STEIN ROE INVESTMENT TRUST
Stein Roe Large Company Focus Fund
Supplement to April 30, 1998 prospectus
The distributor of Stein Roe Large Company Focus Fund,
Liberty Financial Investments, Inc. ("Liberty"), is
soliciting subscriptions for Fund shares during an initial
offering period currently scheduled from May 4, 1998 to the
close of business on June 25, 1998 (the "Subscription
Period"). The subscription price will be the Fund's initial
net asset value of $10.00 per share. Orders to purchase
Fund shares received during the Subscription Period will be
accepted after the close of business on June 25, 1998.
Charles Schwab & Co, Inc. ("Schwab") is also soliciting
subscriptions of Fund shares during the Subscription Period,
pursuant to a Selected Dealer Arrangement with Liberty. The
purchase price for Fund shares will be paid from a Schwab
customer's brokerage account at the close of business on
June 25, 1998. For its services, Schwab will receive from
Liberty a fee equal to the greater of one hundred thousand
dollars or up to fifty basis points of the gross amount of
sales of shares sold by Schwab during the Subscription
Period. The fee will be paid solely by Liberty out of its
own resources or those of its affiliates and will have no
effect on the Fund's fees or expenses.
This Supplement is Dated April 30, 1998
<PAGE>
Prospectus April 30, 1998
Stein Roe Mutual Funds
Stein Roe Large Company Focus Fund
Stein Roe Large Company Focus Fund seeks long-term growth of capital
by investing in a non-diversified portfolio of equity securities.
Stein Roe Large Company Focus Fund invests in a limited number of
large-cap companies, defined as those with market capitalizations in
excess of $5 billion, that Stein Roe & Farnham Incorporated believes
have above-average growth potential. Under normal conditions, the
Fund will invest at least 65% of its total assets in common stocks
of large-cap companies.
Large Company Focus Fund is a "no-load" fund. There are no sales or
redemption charges, and Large Company Focus Fund has no 12b-1 plan.
Large Company Focus Fund is series of Stein Roe Investment Trust.
The Trust is an open-end management investment company, each series
of which is diversified other than Large Company Focus Fund.
This prospectus contains information you should know before
investing in Stein Roe Large Company Focus Fund. Please read it
carefully and retain it for future reference.
A Statement of Additional Information dated April 30 1998,
containing more 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
and the Statement of Additional Information by calling 800-338-2550
or by writing to Stein Roe Funds, Suite 3200, One South Wacker
Drive, Chicago, Illinois 60606.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION 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 ..............................3
The Fund ................................4
Investment Policies .....................4
Portfolio Investments and Strategies ....5
Investment Restrictions .................8
Risks and Investment Considerations..... 8
How to Purchase Shares ................. 9
By Check ............................10
By Wire..............................10
By Electronic Transfer ..............11
By Exchange .........................11
Conditions of Purchase ..............11
Purchases Through Third Parties......11
Purchase Price and Effective Date ...11
How to Redeem Shares ...................12
By Written Request ..................12
By Exchange .........................12
Special Redemption Privileges .......12
General Redemption Policies .........14
Shareholder Services ...................15
Net Asset Value ........................17
Distributions and Income Taxes .........17
Investment Return ......................18
Management..............................19
Organization and Description of Shares..20
Certificate of Authorization............21
SUMMARY
Stein Roe Large Company Focus Fund ("Large Company Focus Fund") is a
series of the Stein Roe Investment Trust ("Investment Trust"), an
open-end management investment company, each series of which is
diversified other than Large Company Focus Fund. Large Company
Focus Fund is a "no-load" fund. There are no sales or redemption
charges. (See The Fund and Organization and Description of Shares.)
This prospectus is not a solicitation in any jurisdiction in which
shares of Large Company Focus Fund are not qualified for sale.
Investment Objectives and Policies. Large Company Focus Fund seeks
long-term growth of capital by investing in a non-diversified
portfolio of equity securities. Large Company Focus Fund invests in
a limited number of large-cap companies, defined as those with
market capitalizations in excess of $5 billion, that Stein Roe &
Farnham Incorporated believes have above-average growth potential.
Under normal conditions, Large Company Focus Fund will hold between
15-25 common stocks and will invest at least 65% of its total assets
in common stocks of large-cap companies.
