------
/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 under a master/feeder structure.
While neither Special Venture Fund nor Special Venture Portfolio
may make loans, each may (1) purchase money market instruments and
enter into repurchase agreements; (2) acquire publicly distributed
or privately placed debt securities; (3) lend 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 nonleveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither aggregate borrowings (including reverse
repurchase agreements) nor aggregate loans at any one time may
exceed 33 1/3% of the value of total assets. Additional securities
may not be purchased when borrowings, less proceeds receivable from
sales of portfolio securities, exceed 5% of total assets.
Special Venture Portfolio may invest in repurchase agreements,
provided that it will not invest more than 15% of its net assets in
illiquid securities, including repurchase agreements maturing in
more than seven days.
The policies summarized in the second, third, and fourth 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 nonfundamental 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
nonresidents may apply, including imposition of exchange controls
and withholding taxes on dividends, and seizure or nationalization
of investments owned by nonresidents. Foreign investments also
tend to involve higher transaction and custody costs.
__________________________
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
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 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 interests 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 no-load 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 no-
load 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 no-load
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 or 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 regular
session 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. 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 12-month period ended Oct. 31 in that year.
It 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 no guarantee 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 and its predecessor have 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.
Richard B. Peterson has been co-manager of Special Venture
Portfolio since its inception in 1997 and had been portfolio
manager of Special Venture Fund since its inception in 1994; John
S. McLandsborough has been co-portfolio manager since July 1997.
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. Prior to
joining the Adviser in April 1996, Mr. McLandsborough was an equity
research analyst with CS First Boston from June 1994 until January
1996 and with National City Bank of Cleveland prior thereto. Mr.
McLandsborough, a chartered financial analyst, earned a bachelor's
degree in finance in 1989 from Miami University and a master's
degree in 1992 from Indiana University. As of Sept. 30, 1997,
Messrs. Peterson and McLandsborough were responsible for co-
managing $507 million 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 Feb. 3, 1997, the management fee was paid by Special
Venture Fund. For the fiscal year ended Sept. 30, 1997, total
expenses amounted to 1.29% of the average net assets of Special
Venture Fund. At Sept. 30, 1997, Special Venture Fund owned 99.95%
of Special Venture Portfolio.
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 Financial Investments, Inc. ("Distributor") without any
sales commissions or charges to Special Venture Fund or to its
shareholders. The Distributor is a subsidiary of Colonial
Management Associates, Inc., which is an indirect subsidiary of
Liberty Financial. The business address of the Distributor is One
Financial Center, Boston, Massachusetts 02111; 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 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 Jan. 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either Investment
Trust's shareholders or its trustees. Investment Trust may issue
an unlimited number of shares, in one or more series as the Board
may authorize. Currently, 10 series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as Investment Trust could, in some circumstances, be
held personally liable for unsatisfied obligations of the trust.
The Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, Investment Trust or
any particular series shall look only to the assets of Investment
Trust or of the respective series for payment under such credit,
contract or claim, and that the shareholders, trustees and officers
shall have no personal liability therefor. The Declaration of
Trust requires that notice of such disclaimer of liability be given
in each contract, instrument or undertaking executed or made on
behalf of Investment Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or having
been a shareholder. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is believed to
be remote, because it would be limited to circumstances in which
the disclaimer was inoperative and Investment Trust was unable to
meet its obligations.
The risk of a particular series incurring financial loss on account
of unsatisfied liability of another series of Investment Trust also
is believed to be remote, because it would be limited to claims to
which the disclaimer did not apply and to circumstances in which
the other series was unable to meet its obligations.
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.
__________________________
Master Fund/Feeder Fund:
Structure and Risk Factors
Special Venture Fund, which is an open-end management investment
company, seeks to achieve its objective by investing all of its
assets in 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 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
Aug. 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 nonfundamental 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. 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 in the Portfolio. 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 Feb. 2, 1998
Defined Contribution Plans
Stein Roe 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.
This prospectus relates only to shares purchased through eligible
employer-sponsored defined contribution plans ("defined
contribution plans").
Emerging Markets 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 Emerging Markets Fund which is imposed only on
redemptions of shares held less than 90 days. Emerging Markets
Fund is a series of Stein Roe Investment Trust.
This prospectus contains information you should know before
investing in Emerging Markets Fund. Please read it carefully and
retain it for future reference.
A Statement of Additional Information dated Feb. 2, 1998,
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 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, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Table of Contents
Page
Fee Table............................... 2
Financial Highlights.....................2
The Fund.................................3
Investment Policies......................3
Portfolio Investments and Strategies.....5
Investment Restrictions................. 6
Risks and Investment Considerations..... 7
How to Purchase Shares.................. 9
How to Redeem Shares....................10
Net Asset Value........................ 10
Distributions and Income Taxes..........11
Investment Return.......................11
Management............................. 12
Organization and Description of Shares..13
For More Information....................13
__________________________
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
(after reimbursement) 0.98%
12b-1 Fees None
Other Expenses 1.02%
-----
Total Operating Expenses (after reimbursement) 2.00%
=====
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
$20 $63 $108 $233
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 Emerging Markets Fund. The table is
based upon actual expenses incurred in the last fiscal year.
From time to time, the Adviser may voluntarily undertake to
reimburse Emerging Markets Fund for a portion of its operating
expenses. The Adviser has undertaken to reimburse Emerging Markets
Fund for its operating expenses to the extent such expenses exceed
2.00% of its annual average net assets. This commitment expires on
January 31, 1999, subject to earlier termination by the Adviser on
30 days' notice to the Fund. Absent such reimbursement, the
Management and Administrative Fees and Total Operating Expenses
would have been 2.27% and 1.25%, respectively. Any such
reimbursement will lower the overall expense ratio and increase the
overall return to investors. (Also see Management--Fees and
Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts listed under Annual Fund Operating Expenses
remain the same in each of the periods; that all income dividends
and capital gains 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 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 following table reflects the results of operations of Emerging
Markets Fund for the period 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 Emerging Markets
Fund's financial statements and notes thereto. The annual report,
which may be obtained from Stein Roe Investment Trust ("Investment
Trust") without charge upon request, contains additional
performance information.
Period Ended
Sept. 30,
1997 (a)
------------
Net Asset Value, Beginning of Period $10.00
Income from Investment Operations ------
Net investment income 0.06
Net realized and unrealized gains
(losses) on investments 0.18
-----
Total from investment operations 0.24
------
Net Asset Value, End of Period $10.24
======
Ratio of net expenses to average net
assets (d) *2.00%
Ratio of net investment income to average
net assets (e) *1.04%
Portfolio turnover rate 30%
Average commissions (per share) (c) $0.0007
Total return 2.40%
Net assets, end of period (000 omitted) $41,617
- -----------------
*Annualized.
(a) From commencement of operations on Feb. 28, 1997.
(b) If Emerging Markets Fund had paid all of its expenses and there
had been no reimbursement of expenses by the Adviser, this
ratio would have been 2.27% for the period ended Sept. 30,
1997.
(c) Computed giving effect to the Adviser's expense limitation
undertaking.
(d) Foreign commissions usually are lower than U.S. commissions
when expressed as cents per share due to the lower per share
price of many non-U.S. securities.
__________________________
The Fund
Stein Roe Emerging Markets Fund ("Emerging Markets Fund") is a no-
load "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. Emerging Markets 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.
Emerging Markets Fund is a series of 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 advisory, administrative, and bookkeeping and accounting
services to Emerging Markets 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
Emerging Markets Fund's investment objective is to seek capital
appreciation primarily through investing in stocks of companies in
emerging markets. Under normal market conditions, Emerging Markets
Fund will invest at least 65% of its total assets (taken at market
value) in equity securities of emerging market issuers. Emerging
Markets Fund does not intend to concentrate investments in any
particular industry. In addition, there is no limitation on the
amount it can invest in a specific country or region of the world.
However, it intends to diversify its investment among several
countries. Emerging Markets Fund has no current intent of
investing more than 5% of its total assets in Russian securities.
As of Sept. 30, 1997, Emerging Markets Fund had investments in each
of the following countries:
Market Value Percentage of
Countries (in 000s) Total Assets
Argentina $2,019 4.79%
Brazil 2,593 6.15
China 843 2.00
Great Britain 407 0.97
Greece 802 1.90
Hong Kong 5,169 12.26
India 1,336 3.17
Indonesia 3,187 7.56
Israel 928 2.20
Lebanon 1,011 2.40
Malaysia 1,133 2.69
Mexico 243 0.58
Middle East/
Africa 1,094 2.59
Panama 806 1.91
Peru 2,116 5.02
Philippines 2,204 5.23
Portugal 782 1.85
Russia 806 1.91
South Korea 5,934 14.07
Thailand 3,572 8.47
Venezuela 824 1.95
Emerging Markets 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. Investments will include,
but are not limited to, securities of companies located within
countries in Asia, Africa, Latin America and certain parts of
Europe.
Emerging Markets 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.
Emerging Markets 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). Emerging Markets 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.
Emerging Markets 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.
Emerging Markets Fund will seek to take advantage of these
opportunities on behalf of investors by investing in companies that
offer superior relative growth.
Emerging Markets 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,
Emerging Markets 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, it 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 Emerging Markets Fund. If
such restrictions should be reinstated, it might become necessary
for Emerging Markets Fund to invest all or substantially all of its
assets in U.S. securities. In such an event, Emerging Markets Fund
would review its investment objective and policies to determine
whether changes are appropriate.
Emerging Markets 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. Emerging Markets Fund 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
Debt Securities.
In pursuing its investment objective, Emerging Markets Fund may
invest up to 35% of its total assets in debt securities. Emerging
Markets 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. Emerging Markets Fund
does not intend to purchase debt securities that are in default or
which the Adviser believes will be in default. Emerging Markets
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 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.
Emerging Markets Fund does not expect to invest more than 5% of its
net assets in high-yield ("junk") bonds.
Settlement Transactions.
When Emerging Markets 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, Emerging Markets 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, Emerging
Markets 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 Emerging Markets 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, it 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 it
seeks to move investments denominated in one currency to
investments denominated in another.
Portfolio Turnover.
Although Emerging Markets 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.) Emerging
Markets Fund is not intended to be an income-producing investment.
Other Techniques.
Emerging Markets 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 it does not have
a current intent to do so. Emerging Markets 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 Emerging Markets 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. Emerging
Markets 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. Emerging Markets Fund may utilize spot and forward
foreign exchange transactions to reduce the risk caused by exchange
rate fluctuations between one currency and another when securities
are purchased or sold on a when-issued basis. It may also invest
in synthetic money market instruments, structured notes, swaps and
Eurodollar instruments. Emerging Markets 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, Emerging
Markets 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"). It may also sell short securities it 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.
Emerging Markets Fund may also invest in closed-end investment
companies investing primarily in the emerging markets. To the
extent Emerging Markets 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
Emerging Markets Fund is diversified as that term is defined in the
Investment Company Act of 1940.
Emerging Markets Fund will not invest more than 5% of its assets in
the securities of any one issuer. This restriction applies only to
75% of the investment portfolio, but does not apply to securities
of the U.S. Government or repurchase agreements /1/ for such
securities, and would not prevent Emerging Markets Fund from
investing all of its assets in shares of another investment company
having the identical investment objective under a master/feeder
structure.
- ------
/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.
- ------
Emerging Markets 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 under a master/feeder
structure.
Emerging Markets Fund may not make loans, but it may (1) purchase
money market instruments and enter into repurchase agreements; (2)
acquire publicly distributed or privately placed debt securities;
(3) lend 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 nonleveraging,
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. Additional securities may not be purchased when
borrowings, less proceeds receivable from sales of portfolio
securities, exceed 5% of total assets.
Emerging Markets Fund may invest in repurchase agreements, provided
that it will not invest more than 15% of its net assets in illiquid
securities, including repurchase agreements maturing in more than
seven days.
The policies summarized in the second, third, and fourth paragraphs
under this section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" as defined in the Investment Company
Act of 1940. The investment objective is nonfundamental 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 Emerging Markets Fund from purchasing the
securities of any issuer pursuant to the exercise of subscription
rights distributed to it by the issuer. No such purchase may be
made if, as a result, Emerging Markets Fund will no longer be a
diversified investment company as defined in the Investment Company
Act of 1940 or if it 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. Emerging Markets Fund
seeks capital appreciation primarily through investing in stocks of
companies in emerging markets. Emerging Markets Fund is intended
for long-term investors and not for short-term trading purposes.
It should not be considered a complete investment program. While
Emerging Markets 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 Emerging Markets
Fund for the benefit of remaining shareholders on shares held less
than 90 days. Of course, there can be no guarantee that Emerging
Markets Fund will achieve its objective.
Emerging Markets Fund does not concentrate investments in any
particular industry. In addition, there is no limitation on the
amount it can invest in a specific country or region of the world.
However, Emerging Markets Fund intends to diversify its investments
among several countries. Emerging Markets Fund has no current
intent of investing more than 5% of its total assets in Russian
securities. As of Sept. 30, 1997, Emerging Markets Fund had
investments in each of the following countries:
________________________ _______________________.
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 Emerging Markets 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 Emerging Markets Fund is
uninvested and no return is earned thereon. The inability of
Emerging Markets Fund to make intended security purchases due to
settlement problems could cause it to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to
settlement problems could result either in losses to Emerging
Markets Fund due to subsequent declines in the value of those
securities or, if it 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 Emerging Markets 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 Emerging Markets 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, Emerging Markets 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.
Emerging Markets 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 of any restrictions on
its investments.
Master Fund/Feeder Fund Option.
Rather than invest in securities directly, Emerging Markets Fund
may in the future seek to achieve its investment objective by
pooling its assets with those of other investment companies for
investment in another investment company having the same investment
objective and substantially the same investment policies as the
Fund. The purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected that
the assets of any such investment company would be managed by the
Adviser in substantially the same manner as Emerging Markets Fund.
Shareholders 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 Emerging
Markets Fund and its shareholders.
__________________________
How to Purchase Shares
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares 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 net asset value (see Net
Asset Value) next determined after receipt of an order in good
form, including receipt of payment by Emerging Markets Fund. Each
purchase of 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 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 Emerging Markets 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 the Trust or of the
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 through your
employer's plan, including any charges that may be imposed by the
plan, please consult with your employer.
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 Emerging Markets 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 Emerging Markets 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. Emerging Markets Fund reserves the right
to modify the terms of or terminate this fee at any time.
The redemption fee applies to redemptions from Emerging Markets
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.
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 no-load 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 no-load 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 no-load Stein Roe
Funds available through your plan. Emerging Markets 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 the net asset value per
share at the time of redemption, it may be more or less than the
price you originally paid for the shares.
__________________________
Net Asset Value
The purchase price of the shares is the net asset value per share.
The redemption price of the shares is at the 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 Emerging Markets
Fund is determined as of the close of regular session trading on
the New York Stock Exchange ("NYSE") (currently 3:00 p.m., central
time) by dividing the difference between the values of 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
Emerging Markets 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 Emerging Markets 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 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
the Fund may not be purchased or redeemed.
__________________________
Distributions and Income Taxes
Distributions.
Income dividends are normally declared and paid annually. Emerging
Markets Fund intends to distribute by the end of each calendar year
at least 98% of any net capital gains realized from the sale of
securities during the 12-month period ended Oct. 31 in that year.
It 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 Emerging Markets Fund. Generally, dividend and
capital gains distributions will be reinvested in additional Fund
shares.
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 Emerging Markets 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 Emerging Markets
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 assets to be invested within various
countries will fluctuate and the extent to which tax refunds will
be recovered is uncertain. Emerging Markets Fund intends to
operate so as to qualify for treaty-reduced tax rates where
applicable.
To the extent that Emerging Markets 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 Emerging Markets Fund's 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 Emerging Markets Fund shares.
__________________________
Investment Return
The total return from an investment in Emerging Markets 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 Emerging Markets Fund's total return with alternative
investments should consider differences between Emerging Markets
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. Emerging Markets Fund's total
return does not reflect any charges or expenses related to your
employer's plan. Of course, past performance is no guarantee of
future results.
__________________________
Management
Trustees and Investment Adviser.
The Board of Trustees of Investment Trust has overall management
responsibility for the Trust and Emerging Markets Fund. See the
Statement of Additional Information for the names of and other
information about the trustees and officers. The Adviser, Stein
Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
Illinois 60606, is responsible for managing the investment
portfolio and the business affairs of Emerging Markets Fund and
Investment 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 and its predecessor have 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 Manager.
David P. Harris has been portfolio manager of Emerging Markets Fund since
its inception in 1997. He joined the Adviser in 1995 as vice president to
create Stein Roe Global Capital Management, a dedicated global and
international equity management unit. Mr. Harris is also employed by
Colonial Management Associates, Inc., a subsidiary of Liberty Financial
and an affiliate of the Adviser, as vice president. Mr. Harris was a
portfolio manager with Rockefeller & Co. 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 Sept. 30, 1997, Mr. Harris
was responsible for managing $207 million in mutual fund net assets.
Fees and Expenses.
In return for its services, the Adviser is entitled to receive
monthly management and administrative fees from Emerging Markets
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. For the year ended Sept.
30, 1997, total expenses amounted to 2.00% of average net assets.
Under a separate agreement with Investment Trust, the Adviser
provides certain accounting and bookkeeping services to Emerging
Markets Fund, including computation of net asset value and
calculation of net income and capital gains and losses on
disposition of assets.
Portfolio Transactions.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions. In
doing so, the Adviser seeks to obtain the best combination of price
and execution, which involves a number of judgmental factors.
Transfer Agent.
SteinRoe Services Inc., One South Wacker Drive, Chicago, Illinois
60606, a wholly owned subsidiary of Liberty Financial, is the agent
of Investment Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
Distributor.
The shares of Emerging Markets Fund are offered for sale through
Liberty Financial Investments, Inc. ("Distributor") without any
sales commissions or charges to Emerging Markets Fund or to its
shareholders. The Distributor is a subsidiary of Colonial
Management Associates, Inc., which is an indirect subsidiary of
Liberty Financial. The business address of the Distributor is One
Financial Center, Boston, Massachusetts 02111; 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 Emerging
Markets Fund. Foreign securities are maintained in the custody of
foreign banks and trust companies that are members of the Bank's
Global Custody Network or foreign depositories used by such
members. (See Custodian in the Statement of Additional
Information.)
__________________________
Organization and Description of Shares
Investment Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of Trust")
dated Jan. 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either Investment
Trust's shareholders or its trustees. Investment Trust may issue
an unlimited number of shares, in one or more series as the Board
may authorize. Currently, 10 series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as Investment Trust could, in some circumstances, be
held personally liable for unsatisfied obligations of the trust.
The Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, Investment Trust or
any particular series shall look only to the assets of Investment
Trust or of the respective series for payment under such credit,
contract or claim, and that the shareholders, trustees and officers
shall have no personal liability therefor. The Declaration of
Trust requires that notice of such disclaimer of liability be given
in each contract, instrument or undertaking executed or made on
behalf of Investment Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or having
been a shareholder. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is believed to
be remote, because it would be limited to circumstances in which
the disclaimer was inoperative and Investment Trust was unable to
meet its obligations.
The risk of a particular series incurring financial loss on account
of unsatisfied liability of another series of Investment Trust also
is believed to be remote, because it would be limited to claims to
which the disclaimer did not apply and to circumstances in which
the other series was unable to meet its obligations.
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.
__________________________
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 Feb. 2, 1998
Defined Contribution Plans
Stein Roe Growth Opportunities Fund
Growth Opportunities Fund seeks long-term capital appreciation. It
invests in a diversified portfolio of common stocks of large, mid-
sized, and small companies that, in the view of the Adviser, have
the ability to generate and sustain earnings growth at an above-
average rate.
This prospectus relates only to shares purchased through eligible
employer-sponsored defined contribution plans ("defined
contribution plans").
Growth Opportunities Fund is a "no-load" fund. There are no sales
or redemption charges, and the Fund has no 12b-1 plan. Growth
Opportunities Fund is a series of Stein Roe Investment Trust.
This prospectus contains information you should know before
investing in Growth Opportunities Fund. Please read it carefully
and retain it for future reference.
A Statement of Additional Information dated Feb. 2, 1998,
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 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, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Table of Contents
Page
Fee Table............................ 2
Financial Highlights..................2
The Fund..............................3
Investment Policies...................3
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...................... 9
Distributions and Income Taxes........9
Investment Return....................10
Management.......................... 10
Organization and Description of
Shares.............................11
For More Information.................12
__________________________
Fee Table
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses (as a
percentage of average net assets)
Management and Administrative Fees (after
reimbursement) 0.41%
12b-1 Fees None
Other Expenses 0.84%
-----
Total Operating Expenses (after reimbursement) 1.25%
=====
Example.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
$13 $40 $69 $151
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in Growth Opportunities Fund. The table
is based upon actual expenses incurred in the last fiscal year.