There can be no guarantee that Large Company Focus Fund will achieve
its investment objective. Please see Investment Policies and
Portfolio Investments and Strategies for further information.
Investment Risks. Large Company Focus Fund is designed for long-
term investors who can accept the fluctuations in portfolio value
and other risks associated with seeking long-term growth of capital
through investments in a limited number of common stocks.
Since Large Company Focus Fund may invest in foreign securities,
investors should understand and carefully consider the risks
involved in foreign investing. Investing in foreign securities
involves certain risks and opportunities not typically associated
with investing in U.S. securities. Such risks include fluctuations
in foreign currency exchange rates, possible imposition of exchange
controls, less complete financial information, political
instability, less liquidity, and greater price volatility.
Please see Investment Policies, Portfolio Investments and
Strategies, and Risks and Investment Considerations for further
information.
Purchases. The minimum initial investment for Large Company Focus
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 Large Company Focus Fund
shares, including the special redemption privileges, see How to
Redeem Shares.
Net Asset Value. The purchase and redemption price of Large Company
Focus Fund's shares is its net asset value per share. The net asset
value is determined as of the close of regular session 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 Large Company Focus
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 Large Company Focus Fund. For a description
of the Adviser and its fees, see Management.
If you have any additional questions about Large Company Focus Fund,
please feel free to discuss them with a Stein Roe account
representative by calling 800-338-2550.
FEE TABLE
Shareholder Transaction Expenses
Sales Load Imposed on Purchases....................None
Sales Load Imposed on Reinvested Dividends.........None
Deferred Sales Load................................None
Redemption Fees*...................................None
Exchange Fees......................................None
Annual Fund Operating Expenses (after fee
reimbursement; as a percentage of average
net assets)
Management and Administrative Fees (after fee
reimbursement)...................................0.85 %
12b-1 Fees.........................................None
Other Expenses.....................................0.65%
-----
Total Fund Operating Expenses (after fee
reimbursement)...................................1.50%
=====
___________________
* There is a $7.00 charge for wiring redemption proceeds to your
bank. A fee of $5.00 per quarter may be charged for accounts that
fall below stated minimums. See How to Redeem Shares--General
Redemption Policies.
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
------ -------
$15 $47
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 Large Company Focus Fund. Because Large Company
Focus Fund has no operating history, the information in the table is
based upon an estimate of expenses, assuming net assets of $50
million. The figures assume that the percentage amounts listed
under Annual Fund Operating Expenses remain the same during each of
the periods and that all income dividends and capital gains
distributions are reinvested in additional shares.
From time to time, the Adviser may voluntarily undertake to
reimburse Large Company Focus Fund for a portion of its operating
expenses. The Adviser has undertaken to reimburse Large Company
Focus Fund for its operating expenses to the extent such expenses
exceed 1.50% 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 Large Company Focus Fund. Absent such
reimbursement, the Management and Administrative Fees and Total
Operating Expenses would be 0.90% and 1.55%, respectively. Any such
reimbursement will lower Large Company Focus Fund's overall expense
ratio and increase its overall return to investors. (Also see
Management--Fees and Expenses.)
The figures in the Example are not necessarily indicative of past or
future expenses, and actual expenses may be greater or less than
those shown. Although information such as that shown in the Example
and Fee Table is useful in reviewing Large Company Focus Fund's
expenses and in providing a basis for comparison with other mutual
funds, it should not be used for comparison with other investments
using different assumptions or time periods.
THE FUND
The mutual fund offered by this prospectus is Stein Roe Large
Company Focus Fund ("Large Company Focus Fund"). Large Company
Focus Fund is a no-load, non-diversified "mutual fund." Mutual
funds sell their own shares to investors and use the money they
receive to invest in a portfolio of securities such as common
stocks. A mutual fund allows you to pool your money with that of
other investors in order to obtain professional investment
management. Large Company Focus Fund does not impose commissions or
charges when shares are purchased or redeemed.
Large Company Focus 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
management, administrative, and bookkeeping and accounting services
to Large Company Focus Fund. The Adviser also manages and provides
investment advisory services for several other mutual funds with
different investment objectives, including other equity funds,
international funds, taxable and tax-exempt bond funds, and money
market funds. To obtain prospectuses and other information on any
of those mutual funds, please call 800-338-2550.
INVESTMENT POLICIES
Large Company Focus Fund invests as described in the section below.
Additional information on portfolio investments and strategies may
be found under Portfolio Investments and Strategies in this
prospectus and in the Statement of Additional Information.
The investment objective of Large Company Focus Fund is long-term
growth of capital by investing in a non-diversified portfolio of
equity securities. Large Company Focus Fund attempts to achieve its
objective by investing in a limited number of large-cap companies,
defined as those with market capitalizations in excess of $5
billion, that the Adviser believes have above-average growth
potential. As a "focus" fund, under normal conditions, the Fund
will hold between 15-25 common stocks and will invest at least 65%
of its total assets in equity securities of large-cap companies.
As a "focus" fund, the Fund intends to invest in those companies
that the Adviser believes have substantial opportunity to be dominant
in their particular industry or market--meaning those companies with
earnings predictability that generate consistent earning growth
despite normal market declines.
As a "non-diversified" fund, the Fund is not limited under the
Investment Company Act of 1940 in the percentage of its assets that
it may invest in any one issuer. (See Risks and Investment
Considerations - Non-Diversification.)
PORTFOLIO INVESTMENTS AND STRATEGIES
Debt Securities. In pursuing its investment objective, Large
Company Focus 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 Large Company Focus 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. Large
Company Focus 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.
Debt securities rated below investment grade are also referred to as "junk"
bonds. Subject to the above-mentioned limitations, the Fund is not
subject to a minimum rating requirement with respect to debt
securities.
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, Large
Company Focus 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,
Large Company Focus 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 Large Company Focus 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. Convertible securities rated below investment grade
will be deemed "junk" bonds for purposes of the 5% limitation noted
above.
Foreign Securities. Large Company Focus 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, Large Company Focus Fund is limited to
investing no more than 25% of its total assets in foreign
securities. (See Risks and Investment Considerations.) Large
Company Focus Fund may invest in sponsored or unsponsored ADRs. In
addition to, or in lieu of, such direct investment, Large Company
Focus 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, Large Company
Focus 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.
Large Company Focus Fund also may enter into foreign currency
contracts as a hedging technique to limit or reduce exposure to
currency fluctuations. In addition, Large Company Focus Fund may
use options and futures contracts, as described below, to limit or
reduce exposure to currency fluctuations.
Lending Portfolio Securities; When-Issued and Delayed-Delivery
Securities. Subject to certain restrictions described in the
Statement of Additional Information, Large Company Focus Fund may
make loans of its portfolio securities to broker-dealers and banks.
Large Company Focus 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 Large Company Focus
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. Large Company Focus 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 Large Company Focus Fund does not
purchase securities with a view to rapid turnover, there are no
limitations on the length of time portfolio securities must be held-
- -the portfolio turnover rate may vary significantly from year to
year, but is not expected to exceed 100% under normal market and
other conditions. At times, Large Company Focus Fund may invest for
short-term capital appreciation. Flexibility of investment and
emphasis on capital appreciation may involve greater portfolio
turnover than that of mutual funds that have the objectives of
income or maintenance of a balanced investment position. A high
rate of portfolio turnover may result in increased transaction
expenses and the realization of capital gains and losses. (See
Distributions and Income Taxes.) Although it may produce varying
amounts of income, Large Company Focus Fund is not intended as an
investment for investors seeking dividend income.
Derivatives. Consistent with its objective, Large Company Focus
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. Large Company
Focus 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 (including options and futures)
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, Large Company Focus Fund
may:
- -Purchase and write both call options and put options on
securities, indexes and foreign currencies;
- -Enter into interest rate, index and foreign currency futures
contracts;
- -Write options on such futures contracts; and
- -Purchase other types of forward or investment contracts linked to
individual securities, indexes or other benchmarks.
Large Company Focus Fund may write a call or put option only if the
option is covered. As the writer of a covered call option, Large
Company Focus 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 Large Company Focus 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. Large Company Focus 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 Large Company Focus
Fund against the risk of losses in the value of its portfolio
securities because any unrealized losses with respect to such
securities should be wholly or partly offset by a corresponding gain
in the short position. Any potential gains in such securities,
however, should be wholly or partially offset by a corresponding
loss in the short position. Short sales against the box may be used
to lock in a profit on a security when, for tax reasons or
otherwise, the Adviser does not want to sell the security. For a
more complete explanation, please refer to the Statement of
Additional Information.