From time to time, the Adviser may voluntarily undertake to
reimburse Growth Opportunities Fund for a portion of its operating
expenses. The Adviser has undertaken to reimburse Growth
Opportunities Fund for its operating expenses to the extent such
expenses exceed 1.25% of its annual average net assets. This
commitment expires on January 31, 1999, subject to earlier
termination by the Adviser on 30 days' notice to the Fund. Absent
such reimbursement, the Management and Administrative Fees and
Total Operating Expenses would have been 0.90% and 1.74%,
respectively. Any such reimbursement will lower the overall
expense ratio and increase the overall return to investors. (Also
see Management--Fees and Expenses.)
For purposes of the Example above, the figures assume that the
percentage amounts listed under Annual Fund Operating Expenses
remain the same in each of the periods; that all income dividends
and capital gains 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 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 following table reflects the results of operations of Growth
Opportunities Fund for the period 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
Opportunities Fund's financial statements and notes thereto. The
annual report, which may be obtained from Stein Roe Investment
Trust ("Investment Trust") without charge upon request, contains
additional performance information.
Period Ended
Sept. 30,
1997 (d)
-----------
Net Asset Value, Beginning of Period $10.00
------
Income from Investment Operations
Net investment income (loss) --
Net realized and unrealized gains on investments .77
------
Total from investment operations .77
------
Distributions
Net investment income --
Net realized capital gains --
-----
Total distributions --
------
Net Asset Value, End of Period $10.77
======
Ratio of net expenses to average net assets (b) 1.25%*
Ratio of net investment income to average net
assets (c) 0.02%*
Portfolio turnover rate 3%
Average commissions (per share) $0.0708
Total return 7.70%
Net assets, end of period (000 omitted) $49,830
- -----------
*Annualized.
(a) From the commencement of operations on June 30, 1997.
(b) If Growth Opportunities Fund had paid all of its expenses and
there had been no reimbursement by the Adviser, this ratio
would have been 1.74% for the period ended Sept. 30, 1997.
(c) Computed giving effect to the Adviser's fee waiver.
__________________________
The Fund
Stein Roe Growth Opportunities Fund ("Growth Opportunities Fund")
is a no-load "mutual fund." Mutual funds sell their own shares to
investors and use the money they receive to invest in a portfolio
of securities such as common stocks. A mutual fund allows you to
pool your money with that of other investors in order to obtain
professional investment management. Mutual funds generally make it
possible for you to obtain greater diversification of your
investments and simplify your recordkeeping. Growth Opportunities
Fund does not impose commissions or charges when shares are
purchased or redeemed.
Growth Opportunities Fund is a series of 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 advisory, administrative, and bookkeeping and accounting
services to Growth Opportunities 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 investment objective of Growth Opportunities Fund is long-term
capital appreciation. Growth Opportunities Fund attempts to
achieve its objective by investing in a diversified portfolio of
common stocks of large, mid-sized, and small companies that, in the
view of the Adviser, have the ability to generate and sustain
earnings growth at an above-average rate.
Growth Opportunities Fund's investments include securities of both
established companies that the Adviser believes have appreciation
potential and emerging companies. Investment in established
companies tends to moderate the investment risks associated with
investments in emerging, generally smaller, companies. Growth
Opportunities Fund invests a portion of its assets in the
securities of small and mid-sized companies. These companies may
present greater opportunities for capital appreciation because of
high potential earnings growth, but also may involve greater risks.
Securities of smaller companies may be subject to greater price
volatility and tend to be less liquid than securities of larger
companies. Small companies, as compared to large companies, may
have a shorter history of operations, may not have as great an
ability to raise additional capital, may have a less diversified
product line making them more susceptible to market pressure, and
may have a smaller public market for their shares. In addition,
many smaller companies are less well known to the investing public
and may not be as widely followed by the investment community.
Although it invests primarily in common stocks, Growth
Opportunities Fund may invest in all types of equity securities,
including preferred stocks and securities convertible into common
stocks.
Growth Opportunities Fund seeks to make investment decisions based
on a long-term growth philosophy; that is, Growth Opportunities
Fund generally makes investment decisions on the basis of an
individual company's ability to generate and sustain earnings
growth over the long term, rather than on the basis of the near-
term growth prospects of a particular company or economic sector.
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.
n pursuing its investment objective, Growth Opportunities Fund may
invest in debt securities of corporate and governmental issuers.
Investments in unrated debt securities are limited to those deemed
to be of comparable quality by the Adviser. Securities in the
fourth highest grade may possess speculative characteristics, and
changes in economic conditions are more likely to affect the
issuer's capacity to pay interest and repay principal. If the
rating of a security held by Growth Opportunities Fund is lost or
reduced below investment grade, it is not required to dispose of
the security--the Adviser will, however, consider that fact in
determining whether it should continue to hold the security.
Growth Opportunities Fund may invest up to 35% of its net assets in
debt securities, but does not expect to invest more than 5% of its
net assets in debt securities that are rated below investment
grade.
The risks inherent in debt securities depend primarily on the term
and quality of the obligations in the investment portfolio as well
as on market conditions. A decline in the prevailing levels of
interest rates generally increases the value of debt securities.
Conversely, an increase in rates usually reduces the value of debt
securities. Securities that are rated below investment grade are
considered predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal according to the terms
of the obligation, and therefore carry greater investment risk,
including the possibility of issuer default and bankruptcy. When
the Adviser determines that adverse market or economic conditions
exist and considers a temporary defensive position advisable,
Growth Opportunities Fund may invest without limitation in high-
quality fixed income securities or hold assets in cash or cash
equivalents.
Convertible Securities.
By investing in convertible securities, Growth Opportunities Fund
obtains the right to benefit from the capital appreciation
potential in the underlying stock upon exercise of the conversion
right, while earning higher current income than would be available
if the stock were purchased directly. In determining whether to
purchase a convertible security, the Adviser will consider
substantially the same criteria that would be considered in
purchasing the underlying stock. Although convertible securities
purchased by Growth Opportunities Fund are frequently rated
investment grade, it also may purchase unrated securities or
securities rated below investment grade if the securities meet the
Adviser's other investment criteria. Convertible securities rated
below investment grade:
- - Tend to be more sensitive to interest rate and economic changes;
- - May be obligations of issuers who are less creditworthy than
issuers of higher-quality convertible securities; and
- - May be more thinly traded due to the fact that such securities
are less well known to investors than either common stock or
conventional debt securities.
As a result, the Adviser's own investment research and analysis
tend to be more important than other factors in the purchase of
such securities.
Foreign Securities.
Growth Opportunities Fund may invest in foreign securities. Other
than American Depositary Receipts (ADRs), foreign debt securities
denominated in U.S. dollars, or securities guaranteed by a U.S.
person, Growth Opportunities Fund is limited to investing no more
than 25% of its total assets in foreign securities. (See Risks and
Investment Considerations.) Growth Opportunities Fund may invest
in sponsored 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, Growth Opportunities Fund may contract to purchase an
amount of foreign currency sufficient to pay the purchase price of
the securities at the settlement date. Such a contract involves
the risk that the value of the foreign currency may decline
relative to the value of the dollar prior to the settlement date--
this risk is in addition to the risk that the value of the foreign
security purchased may decline. It also may enter into foreign
currency contracts as a hedging technique to limit or reduce
exposure to currency fluctuations. In addition, Growth
Opportunities Fund may use options and futures contracts, as
described below, to limit or reduce exposure to currency
fluctuations. As of Sept. 30, 1997, holdings of foreign companies
amounted to 2.2% of net assets (none in foreign securities and 2.2%
in ADRs).
When-Issued and Delayed-Delivery Securities.
Growth Opportunities Fund may invest in securities purchased on a
when-issued or delayed-delivery basis. Although the payment terms
of these securities are established at the time Growth
Opportunities Fund enters into the commitment, the securities may
be delivered and paid for a month or more after the date of
purchase, when their value may have changed. it 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
Opportunities 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, Growth Opportunities Fund may invest
in a broad array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options;
futures contracts; futures options; securities collateralized by
underlying pools of mortgages or other receivables; floating rate
instruments; and other instruments that securitize assets of
various types ("Derivatives"). In each case, the value of the
instrument or security is "derived" from the performance of an
underlying asset or a "benchmark" such as a security index, an
interest rate, or a currency. Growth Opportunities Fund does not
expect to invest more than 5% of its net assets in any type of
Derivative except for options, futures contracts, and futures
options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in 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 hedge against changes in security prices,
interest rates or currency fluctuations, Growth Opportunities 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. Growth Opportunities Fund 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 Opportunities Fund seeks to
close out a position. In addition, because futures positions may
require low margin deposits, the use of futures contracts involves
a high degree of leverage and may result in losses in excess of the
amount of the margin deposit.
Short Sales Against the Box.
Growth Opportunities Fund may sell short securities it owns or has
the right to acquire without further consideration, a technique
called selling short "against the box." Short sales against the
box may protect 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 Opportunities Fund does not purchase securities
with a view to rapid turnover, there are no limitations on the
length of time portfolio securities must be held. The turnover
rate may vary significantly from year to year. At times, Growth
Opportunities Fund may invest for short-term capital appreciation.
Flexibility of investment and emphasis on capital appreciation may
involve greater portfolio turnover than that of mutual funds that
have the objectives of income or maintenance of a balanced
investment position. A high rate of portfolio turnover may result
in increased transaction expenses and the realization of capital
gains and losses. (See Financial Highlights and Distributions and
Income Taxes.) Growth Opportunities Fund is not intended to be an
income-producing investment, although it may produce varying
amounts of income.
__________________________
Investment Restrictions
Growth Opportunities Fund is diversified as that term is defined in
the Investment Company Act of 1940.
Growth Opportunities Fund will not invest more than 5% of its
assets in the securities of any one issuer. This restriction
applies only to 75% of the investment portfolio, but does not apply
to securities of the U.S. Government or repurchase agreements /1/
for such securities, and would not prevent Growth Opportunities
Fund from investing all of its assets in shares of another
investment company having the identical investment objective under
a master/feeder structure.
- -------
/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.
- -------
Growth Opportunities Fund will not acquire more than 10% of the
outstanding voting securities of any one issuer. It may, however,
invest all of its assets in shares of another investment company
having the identical investment objective under a master/feeder
structure.
Growth Opportunities Fund may not make loans, but may (1) purchase
money market instruments and enter into repurchase agreements; (2)
acquire publicly distributed or privately placed debt securities;
(3) lend 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 nonleveraging,
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. Additional securities may not be purchased when
borrowings, less proceeds receivable from sales of portfolio
securities, exceed 5% of total assets.
Growth Opportunities Fund may invest in repurchase agreements,
provided that it will not invest more than 15% of its net assets in
illiquid securities, including repurchase agreements maturing in
more than seven days.
The policies summarized in the second, third, and fourth paragraphs
under this section and the policy with respect to concentration of
investments in any one industry described under Risks and
Investment Considerations are fundamental policies and, as such,
can be changed only with the approval of a "majority of the
outstanding voting securities" as defined in the Investment Company
Act of 1940. The investment objective is nonfundamental 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.
__________________________
Risks and Investment Considerations
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Growth Opportunities
Fund is designed for long-term investors who can accept the
fluctuations in portfolio value and other risks associated with
seeking long-term capital appreciation by investing in a
diversified portfolio of common stocks of large, mid-sized and
small companies. Growth Opportunities 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 Growth Opportunities Fund will achieve its
objective.
Securities of small and medium-sized companies may be subject to
greater price volatility and tend to be less liquid than securities
of larger companies. Small companies, as compared to large
companies, may have a shorter history of operations, may not have
as great an ability to raise additional capital, may have a less
diversified product line making them susceptible to market
pressure, and may have a smaller public market for their shares.
In addition, many smaller companies are less well known to the
investing public and may not be as widely followed by the
investment community.
Debt securities rated in the fourth highest grade may have some
speculative characteristics, and changes in economic conditions or
other circumstances may lead to a weakened capacity of the issuers
of such securities to make principal and interest payments.
Securities rated below investment grade may possess speculative
characteristics, and changes in economic conditions are more likely
to affect the issuer's capacity to pay interest or repay principal.
Growth Opportunities Fund generally allocates its investments among
a number of different industries rather than concentrating in a
particular industry or group of industries. Growth Opportunities
Fund, however, will not invest more than 25% of the total value of
its assets (at the time of investment) in the securities of
companies in any one industry. (See Investment Policies.)
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers, 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
nonresidents may apply, including imposition of exchange controls
and withholding taxes on dividends, and seizure or nationalization
of investments owned by nonresidents. Foreign investments also
tend to involve higher transaction and custody costs.
Master Fund/Feeder Fund Option.
Rather than invest in securities directly, Growth Opportunities
Fund may in the future seek to achieve its investment objective by
pooling its assets with those of other investment companies for
investment in another investment company having the same investment
objective and substantially the same investment policies as the
Fund. The purpose of such an arrangement is to achieve greater
operational efficiencies and to reduce costs. It is expected that
the assets of any such investment company would be managed by the
Adviser in substantially the same manner as Growth Opportunities
Fund. Shareholders will be given at least 30 days' prior notice of
any such investment. Such investment would be made only if the
Trustees determine it to be in the best interests of Growth
Opportunities Fund and its shareholders.
__________________________
How to Purchase Shares
All shares must be purchased through your employer's defined
contribution plan. For more information about how to purchase
shares 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 net asset value (see Net
Asset Value) next determined after receipt of an order in good
form, including receipt of payment by Growth Opportunities Fund.
Each purchase of 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 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 Opportunities 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 the Trust or of the
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 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 no-load 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 no-load 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 no-load Stein Roe
Funds available through your plan. Growth Opportunities 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 the net asset value per
share at the time of redemption, it may be more or less than the
price you originally paid for the shares.
__________________________
Net Asset Value
The purchase or redemption price of the shares is the net asset
value per share. The net asset value of a share of Growth
Opportunities Fund is determined as of the close of regular session
trading on the New York Stock Exchange ("NYSE") (currently 3:00
p.m., central time) by dividing the difference between the values
of assets and liabilities by the number of shares outstanding. Net
asset value will not be determined on days when the NYSE is closed
unless, in the judgment of the Board of Trustees, the net asset
value of Growth Opportunities Fund should be determined on any such
day, in which case the determination will be made at 3:00 p.m.,
central time.
Each security traded on a national stock exchange is valued at its
last sale price on that exchange on the day of valuation or, if
there are no sales that day, at the latest bid quotation. Each
over-the-counter security for which the last sale price on the day
of valuation is available from Nasdaq is valued at that price. All
other over-the-counter securities for which reliable quotations are
available are valued at the latest bid quotation.
Long-term straight-debt obligations and securities convertible into
stocks are valued at a fair value using a procedure determined in
good faith by the Board of Trustees. Pricing services approved by
the Board provide valuations (some of which may be "readily
available market quotations"). These valuations are reviewed by
the Adviser. If the Adviser believes that a valuation received
from the service does not represent a fair value, it values the
obligation using a method that the Board believes represents fair
value. The Board may approve the use of other pricing services and
any pricing service used may employ electronic data processing
techniques, including a so-called "matrix" system, to determine
valuations. Other assets and securities are valued by a method
that the Board believes represents fair value.
__________________________
Distributions and Income Taxes
Distributions.
Income dividends are normally declared and paid annually. Growth
Opportunities Fund intends to distribute by the end of each
calendar year at least 98% of any net capital gains realized from
the sale of securities during the 12-month period ended Oct. 31 in
that year. It 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 Opportunities Fund. Generally, dividend
and capital gains distributions will be reinvested in additional
Fund shares.
Income Taxes.
Growth Opportunities 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
Opportunities 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 Growth Opportunities
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 Opportunities Fund as an investment through
such a plan and the tax treatment of distributions (including
distributions of amounts attributable through an investment in
Growth Opportunities 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 Opportunities Fund is
measured by the distributions received (assuming reinvestment),
plus or minus the change in the net asset value per share for a
given period. A total return percentage may be calculated by
dividing the value of a share at the end of the period (including
reinvestment of distributions) by the value of the share at the
beginning of the period and subtracting one. For a given period,
an average annual total return may be calculated by finding the
average annual compounded rate that would equate a hypothetical
$1,000 investment to the ending redeemable value.
Comparison of Growth Opportunities Fund's total return with
alternative investments should consider differences between Growth
Opportunities Fund and the alternative investments, the periods and
methods used in calculation of the return being compared, and the
impact of taxes on alternative investments. Growth Opportunities
Fund's total return does not reflect any charges or expenses
related to your employer's plan. Of course, past performance is no
guarantee of future results.
__________________________
Management
Trustees and Investment Adviser.
The Board of Trustees of Investment Trust has overall management
responsibility for the Trust and Growth Opportunities Fund. See
the Statement of Additional Information for the names of and other
information about the trustees and officers. The Adviser, Stein
Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
Illinois 60606, is responsible for managing the investment
portfolio and the business affairs of Growth Opportunities Fund and
Investment 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 and its predecessor have 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, Eric S. Maddix and Arthur J. McQueen have been
co-portfolio managers of Growth Opportunities Fund since its
inception in 1997. 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 is a vice president
of the Adviser, which he joined in 1987. He received his B.B.A.
degree from Iowa State University (1986) and his M.B.A. from the
University of Chicago (1992). Mr. McQueen, a senior vice president
of the Adviser, joined it in 1987. He received a B.S. from
Villanova University (1980) and an M.B.A. from the Wharton School
of the University of Pennsylvania (1987). As of Sept. 30, 1997,
Ms. Santella and Mr. Maddix co-managed $1.1 billion in mutual fund
net assets and Mr. McQueen co-managed $50 million in mutual fund
net assets.
Fees and Expenses.
The Adviser is entitled to receive a monthly management fee from
Growth Opportunities Fund 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 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 Sept.
30, 1997, total expenses, after the fee reimbursement described
under Fee Table, amounted to 1.25% of average net assets.
Under a separate agreement with Investment Trust, the Adviser
provides certain accounting and bookkeeping services to Growth
Opportunities Fund, including computation of net asset value and
calculation of net income and capital gains and losses on
disposition of assets.
Portfolio Transactions.
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures transactions. In
doing so, the Adviser seeks to obtain the best combination of price
and execution, which involves a number of judgmental factors.
Transfer Agent.
SteinRoe Services Inc., One South Wacker Drive, Chicago, Illinois
60606, a wholly owned subsidiary of Liberty Financial, is the agent
of Investment Trust for the transfer of shares, disbursement of
dividends, and maintenance of shareholder accounting records.
Distributor.
The shares of Growth Opportunities Fund are offered for sale
through Liberty Financial Investments, Inc. ("Distributor") without
any sales commissions or charges to Growth Opportunities Fund or to
its shareholders. The Distributor is a subsidiary of Colonial
Management Associates, Inc., which is an indirect subsidiary of
Liberty Financial. The business address of the Distributor is One
Financial Center, Boston, Massachusetts 02111; 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 Growth
Opportunities Fund. Foreign securities are maintained in the
custody of foreign banks and trust companies that are members of
the Bank's Global Custody Network or foreign depositories used by
such members. (See Custodian in the Statement of Additional
Information.)
__________________________
Organization and Description of Shares
Investment Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of Trust")
dated Jan. 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either Investment
Trust's shareholders or its trustees. Investment Trust may issue
an unlimited number of shares, in one or more series as the Board
may authorize. Currently, 10 series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as Investment Trust could, in some circumstances, be
held personally liable for unsatisfied obligations of the trust.
The Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, Investment Trust or
any particular series shall look only to the assets of Investment
Trust or of the respective series for payment under such credit,
contract or claim, and that the shareholders, trustees and officers
shall have no personal liability therefor. The Declaration of
Trust requires that notice of such disclaimer of liability be given
in each contract, instrument or undertaking executed or made on
behalf of Investment Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or having
been a shareholder. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is believed to
be remote, because it would be limited to circumstances in which
the disclaimer was inoperative and Investment Trust was unable to
meet its obligations.
The risk of a particular series incurring financial loss on account
of unsatisfied liability of another series of Investment Trust also
is believed to be remote, because it would be limited to claims to
which the disclaimer did not apply and to circumstances in which
the other series was unable to meet its obligations.
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.
__________________________
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]
PROSPECTUS Feb. 2, 1998
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 SR&F Balanced Portfolio, which has the same investment
objective and substantially the same investment policies as
Balanced Fund. The investment experience of Balanced Fund will
correspond to Balanced Portfolio. (See Master Fund/Feeder Fund:
Structure and Risk Factors.)