INVESTMENT RESTRICTIONS
Large Company Focus Fund is non-diversified as that term is defined
in the Investment Company Act of 1940.
Large Company Focus 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.
Large Company Focus Fund may not make loans, but it may:
- - Purchase money market instruments and enter into repurchase
agreements;
- - Acquire publicly distributed or privately placed debt securities;
- - Lend portfolio securities under certain conditions; and
- - Participate in an interfund lending program with other Stein Roe
funds and portfolios.
Large Company Focus Fund may not borrow money, except for
nonleveraging, temporary, or emergency purposes or in connection
with participation in the interfund lending program. Neither
aggregate borrowings (including reverse repurchase agreements) nor
aggregate loans at any one time may exceed 33 1/3% of the value of
total assets. Additional securities may not be purchased when
borrowings, less proceeds receivable from sales of portfolio
securities, exceed 5% of total assets.
Large Company Focus 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 of Large Company Focus Fund is non-fundamental
and, as such, may be changed by the Board of Trustees without
shareholder approval, subject, however, to at least 30 days' advance
written notice to shareholders. All of the investment restrictions
are set forth in the Statement of Additional Information.
RISKS AND INVESTMENT CONSIDERATIONS
All investments, including those in mutual funds, have risks. No
investment is suitable for all investors. Large Company Focus Fund
is designed for long-term investors who can accept the fluctuations
in portfolio value and other risks associated with seeking long-term
growth of capital through investments in a limited number of common
stocks. Of course, there can be no guarantee that Large Company
Focus 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.
Large Company Focus Fund generally allocates its investments among a
number of different industries rather than concentrating in a
particular industry or group of industries. Large Company Focus
Fund, however, will not invest more than 25% of the total value of
its assets (at the time of investment) in the securities of
companies in any one industry. (See Investment Policies.)
Investment in foreign securities may represent a greater degree of
risk (including risk related to exchange rate fluctuations, tax
provisions, exchange and currency controls, and expropriation of
assets) than investment in securities of domestic issuers. Other
risks of foreign investing include less complete financial
information on issuers; less market liquidity; more market
volatility; less developed and regulated markets; and greater
political instability. In addition, various restrictions by foreign
governments on investments by nonresidents may apply, including
imposition of exchange controls and withholding taxes on dividends,
and seizure or nationalization of investments owned by nonresidents.
Foreign investments also tend to involve higher transaction and
custody costs.
Non-Diversification. As a "non-diversified" fund, Large Company
Focus Fund is not limited under the Investment Company Act of 1940
in the percentage of its assets that it may invest in any one
issuer. However, Large Company Focus Fund intends to comply with
the diversification standards applicable to regulated investment
companies under the Internal Revenue Code of 1986. In order to meet
those standards, among other requirements, at the close of each
quarter of its taxable year (a) at least 50% of the value of Large
Company Focus Fund's total assets must be represented by one or more
of the following: (i) cash and cash items, including receivables;
(ii) U.S. Government securities; (iii) securities of other regulated
investment companies; and (iv) securities (other than those in items
(ii) and (iii) above) of any one or more issuers as to which its
investment in an issuer does not exceed 5% of the value of Large
Company Focus Fund's total assets (valued at the time of investment);
and (b) not more than 25% of its total assets (valued at the time of
investment) may be invested in the securities of any one issuer (other
than U.S. Government securities or securities of other regulated
investment companies).
Since Large Company Focus Fund may invest more than 5% of its assets
in a single portfolio security, the appreciation or depreciation of
such a security will have a greater impact on the net asset value of
Large Company Focus Fund, and the net asset value per share of Large
Company Focus Fund can be expected to fluctuate more than would the
net asset value of a comparable "diversified" fund (which generally,
with respect to 75% of its assets, cannot invest more than 5% of
its assets in securities of any one issuer).
Master Fund/Feeder Fund Option. Rather than invest in securities
directly, Large Company Focus 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 Large Company Focus 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 Large Company Focus Fund. Shareholders of Large
Company Focus 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 Large Company
Focus Fund and its shareholders.
HOW TO PURCHASE SHARES
You may purchase shares of Large Company Focus Fund 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.)
By Check. To make an initial purchase of shares of Large Company
Focus 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 and 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 Large Company Focus Fund be cancelled because
your check does not clear, you will be responsible for any resulting
loss incurred by the Fund.
By Wire. You also may pay for shares by instructing your bank to
wire federal funds (monies of member banks within the Federal
Reserve System) to Large Company Focus Fund at the First National
Bank of Boston. Your bank may charge you a fee for sending the
wire. If you are opening a new account by wire transfer, you must
first call 800-338-2550 to request an account number and furnish
your Social Security or other tax identification number. Neither
Large Company Focus 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. 21; Stein Roe Large Company Focus 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. 21; Stein Roe Large Company Focus 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 Large Company Focus
Fund be cancelled because your electronic transfer does not clear,
you will be responsible for any resulting loss incurred by the Fund.
By Exchange. You may purchase shares by exchange of shares from
another 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 Large Company Focus
Fund must be accepted by an authorized officer of Investment Trust
or its authorized agent and is not binding until accepted and
entered on the books of the Fund. Once your purchase order has been
accepted, you may not cancel or revoke it; you may, however, redeem
the shares. Investment Trust reserves the right not to accept any
purchase order that it determines not to be in the best interests of
Investment Trust or of Large Company Focus 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 or authorized designee
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 the
business day.
Some Intermediaries that maintain nominee accounts with Large
Company Focus 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 Large Company Focus Fund's transfer agent share in
the expense of these fees, and the Adviser pays all sales and
promotional expenses.
Purchase Price and Effective Date. Each purchase of Large Company
Focus Fund's shares is made at its net asset value (see Net Asset
Value) next determined after receipt of an order in good form,
including receipt of payment as follows:
A purchase by check or wire transfer is made at the net asset value
next determined after Large Company Focus 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 Large Company Focus 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 Large Company Focus 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 Large Company Focus 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 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 Large Company Focus
Fund by verifying your signature);
(4) Corporations and associations must submit with each request a
completed Certificate of Authorization included in this
prospectus (or a form of resolution acceptable to Investment
Trust); and
(5) The request must include other supporting legal documents as
required from organizations, executors, administrators,
trustees, or others acting on accounts not registered in their
names.
By Exchange. You may redeem all or any portion of your Large
Company Focus 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 and carefully read the
prospectus for the no-load Stein Roe Fund in which you wish to
invest. The registration of the account to which you are making an
exchange must be exactly the same as that of the Fund account from
which the exchange is made and the amount you exchange must meet any
applicable minimum investment of the 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
Telephone Redemption Privileges, check the box(es) under the section
"Telephone Redemption Options" when completing your application. In
addition, a signature guarantee may be required to establish a
Privilege after you open your account. If you establish both the
Telephone Redemption by Wire Privilege and the Electronic Transfer
Privilege, the bank account that you designate for both Privileges
must be the same.
The Telephone Redemption by Check Privilege, Telephone Redemption by
Wire Privilege, and Special Electronic Transfer Redemptions are not
available to redeem shares held by a tax-sheltered retirement plan
sponsored by the Adviser. (See also General Redemption Policies.)
Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account by
calling 800-338-2550 or by sending a telegram; new accounts opened
by exchange are subject to the $2,500 initial purchase minimum.
Generally, you will be limited to four Telephone Exchange round-
trips per year and Large Company Focus Fund may refuse requests for
Telephone Exchanges in excess of four round-trips (a round-trip
being the exchange out of Large Company Focus Fund into another no-
load Stein Roe Fund, and then back to Large Company Focus 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 Large Company
Focus 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 it 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 Large Company Focus 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 Large Company
Focus 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 Large Company Focus
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 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. Large Company Focus 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 Large Company Focus 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
Large Company Focus Fund immediately if there is a problem. If
Large Company Focus Fund does not follow reasonable procedures for
protecting shareholders against loss on telephone transactions, it
may be liable for any losses due to unauthorized or fraudulent
instructions.
Investment Trust reserves the right to redeem shares in any account
and send the proceeds to the owner if the shares in the account do
not have a value of at least $1,000. A shareholder would be
notified that his account is below the minimum and would be allowed
30 days to increase the account before the redemption is processed.
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 Large Company Focus 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 Large Company Focus Fund, as well as periodic statements
detailing distributions made by the Fund. Shares purchased by
reinvestment of dividends, by cross-reinvestment of dividends from
another Stein Roe fund, or through an automatic investment plan will
be confirmed to you quarterly. In addition, Investment Trust will
send you semiannual and annual reports showing portfolio holdings
and will provide you annually with tax information.