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 an 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 Feb. 2, 1998,
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, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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
Master Fund/Feeder Fund: Structure
and Risk Factors....................11
For More Information.................. 12
__________________________
Fee Table
Shareholder Transaction Expenses
Sales Load Imposed on Purchases ....... None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses (as a
percentage of average net assets)
Management and Administrative Fees 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 fees and expenses. The trustees of Stein Roe Investment
Trust ("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. The trustees 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 under Annual Fund Operating Expenses
remain the same in each of the periods, that all income dividends
and capital gains 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 following table 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. The annual report, which
may be obtained from Investment Trust without charge upon request,
contains additional performance information.
<TABLE>
<CAPTION>
Nine
Year Months
Ended Ended
Dec. 31, Sept. 30, Years Ended Sept. 30,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $25.07 $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78 $27.82 $30.07
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Income from
Investment Operations
Net investment
income 1.32 0.97 1.37 1.28 1.32 1.31 1.26 1.15 1.33 1.00 0.95
Net realized and
unrealized gains
(losses) on invest-
ments (1.06) 0.45 3.10 (2.92) 4.85 1.48 2.37 (1.06) 2.22 2.96 5.61
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Total from invest-
ment operations 0.26 1.42 4.47 (1.64) 6.17 2.79 3.63 0.09 3.55 3.96 6.56
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Distributions
Net investment income (1.63) (0.90) (1.34) (1.36) (1.26) (1.34) (1.30) (1.17) (1.23) (1.01) (0.96)
Net realized capital
gains (1.45) (0.11) (0.38) (0.73) (0.51) (0.62) (1.67) (0.71) (0.28) (0.70) (2.26)
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (3.08) (1.01) (1.72) (2.09) (1.77) (1.96) (2.97) (1.88) (1.51) (1.71) (3.22)
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of
Period $22.25 $22.66 $25.41 $21.68 $26.08 $26.91 $27.57 $25.78 $27.82 $30.07 $33.41
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net expenses
to average net assets 0.80% *0.87% 0.90% 0.88% 0.87% 0.85% 0.81% 0.83% 0.87% 1.05% 1.05%
Ratio of net invest-
ment income to
average net assets 5.12% *5.68% 5.83% 5.36% 5.50% 4.94% 4.69% 4.53% 5.14% 3.45% 3.02%
Portfolio turnover
rate 86% 85% 93% 75% 71% 59% 53% 29% 45% 87% 15%(a)
Average commissions
(per share) -- -- -- -- -- -- -- -- -- $0.0537 $0.0594(a)
Total return 0.74% 6.51% 20.76% (6.86%) 29.67% 11.13% 14.57% 0.36% 14.49% 14.83% 23.60%
Net assets, end of
period (000 omitted) $140,279 $134,225 $144,890 $124,592 $150,689 $173,417 $222,292 $229,274 $228,560 $231,063 $284,846
</TABLE>
*Annualized.
(a) Prior to the commencement of operations of Balanced Portfolio.
The portfolio turnover rate for Balanced Portfolio from Feb. 3,
1997, was 21%.
__________________________
The Fund
Stein Roe Balanced Fund ("Balanced Fund") is a no-load "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 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 Feb. 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 other 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 Master Fund/Feeder Fund: Structure and Risk
Factors.)
__________________________
Investment Policies
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. Fixed income 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 Sept. 30, 1997,
Balanced Portfolio's holdings of foreign companies amounted to
11.4% of net assets (3.9% in foreign securities and 7.5% 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 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
Each of Balanced Fund and Balanced Portfolio is diversified as that
term is defined in the Investment Company Act of 1904.
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 under
a master/feeder structure.
- ------
/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 under a master/feeder structure.
While neither Balanced Fund nor Balanced Portfolio may make loans,
each may (1) purchase money market instruments and enter into
repurchase agreements; (2) acquire publicly distributed or
privately placed debt securities; (3) lend 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 nonleveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither aggregate borrowings (including reverse
repurchase agreements) nor aggregate loans at any one time may
exceed 33 1/3% of the value of total assets. Additional securities
may not be purchased when borrowings, less proceeds receivable from
sales of portfolio securities, exceed 5% of total assets.
Balanced Portfolio may invest in repurchase agreements, provided
that it will not invest more than 15% of its net assets in illiquid
securities, including repurchase agreements maturing in more than
seven days.
The policies summarized in the second, third, and fourth 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 nonfundamental 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
nonresidents may apply, including imposition of exchange controls
and withholding taxes on dividends, and seizure or nationalization
of investments owned by nonresidents. Foreign investments also
tend to involve higher transaction and custody costs.
__________________________
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 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 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 interests 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 no-load 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 no-
load 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 no-load
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 or 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 regular session
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. 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 12-month period ended Oct. 31 in
that year. It 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 no guarantee 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 and its predecessor have 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 Apr., 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 Sept. 30, 1997, Mr. Hirschhorn was responsible for managing
$615 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) and an M.B.A from the University of
Chicago (1995). 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 a quantitative 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 Feb. 3, 1997, the management fee was paid by
Balanced Fund. For the fiscal year ended Sept. 30, 1997, total
expenses amounted to 1.05% of the average net assets of Balanced
Fund. At Sept. 30, 1997, Balanced Fund owned 99.96% of Balanced
Portfolio.
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
Financial Investments, Inc. ("Distributor") without any sales
commissions or charges to Balanced Fund or to its shareholders.
The Distributor is a subsidiary of Colonial Management Associates,
Inc., which is an indirect subsidiary of Liberty Financial. The
business address of the Distributor is One Financial Center,
Boston, Massachusetts 02111; 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 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 Jan. 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either Investment
Trust's shareholders or its trustees. Investment Trust may issue
an unlimited number of shares, in one or more series as the Board
may authorize. Currently, 10 series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as Investment Trust could, in some circumstances, be
held personally liable for unsatisfied obligations of the trust.
The Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, Investment Trust or
any particular series shall look only to the assets of Investment
Trust or of the respective series for payment under such credit,
contract or claim, and that the shareholders, trustees and officers
shall have no personal liability therefor. The Declaration of
Trust requires that notice of such disclaimer of liability be given
in each contract, instrument or undertaking executed or made on
behalf of Investment Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or having
been a shareholder. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is believed to
be remote, because it would be limited to circumstances in which
the disclaimer was inoperative and Investment Trust was unable to
meet its obligations.
The risk of a particular series incurring financial loss on account
of unsatisfied liability of another series of Investment Trust also
is believed to be remote, because it would be limited to claims to
which the disclaimer did not apply and to circumstances in which
the other series was unable to meet its obligations.
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.
__________________________
Master Fund/Feeder Fund:
Structure and Risk Factors
Balanced Fund, which is an open-end management investment company,
seeks to achieve its objective by investing all of its assets in
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 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
Aug. 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 nonfundamental 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. 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 in the Portfolio. 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 Feb. 2, 1998
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 SR&F Growth Stock Portfolio, which has the
same investment objective and substantially the same investment
policies as Growth Stock Fund. The investment experience of Growth
Stock Fund will correspond to Growth Stock Portfolio. (See Master
Fund/Feeder Fund: Structure and Risk Factors.) Growth Stock
Portfolio invests in common stocks and other equity-type securities.
Growth Stock Fund is closed to new investors except for purchases
by eligible investors as described under How to Purchase Shares.
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 an 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 Feb. 2, 1998,
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, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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............................... 10
Organization and Description of Shares....11
Master Fund/Feeder Fund: Structure
and Risk Factors.......................11
For More Information..................... 13
__________________________
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 0.32%
-----
Total Operating Expenses 1.07%
=====
Example.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
$11 $34 $59 $131
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in 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 fees and expenses. The trustees of Stein Roe
Investment Trust ("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. The trustees 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 under Annual Fund Operating Expenses
remain the same in each of the periods; that all income dividends
and capital gains 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 following table 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. The annual report, which
may be obtained from Investment Trust without charge upon request,
contains additional performance information.
<TABLE>
<CAPTION>
Nine
Year Months
Ended Ended
Dec. 31, Sept. 30, Years Ended Sept. 30,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $16.97 $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58 $26.13 $28.79
------ ------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Income from Investment
Operations
Net investment
income 0.24 0.19 0.34 0.39 0.33 0.18 0.15 0.13 0.12 0.08 0.01
Net realized and
unrealized gains
(losses) on
investments 0.46 (0.11) 4.51 (1.17) 5.90 3.01 1.14 0.41 5.60 5.01 8.79
------ ------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Total from investment
operations 0.70 0.08 4.85 (0.78) 6.23 3.19 1.29 0.54 5.72 5.09 8.80
------ ------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Distributions
Net investment
Income (0.29) (0.15) (0.34) (0.37) (0.42) (0.16) (0.10) (0.12) (0.15) (0.10) (0.07)
Net realized capital
gains (2.71) -- (0.06) -- (0.92) (1.17) (0.95) (1.73) (3.02) (2.33) (2.23)
------ ------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Total distributions (3.00) (0.15) (0.40) (0.37) (1.34) (1.33) (1.05) (1.85) (3.17) (2.43) (2.30)
------ ------ ------ ------ ------ ----- ------ ------ ------ ------ ------
Net Asset Value,
End of Period $14.67 $14.60 $19.05 $17.90 $22.79 $24.65 $24.89 $23.58 $26.13 $28.79 $35.29
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net
expenses to average
net assets 0.65% *0.76% 0.77% 0.73% 0.79% 0.92% 0.93% 0.94% 0.99% 1.08% 1.07%
Ratio of net
investment income
to average net
assets 1.25% *1.62% 2.05% 2.03% 1.63% 0.75% 0.59% 0.50% 0.56% 0.32% 0.04%
Portfolio turnover
rate 143% 84% 47% 40% 34% 23% 29% 27% 36% 39% 5%(a)
Average commissions
(per share) -- -- -- -- -- -- -- -- -- $0.0528 $0.0582(a)
Total return 5.57% 0.54% 33.86% (4.17%) 36.64% 14.37% 5.09% 2.10% 28.18% 21.04% 33.10%
Net assets,
end of period
(000 omitted) $232,658 $195,641 $206,476 $206,031 $291,767 $372,758 $373,921 $321,502 $360,336 $417,964 $607,699
</TABLE>
*Annualized
(a) Prior to the commencement of operations of Growth Stock
Portfolio. The portfolio turnover for Growth Stock Portfolio
from Feb. 3, 1997, was 22%.
Note: For the year ended Sept. 30, 1989, the average amount of debt
outstanding was $124,000, the average number of shares
outstanding was 11,745,000, and the average amount of debt
outstanding per share was $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
"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 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 Feb. 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 other
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 Master
Fund/Feeder Fund: Structure and Risk Factors.)
__________________________
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 its
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
Sept. 30, 1997, Growth Stock Portfolio's holdings of foreign
companies amounted to 4.8% of net assets (1.6% in foreign
securities and 3.2% 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 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
Each of Growth Stock Fund and Growth Stock Portfolio is diversified
as that term is defined in the Investment Company Act of 1940.
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 under a master/feeder structure.
- -------
/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 under a master/feeder structure.
While neither Growth Stock Fund nor Growth Stock Portfolio may make
loans, each may (1) purchase money market instruments and enter
into repurchase agreements; (2) acquire publicly distributed or
privately placed debt securities; (3) lend 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 nonleveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither aggregate borrowings (including reverse
repurchase agreements) nor aggregate loans at any one time may
exceed 33 1/3% of the value of total assets. Additional securities
may not be purchased when borrowings, less proceeds receivable from
sales of portfolio securities, exceed 5% of total assets.
Growth Stock Portfolio may invest in repurchase agreements,
provided that it will not invest more than 15% of its net assets in
illiquid securities, including repurchase agreements maturing in
more than seven days.
The policies summarized in the second, third, and fourth 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 nonfundamental 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
nonresidents may apply, including imposition of exchange controls
and withholding taxes on dividends, and seizure or nationalization
of investments owned by nonresidents. Foreign investments also
tend to involve higher transaction and custody costs.
__________________________
How to Purchase Shares
Growth Stock 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 portfolio. If you are already a shareholder of
Growth Stock Fund, you may continue to add to your account or open
another account in your name. In addition, you may open a new
account if:
- - you are a shareholder of any other Stein Roe Fund, having
purchased shares directly from Stein Roe, as of Oct. 15, 1997
and you are opening a new account by exchange or by dividend
reinvestment as described in the prospectus;
- - you are a client of the Fund's investment adviser, Stein Roe &
Farnham Incorporated (the "Adviser");
- - you are a trustee of Stein Roe 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 purchase shares (i) under an asset allocation program
sponsored by a financial advisor, broker-dealer, bank, trust
company or other intermediary or (ii) from certain financial
advisors who charge a fee for services and who, as of Oct. 15,
1997, have one or more clients who were Growth Stock Fund
shareholders; or
- - you purchase shares for an employee benefit plan, the records for
which are maintained by a trust company or third party
administrator under an investment program with the Fund.
The trustees of Investment Trust concluded that permitting the
additional investments described above would not adversely affect
the ability of the Adviser to manage the portfolio effectively. If
you have questions about your eligibility to purchase shares of
Growth Stock 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 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 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 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 interests 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 no-load 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 no-
load 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 no-load
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 or 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 regular session
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. 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 12-month period ended Oct. 31 in that year.
It 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 no guarantee 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 and its predecessor have 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 Sept.
30, 1997, Ms. Gustafson was responsible for managing $1.3 billion
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 Feb. 3, 1997, the management fee was
paid by Growth Stock Fund. For the fiscal year ended Sept. 30,
1997, total expenses amounted to 1.07% of the average net assets of
Growth Stock Fund. At Sept. 30, 1997, Growth Stock Fund owned
99.96% of Growth Stock Portfolio.
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 Financial Investments, Inc. ("Distributor") without any
sales commissions or charges to Growth Stock Fund or to its
shareholders. The Distributor is a subsidiary of Colonial
Management Associates, Inc., which is an indirect subsidiary of
Liberty Financial. The business address of the Distributor is One
Financial Center, Boston, Massachusetts 02111; 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 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 Jan. 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either Investment
Trust's shareholders or its trustees. Investment Trust may issue
an unlimited number of shares, in one or more series as the Board
may authorize. Currently, 10 series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as Investment Trust could, in some circumstances, be
held personally liable for unsatisfied obligations of the trust.
The Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, Investment Trust or
any particular series shall look only to the assets of Investment
Trust or of the respective series for payment under such credit,
contract or claim, and that the shareholders, trustees and officers
shall have no personal liability therefor. The Declaration of
Trust requires that notice of such disclaimer of liability be given
in each contract, instrument or undertaking executed or made on
behalf of Investment Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or having
been a shareholder. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is believed to
be remote, because it would be limited to circumstances in which
the disclaimer was inoperative and Investment Trust was unable to
meet its obligations.
The risk of a particular series incurring financial loss on account
of unsatisfied liability of another series of Investment Trust also
is believed to be remote, because it would be limited to claims to
which the disclaimer did not apply and to circumstances in which
the other series was unable to meet its obligations.
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.
__________________________
Master Fund/Feeder Fund:
Structure and Risk Factors
Growth Stock Fund, which is an open-end management investment
company, seeks to achieve its objective by investing all of its
assets in 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
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
Aug. 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 nonfundamental 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. 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 in the Portfolio. 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 Feb. 2, 1998
Defined Contribution Plans
Stein Roe Capital Opportunities Fund
The Fund seeks long-term capital appreciation by investing in
aggressive growth companies.
This prospectus relates only to shares of the Fund purchased
through eligible employer-sponsored defined contribution plans
("defined contribution plans").
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
the Stein Roe Investment Trust.
This prospectus contains information you should know before
investing in the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated Feb. 2, 1998,
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, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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................... 7
Net Asset Value........................ 8
Distributions and Income Taxes..........8
Investment Return.......................9
Management............................. 9
Organization and Description of Shares.10
For More Information...................11
__________________________
Fee Table
Shareholder Transaction Expenses
Sales Load Imposed on Purchases None
Sales Load Imposed on Reinvested Dividends None
Deferred Sales Load None
Redemption Fees None
Exchange Fees None
Annual Fund Operating Expenses (as a
percentage of average net assets)
Management and Administrative Fees 0.85%
12b-1 Fees None
Other Expenses 0.32%
-----
Total Operating Expenses 1.17%
=====
Example.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years 5 years 10 years
$12 $37 $64 $142
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in the Fund. The 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 under Annual Fund Operating Expenses
remain the same in each of the periods; that all income dividends
and capital gains 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 following table 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 annual report, which may be obtained from
the Trust without charge upon request, contains additional
performance information.
<TABLE>
<CAPTION>
Nine
Year Months
Ended Ended
Dec. 31, Sept. 30, Years Ended Sept. 30,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $13.38 $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 $15.79 $21.69 $31.04
------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------
Income from
Investment
Operations
Net investment
income (loss) 0.03 0.03 0.05 0.06 0.11 0.06 0.01 0.02 0.01 (0.06) (0.17)
Net realized and
unrealized gains
(losses) on
investments 0.62 0.13 3.86 (4.72) 3.73 0.60 3.91 0.34 5.91 10.41 (1.77)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------
Total from invest-
ment operations 0.65 0.16 3.91 (4.66) 3.84 0.66 3.92 0.36 5.92 10.35 (1.94)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------
Distributions
Net investment
income (0.05) -- (0.05) (0.06) (0.08) (0.10) (0.04) (0.01) (0.02) (0.01) --
Net realized
capital gains (3.36) -- (0.06) (2.54) (0.08) -- -- -- -- (0.99) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------
Total distribu-
tions (3.41) -- (0.11) (2.60) (0.16) (0.10) (0.04) (0.01) (0.02) (1.00) --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------- ------
Net Asset Value,
End of Period $10.62 $10.78 $14.58 $ 7.32 $11.00 $11.56 $15.44 $15.79 $21.69 $31.04 $29.10
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net
expenses to
average net
assets 0.95% *1.01% 1.09% 1.14% 1.18% 1.06% 1.06% 0.97% 1.05% 1.22% 1.17%
Ratio of net invest-
ment income (loss)
to average net
assets 0.18% *0.34% 0.42% 0.43% 1.19% 0.42% 0.09% 0.04% 0.08% (0.40%) (0.69%)
Portfolio turnover
rate 133% 164% 245% 171% 69% 46% 55% 46% 60% 22% 35%
Average commissions
(per share) -- -- -- -- -- -- -- -- -- $0.0555 $0.0487
Total return 9.38% 1.51% 36.68% (37.51%) 53.51% 5.99% 34.01% 2.31% 37.46% 49.55% (6.25%)
Net assets,
end of period
(000 omitted) $171,973 $194,160 $272,805 $86,342 $129,711 $118,726 $153,101 $175,687 $242,381 $1,684,538 $1,110,642
</TABLE>
- -------------
*Annualized
All per share amounts and Average Shares Outstanding During Period
on the debt table reflect a two-for-one stock split effective Aug.
25, 1995.
For the periods indicated below, bank borrowing activity was as
follows:
Average debt Average shares Average
Period Ended Debt outstanding outstanding outstanding debt per
at end of period during period during period share
(in thousands) (in thousands) (in thousands) during period
- --------------- ---------------- ------------- -------------- ------------
Dec. 31, 1987 -- 292 16,008 0.0183
Sept. 30, 1988 -- 56 17,206 0.0033
Sept. 30, 1989 -- 422 16,066 0.0263
Sept. 30, 1990 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
"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. Investments 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 Sept.
30, 1997, the Fund's holdings of foreign companies amounted to 2.2%
of net assets (none in foreign securities and 2.2% in ADRs).
When-Issued and Delayed-Delivery Securities.
The Fund may invest in securities purchased on a when-issued or
delayed-delivery basis. Although the payment terms of these
securities are established at the time the Fund enters into the
commitment, the securities may be delivered and paid for a month or
more after the date of purchase, when their value may have changed.
The Fund will make such commitments only with the intention of
actually acquiring the securities, but may sell the securities
before settlement date if it is deemed advisable for investment
reasons. The Fund may make loans of its portfolio securities to
broker-dealers and banks subject to certain restrictions described
in the Statement of Additional Information. 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 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 is diversified as that term is defined in the Investment
Company Act of 1940.
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 under a master/feeder structure.
- ------
/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.
- ------
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 under a master/feeder structure.
The Fund may not make loans, but it may (1) purchase money market
instruments and enter into repurchase agreements; (2) acquire
publicly distributed or privately placed debt securities; (3) lend
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 nonleveraging, 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 it will
not invest more than 15% of its net assets in illiquid securities,
including repurchase agreements maturing in more than seven days.
The policies summarized in the second, third, and fourth 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 Fund's investment objective is nonfundamental
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
nonresidents may apply, including imposition of exchange controls
and withholding taxes on dividends, and seizure or nationalization
of investments owned by nonresidents. Foreign investments also
tend to involve higher transaction and custody costs.
Master Fund/Feeder Fund Option.
Rather than invest in securities directly, the Fund may in the
future seek to achieve its investment objective by pooling its
assets with those of other investment companies for investment in
another investment company having the same investment objective and
substantially the same investment policies as the Fund. The
purpose of such an arrangement is to achieve greater operational
efficiencies and to reduce costs. It is expected that the assets
of any such investment company would be managed by the Adviser in
substantially the same manner as 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
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 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 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.
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 no-load 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 no-load 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 no-load 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 or 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 regular session 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 o any such day.
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 12-month period ended Oct. 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 no guarantee 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 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 and its predecessor have 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 Oct.,
1994, and had been co-portfolio manager of the Fund since Mar.,
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 Sept. 30, 1997, Ms. Santella
and Mr. Maddix co-managed $1.2 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 Sept. 30, 1997,
total expenses amounted to 1.17% 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 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 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
Financial Investments, Inc. ("Distributor") without any sales
commissions or charges to the Fund or to its shareholders. The
Distributor is a subsidiary of Colonial Management Associates,
Inc., which is an indirect subsidiary of Liberty Financial. The
business address of the Distributor is One Financial Center,
Boston, Massachusetts 02111; 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 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
Jan. 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, 10 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 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 also is
believed to be remote, because it would be limited to claims to
which the disclaimer did not apply and to circumstances in which
the other series was unable to meet its obligations.
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.
__________________________
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 Feb. 2, 1998
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 SR&F Special Portfolio, which has the same investment
objective and substantially the same investment policies as Special
Fund. The investment experience of Special Fund will correspond to
Special Portfolio. (See Master Fund/Feeder Fund: Structure and Risk
Factors.) 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 an 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 Feb. 2, 1998,
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, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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.............................10
Master Fund/Feeder Fund: Structure
and Risk Factors..................11
For More Information................ 13
__________________________
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 0.86%
12b-1 Fees None
Other Expenses 0.28%
-----
Total Operating Expenses 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 $139
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.
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 fees and expenses. The trustees of Stein Roe Investment
Trust ("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. The trustees 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 under Annual Fund Operating Expenses
remain the same in each of the periods; that all income dividends
and capital gains 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 following table 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. The annual report, which
may be obtained from Investment Trust without charge upon request,
contains additional performance information.
<TABLE>
<CAPTION>
Nine
Year Months
Ended Ended
Dec. 31, Sept. 30, Years Ended Sept. 30,
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------ ------ ------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $16.95 $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54 $25.26 $27.39
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from Investment
Operations
Net investment income
(loss) 0.23 0.14 0.36 0.42 0.34 0.21 0.17 0.15 0.13 0.01 (0.06)
Net realized and
unrealized gains
(losses) on
investments 0.12 2.16 5.58 (2.10) 4.55 1.50 5.31 0.33 3.05 4.14 8.57
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations 0.35 2.30 5.94 (1.68) 4.89 1.71 5.48 0.48 3.18 4.15 8.51
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions
Net investment
income (0.57) (0.01) (0.21) (0.39) (0.34) (0.37) (0.18) (0.21) (0.15) (0.11) --
Net realized capital
gains (3.90) -- (0.06) (2.08) (1.32) (0.31) (1.16) (1.77) (1.31) (1.91) (2.11)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions (4.47) (0.01) (0.27) (2.47) (1.66) (0.68) (1.34) (1.98) (1.46) (2.02) (2.11)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value,
End of Period $12.83 $15.12 $20.79 $16.64 $19.87 $20.90 $25.04 $23.54 $25.26 $27.39 $33.79
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Ratio of net expenses
to average net
assets 0.96% *0.99% 0.96% 1.02% 1.04% 0.99% 0.97% 0.96% 1.02% 1.18% 1.14%
Ratio of net invest-
ment income (loss)
to average net
assets 1.32% *1.31% 2.12% 2.33% 2.11% 0.99% 0.92% 0.91% 0.56% 0.03% (0.17%)
Portfolio turnover
rate 103% 42% 85% 70% 50% 40% 42% 58% 41% 32% 7%(a)
Average commissions
(per share) -- -- -- -- -- -- -- -- -- $0.0482 $0.0382(a)
Total return 4.27% 17.94% 40.00% (8.78%) 32.18% 8.96% 27.35% 2.02% 14.60% 17.89% 33.67%
Net assets,
end of period
(000 omitted) $187,997 $224,628 $322,056 $361,065 $587,259 $626,080 $1,076,818 $1,243,885 $1,201,469 $1,158,498 $1,327,578
</TABLE>
*Annualized
(a) Prior to commencement of operations of Special Portfolio. The
portfolio turnover rate for Special Portfolio from Feb. 3, 1997, is
8%.
__________________________
The Fund
Stein Roe Special Fund ("Special Fund") is a no-load "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 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 Feb. 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 other 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 Master Fund/Feeder Fund: Structure and Risk Factors.)
__________________________
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. Special
Portfolio does not, however, 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 Sept. 30, 1997,
Special Portfolio's holdings of foreign companies amounted to 7.8%
of net assets (5.3% in foreign securities and 2.5% in ADSs).
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 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
Each of Special Fund and Special Portfolio is diversified as that
term is defined in the Investment Company Act of 1940.
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 under a master/feeder
structure.
- -----
/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 under a master/feeder structure.
While neither Special Fund nor Special Portfolio may make loans,
each may (1) purchase money market instruments and enter into
repurchase agreements; (2) acquire publicly distributed or
privately placed debt securities; (3) lend 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 nonleveraging, temporary, or emergency
purposes or in connection with participation in the interfund
lending program. Neither aggregate borrowings (including reverse
repurchase agreements) nor aggregate loans at any one time may
exceed 33 1/3% of the value of total assets. Additional securities
may not be purchased when borrowings, less proceeds receivable from
sales of portfolio securities, exceed 5% of total assets.
Special Portfolio may invest in repurchase agreements, provided
that it will not invest more than 15% of its net assets in illiquid
securities, including repurchase agreements maturing in more than
seven days.
The policy described in the fourth 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
nonfundamental 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
nonresidents may apply, including imposition of exchange controls
and withholding taxes on dividends, and seizure or nationalization
of investments owned by nonresidents. Foreign investments also
tend to involve higher transaction and custody costs.
__________________________
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 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 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 interests 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 no-load 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 no-
load 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 no-load
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 or 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 regular session
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. 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 12-month period ended Oct. 31 in that year.
It 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 no guarantee 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 and its predecessor have 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.
M. Gerard Sandel has been manager of Special Portfolio and senior
vice president and principal of the Adviser since July 1997. Prior
to joining the Adviser in July 1997, Mr. Sandel was portfolio
manager of the Marshall Mid-Cap Value Fund and its predecessor fund
and vice president of M&I Investment Management Corporation since
October 1993. Prior thereto, he was vice president of Acorn Asset
Management Corporation. A chartered financial analyst, Mr. Sandel
earned a bachelor's degree in 1977 from the University of Southern
Mississippi and a master's degree in 1984 from the American
Graduate School. As of Sept. 30, 1997, he was responsible for
managing $1.3 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 Feb. 3, 1997, the management fee was
paid by Special Fund. For the fiscal year ended Sept. 30, 1997,
total expenses amounted to 1.14% of the average net assets of
Special Fund. At Sept. 30, 1997, Special Fund owned 99.99% of
Special Portfolio.
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
Financial Investments, Inc. ("Distributor") without any sales
commissions or charges to Special Fund or to its shareholders. The
Distributor is a subsidiary of Colonial Management Associates,
Inc., which is an indirect subsidiary of Liberty Financial. The
business address of the Distributor is One Financial Center,
Boston, Massachusetts 02111; 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 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 Jan. 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either Investment
Trust's shareholders or its trustees. Investment Trust may issue
an unlimited number of shares, in one or more series as the Board
may authorize. Currently, 10 series are authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as Investment Trust could, in some circumstances, be
held personally liable for unsatisfied obligations of the trust.
The Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, Investment Trust or
any particular series shall look only to the assets of Investment
Trust or of the respective series for payment under such credit,
contract or claim, and that the shareholders, trustees and officers
shall have no personal liability therefor. The Declaration of
Trust requires that notice of such disclaimer of liability be given
in each contract, instrument or undertaking executed or made on
behalf of Investment Trust. The Declaration of Trust provides for
indemnification of any shareholder against any loss and expense
arising from personal liability solely by reason of being or having
been a shareholder. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is believed to
be remote, because it would be limited to circumstances in which
the disclaimer was inoperative and Investment Trust was unable to
meet its obligations.
The risk of a particular series incurring financial loss on account
of unsatisfied liability of another series of Investment Trust also
is believed to be remote, because it would be limited to claims to
which the disclaimer did not apply and to circumstances in which
the other series was unable to meet its obligations.
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.
__________________________
Master Fund/Feeder Fund:
Structure and Risk Factors
Special Fund, which is an open-end management investment company,
seeks to achieve its objective by investing all of its assets in
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 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
Aug. 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 nonfundamental 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. 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 in the Portfolio.
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 Feb. 2, 1998
STEIN ROE INVESTMENT TRUST
Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
800-338-2550
GROWTH & INCOME FUNDS
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
GROWTH FUNDS
Stein Roe Growth Stock Fund Stein Roe Capital Opportunities Fund
Stein Roe Special Fund Stein Roe Growth Opportunities Fund
Stein Roe Special Venture Fund Stein Roe International Fund
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 Funds' prospectuses dated Feb. 2, 1998, 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 Special Fund...........................4
Stein Roe Growth Opportunities Fund..............5
Stein Roe Special Venture Fund...................5
Stein Roe Capital Opportunities Fund.............6
Stein Roe International Fund.....................6
Stein Roe Emerging Markets Fund..................7
Portfolio Investments and Strategies..................8
Investment Restrictions..............................30
Additional Investment Considerations.................33
Purchases and Redemptions............................34
Management...........................................36
Financial Statements.................................39
Principal Shareholders...............................40
Investment Advisory Services.........................41
Distributor..........................................44
Transfer Agent.......................................44
Custodian............................................45
Independent Public Accountants.......................46
Portfolio Transactions...............................46
Additional Income Tax Considerations.................49
Investment Performance...............................50
Appendix--Ratings....................................55
GENERAL INFORMATION AND HISTORY
The nine mutual funds listed on the cover page (referred to
collectively as the "Funds") are separate series of Stein Roe
Investment Trust ("Investment Trust"). On Feb. 1, 1996, the name
of each then-existing Fund and of Investment Trust was changed to
separate "SteinRoe" into two words. Prior to Feb. 1, 1995, the
name of Stein Roe Growth Stock Fund was SteinRoe Stock Fund; prior
to Feb. 1, 1996, Stein Roe Growth & Income Fund was named SteinRoe
Prime Equities; and prior to Apr. 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,
ten series of Investment Trust are authorized and outstanding.
Each share of a series, without par value, is entitled to
participate pro rata in any dividends and other distributions
declared by the Board on shares of that series, and all shares of a
series have equal rights in the event of liquidation of that
series. Each whole share (or fractional share) outstanding on the
record date established in accordance with the By-Laws shall be
entitled to a number of votes on any matter on which it is entitled
to vote equal to the net asset value of the share (or fractional
share) in United States dollars determined at the close of business
on the record date (for example, a share having a net asset value
of $10.50 would be entitled to 10.5 votes). As a business trust,
Investment Trust is not required to hold annual shareholder
meetings. However, special meetings may be called for purposes
such as electing or removing trustees, changing fundamental
policies, or approving an investment advisory contract. If
requested to do so by the holders of at least 10% of its
outstanding shares, Investment Trust will call a special meeting
for the purpose of voting upon the question of removal of a trustee
or trustees and will assist in the communications with other
shareholders as if Investment Trust were subject to Section 16(c)
of the Investment Company Act of 1940. All shares of all series of
Investment Trust are voted together in the election of trustees.
On any other matter submitted to a vote of shareholders, shares are
voted in the aggregate and not by individual series, except that
shares are voted by individual series when required by the
Investment Company Act of 1940 or other applicable law, or when the
Board of Trustees determines that the matter affects only the
interests of one or more series, in which case shareholders of the
unaffected series are not entitled to vote on such matters.
Special Considerations Regarding Master Fund/Feeder Fund Structure
Stein Roe Growth & Income Fund, Stein Roe Balanced Fund, Stein
Roe Growth Stock Fund, Stein Roe Special Fund, Stein Roe Special
Venture Fund, and Stein Roe International Fund converted into
"feeder funds" on Feb. 3, 1997; that is, rather than invest in
securities directly, each seeks to achieve its objective by pooling
its assets with those of other investment companies for investment
in a separate "master fund" having the same investment objective
and substantially the same investment policies as the Fund. Stein
Roe Capital Opportunities Fund, Stein Roe Growth Opportunities
Fund, and Stein Roe Emerging Markets 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 Master Fund/Feeder
Fund: Structure and Risk Factors.
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, Stein Roe
Growth Opportunities Fund, and Stein Roe Emerging Markets Fund.
INVESTMENT POLICIES
In pursuing its respective objective, each Fund or Portfolio
will invest as described in the section 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/ 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.
- --------
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.
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 the
potential both 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.
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 its 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.
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. Special
Portfolio does not, however, 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 invests primarily
in common stocks, it may also invest in other equity-type
securities, including preferred stocks and securities convertible
into equity securities.
Stein Roe Growth Opportunities Fund
The investment objective of Stein Roe Growth Opportunities
Fund ("Growth Opportunities Fund") is long-term capital
appreciation. Growth Opportunities Fund attempts to achieve its
objective by investing in a diversified portfolio of common stocks
of large, mid-sized, and small companies that, in the view of the
Adviser, have the ability to generate and sustain earnings growth
at an above-average rate.
Growth Opportunities Fund's investments include securities of
both established companies that the Adviser believes have
appreciation potential and emerging companies. Investment in
established companies tends to moderate the investment risks
associated with investing in emerging, generally smaller companies.
Growth Opportunities Fund invests a portion of its assets in the
securities of small and mid-sized companies. These companies may
present greater opportunities for capital appreciation because of
high potential earnings growth, but also may involve greater risks.
Securities of smaller companies may be subject to greater price
volatility and tend to be less liquid than securities of larger
companies. Small companies, as compared to large companies, may
have a shorter history of operations, may not have as great an
ability to raise additional capital, may have a less diversified
product line making them susceptible to market pressure, and may
have a smaller public market for their shares. In addition, many
smaller companies are less well known to the investing public and
may not be as widely followed by the investment community.
Although it invests primarily in common stocks, Growth
Opportunities Fund may invest in all types of equity securities,
including preferred stocks and securities convertible into common
stocks.
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, through personal visits, their
business judgment and strategies. 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.
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. Investments 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.
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.
Stein Roe Emerging Markets Fund
The investment objective of Stein Roe Emerging Markets Fund
("Emerging Markets Fund") 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.
Emerging Markets 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.
Emerging Markets Fund considers an "emerging market" country
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.
Emerging Markets 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.
PORTFOLIO INVESTMENTS AND STRATEGIES
Unless otherwise noted, 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
Opportunities Fund, 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 investment grade convertible securities, common stock or
conventional debt securities. As a result, the Adviser's own
investment research and analysis tend to be more important in the
purchase of such securities than other factors.
Foreign Securities
International Portfolio and Emerging Markets Fund invest
primarily in foreign securities. Each other Fund may invest up to
25% of its total assets in foreign securities, which may entail a
greater degree of risk (including risks relating to exchange rate
fluctuations, tax provisions, or expropriation of assets) than
investment in securities of domestic issuers. For this purpose,
foreign securities do not include American Depositary Receipts
(ADRs) or securities guaranteed by a United States person. ADRs
are receipts typically issued by an American bank or trust company
evidencing ownership of the underlying securities. 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 and Emerging
Markets Fund 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 Sept. 30, 1997, holdings of foreign companies, as a
percentage of net assets, were as follows: Balanced Portfolio,
11.4% (3.9% in foreign securities and 7.5% in ADRs); Growth &
Income Portfolio, 3.1% (0.5% in foreign securities and 2.6% in
ADRs); Growth Stock Portfolio, 4.8% (1.6% in foreign securities and
3.2% in ADRs); Growth Opportunities Fund, 2.2% (none in foreign
securities and 2.2% in ADRs); Special Portfolio, 7.8% (5.3% in
foreign securities and 2.5% in ADSs); Special Venture Portfolio,
3.2% (1.7% in foreign securities and 1.5% in ADRs); and Capital
Opportunities Fund, 2.2% (none in foreign securities and 2.2% 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 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. These risks are greater for emerging markets.
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.
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.
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 and Emerging Markets Fund may invest in money market
instruments denominated in foreign currencies. In addition to, or
in lieu of, such direct investment, International Portfolio or
Emerging Markets 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, International Portfolio and Emerging Markets Fund will
invest at least 65% of total assets in foreign securities.
Eurodollar Instruments
International Fund and Emerging Markets 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.
Brady Bonds
Emerging Markets 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
Emerging Markets 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.
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")), stock indices such as the S&P 500 Index and the price
fluctuations of a particular security. 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 a Fund to tailor its investments to the specific risks and
returns the Adviser wishes to accept while avoiding or reducing
certain other risks.
Closed-End Investment Companies
Emerging Markets 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.
Swaps, Caps, Floors and Collars
Each Fund may enter into swaps and may purchase or sell
related caps, floors and collars. A 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 it
purchases at a later date. The Funds intend to use these
techniques as hedges and not as speculative investments and will
not sell interest rate income stream a Fund may be obligated to
pay.
A swap agreement is generally individually negotiated and
structured to include exposure to a variety of different types of
investments or market factors. Depending on its structure, a swap
agreement may increase or decrease a Fund's exposure to changes in
the value of an index of securities in which the Fund might invest,
the value of a particular security or group of securities, or
foreign currency values. Swap agreements can take many different
forms and are known by a variety of names. A Fund may enter into
any form of swap agreement if the Adviser determines it is
consistent with its investment objective and policies.
A swap agreement tends to shift a Fund's investment exposure
from one type of investment to another. For example, if a Fund
agrees to exchange payments in dollars at a fixed rate for payments
in a foreign currency the amount of which is determined by
movements of a foreign securities index, the swap agreement would
tend to increase exposure to foreign stock market movements and
foreign currencies. Depending on how it is used, a swap agreement
may increase or decrease the overall volatility of a Fund's
investments and its net asset value.
The performance of a swap agreement is determined by the
change in the specific currency, market index, security, or other
factors that determine the amounts of payments due to and from a
Fund. If a swap agreement calls for payments by a Fund, the Fund
must be prepared to make such payments when due. If the
counterparty's creditworthiness declines, the value of a swap
agreement would be likely to decline, potentially resulting in a
loss. A 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.
The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling the
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 floor that preserves a certain return
within a predetermined range of interest rates or values.
At the time a 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.
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 Sept. 30, 1997 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 and Emerging Markets 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.
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 Sept. 30, 1997.
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 its 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 the 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 a Fund, to trade in privately placed
securities that have not been registered for sale under the 1933
Act. The Adviser, under the supervision of the Board of Trustees,
will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the restriction of investing no more
than 15% of its net assets in illiquid securities. A determination
of whether a Rule 144A security is liquid or not is a question of
fact. In making this determination, the Adviser will consider the
trading markets for the specific security, taking into account the
unregistered nature of a Rule 144A security. In addition, the
Adviser could consider the (1) frequency of trades and quotes, (2)
number of dealers and potential purchasers, (3) dealer undertakings
to make a market, and (4) nature of the security and of marketplace
trades (e.g., the time needed to dispose of the security, the
method of soliciting offers, and the mechanics of transfer). The
liquidity of Rule 144A securities would be monitored and if, as a
result of changed conditions, it is determined that a Rule 144A
security is no longer liquid, 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.
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 and 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.
- --------
/3/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
- --------
When purchasing a futures contract or writing a put option on
a futures contract, 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). 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.
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.
The Taxpayer Relief Act of 1997 (the "Act") imposed
constructive sale treatment for federal income tax purposes on
certain hedging strategies with respect to appreciated securities.
Under these rules, taxpayers will recognize gain, but not loss,
with respect to securities if they enter into short sales of
"offsetting notional principal contracts" (as defined by the Act)
or futures or "forward contracts" (as defined by the Act) with
respect to the same or substantially identical property, or if they
enter into such transactions and then acquire the same or
substantially identical property. These changes generally apply to
constructive sales after June 8, 1997. Furthermore, the Secretary
of the Treasury is authorized to promulgate regulations that will
treat as constructive sales certain transactions that have
substantially the same effect as short sales, offsetting notional
principal contracts, and futures or forward contracts to deliver
the same or substantially similar property.
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 nonleveraging,
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 and Emerging Markets Portfolio use 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) 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, International Portfolio, and
Emerging Markets Fund only] a recognized foreign exchange;
(e) write an option on a security unless the option is issued
by the Options Clearing Corporation, an exchange, or similar
entity;
(f) [all Funds and Portfolios except International Fund,
International Portfolio, and Emerging Markets Fund] 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);
(g) 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;
(h) 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;
(i) 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;
(j) 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 and Emerging Markets Fund 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 or Emerging Markets Fund in the issuing company being
diluted. The market for such rights is not well developed in all
cases and, accordingly, International Portfolio and Emerging
Markets 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 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.
Growth Stock 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 Jan., the third Monday in Feb., 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.
Investment Trust reserves the right to redeem shares in any
account and send the proceeds to the owner of record if the shares
in the account do not have a value of at least $1,000. If the
value of the account is more than $10, 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.
Investment Trust reserves the right to redeem any account with a
value of $10 or less without prior written notice to the
shareholder. Due to the proportionately higher costs of
maintaining small accounts, the transfer agent may charge and
deduct from the account a $5 per quarter minimum balance fee if the
account is a regular account with a balance below $2,000 or an UGMA
account with a balance below $800. This minimum balance fee does
not apply to Stein Roe IRAs, other Stein Roe prototype retirement
plans, accounts with automatic investment plans (unless regular
investments have been discontinued), or omnibus or nominee
accounts. The transfer agent may waive the fee, at its discretion,
in the event of significant market corrections. 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 Investment Trust during past five years
- ------------------ --- ------------------------ -----------------------------------
<S> <C> <C> <C>
William D. Andrews (4) 50 Executive Vice-President Executive vice president of Stein
Roe & Farnham Incorporated (the
"Adviser")
Gary A. Anetsberger (4) 42 Senior Vice-President Chief financial officer of the Mutual
Funds division of the Adviser; senior
vice president of the Adviser since
Apr. 1996; vice president of the Adviser
prior thereto
Timothy K. Armour 49 President; Trustee President of the Mutual Funds division of
(1)(2)(4) the Adviser and director of the Adviser
William W. Boyd 71 Trustee Chairman and director of Sterling Plumbing Group, Inc.
(2)(3)(4) (manufacturer of plumbing products)
David P. Brady 33 Vice-President Vice president of the Adviser since Nov. 1995; portfolio
manager for the Adviser since 1993; equity investment
analyst, State Farm Mutual Automobile Insurance Company
prior thereto
Thomas W. Butch 41 Executive Vice-President Senior vice president of the Adviser since Sept. 1994;
first vice president, corporate communications, of
Mellon Bank Corporation prior thereto
Daniel K. Cantor 38 Vice-President Senior vice president of the Adviser
Lindsay Cook (1)(4) 45 Trustee Executive vice president of Liberty Financial Companies,
Inc. (the indirect parent of the Adviser) since Mar.
1997; senior vice president prior thereto
Philip J. Crosley 51 Vice-President Senior vice president of the Adviser since Feb. 1996;
vice president, institutional sales-Advisor Sales,
Invesco Funds Group prior thereto
Erik P. Gustafson 34 Vice-President Senior portfolio manager of the Adviser; senior vice
president of the Adviser since Apr. 1996; vice president
of the Adviser from May, 1994 to Apr. 1996; associate of
the Adviser prior thereto
Douglas A. Hacker(3)(4) 42 Trustee Senior vice president and chief financial officer of
United Airlines, since July, 1994; senior vice
president, finance, United Airlines, Feb. 1993 to July,
1994; vice president, American Airlines prior thereto
Loren A. Hansen (4) 49 Executive Vice-President Executive vice president of the Adviser since Dec.,
1995; vice president of The Northern Trust (bank) prior
thereto
David P. Harris 33 Vice-President Vice president of Colonial Management Associates, Inc.
since Jan. 1996; vice president of the Adviser since
May, 1995; global equity portfolio manager with
Rockefeller & Co. prior thereto
Harvey B. Hirschhorn 48 Vice-President Executive vice president, senior portfolio manager, and
chief economist and investment strategist of the
Adviser; director of research of the Adviser, 1991 to
1995
Janet Langford Kelly 40 Trustee Senior vice president, secretary and general counsel of
(3)(4) Sara Lee Corporation (branded, packaged, consumer-
products manufacturer), since 1995; partner of Sidley &
Austin (law firm) prior thereto
Eric S. Maddix 34 Vice-President Vice president of the Adviser since Nov. 1995; portfolio
manager or research assistant for the Adviser since 1987
Lynn C. Maddox 57 Vice-President Senior vice president of the Adviser
Anne E. Marcel 40 Vice-President Vice president of the Adviser since Apr. 1996; manager,
mutual fund sales & services of the Adviser since Oct.
1994; supervisor of the Counselor Department of the
Adviser prior thereto
John S. McLandsborough 30 Vice-President Portfolio manager for the Adviser since Apr., 1996;
securities analyst, CS First Boston from June, 1993 to
Dec. 1995; securities analyst, National City Bank of
Cleveland from Nov. 1992 to June, 1993
Arthur J. McQueen 39 Vice-President Senior vice president of the Adviser
Charles R. Nelson(3)(4) 55 Trustee Van Voorhis Professor of Political Economy, Department
of Economics of the University of Washington
Nicolette D. Parrish(4) 48 Vice-President; Assistant Senior compliance administrator and assistant secretary
Secretary of the Adviser since Nov. 1995; senior legal assistant
for the Adviser prior thereto
Richard B. Peterson 57 Vice-President Senior vice president of the Adviser
Sharon R. Robertson (4) 36 Controller Accounting manager for the Adviser's Mutual Funds
Division
Janet B. Rysz (4) 42 Assistant Secretary Senior compliance administrator and assistant secretary
of the Adviser
M. Gerard Sandel 43 Vice-President Senior vice president of the Adviser since July, 1997;
vice president of M&I Investment Management Corporation
from Oct. 1993 to June, 1997; vice president of Acorn
Asset Management Corporation prior thereto
Gloria J. Santella 40 Vice-President Senior vice president of the Adviser since Nov. 1995;
vice president of the Adviser prior thereto
Thomas C. Theobald 60 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
Scott E. Volk (4) 26 Treasurer Financial reporting manager for the Adviser's Mutual
Funds division since Oct. 1997; senior auditor with
Ernst & Young LLP from Sept. 1993 to Apr. 1996 and from
Oct. 1996 to Sept. 1997; financial analyst with John
Nuveen & Company Inc. from May 1996 to Sept. 1996; full-
time student prior to Sept. 1993
Heidi J. Walter (4) 30 Vice-President Legal counsel for the Adviser since Mar. 1995; associate
with Beeler Schad & Diamond, PC (law firm) prior thereto
Stacy H. Winick (4) 32 Vice-President Senior legal counsel for the Adviser since Oct. 1996;
associate of Bell, Boyd & Lloyd (law firm), June, 1993
to Sept. 1996; associate of Debevoise & Plimpton (law
firm) prior thereto
Hans P. Ziegler (4) 56 Executive Vice-President Chief executive officer of the Adviser since May, 1994;
president of the Investment Counsel division of the
Adviser from July, 1993 to June, 1994; president and
chief executive officer, Pitcairn Financial Management
Group prior thereto
Margaret O. Zwick (4) 31 Assistant Treasurer Project manager for the Adviser's Mutual Funds division
since Apr. 1997; compliance manager from Aug. 1995 to
Apr. 1997; compliance accountant, Jan. 1995 to July
1995; section manager, Jan. 1994 to Jan. 1995;
supervisor prior thereto
<FN>
_________________________
(1) Trustee who is an "interested person" of Investment Trust
and of the Adviser, as defined in the Investment Company Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of auditors
and confers with the auditors regarding the scope and results of the
audit.
(4) This person holds the corresponding officer or trustee position
with Base Trust.
</TABLE>
Certain of the trustees and officers of Investment Trust and
Base Trust are trustees or officers of other investment companies
managed by the Adviser. Ms. Walter is also a vice president of Liberty
Financial Investments, Inc., the Funds' distributor. The address 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. 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. 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
Dec. 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 fees are paid solely by the master portfolio.
Each non-interested trustee also receives $500 from Investment
Trust for attending each meeting of the Nominating Committee or
Compensation Committee. Investment Trust has no retirement or
pension plan. The following table sets forth compensation paid by
Investment Trust during the fiscal year ended Sept. 30, 1997 to
each of the trustees:
Name of Trustee Aggregate Compensation Total Compensation from
Investment Trust the Stein Roe Fund Complex*
- -------------------- ---------------------- -------------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Kenneth L. Block** $21,076 $84,743
Douglas A. Hacker 21,926 92,643
Janet Langford Kelly 17,650 90,643
William W. Boyd 22,426 77,500
Francis W. Morley** 21,926 90,993
Charles R. Nelson 22,426 92,643
Thomas C. Theobald 21,926 90,643
_______________
* At Sept. 30, 1997, the Stein Roe Fund Complex consisted of
ten series of Investment Trust, seven series of Stein Roe
Advisor Trust, six series of Stein Roe Income Trust, four
series of Stein Roe Municipal Trust, one series of Stein Roe
Institutional Trust, one series of Stein Roe Trust, and nine
series of Base Trust.
**Messrs. Block and Morley retired as trustees on Dec. 31, 1997.
FINANCIAL STATEMENTS
Please refer to the Funds' Sept. 30, 1997 Financial Statements
(balance sheets and schedules of investments as of Sept. 30, 1997
and the statements of operations, changes in net assets, and notes
thereto) and the report of independent public accountants contained
in the Sept. 30, 1997 Annual Reports of the Funds. The Financial
Statements and the report of independent public accountants (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 Dec. 31, 1997, 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 18.17%
410 N. Michigan Avenue Balanced Fund 21.90
Chicago, IL 60611 Growth Stock Fund 24.56
Special Fund 18.87
Special Venture Fund 8.85
Capital Opportunities Fund 12.21
International Fund 19.33
Charles Schwab & Co., Inc.* Growth & Income Fund 30.02
Attn: Mutual Fund Dept. Balanced Fund 10.61
101 Montgomery Street Growth Stock Fund 6.71
San Francisco, CA 94104 Special Fund 17.00
Capital Opportunities Fund 31.06
Growth Opportunities Fund 43.14
Emerging Markets Fund 5.82
The Northern Trust Co.** Special Venture Fund 15.51
F/B/O Liberty Mutual International Fund 5.89
Daily Valuation Transitions
P.O. Box 92956
Chicago, IL 60675
Investors Fiduciary Trust Co., Balanced Fund 7.5
Trustee for Retirement Plans*
127 W. 10th Street
Kansas City, MO 64105
National Financial Service Capital Opportunities Fund 7.03
Corporation for the Exclusive
Benefit of our Customers*
Attn: Mutual Funds
P.O. Box 3908
New York, NY 10008
Keyport Life Insurance Company Emerging Markets Fund 9.96
125 High Street
Boston, MA 02110
____________________________________
*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 Dec. 31, 1997, 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 2,035,784 13.34% 29,595 **
Balanced Fund 548,310 6.17 27,806 **
Growth Stock Fund 1,619,186 8.96 8,131 **
Special Fund 4,603,222 10.67 29,558 **
Special Venture Fund 8,393,832 53.81 63,304 **
Capital Opportunities
Fund 1,767,236 5.22 76,580 **
Growth Opportunities
Fund 147,199 3.22 3,285 **
International Fund 8,738,479 61.49 50,066 **
Emerging Markets Fund 1,447,305 40.08 14,851 **
_________________________
*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,
Growth Opportunities Fund and Emerging Markets Fund, and
administrative services to each Fund and each Portfolio. The
Adviser is a wholly owned subsidiary of SteinRoe Services Inc.
("SSI"), the Funds' transfer agent, which is a wholly owned
subsidiary of Liberty Financial Companies, Inc. ("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 Executive Vice President and
Treasurer of Liberty Financial; Mr. Armour is President of the
Adviser's Mutual Funds division; and Mr. Ziegler is Chief Executive
Officer of the Adviser. The business address of Messrs. Leibler,
Cogger, and Merritt is Federal Reserve Plaza, Boston, Massachusetts
02210; and that of Messrs. Armour, and Ziegler is One South Wacker
Drive, Chicago, Illinois 60606.
The Adviser and its predecessor have been providing investment
advisory services since 1932. The Adviser acts as investment
adviser to wealthy individuals, trustees, pension and profit
sharing plans, charitable organizations, and other institutional
investors. As of Sept. 30, 1997, the Adviser managed over $29
billion in assets: over $5 billion in equities and over $17 billion
in fixed income securities (including $1.7 billion in municipal
securities). The $29 billion in managed assets included over $7
billion held by open-end mutual funds managed by the Adviser
(approximately 15% of the mutual fund assets were held by clients
of the Adviser). These mutual funds were owned by over 265,000
shareholders. The $7 billion in mutual fund assets included over
$728 million in over 42,000 IRA accounts. In managing those
assets, the Adviser utilizes a proprietary computer-based
information system that maintains and regularly updates information
for approximately 9,000 companies. The Adviser also monitors over
1,400 issues via a proprietary credit analysis system. At Sept.
30, 1997, the Adviser employed 16 research analysts and 55 account
managers. The average investment-related experience of these
individuals was 24 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 descriptions 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
table below shows gross fees paid for the three most recent fiscal
years and any expense reimbursements by the Adviser:
Year Ended Year Ended Year Ended
Fund Type of Payment 9/30/97 9/30/96 9/30/95
Growth & Income Fund Management fee $ 484,689 $989,415 N/A
Administrative fee 422,974 247,354 N/A
Advisory fee N/A N/A 680,210
Growth & Income
Portfolio Management fee 1,191,730 N/A N/A
Balanced Fund Management fee 493,328 1,246,713 N/A
Administrative fee 399,157 340,013 N/A
Advisory fee N/A N/A 1,131,735
Balanced Portfolio Management fee 971,102 N/A N/A
Growth Stock Fund Management fee 933,019 2,316,351 N/A
Administrative fee 757,086 579,088 N/A
Advisory fee N/A N/A 2,177,363
Growth Stock Portfolio Management fee 2,119,802 N/A N/A
Special Fund Management fee 2,638,251 7,920,534 N/A
Administrative fee 1,537,601 1,499,506 N/A
Advisory fee N/A N/A 8,268,281
Special Portfolio Management fee 5,249,467 N/A N/A
Special Venture Fund Management fee 396,022 807,861 N/A
Administrative fee 267,585 46,272 N/A
Reimbursement -0- 85,898 127,482
Advisory fee N/A N/A 295,409
Special Venture
Portfolio Management fee 942,785 N/A N/A
Capital Opportunities Management fee 9,097,549 5,695,180 N/A
Fund Administrative fee 1,655,427 1,064,461 N/A
Advisory fee N/A N/A 1,303,175
Growth Opportunities
Fund Management fee 86,304 N/A N/A
Administrative fee 17,260 N/A N/A
Reimbursement 55,876 N/A N/A
International Fund Management fee 407,439 1,504,810 N/A
Administrative fee 219,771 48,884 N/A
Advisory fee N/A N/A 1,303,175
International Portfolio Management fee 838,780 N/A N/A
Emerging Markets Fund Management fee 247,519 N/A N/A
Administrative fee 33,573 N/A N/A
Reimbursement 60,796 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
Sept. 30, 1995, 1996 and 1997, the Adviser received aggregate fees
of $192,479, $265,246 and $315,067, respectively, from Investment
Trust for services performed under this Agreement.
DISTRIBUTOR
Shares of each Fund are distributed by Liberty Financial
Investments, Inc. ("Distributor") 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, the Distributor 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. The Distributor 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.) Under a separate agreement,
SSI also provides certain investor accounting services to the
Portfolios.
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, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering
expenses, and performing other administrative duties, all as
directed by authorized persons. The Bank does not exercise any
supervisory function in such matters as purchase and sale of
portfolio securities, payment of dividends, or payment of expenses.
Portfolio securities purchased in the U.S. are maintained in
the custody of the Bank or of other domestic banks or depositories.
Portfolio securities purchased outside of the U.S. are maintained
in the custody of foreign banks and trust companies that are
members of the Bank's Global Custody Network and foreign
depositories ("foreign sub-custodians"). Each of the domestic and
foreign custodial institutions holding portfolio securities has
been approved by the Board of Trustees in accordance with
regulations under the Investment Company Act of 1940.
Each Board of Trustees reviews, at least annually, whether it
is in the best interests 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 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. Each 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 Bank
and may purchase or sell securities from or to the Bank.
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
annual financial statements, review certain regulatory reports and
the federal income tax returns, and perform other professional
accounting, auditing, tax and advisory services when engaged to do
so by the Trust.
PORTFOLIO TRANSACTIONS
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 also 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 (prior to Feb. 3, 1997, brokerage commissions were paid by the
related Fund):
<TABLE>
<CAPTION>
Capital Growth
Growth Growth Special Oppor- Oppor- Inter- Emerging
& Income Balanced Stock Special Venture tunities tunities national Markets
Portfolio Portfolio Portfolio Portfolio Portfolio Fund Fund Portfolio Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total amount of bro-
kerage commissions
paid during fiscal
year ended 9/30/97 $120,469 $144,101 $240,427 $766,278 $389,281 $543,951 $38,375 $305,856 $269,046
Amount of commissions
paid to brokers or
dealers who supplied
research services to
the Adviser 109,039 143,751 236,677 718,027 354,312 478,598 32,030 282,419 258,894
Total dollar amount
involved in such
transactions (000
omitted) 81,370 94,345 211,590 387,100 160,623 345,920 17,747 65,164 43,408
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 32,556 38,823 25,400 185,748 108,419 41,156 12,080 96,667 20,293
Total dollar amount
involved in such
transactions (000
omitted) 23,268 30,792 20,961 98,697 91,275 66,625 14,980 21,362 3,327
Total amount of bro-
kerage commissions
paid during fiscal
year ended 9/30/96 76,692 276,367 259,829 1,519,821 179,391 709,905 N/A 422,447 N/A
Total amount of bro-
kerage commissions
paid during fiscal
year ended 9/30/95 249,668 123,109 311,583 1,728,795 137,260 226,682 N/A 208,432 N/A
</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 the Association of the National Association of
Securities Dealers.
During the last fiscal year, certain Funds held securities
issued by one or more of their regular broker-dealers or the parent
of such broker-dealers that derive more than 15% of gross revenue
from securities-related activities. Such holdings were as follows
at Sept. 30, 1997:
Amount of
Securities Held
Fund/Portfolio Broker-Dealer (in thousands)
Growth & Income Portfolio Associate Corp. of North America $15,410
Bankers Trust Company 8,575
Chase Securities, Inc. 7,599
Goldman, Sachs & Co. 4,999
Republic New York Securities
Corporation 2,841
Balanced Portfolio Associate Corp. of North America 12,990
Goldman, Sachs & Co. 4,999
Lehman Brothers, Inc. 2,575
Growth Stock Portfolio Associate Corp. of North America 22,175
Goldman, Sachs & Co. 9,998
Special Portfolio Associate Corp. of North America 44,460
Goldman, Sachs & Co. 49,992
Special Venture Portfolio Associate Corp. of North America 9,770
Goldman, Sachs & Co. 7,999
UBS Securities LLC 2,367
Capital Opportunities
Fund Associate Corp. of North America 32,715
Merrill Lynch, Pierce,
Fenner & Smith, Inc. 48,650
Growth Opportunities Fund Associate Corp. of North America 2,435
UBS Securities LLC 2,308
International Portfolio Associate Corp. of North America 7,925
Goldman, Sachs & Co. 5,999
Emerging Markets Fund Associate Corp. of North America 2,045
Peregrine Brokerage Inc. 850
UBS Securities LLC 2,060
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 Funds 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
and Emerging Markets 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 Fund 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 or Emerging Markets Fund holds its investment. In
addition, International Portfolio and Emerging Markets 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, International Portfolio
and Emerging Markets Fund intend to treat PFICs as sold on the last
day of their 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 it 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 Sept. 30, 1997 were:
TOTAL RETURN AVERAGE ANNUAL
TOTAL RETURN PERCENTAGE TOTAL RETURN
------------ ------------- --------------
Growth & Income Fund 1 year $1,308 30.81% 30.81%
5 years 2,386 138.55 18.99
10 years 3,597 259.72 13.66
Balanced Fund 1 year 1,236 23.60 23.60
5 years 1,868 86.84 13.32
10 years 2,850 185.03 11.04
Growth Stock Fund 1 year 1,331 33.10 33.10
5 years 2,216 121.57 17.25
10 years 3,300 230.04 12.68
Special Fund 1 year 1,337 33.67 33.67
5 years 2,347 134.65 18.60
10 years 4,097 309.71 15.15
Special Venture Fund 1 year 1,217 21.73 21.73
Life of Fund* 2,037 103.71 27.28
Capital Opportunities
Fund 1 year 936 -6.25 -6.25
5 years 2,642 164.22 21.45
10 years 2,817 181.69 10.91
Growth Opportunities
Fund Life of Fund* 1,077 7.70 7.70
International Fund 1 year 1,098 9.84 9.84
Life of Fund* 1,245 24.52 6.32
Emerging Markets Fund Life of Fund* 1,024 2.40 2.40
______________________________________
*Life of Fund is from its date of public offering: 10/17/94 for
Special Venture Fund, 3/1/94 for International Fund; 2/28/97 for
Emerging Markets Fund; and 6/30/97 for Growth Opportunities 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
Atlantic Monthly
Associated Press
Barron's
Bloomberg
Boston Globe
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Investment Advisor
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World
Forbes
Fortune
Fund Action
Fund Marketing Alert
Gourmet
Individual Investor
Investment Dealers' Digest
Investment News
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Lipper Analytical Services
Los Angeles Times
Louis Rukeyser's Wall Street
Money
Money on Line
Morningstar
Mutual Fund Market News
Mutual Fund News Service
Mutual Funds Magazine
Newsday
Newsweek
New York Daily News
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
Reuters
The San Francisco Chronicle
Securities Industry Daily
Smart Money
Smithsonian
Strategic Insight
Street.com
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,
Growth Opportunities Fund
Lipper Capital Appreciation Fund
Index Capital Opportunities Fund,
Growth 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, Special
Fund
Lipper Growth Fund Index Growth Stock Fund, Special
Fund
Lipper International & Global Funds
Average International Fund, Emerging
Markets Fund
Lipper International Fund Index International Fund, Emerging
Markets 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,
Growth Opportunities Fund
Morningstar All Equity Funds Average International Fund, Emerging
Markets Fund
Morningstar Advisor Balanced Fund
Average Balanced Fund
Morningstar Domestic Stock Average All Funds except International
Fund and Emerging Markets Fund
Morningstar Equity Fund Average International Fund, Emerging
Markets Fund
Morningstar General Equity Average* International Fund, Emerging
Markets Fund
Morningstar Growth & Income Fund
Average Growth & Income Fund
Morningstar Growth Fund Average Growth Stock Fund, Special
Fund
Morningstar Hybrid Fund Average Balanced Fund, International
Fund, Emerging Markets Fund
Morningstar International Stock
Average International Fund, Emerging
Markets Fund
Morningstar Small Company Growth
Fund Average Special Venture Fund
Morningstar Total Fund Average All Funds
Morningstar U.S. Diversified Average International Fund, Emerging
Markets Fund
Value Line Index
(Widely recognized indicator of the
performance of small- and medium-sized
company stocks) Capital Opportunities Fund,
Special Fund, Special Venture Fund, Growth Opportunities Fund
*Includes Morningstar Aggressive
Growth, Growth, Balanced, Equity
Income, and Growth and Income
Averages.
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 Jan. 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>
<PAGE>
Statement of Additional Information Dated Feb. 2, 1998
STEIN ROE INVESTMENT TRUST
Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
800-338-2550
Stein Roe Young Investor Fund
This Statement of Additional Information is not a prospectus,
but provides additional information that should be read in
conjunction with the prospectus of Stein Roe Young Investor Fund
dated Feb. 2, 1998, and any supplements thereto ("Prospectus").
The Prospectus may be obtained at no charge by telephoning 800-
338-2550.
TABLE OF CONTENTS
Page
General Information and History.....................2
Investment Policies.................................3
Portfolio Investments and Strategies................4
Investment Restrictions............................21
Additional Investment Considerations...............23
Purchases and Redemptions..........................24
Management.........................................25
Financial Statements...............................29
Principal Shareholders.............................29
Investment Advisory Services.......................30
Distributor........................................32
Transfer Agent.....................................33
Custodian..........................................33
Independent Public Accountants.....................34
Portfolio Transactions.............................34
Additional Income Tax Considerations...............36
Investment Performance.............................37
Appendix--Ratings..................................41
GENERAL INFORMATION AND HISTORY
Stein Roe Young Investor Fund ("Young Investor Fund") is a
series of Stein Roe Investment Trust ("Investment Trust"). On
Feb. 1, 1996, the name of Young Investor Fund and of Investment
Trust was changed to separate "SteinRoe" into two words.
As of the date of this Statement of Additional Information,
ten series of Investment Trust are authorized and outstanding.
Each share of a series, without par value, is entitled to
participate pro rata in any dividends and other distributions
declared by the Board on shares of that series, and all shares of
a series have equal rights in the event of liquidation of that
series. Each whole share (or fractional share) outstanding on the
record date established in accordance with the By-Laws shall be
entitled to a number of votes on any matter on which it is
entitled to vote equal to the net asset value of the share (or
fractional share) in United States dollars determined at the close
of business on the record date (for example, a share having a net
asset value of $10.50 would be entitled to 10.5 votes). As a
business trust, Investment Trust is not required to hold annual
shareholder meetings. However, special meetings may be called for
purposes such as electing or removing trustees, changing
fundamental policies, or approving an investment advisory
contract. If requested to do so by the holders of at least 10% of
its outstanding shares, Investment Trust will call a special
meeting for the purpose of voting upon the question of removal of
a trustee or trustees and will assist in the communications with
other shareholders as if Investment Trust were subject to Section
16(c) of the Investment Company Act of 1940. All shares of all
series of Investment Trust are voted together in the election of
trustees. On any other matter submitted to a vote of
shareholders, shares are voted in the aggregate and not by
individual series, except that shares are voted by individual
series when required by the Investment Company Act of 1940 or
other applicable law, or when the Board of Trustees determines
that the matter affects only the interests of one or more series,
in which case shareholders of the unaffected series are not
entitled to vote on such matters.
Special Considerations Regarding Master Fund/Feeder Fund Structure
Young Investor Fund converted into a "feeder fund" on Feb. 3,
1997; that is, rather than invest in securities directly, it seeks
to achieve its objective by pooling its assets with those of other
investment companies for investment in a separate "master fund"
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. Each master fund is a series of SR&F Base Trust
("Base Trust"). For more information, please refer to the
Prospectus under the caption Master Fund/Feeder Fund: Structure
and Risk Factors.
Stein Roe & Farnham Incorporated (the "Adviser") provides
administrative and accounting and recordkeeping services to Young
Investor Fund and provides investment management services to
Growth Investor Portfolio.
INVESTMENT POLICIES
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.
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.
In addition to the investment objective and policies, Young
Investor Fund also has an educational objective. It seeks to
provide education and insight about mutual funds, basic economic
principles, and personal finance through a variety of educational
materials prepared and paid for by Young Investor Fund.
Young Investor Fund is designed to be appropriate for growth-
oriented investors of all ages. Its focus on companies that
affect the lives of young people and its educational objective and
materials may make it especially appropriate for young people and
investors for whom education is an important objective.
In pursuing its objective, Growth Investor Portfolio may
employ the investment techniques described in the Prospectus and
under Portfolio Investments and Strategies. The investment
objective is a non-fundamental policy and may be changed by the
Board of Trustees without the approval of a "majority of the
outstanding voting securities." /1/
- ----------
/1/ A "majority of the outstanding voting securities" means the
approval of the lesser of (i) 67% or more of the shares at a
meeting if the holders of more than 50% of the outstanding shares
are present or represented by proxy or (ii) more than 50% of the
outstanding shares.
- ----------
PORTFOLIO INVESTMENTS AND STRATEGIES
Debt Securities
In pursuing its investment objective, Growth Investor
Portfolio 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 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.
Debt securities within the four highest grades are generally
referred to as "investment grade") . Growth Investor 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 is lost or
reduced below investment grade, Growth Investor Portfolio is not
required to dispose of the security, but the Adviser will consider
that fact in determining whether to should continue to hold the
security.
Securities that are rated below investment grade are
considered predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal according to the
terms of the obligation and therefore carry greater investment
risk, including the possibility of issuer default and bankruptcy.
When the Adviser determines that adverse market or economic
conditions exist and considers a temporary defensive position
advisable, Growth Investor Portfolio may invest without limitation
in high-quality fixed income securities or hold assets in cash or
cash equivalents.
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, 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.
Growth Investor Portfolio does not currently intend 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
Growth Investor Portfolio on purchase of such securities; in
addition, the proceeds of prepayment would likely be invested at
lower interest rates.
Mortgage-backed securities provide either a pro rata interest
in underlying mortgages or an interest in collateralized mortgage
obligations ("CMOs") that represent a right to interest and/or
principal payments from an underlying mortgage pool. CMOs are not
guaranteed by either the U.S. Government or by its agencies or
instrumentalities, and are usually issued in multiple classes each
of which has different payment rights, prepayment risks, and yield
characteristics. Mortgage-backed securities involve the risk of
prepayment on the underlying mortgages at a faster or slower rate
than the established schedule. Prepayments generally increase
with falling interest rates and decrease with rising rates but
they also are influenced by economic, social, and market factors.
If mortgages are pre-paid during periods of declining interest
rates, there would be a resulting loss of the full-term benefit of
any premium paid by Growth Investor Portfolio on purchase of the
CMO, and the proceeds of prepayment would likely be invested at
lower interest rates.
Non-mortgage asset-backed securities usually have less
prepayment risk than mortgage-backed securities, but have the risk
that the collateral will not be available to support payments on
the underlying loans that finance payments on the securities
themselves.
Floating rate instruments provide for periodic adjustments in
coupon interest rates that are automatically reset based on
changes in amount and direction of specified market interest
rates. In addition, the adjusted duration of some of these
instruments may be materially shorter than their stated
maturities. To the extent such instruments are subject to
lifetime or periodic interest rate caps or floors, such
instruments may experience greater price volatility than debt
instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and
refers to the approximate percentage change in price for a 100
basis point change in yield. For example, if interest rates
decrease by 100 basis points, a market price of a security with an
adjusted duration of 2 would increase by approximately 2%.
Convertible Securities
By investing in convertible securities, Growth Investor
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. While convertible securities
it purchases are frequently rated investment grade, Growth
Investor Portfolio 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 investment
grade convertible securities, common stock or conventional debt
securities. As a result, the Adviser's own investment research
and analysis tend to be more important in the purchase of such
securities than other factors.
Foreign Securities
The Portfolio may invest up to 25% of its total assets in
foreign securities, which may entail a greater degree of risk
(including risks relating to exchange rate fluctuations, tax
provisions, or expropriation of assets) than investment in
securities of domestic issuers. For this purpose, foreign
securities do not include American Depositary Receipts (ADRs) or
securities guaranteed by a United States person. ADRs are
receipts typically issued by an American bank or trust company
evidencing ownership of the underlying securities. Growth
Investor Portfolio may invest in sponsored or unsponsored ADRs.
In the case of an unsponsored ADR, Growth Investor Portfolio is
likely to bear its proportionate share of the expenses of the
depositary and it may have greater difficulty in receiving
shareholder communications than it would have with a sponsored
ADR. Growth Investor Portfolio does not intend to invest, nor
during the past fiscal year has it invested, more than 5% of its
net assets in unsponsored ADRs.
As of Sept. 30, 1997, holdings of foreign companies amounted
to 2.8% of average net assets of Growth Investor Portfolio (none
in foreign securities and 2.8% in ADRs and ADSs).
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, investment
performance is affected by the strength or weakness of the U.S.
dollar against these currencies. For example, if the dollar falls
in value relative to the Japanese yen, the dollar value of a yen-
denominated stock held in the portfolio will rise even though the
price of the stock remains unchanged. Conversely, if the dollar
rises in value relative to the yen, the dollar value of the yen-
denominated stock will fall. (See discussion of transaction
hedging and portfolio hedging under Currency Exchange
Transactions.)
Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities,
positions which are generally denominated in foreign currencies,
and utilization of forward foreign currency exchange contracts
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 Growth Investor 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, or other adverse
political, social or diplomatic developments that could affect
investment in these nations.
Currency Exchange Transactions. Currency exchange
transactions may be conducted either on a spot (i.e., cash) basis
at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market or through forward currency exchange
contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at
a specified future date (or within a specified time period) and
price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not
exchange traded, and are usually for less than one year, but may
be renewed.
Growth Investor Portfolio's foreign currency exchange
transactions are limited to transaction and portfolio hedging
involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward contracts
with respect to specific receivables or payables of Growth
Investor Portfolio 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 it to limit or reduce its exposure in a foreign
currency by entering into a forward contract to sell such foreign
currency (or another foreign currency that acts as a proxy for
that currency) at a future date for a price payable in U.S.
dollars so that the value of the foreign-denominated portfolio
securities can be approximately matched by a foreign-denominated
liability. Growth Investor Portfolio 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 it
may hedge all or part of its foreign currency exposure through the
use of a basket of currencies or a proxy currency where such
currencies or currency act as an effective proxy for other
currencies. In such a case, Growth Investor Portfolio 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 it holds. Growth Investor Portfolio
may not engage in "speculative" currency exchange transactions.
At the maturity of a forward contract to deliver a particular
currency, Growth Investor Portfolio may either sell the portfolio
security related to such contract and make delivery of the
currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual
obligation to deliver the currency by purchasing an offsetting
contract with the same currency trader obligating it to purchase
on the same maturity date the same amount of the currency.
It is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of a
forward contract. Accordingly, it may be necessary for Growth
Investor Portfolio to purchase additional currency on the spot
market (and bear the expense of such purchase) if the market value
of the security is less than the amount of currency it is
obligated to deliver and if a decision is made to sell the
security and make delivery of the currency. Conversely, it may be
necessary to sell on the spot market some of the currency received
upon the sale of the portfolio security if its market value
exceeds the amount of currency it is obligated to deliver.
If Growth Investor Portfolio retains the portfolio security
and engages in an offsetting transaction, it will incur a gain or
a loss to the extent that there has been movement in forward
contract prices. If Growth Investor Portfolio 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 Growth Investor Portfolio'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, it will realize a gain to the extent the price of
the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices
increase, Growth Investor Portfolio 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 it of unrealized profits or force it to
cover its commitments for purchase or sale of currency, if any, at
the current market price.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for Growth Investor Portfolio to hedge against a
devaluation that is so generally anticipated that it is not able
to contract to sell the currency at a price above the devaluation
level it anticipates. The cost to Growth Investor Portfolio 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.
Swaps, Caps, Floors and Collars
Growth Investor Portfolio may enter into swaps and may
purchase or sell related caps, floors and collars. It 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 it
purchases at a later date. Growth Investor Portfolio intends to
use these techniques as hedges and not as speculative investments
and will not sell interest rate income stream it may be obligated
to pay.
A swap agreement is generally individually negotiated and
structured to include exposure to a variety of different types of
investments or market factors. Depending on its structure, a swap
agreement may increase or decrease the exposure to changes in the
value of an index of securities in which Growth Investor Portfolio
might invest, the value of a particular security or group of
securities, or foreign currency values. Swap agreements can take
many different forms and are known by a variety of names. Growth
Investor Portfolio may enter into any form of swap agreement if
the Adviser determines it is consistent with its investment
objective and policies.
A swap agreement tends to shift Growth Investor Portfolio's
investment exposure from one type of investment to another. For
example, if it agrees to exchange payments in dollars at a fixed
rate for payments in a foreign currency the amount of which is
determined by movements of a foreign securities index, the swap
agreement would tend to increase exposure to foreign stock market
movements and foreign currencies. Depending on how it is used, a
swap agreement may increase or decrease the overall volatility of
its investments and its net asset value.
The performance of a swap agreement is determined by the
change in the specific currency, market index, security, or other
factors that determine the amounts of payments due to and from
Growth Investor Portfolio. If a swap agreement calls for payments
by Growth Investor Portfolio, it must be prepared to make such
payments when due. If the counterparty's creditworthiness
declines, the value of a swap agreement would be likely to
decline, potentially resulting in a loss. Growth Investor
Portfolio 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.
The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling the
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 floor that preserves a certain return
within a predetermined range of interest rates or values.
At the time Growth Investor Portfolio enters into swap
arrangements or purchases or sells caps, floors or collars, liquid
assets having a value at least as great as the commitment
underlying the obligations will be segregated on the books of
Growth Investor Portfolio and held by the custodian throughout the
period of the obligation.
Lending of Portfolio Securities
Subject to restriction (5) under Investment Restrictions in
this Statement of Additional Information, Growth Investor
Portfolio 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 Growth Investor Portfolio. It 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. It 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. It 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, It could experience both delays in liquidating
the loan collateral or recovering the loaned securities and
losses, including (a) possible decline in the value of the
collateral or in the value of the securities loaned during the
period while it seeks to enforce its rights thereto, (b) possible
subnormal levels of income and lack of access to income during
this period, and (c) expenses of enforcing its rights. Growth
Investor Portfolio did not loan portfolio securities during the
fiscal year ended Sept. 30, 1997 nor does it currently intend to
loan more than 5% of its net assets.
Repurchase Agreements
Growth Investor Portfolio 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 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.
When-Issued and Delayed-Delivery Securities; Reverse Repurchase
Agreements
Growth Investor Portfolio may purchase securities on a when-
issued or delayed-delivery basis. Although the payment and
interest terms of these securities are established at the time
Growth 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 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. During its last fiscal year, Growth Investor
Portfolio did not, nor does it currently intend to have,
commitments to purchase when-issued securities in excess of 5% of
its net assets.
Growth Investor Portfolio may enter into reverse repurchase
agreements with banks and securities dealers. A reverse
repurchase agreement is a repurchase agreement in which Growth
Investor Portfolio 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.
Growth Investor Portfolio did not enter into any reverse
repurchase agreements during the fiscal year ended Sept. 30, 1997.
At the time Growth Investor Portfolio enters into a binding
obligation to purchase securities on a when-issued basis or enters
into a reverse repurchase agreement, liquid assets (cash, U.S.
Government securities or other "high-grade" debt obligations) of
Growth Investor Portfolio having a value at least as great as the
purchase price of the securities to be purchased will be
segregated on the books of Growth Investor Portfolio and held by
the custodian throughout the period of the obligation. The use of
these investment strategies, as well as borrowing under a line of
credit as described below, may increase net asset value
fluctuation.
Short Sales "Against the Box"
Growth Investor Portfolio may sell securities short against
the box; that is, enter into short sales of securities that it
currently owns or has the right to acquire through the conversion
or exchange of other securities that it owns at no additional
cost. Growth Investor Portfolio may make short sales of
securities only if at all times when a short position is open
Growth Investor Portfolio owns at least an equal amount of such
securities or securities convertible into or exchangeable for
securities of the same issue as, and equal in amount to, the
securities sold short, at no additional cost.
In a short sale against the box, Growth Investor Portfolio
does not deliver from its portfolio the securities sold.
Instead, it borrows the securities sold short from a broker-dealer
through which the short sale is executed, and the broker-dealer
delivers such securities, on its behalf, to the purchaser of such
securities. Growth Investor Portfolio 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, it must deposit and
continuously maintain in a separate account with its custodian an
equivalent amount of the securities sold short or securities
convertible into or exchangeable for such securities at no
additional cost. Growth Investor Portfolio is said to have a
short position in the securities sold until it delivers to the
broker-dealer the securities sold. It 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 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 it owns, either directly or indirectly, and, in the
case where it owns convertible securities, changes in the
conversion premium.
Short sale transactions involve certain risks. If the price
of the security sold short increases between the time of the short
sale and the time Growth Investor Portfolio replaces the borrowed
security, it will incur a loss and if the price declines during
this period, it will realize a short-term capital gain. Any
realized short-term capital gain will be decreased, and any
incurred loss increased, by the amount of transaction costs and
any premium, dividend or interest which it may have to pay in
connection with such short sale. Certain provisions of the
Internal Revenue Code may limit the degree to which Growth
Investor Portfolio is able to enter into short sales. There is no
limitation on the amount of 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. Growth Investor
Portfolio currently expects that no more than 5% of its total
assets would be involved in short sales against the box.
Rule 144A Securities
Growth Investor Portfolio may purchase securities that have
been privately placed but that are eligible for purchase and sale
under Rule 144A under the 1933 Act. That Rule permits certain
qualified institutional buyers, such as Growth Investor Portfolio,
to trade in privately placed securities that have not been
registered for sale under the 1933 Act. The Adviser, under the
supervision of the Board of Trustees, will consider whether
securities purchased under Rule 144A are illiquid and thus subject
to the restriction of investing no more than 15% of its net assets
in illiquid securities. A determination of whether a Rule 144A
security is liquid or not is a question of fact. In making this
determination, the Adviser will consider the trading markets for
the specific security, taking into account the unregistered nature
of a Rule 144A security. In addition, the Adviser could consider
the (1) frequency of trades and quotes, (2) number of dealers and
potential purchasers, (3) dealer undertakings to make a market,
and (4) nature of the security and of marketplace trades (e.g.,
the time needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer). The liquidity
of Rule 144A securities would be monitored and if, as a result of
changed conditions, it is determined that a Rule 144A security is
no longer liquid, Growth Investor Portfolio's holdings of illiquid
securities would be reviewed to determine what, if any, steps are
required to assure that it does not invest more than 15% of its
assets in illiquid securities. Investing in Rule 144A securities
could have the effect of increasing the amount of assets invested
in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities. Growth Investor Portfolio
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.
Line of Credit
Subject to restriction (6) under Investment Restrictions in
this Statement of Additional Information, Growth Investor
Portfolio 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, Growth Investor Portfolio has received
permission to lend money to, and borrow money from, other mutual
funds advised by the Adviser. Growth Investor Portfolio will
borrow through the program when borrowing is necessary and
appropriate and the costs are equal to or lower than the costs of
bank loans.
Portfolio Turnover
Although Growth Investor Portfolio does not purchase
securities with a view to rapid turnover, there are no limitations
on the length of time that portfolio securities must be held.
Portfolio turnover can occur for a number of reasons such as
general conditions in the securities markets, more favorable
investment opportunities in other securities, or other factors
relating to the desirability of holding or changing a portfolio
investment. Growth Investor Portfolio may have greater portfolio
turnover than that of a mutual funds that have the 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, if it should occur,
would result in increased transaction expenses, which must be
borne by Growth Investor Portfolio. High portfolio turnover may
also result in the realization of capital gains or losses and, to
the extent net short-term capital gains are realized, any
distributions resulting from such gains will be considered
ordinary income for federal income tax purposes. (See Risks and
Investment Considerations and Distributions and Income Taxes in
the Prospectus, and Additional Income Tax Considerations in this
Statement of Additional Information.)
Options on Securities and Indexes
Growth Investor Portfolio may purchase and sell put options
and call options on securities, indexes or foreign currencies in
standardized contracts traded on recognized securities exchanges,
boards of trade, or similar entities, or quoted on Nasdaq. Growth
Investor Portfolio 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.)
Growth Investor Portfolio will write call options and put
options only if they are "covered." For example, in the case of a
call option on a security, the option is "covered" if Growth
Investor Portfolio owns the security underlying the call or has an
absolute and immediate right to acquire that security without
additional cash consideration (or, if additional cash
consideration is required, cash or cash equivalents in such amount
are held in a segregated account by its custodian) upon conversion
or exchange of other securities held in its portfolio.
If an option written by Growth Investor Portfolio expires, it
realizes a capital gain equal to the premium received at the time
the option was written. If an option purchased by Growth Investor
Portfolio expires, it realizes a capital loss equal to the premium
paid.
Prior to the earlier of exercise or expiration, an option may
be closed out by an offsetting purchase or sale of an option of
the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when it is desired.
Growth Investor Portfolio will realize a capital gain from a
closing purchase transaction if the cost of the closing option is
less than the premium received from writing the option, or, if it
is more, it will realize a capital loss. If the premium received
from a closing sale transaction is more than the premium paid to
purchase the option, Growth Investor Portfolio will realize a
capital gain or, if it is less, it will realize a capital loss.
The principal factors affecting the market value of a put or a
call option include supply and demand, interest rates, the current
market price of the underlying security or index in relation to
the exercise price of the option, the volatility of the underlying
security or index, and the time remaining until the expiration
date.
A put or call option purchased by Growth Investor Portfolio
is an asset of the Portfolio, valued initially at the premium paid
for the option. The premium received for an option written by
Growth Investor Portfolio 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 Growth Investor Portfolio seeks to close out an option
position. If it 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 it 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, it foregoes, during the
option's life, the opportunity to profit from increases in the
market value of the security covering the call option above the
sum of the premium and the exercise price of the call.
If trading were suspended in an option purchased or written
by Growth Investor Portfolio, it would not be able to close out
the option. If restrictions on exercise were imposed, it might be
unable to exercise an option it has purchased.
Futures Contracts and Options on Futures Contracts
Growth Investor Portfolio 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.
- --------
Growth Investor Portfolio may purchase and write call and put
futures options. Futures options possess many of the same
characteristics as options on securities, indexes and foreign
currencies (discussed above). A futures option gives the holder
the right, in return for the premium paid, to assume a long
position (call) or short position (put) in a futures contract at a
specified exercise price at any time during the period of the
option. Upon exercise of a call option, the holder acquires a
long position in the futures contract and the writer is assigned
the opposite short position. In the case of a put option, the
opposite is true. Growth Investor Portfolio 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 its securities or the price
of the securities that it intends to purchase. Although other
techniques could be used to reduce or increase exposure to stock
price, interest rate and currency fluctuations, Growth Investor
Portfolio may be able to achieve its exposure more effectively and
perhaps at a lower cost by using futures contracts and futures
options.
Growth Investor Portfolio will only enter into futures
contracts and futures options that are standardized and traded on
an exchange, board of trade, or similar entity, or quoted on an
automated quotation system.
The success of any futures transaction depends on the Adviser
correctly predicting changes in the level and direction of stock
prices, interest rates, currency exchange rates and other factors.
Should those predictions be incorrect, Growth Investor Portfolio's
return might have been better had the transaction not been
attempted; however, in the absence of the ability to use futures
contracts, the Adviser might have taken portfolio actions in
anticipation of the same market movements with similar investment
results but, presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by
Growth Investor Portfolio, it is required to deposit with its
custodian (or broker, if legally permitted) a specified amount of
cash or U.S. Government securities or other securities acceptable
to the broker ("initial margin"). The margin required for a
futures contract is set by the exchange on which the contract is
traded and may be modified during the term of the contract. The
initial margin is in the nature of a performance bond or good
faith deposit on the futures contract, which is returned to Growth
Investor Portfolio upon termination of the contract, assuming all
contractual obligations have been satisfied. Growth Investor
Portfolio expects to earn interest income on its initial margin
deposits. A futures contract held is valued daily at the official
settlement price of the exchange on which it is traded. Each day
Growth Investor Portfolio pays or receives cash, called "variation
margin," equal to the daily change in value of the futures
contract. This process is known as "marking-to-market."
Variation margin paid or received by Growth Investor Portfolio
does not represent a borrowing or loan by it but is instead
settlement between it and the broker of the amount one would owe
the other if the futures contract had expired at the close of the
previous day. In computing daily net asset value, Growth Investor
Portfolio will mark-to-market its open futures positions.
Growth Investor Portfolio 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.
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, Growth Investor Portfolio
engaging in the transaction realizes a capital gain, or if it is
more, it realizes a capital loss. Conversely, if an offsetting
sale price is more than the original purchase price, it realizes a
capital gain, or if it is less, it realizes a capital loss. The
transaction costs must also be included in these calculations.
Risks Associated with Futures
There are several risks associated with the use of futures
contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in
the futures contract. In trying to increase or reduce market
exposure, there can be no guarantee that there will be a
correlation between price movements in the futures contract and in
the portfolio exposure sought. In addition, there are significant
differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a
given transaction not to achieve its objectives. The degree of
imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures
options and the related securities, including technical influences
in futures and futures options trading and differences between the
securities market and the securities underlying the standard
contracts available for trading. For example, in the case of
index futures contracts, the composition of the index, including
the issuers and the weighting of each issue, may differ from the
composition of the investment portfolio, and, in the case of
interest rate futures contracts, the interest rate levels,
maturities, and creditworthiness of the issues underlying the
futures contract may differ from the financial instruments held in
the investment portfolio. A decision as to whether, when and how
to use futures contracts involves the exercise of skill and
judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or
unexpected stock price or interest rate trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit governs
only price movements during a particular trading day and therefore
does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses. Stock
index futures contracts are not normally subject to such daily
price change limitations.
There can be no assurance that a liquid market will exist at
a time when Growth Investor Portfolio seeks to close out a futures
or futures option position. Growth Investor Portfolio 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,
Growth Investor Portfolio may also use those investment vehicles,
provided the Board of Trustees determines that their use is
consistent with the investment objective.
Growth Investor Portfolio will not enter into a futures
contract or purchase an option thereon if, immediately thereafter,
the initial margin deposits for futures contracts held by it 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 total assets.
- -----------
/3/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
- -----------
When purchasing a futures contract or writing a put option on
a futures contract, Growth Investor Portfolio must maintain with
its custodian (or broker, if legally permitted) cash or cash
equivalents (including any margin) equal to the market value of
such contract. When writing a call option on a futures contract,
Growth Investor Portfolio similarly will maintain with its
custodian cash or cash equivalents (including any margin) equal to
the amount by which such option is in-the-money until the option
expires or is closed out.
Growth Investor Portfolio 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 it
has written call options on specific securities in its portfolio,
the value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," Growth Investor Portfolio will use commodity futures or
commodity options contracts solely for bona fide hedging purposes
within the meaning and intent of Regulation 1.3(z), or, with
respect to positions in commodity futures and commodity options
contracts that do not come within the meaning and intent of
1.3(z), the aggregate initial margin and premiums required to
establish such positions will not exceed 5% of the fair market
value of the assets of Growth Investor Portfolio, 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 Growth Investor Portfolio 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 it, the difference between the
cash received at exercise and the premium paid is a capital gain
or loss.
If a call or put option written by Growth Investor Portfolio
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 it, the difference between the cash paid at
exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by Growth Investor
Portfolio was in-the-money at the time it was written and the
security covering the option was held for more than the long-term
holding period prior to the writing of the option, any loss
realized as a result of a closing purchase transaction will be
long-term. The holding period of the securities covering an in-
the-money option will not include the period of time the option is
outstanding.
If Growth Investor Portfolio 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 Growth
Investor Portfolio delivers securities under a futures contract,
it also realizes a capital gain or loss on those securities.
For federal income tax purposes, Growth Investor Portfolio
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: (1) will
affect the holding period of the hedged securities; and (2) may
cause unrealized gain or loss on such securities to be recognized
upon entry into the hedge.
If Growth Investor Portfolio were to enter into a short index
future, short index futures option or short index option position
and its portfolio were deemed to "mimic" the performance of the
index underlying such contract, the option or futures contract
position and its stock positions would be deemed to be positions
in a mixed straddle, subject to the above-mentioned loss deferral
rules.
In order for Growth Investor Portfolio 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). 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.
Young Investor Fund distributes to shareholders annually any
net capital gains that have been recognized for federal income tax
purposes (including year-end mark-to-market gains) on options and
futures transactions. Such distributions are combined with
distributions of capital gains realized on its other investments,
and shareholders are advised of the nature of the payments.
The Taxpayer Relief Act of 1997 (the "Act") imposed
constructive sale treatment for federal income tax purposes on
certain hedging strategies with respect to appreciated securities.
Under these rules, taxpayers will recognize gain, but not loss,
with respect to securities if they enter into short sales of
"offsetting notional principal contracts" (as defined by the Act)
or futures or "forward contracts" (as defined by the Act) with
respect to the same or substantially identical property, or if
they enter into such transactions and then acquire the same or
substantially identical property. These changes generally apply
to constructive sales after June 8, 1997. Furthermore, the
Secretary of the Treasury is authorized to promulgate regulations
that will treat as constructive sales certain transactions that
have substantially the same effect as short sales, offsetting
notional principal contracts, and futures or forward contracts to
deliver the same or substantially similar property.
INVESTMENT RESTRICTIONS
Young Investor Fund and Growth Investor Portfolio operate
under the following investment restrictions. The 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 [Young Investor Fund only] except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(2) acquire more than 10%, taken at the time of a particular
purchase, of the outstanding voting securities of any one issuer,
[Young Investor Fund only] except that all or substantially all of
the assets of the Fund may be invested in another registered
investment company having the same investment objective and
substantially similar investment policies as the Fund;
(3) act as an underwriter of securities, except insofar as it
may be deemed an underwriter for purposes of the Securities Act of
1933 on disposition of securities acquired subject to legal or
contractual restrictions on resale, [Young Investor Fund only]
except that all or substantially all of the assets of the Fund may
be invested in another registered investment company having the
same investment objective and substantially similar investment
policies as the Fund;
(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate or
interests therein), commodities, or commodity contracts, except
that it may enter into (a) futures and options on futures and (b)
forward contracts;
(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 nonleveraging,
temporary or emergency purposes, (b) engage in reverse repurchase
agreements and make other borrowings, provided that the
combination of (a) and (b) shall not exceed 33 1/3% of the value
of its total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage
permitted by law, and (c) enter into futures and options
transactions; it may borrow from banks, other Stein Roe Funds and
Portfolios, and other persons to the extent permitted by
applicable law;
(7) invest in a security if more than 25% of its total assets
(taken at market value at the time of a particular purchase) would
be invested in the securities of issuers in any particular
industry, except that this restriction does not apply to
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, and [Young Investor Fund only]
except that all or substantially all of the assets of the Fund may
be invested in another registered investment company having the
same investment objective and substantially similar investment
policies as the Fund; or
(8) issue any senior security except to the extent permitted
under the Investment Company Act of 1940.
The above restrictions are fundamental policies and may not
be changed without the approval of a "majority of the outstanding
voting securities" as defined above. Young Investor Fund and
Growth Investor Portfolio are 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 Young Investor 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. Young Investor Fund and Growth Investor
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) 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;
(e) write an option on a security unless the option is issued
by the Options Clearing Corporation, an exchange, or similar
entity;
(f) 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);
(g) 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;
(h) 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;
(i) 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;
(j) invest more than 15% of its net assets (taken at market
value at the time of a particular investment) in illiquid
securities, including repurchase agreements maturing in more than
seven days.
ADDITIONAL INVESTMENT CONSIDERATIONS
The Adviser seeks to provide superior long-term investment
results through a disciplined, research-intensive approach to
investment selection and prudent risk management. In working to
build wealth for generations it has been guided by three primary
objectives which it believes are the foundation of a successful
investment program. These objectives are preservation of capital,
limited volatility through managed risk, and consistent above-
average returns as appropriate for the particular client or
managed account. Because every investor's needs are different,
Stein Roe mutual funds are designed to accommodate different
investment objectives, risk tolerance levels, and time horizons.
In selecting a mutual fund, investors should ask the following
questions:
What are my investment goals?
It is important to a choose a fund that has investment objectives
compatible with your investment goals.
What is my investment time frame?
If you have a short investment time frame (e.g., less than three
years), a mutual fund that seeks to provide a stable share price,
such as a money market fund, or one that seeks capital
preservation as one of its objectives may be appropriate. If you
have a longer investment time frame, you may seek to maximize your
investment returns by investing in a mutual fund that offers
greater yield or appreciation potential in exchange for greater
investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks which
will vary depending on investment objective and security type.
However, mutual funds seek to reduce risk through professional
investment management and portfolio diversification.
In general, equity mutual funds emphasize long-term capital
appreciation and tend to have more volatile net asset values than
bond or money market mutual funds. Although there is no guarantee
that they will be able to maintain a stable net asset value of
$1.00 per share, money market funds emphasize safety of principal
and liquidity, but tend to offer lower income potential than bond
funds. Bond funds tend to offer higher income potential than
money market funds but tend to have greater risk of principal and
yield volatility.
In addition, the Adviser believes that investment in a high
yield fund provides an opportunity to diversify an investment
portfolio because the economic factors that affect the performance
of high-yield, high-risk debt securities differ from those that
affect the performance of high quality debt securities or equity
securities.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus
under the headings How to Purchase Shares, How to Redeem Shares,
Net Asset Value, and Shareholder Services, and that information is
incorporated herein by reference. The Prospectus discloses that
you may purchase (or redeem) shares through investment dealers,
banks, or other institutions. It is the responsibility of any
such institution to establish procedures insuring the prompt
transmission to Investment Trust of any such purchase order. The
state of Texas has asked that Investment Trust disclose in its
Statement of Additional Information, as a reminder to any such
bank or institution, that it must be registered as a securities
dealer in Texas.
The net asset value of Young Investor Fund 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 Jan., the third Monday
in Feb., 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 Young Investor 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.
Investment Trust reserves the right to redeem shares in any
account and send the proceeds to the owner of record if the shares
in the account do not have a value of at least $1,000. If the
value of the account is more than $10, 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. Investment Trust reserves the right to redeem any
account with a value of $10 or less without prior written notice
to the shareholder. Due to the proportionately higher costs of
maintaining small accounts, the transfer agent may charge and
deduct from the account a $5 per quarter minimum balance fee if
the account is a regular account with a balance below $2,000 or an
UGMA account with a balance below $800. This minimum balance fee
does not apply to Stein Roe IRAs, other Stein Roe prototype
retirement plans, accounts with automatic investment plans (unless
regular investments have been discontinued), or omnibus or
nominee accounts. The transfer agent may waive the fee, at its
discretion, in the event of significant market corrections. 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 during any period when: (a) trading on the
NYSE is restricted, as determined by the Securities and Exchange
Commission, or the NYSE is closed for other than customary weekend
and holiday closings; (b) the Securities and Exchange Commission
has by order permitted such suspension; or (c) an emergency, as
determined by the Securities and Exchange Commission, exists,
making disposal of portfolio securities or valuation of net assets
not reasonably practicable.
MANAGEMENT
The following table sets forth certain information with
respect to the trustees and officers of Investment Trust:
<TABLE>
<CAPTION>
Position(s) held Principal occupation(s)
Name Age with Investment Trust during past five years
- ------------------ --- ------------------------ -----------------------------------
<S> <C> <C> <C>
William D. Andrews (4) 50 Executive Vice-President Executive vice president of Stein
Roe & Farnham Incorporated (the
"Adviser")
Gary A. Anetsberger (4) 42 Senior Vice-President Chief financial officer of the Mutual
Funds division of the Adviser; senior
vice president of the Adviser since
Apr. 1996; vice president of the Adviser
prior thereto
Timothy K. Armour 49 President; Trustee President of the Mutual Funds division of
(1)(2)(4) the Adviser and director of the Adviser
William W. Boyd 71 Trustee Chairman and director of Sterling Plumbing Group, Inc.
(2)(3)(4) (manufacturer of plumbing products)
David P. Brady 33 Vice-President Vice president of the Adviser since Nov. 1995; portfolio
manager for the Adviser since 1993; equity investment
analyst, State Farm Mutual Automobile Insurance Company
prior thereto
Thomas W. Butch 41 Executive Vice-President Senior vice president of the Adviser since Sept. 1994;
first vice president, corporate communications, of
Mellon Bank Corporation prior thereto
Daniel K. Cantor 38 Vice-President Senior vice president of the Adviser
Lindsay Cook (1)(4) 45 Trustee Executive vice president of Liberty Financial Companies,
Inc. (the indirect parent of the Adviser) since Mar.
1997; senior vice president prior thereto
Philip J. Crosley 51 Vice-President Senior vice president of the Adviser since Feb. 1996;
vice president, institutional sales-Advisor Sales,
Invesco Funds Group prior thereto
Erik P. Gustafson 34 Vice-President Senior portfolio manager of the Adviser; senior vice
president of the Adviser since Apr. 1996; vice president
of the Adviser from May, 1994 to Apr. 1996; associate of
the Adviser prior thereto
Douglas A. Hacker(3)(4) 42 Trustee Senior vice president and chief financial officer of
United Airlines, since July, 1994; senior vice
president, finance, United Airlines, Feb. 1993 to July,
1994; vice president, American Airlines prior thereto
Loren A. Hansen (4) 49 Executive Vice-President Executive vice president of the Adviser since Dec.,
1995; vice president of The Northern Trust (bank) prior
thereto
David P. Harris 33 Vice-President Vice president of Colonial Management Associates, Inc.
since Jan. 1996; vice president of the Adviser since
May, 1995; global equity portfolio manager with
Rockefeller & Co. prior thereto
Harvey B. Hirschhorn 48 Vice-President Executive vice president, senior portfolio manager, and
chief economist and investment strategist of the
Adviser; director of research of the Adviser, 1991 to
1995
Janet Langford Kelly 40 Trustee Senior vice president, secretary and general counsel of
(3)(4) Sara Lee Corporation (branded, packaged, consumer-
products manufacturer), since 1995; partner of Sidley &
Austin (law firm) prior thereto
Eric S. Maddix 34 Vice-President Vice president of the Adviser since Nov. 1995; portfolio
manager or research assistant for the Adviser since 1987
Lynn C. Maddox 57 Vice-President Senior vice president of the Adviser
Anne E. Marcel 40 Vice-President Vice president of the Adviser since Apr. 1996; manager,
mutual fund sales & services of the Adviser since Oct.
1994; supervisor of the Counselor Department of the
Adviser prior thereto
John S. McLandsborough 30 Vice-President Portfolio manager for the Adviser since Apr., 1996;
securities analyst, CS First Boston from June, 1993 to
Dec. 1995; securities analyst, National City Bank of
Cleveland from Nov. 1992 to June, 1993
Arthur J. McQueen 39 Vice-President Senior vice president of the Adviser
Charles R. Nelson(3)(4) 55 Trustee Van Voorhis Professor of Political Economy, Department
of Economics of the University of Washington
Nicolette D. Parrish(4) 48 Vice-President; Assistant Senior compliance administrator and assistant secretary
Secretary of the Adviser since Nov. 1995; senior legal assistant
for the Adviser prior thereto
Richard B. Peterson 57 Vice-President Senior vice president of the Adviser
Sharon R. Robertson (4) 36 Controller Accounting manager for the Adviser's Mutual Funds
Division
Janet B. Rysz (4) 42 Assistant Secretary Senior compliance administrator and assistant secretary
of the Adviser
M. Gerard Sandel 43 Vice-President Senior vice president of the Adviser since July, 1997;
vice president of M&I Investment Management Corporation
from Oct. 1993 to June, 1997; vice president of Acorn
Asset Management Corporation prior thereto
Gloria J. Santella 40 Vice-President Senior vice president of the Adviser since Nov. 1995;
vice president of the Adviser prior thereto
Thomas C. Theobald 60 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
Scott E. Volk (4) 26 Treasurer Financial reporting manager for the Adviser's Mutual
Funds division since Oct. 1997; senior auditor with
Ernst & Young LLP from Sept. 1993 to Apr. 1996 and from
Oct. 1996 to Sept. 1997; financial analyst with John
Nuveen & Company Inc. from May 1996 to Sept. 1996; full-
time student prior to Sept. 1993
Heidi J. Walter (4) 30 Vice-President Legal counsel for the Adviser since Mar. 1995; associate
with Beeler Schad & Diamond, PC (law firm) prior thereto
Stacy H. Winick (4) 32 Vice-President Senior legal counsel for the Adviser since Oct. 1996;
associate of Bell, Boyd & Lloyd (law firm), June, 1993
to Sept. 1996; associate of Debevoise & Plimpton (law
firm) prior thereto
Hans P. Ziegler (4) 56 Executive Vice-President Chief executive officer of the Adviser since May, 1994;
president of the Investment Counsel division of the
Adviser from July, 1993 to June, 1994; president and
chief executive officer, Pitcairn Financial Management
Group prior thereto
Margaret O. Zwick (4) 31 Assistant Treasurer Project manager for the Adviser's Mutual Funds division
since Apr. 1997; compliance manager from Aug. 1995 to
Apr. 1997; compliance accountant, Jan. 1995 to July
1995; section manager, Jan. 1994 to Jan. 1995;
supervisor prior thereto
<FN>
_________________________
(1) Trustee who is an "interested person" of Investment Trust and
of the Adviser, as defined in the Investment Company Act of
1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope and
results of the audit.
(4) This person holds the corresponding officer or trustee
position with Base Trust.
</TABLE>
Certain of the trustees and officers of Investment Trust and
Base Trust are trustees or officers of other investment companies
managed by the Adviser. Ms. Walter is also a vice president of Liberty
Financial Investments, Inc., the Funds' distributor. The address 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. 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. Cantor
and Harris is 1330 Avenue of the Americas, New York, New York
10019; and that of the other officers is One South Wacker Drive,
Chicago, Illinois 60606.
Officers and trustees affiliated with the Adviser serve
without any compensation from Investment Trust. In compensation
for their services to Investment Trust, trustees who are not
"interested persons" of Investment Trust or the Adviser are paid
an annual retainer of $8,000 (divided equally among the series of
Investment Trust) plus an attendance fee from each series for each
meeting of the Board or standing committee thereof attended at
which business for that series is conducted. The attendance fees
(other than for a Nominating Committee or Compensation Committee
meeting) are based on each series' net assets as of the preceding
Dec. 31. For a series with net assets of less than $50 million,
the fee is $50 per meeting; with $51 to $250 million, the fee is
$200 per meeting; with $251 million to $500 million, $350; with
$501 million to $750 million, $500; with $751 million to $1
billion, $650; and with over $1 billion in net assets, $800. For
a series participating in the master fund/feeder fund structure,
the trustees' attendance fees are paid solely by the master
portfolio. Each non-interested trustee also receives $500 from
Investment Trust for attending each meeting of the Nominating
Committee or Compensation Committee. Investment Trust has no
retirement or pension plan. The following table sets forth
compensation paid by Investment Trust during the fiscal year ended
Sept. 30, 1997 to each of the trustees:
Aggregate
Name of Compensation Total Compensation from
Trustee from Investment Trust the Stein Roe Fund Complex*
- ---------------- --------------------- ---------------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Douglas A. Hacker $21,926 $90,643
Janet Langford Kelly 17,650 77,500
William W. Boyd 22,426 92,643
Charles R. Nelson 22,426 92,643
Thomas C. Theobald 21,926 90,643
Kenneth L. Block** 21,076 84,743
Francis W. Morley** 21,926 90,993
_______________
* At Sept. 30, 1997, the Stein Roe Fund Complex consisted of ten
series of Investment Trust, seven series of Stein Roe Advisor
Trust, six series of Stein Roe Income Trust, four series of
Stein Roe Municipal Trust, one series of Stein Roe
Institutional Trust, one series of Stein Roe Trust, and nine
series of Base Trust.
** Messrs. Block and Morley retired as trustees of Dec. 31, 1997.
FINANCIAL STATEMENTS
Please refer to the Sept. 30, 1997 Financial Statements
(balance sheets and schedules of investments as of Sept. 30, 1997
and the statements of operations, changes in net assets, and notes
thereto) and the report of independent public accountants
contained in the Sept. 30, 1997 Annual Report of Young Investor
Fund. The Financial Statements and the report of independent
public accountants (but no other material from the Annual Report )
are incorporated herein by reference. The Annual Report may be
obtained at no charge by telephoning 800-338-2550.
PRINCIPAL SHAREHOLDERS
As of Dec. 31, 1997, the only persons known by Investment
Trust to own of record or "beneficially" 5% or more of the
outstanding shares of Young Investor Fund within the definition of
that term as contained in Rule 13d-3 under the Securities Exchange
Act of 1934 were as follows:
NAME AND ADDRESS APPROXIMATE % OF
OUTSTANDING
SHARES HELD
- ---------------------- -----------------
First Bank National Association* 5.74%
410 N. Michigan Avenue
Chicago, IL 60611
Charles Schwab & Co., Inc.* 18.14%
Attn: Mutual Fund Dept.
101 Montgomery Street
San Francisco, CA 94104
____________________________________
*Shares held of record, but not beneficially.
The following table shows shares of Young Investor Fund held
by the categories of persons indicated as of Dec. 31, 1997, 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
----------- ------- ----------- -------
64,617 0.28% 15,108 **
_________________________
*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 Growth Investor Portfolio and
administrative services to Young Investor Fund. The Adviser is a
wholly owned subsidiary of SteinRoe Services Inc. ("SSI"), Young
Investor 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 Executive Vice President and
Treasurer of Liberty Financial; Mr. Armour is President of the
Adviser's Mutual Funds division; and Mr. Ziegler is Chief
Executive Officer of the Adviser. The business address of Messrs.
Leibler, Cogger, and Merritt is Federal Reserve Plaza, Boston,
Massachusetts 02210; and that of Messrs. Armour, and Ziegler is
One South Wacker Drive, Chicago, Illinois 60606.
The Adviser and its predecessor have been providing
investment advisory services since 1932. The Adviser acts as
investment adviser to wealthy individuals, trustees, pension and
profit sharing plans, charitable organizations, and other
institutional investors. As of Sept. 30, 1997, the Adviser
managed over $29 billion in assets: over $5 billion in equities
and over $17 billion in fixed income securities (including $1.7
billion in municipal securities). The $29 billion in managed
assets included over $7 billion held by open-end mutual funds
managed by the Adviser (approximately 15% of the mutual fund
assets were held by clients of the Adviser). These mutual funds
were owned by over 265,000 shareholders. The $7 billion in mutual
fund assets included over $728 million in over 42,000 IRA
accounts. In managing those assets, the Adviser utilizes a
proprietary computer-based information system that maintains and
regularly updates information for approximately 9,000 companies.
The Adviser also monitors over 1,400 issues via a proprietary
credit analysis system. At Sept. 30, 1997, the Adviser employed
16 research analysts and 55 account managers. The average
investment-related experience of these individuals was 24 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 descriptions of the Adviser, management
agreement, administrative agreement, fees, expense limitations,
and transfer agency services under Fee Table and Management in the
Prospectus, which are incorporated herein by reference. The table
below shows gross fees paid for the three most recent fiscal years
and any expense reimbursements by the Adviser:
YEAR YEAR YEAR
TYPE OF ENDED ENDED ENDED
FUND PAYMENT 9/30/97 9/30/96 9/30/95
- ------------- ------------ ---------- ---------- ----------
Young Investor
Fund Management fee $501,602 $476,810 $130,982
Administrative fee 695,027 158,937 N/A
Reimbursement 196,907 663,230 322,803
Growth Investor
Portfolio Management fee 1,567,638 N/A N/A
The Adviser provides office space and executive and other
personnel to Young Investor Fund, and bears any sales or
promotional expenses. Young Investor 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 Young Investor Fund to the extent that its total annual
expenses (including fees paid to the Adviser, but excluding taxes,
interest, commissions and other normal charges incident to the
purchase and sale of portfolio securities, and expenses of
litigation to the extent permitted under applicable state law)
exceed the applicable limits prescribed by any state in which its
shares are being offered for sale to the public; provided,
however, the Adviser is not required to reimburse Young Investor
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 Young Investor Fund, the Adviser may
voluntarily waive its management fee and/or absorb certain
expenses, as described under Fee Table in the Prospectus. Any
such reimbursement will enhance the yield of the 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 Young Investor Fund shall
be paid solely out of its 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 Young Investor Fund and
Growth Investor Portfolio. For services provided to Investment
Trust, 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 Sept. 30, 1995, 1996 and 1997, the Adviser
received aggregate fees of $192,479, $265,246 and $315,067,
respectively, from Investment Trust for services performed under
this Agreement.
DISTRIBUTOR
Shares of Young Investor Fund are distributed by Liberty
Financial Investments, Inc. ("Distributor") under a Distribution
Agreement as described under Management in the Prospectus, which
is incorporated herein by reference. The Distributor is a
subsidiary of Colonial Management Associates, Inc., which is an
indirect subsidiary of Liberty Financial. 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, the Distributor offers shares 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 Young Investor Fund. The Distributor offers Young
Investor Fund shares only on a best-efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for Investment
Trust, as described under Management in the Prospectus. For
performing these services, SSI receives from Young Investor Fund a
fee based on an annual rate of .22 of 1% of average net assets.
Investment Trust believes the charges by SSI to Young Investor
Fund are comparable to those of other companies performing similar
services. (See Investment Advisory Services.) Under a separate
agreement, SSI also provides certain investor accounting services
to Growth Investor Portfolio.
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, receiving and paying for securities
purchased, delivering against payment securities sold, receiving
and collecting income from investments, making all payments
covering expenses, and performing other administrative duties, all
as directed by authorized persons. The Bank does not exercise any
supervisory function in such matters as purchase and sale of
portfolio securities, payment of dividends, or payment of
expenses.
Portfolio securities purchased in the U.S. are maintained in
the custody of the Bank or of other domestic banks or
depositories. Portfolio securities purchased outside of the U.S.
are maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network and foreign
depositories ("foreign sub-custodians"). Each of the domestic and
foreign custodial institutions holding portfolio securities has
been approved by the Board of Trustees in accordance with
regulations under the Investment Company Act of 1940.
Each Board of Trustees reviews, at least annually, whether it
is in the best interests of Growth Investor Portfolio and Young
Investor Fund and its shareholders to maintain assets in each of
the countries in which Growth Investor 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
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. Each Board of
Trustees is aided in its review by the Bank, which has assembled
the network of foreign sub-custodians utilized by Growth Investor
Portfolio, as well as by the Adviser and counsel. However, with
respect to foreign sub-custodians, there can be no assurance that
Growth Investor Portfolio, and the value of its shares, will not
be adversely affected by acts of foreign governments, financial or
operational difficulties of the foreign sub-custodians,
difficulties and costs of obtaining jurisdiction over, or
enforcing judgments against, the foreign sub-custodians, or
application of foreign law to the foreign sub-custodial
arrangements. Accordingly, an investor should recognize that the
non-investment risks involved in holding assets abroad are greater
than those associated with investing in the United States.
Growth Investor Portfolio may invest in obligations of the
Bank and may purchase or sell securities from or to the Bank.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for Investment Trust and
Growth Investor Portfolio are Arthur Andersen LLP, 33 West Monroe
Street, Chicago, Illinois 60603. The accountants audit and report
on the annual financial statements, review certain regulatory
reports and the federal income tax returns, and perform other
professional accounting, auditing, tax and advisory services when
engaged to do so by the Trust.
PORTFOLIO TRANSACTIONS
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts. The
Adviser's overriding objective in effecting portfolio transactions
is to seek to obtain the best combination of price and execution.
The best net price, giving effect to brokerage commissions, if
any, and other transaction costs, normally is an important factor
in this decision, but a number of other judgmental factors may
also enter into the decision. These include: the Adviser's
knowledge of negotiated commission rates currently available and
other current transaction costs; the nature of the security being
traded; the size of the transaction; the desired timing of the
trade; the activity existing and expected in the market for the
particular security; confidentiality; the execution, clearance and
settlement capabilities of the broker or dealer selected and
others which are considered; the Adviser's knowledge of the
financial stability of the broker or dealer selected and such
other brokers or dealers; and the Adviser's knowledge of actual or
apparent operational problems of any broker or dealer.
Recognizing the value of these factors, Growth Investor Portfolio
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 Growth
Investor Portfolio, the Adviser often selects a broker or dealer
that has furnished it with research products or services such as
research reports, subscriptions to financial publications and
research compilations, compilations of securities prices,
earnings, dividends, and similar data, and computer data bases,
quotation equipment and services, research-oriented computer
software and services, and services of economic and other
consultants. Selection of brokers or dealers is not made pursuant
to an agreement or understanding with any of the brokers or
dealers; however, the Adviser uses an internal allocation
procedure to identify those brokers or dealers who provide it with
research products or services and the amount of research products
or services they provide, and endeavors to direct sufficient
commissions generated by its clients' accounts in the aggregate,
including Growth Investor Portfolio, to such brokers or dealers to
ensure the continued receipt of research products or services the
Adviser feels are useful. In certain instances, the Adviser
receives from brokers and dealers products or services that are
used both as investment research and for administrative,
marketing, or other non-research purposes. In such instances, the
Adviser makes a good faith effort to determine the relative
proportions of such products or services which may be considered
as investment research. The portion of the costs of such products
or services attributable to research usage may be defrayed by the
Adviser (without prior agreement or understanding, as noted above)
through brokerage commissions generated by transactions by clients
(including Growth Investor Portfolio), while the portion of the
costs attributable to non-research usage of such products or
services is paid by the Adviser in cash. No person acting on
behalf of Growth Investor Portfolio 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 also may
receive research in connection with selling concessions and
designations in fixed price offerings in which Growth Investor
Portfolio participates. Research products or services furnished
by brokers and dealers may be used in servicing any or all of the
clients of the Adviser and not all such research products or
services are used in connection with the management of Growth
Investor Portfolio.
With respect to Growth Investor Portfolio'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 Growth Investor Portfolio.
The table below shows information on brokerage commissions
paid by Young Investor Fund:
Total amount of brokerage commissions paid during
fiscal year ended 9/30/97.............................$512,584
Amount of commissions paid to brokers or dealers who
supplied research services to the Adviser............. 484,845
Total dollar amount involved in such transactions
(000 omitted)..........................................334,188
Amount of commissions paid to brokers or dealers that
were allocated to such brokers or dealers by a
portfolio manager because of research services
provided...............................................109,459
Total dollar amount involved in such transactions
(000 omitted)..........................................119,168
Total amount of brokerage commissions paid during
fiscal year ended 9/30/96...............................174,919
Total amount of brokerage commissions paid during
fiscal year ended 9/30/95...............................38,043
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 the Association of the National Association of
Securities Dealers.
During the last fiscal year, Growth Investor Portfolio held
securities issued by one or more of its regular broker-dealers
or the parent of such broker-dealers that derive more than 15% of
gross revenue from securities-related activities. Such holdings
were as follows at Sept. 30, 1997:
Amount of
Securities Held
Broker-Dealer (in thousands)
- --------------------------------------- ----------------
Associates Corporation of North America $14,525
ADDITIONAL INCOME TAX CONSIDERATIONS
Young Investor Fund and Growth Investor 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.
Young Investor Fund expects that less than 100% of its
dividends will qualify for the deduction for dividends received by
corporate shareholders.
To the extent Growth Investor Portfolio invests in foreign
securities, it may be subject to withholding and other taxes
imposed by foreign countries. Tax treaties between certain
countries and the United States may reduce or eliminate such
taxes. Investors may be entitled to claim U.S. foreign tax
credits with respect to such taxes, subject to certain provisions
and limitations contained in the Code. Specifically, if more than
50% of 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 its
shareholders will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their
pro rata shares of foreign income taxes paid by Young Investor
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 Young Investor 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 Young Investor 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,
Young Investor Fund will notify shareholders of the amount of (i)
each shareholder's pro rata share of foreign income taxes paid by
Young Investor Fund and (ii) the portion of Fund dividends which
represents income from each foreign country, if Young Investor
Fund qualifies to pass along such credit.
INVESTMENT PERFORMANCE
Young Investor 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 Young Investor Fund,
the "Total Return," the "Total Return Percentage," and the
"Average Annual Total Return" at Sept. 30, 1997 were:
TOTAL RETURN AVERAGE ANNUAL
TOTAL RETURN PERCENTAGE TOTAL RETURN
------------ ------------- --------------
1 year $1,264 26.37% 26.37%
Life of Fund* 2,466 146.59 30.20
______________________________________
*Life of Fund is from its date of public offering, 4/29/94 .
Investment performance figures assume reinvestment of all
dividends and distributions and do not take into account any
federal, state, or local income taxes which shareholders must pay
on a current basis. They are not necessarily indicative of future
results. The performance of Young Investor Fund is a result of
conditions in the securities markets, portfolio management, and
operating expenses. Although investment performance information
is useful in reviewing 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, Young Investor 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
Young Investor Fund. Comparison of Young Investor Fund to an
alternative investment should be made with consideration of
differences in features and expected performance.
All of the indexes and averages noted below will be obtained
from the indicated sources or reporting services, which Investment
Trust believes to be generally accurate. Young Investor Fund may
also note its mention or recognition in newspapers, magazines, or
other media from time to time. However, Investment Trust assumes
no responsibility for the accuracy of such data. Newspapers and
magazines which might mention Young Investor 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
Young Investor Fund may compare its performance to the
Consumer Price Index (All Urban), a widely recognized measure of
inflation. Its performance also 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, Young Investor Fund may compare performance to the
following benchmarks:
Lipper Equity Fund Average
Lipper General Equity Fund Average
Lipper Growth Fund Average
Lipper Growth Fund Index
Morningstar All Equity Funds Average
Morningstar Domestic Stock Average
Morningstar Equity Fund Average
Morningstar General Equity Average*
Morningstar Growth Fund Average
Morningstar Hybrid Fund Average
Morningstar Total Fund Average
Morningstar U.S. Diversified Average
_________
*Includes Morningstar Aggressive Growth, Growth, Balanced, Equity
Income, and Growth and Income Averages.
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 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. Young
Investor 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 Young Investor Fund to a different category or develop
(and place it into) a new category, it may compare its performance
or ranking with those of other funds in the newly assigned
category, as published by the service.
Young Investor 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, Young Investor 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
_____________________
Young Investor 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 Jan. 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.)
<TABLE>
<CAPTION>
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
Interest
Rate 3% 5% 7% 9% 3% 5% 7% 9%
- --------------------------------------------------------------------------------
Com-
pound-
ing
Years Tax-Deferred Investment Taxable Investment
- ---- ------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30 $82,955 $108,031 $145,856 $203,239 $80,217 $98,343 $121,466 $151,057
25 65,164 80,337 101,553 131,327 63,678 75,318 89,528 106,909
20 49,273 57,781 68,829 83,204 48,560 55,476 63,563 73,028
15 35,022 39,250 44,361 50,540 34,739 38,377 42,455 47,025
10 22,184 23,874 25,779 27,925 22,106 23,642 25,294 27,069
5 10,565 10,969 11,393 11,840 10,557 10,943 11,342 11,754
1 2,036 2,060 2,085 2,109 2,036 2,060 2,085 2,109
</TABLE>
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, Young Investor 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.
_______________________