To reduce the volume of mail you receive, only one copy of certain
materials, such as prospectuses and shareholder reports, will be
mailed to your household (same address). Please call 800-338-2550
if you wish to receive additional copies free of charge. This
policy may not apply if you purchased shares through an
Intermediary.
Funds-on-Call [registered] Automated Telephone Service. To access
Stein Roe Funds-on-Call [registered], just call 800-338-2550 on any
touch-tone telephone and follow the recorded instructions. Funds-
on-Call [registered] provides yields, prices, latest dividends,
account balances, last transaction and other information 24 hours a
day, seven days a week. You also may use Funds-on-Call [registered]
to make Special Investments and Redemptions, Telephone Exchanges,
and Telephone Redemptions by Check. These transactions are subject
to the terms and conditions of the individual privileges. (See How
to Purchase Shares and How to Redeem Shares.) Information regarding
your account is available to you via Funds-on-Call [registered] 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 Stein Roe fund account automatically invested
in another no-load Stein Roe fund account. Before establishing this
option, obtain and carefully read the prospectus of the Stein Roe
fund into which you wish to have your distributions invested. The
account from which distributions are made must be of sufficient size
to allow each distribution to usually be at least $25. The account
into which distributions are to be invested may be opened with an
initial investment of only $1,000.
Automatic Dividend Deposit (electronic transfer)--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 Large Company Focus Fund's
shares is its net asset value per share. The net asset value of a
share of Large Company Focus 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 Large Company Focus 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. Large Company Focus 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. Large Company Focus Fund intends to distribute any
undistributed net investment income and net realized capital gains
in the following year.
All of your income dividends and capital gains distributions will be
reinvested in additional shares unless you elect to have
distributions either (1) paid by check; (2) deposited by electronic
transfer into your bank account; (3) applied to purchase shares in
your account with another 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 Large
Company Focus 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 January but was declared in the prior calendar year is
deemed paid in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital gains.
Distributions of net long-term capital gains will be taxable to you
as long-term capital gains regardless of the length of time you have
held your shares.
You will be advised annually as to the source of distributions for
tax purposes. If you are not subject to tax on your income, you
will not be required to pay tax on these amounts.
If you realize a loss on the sale or exchange of Fund shares held
for six months or less, your short-term loss is recharacterized as
long-term to the extent of any long-term capital gains distributions
you have received with respect to those shares.
The Taxpayer Relief Act of 1997 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, Large Company Focus 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. Large Company
Focus Fund must promptly pay to the IRS all amounts withheld.
Therefore, it is usually not possible for Large Company Focus 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 Large Company Focus 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 Large Company Focus Fund's total return with
alternative investments should consider differences between Large
Company Focus 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 has
overall management responsibility for Large Company Focus Fund. See
the Statement of Additional Information for the names of and
additional information about the trustees and officers.
The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing Large
Company Focus Fund, subject to the direction of the Board of
Trustees. The Adviser is registered as an investment adviser under
the Investment Advisers Act of 1940. The Adviser and its
predecessor have advised and managed mutual funds since 1949. The
Adviser is a wholly owned indirect 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. Brady has been the portfolio manager
of Large Company Focus Fund since its inception in 1998. Mr.
Brady has been a portfolio manager of SR&F Growth Investor Portfolio
since its inception in 1997 and a portfolio manager of Stein Roe
Young Investor Fund since Mar. 1995. 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. The Adviser is entitled to receive a monthly
administrative fee from Large Company Focus Fund, computed and
accrued daily, at an annual rate of .15% of the first $500 million
of average net assets, .125% of the next $500 million, .10% of the
next $500 million, and .075% thereafter; and a monthly management
fee, computed and accrued daily, at an annual rate of .75% of the
first $500 million of average net assets, .70% of the next $500
million, .65% of the next $500 million , and .60% thereafter 75% of
the first $500 million of average net assets, .70% of the next $500
million, .65% of the next $500 million, and .60% thereafter.
However, as noted above under Fee Table, the Adviser may voluntarily
undertake to reimburse Large Company Focus Fund for a portion of its
operating expenses.
The Adviser provides office space and executive and other personnel
to Investment Trust. All expenses of Large Company Focus Fund
(other than those paid by the Adviser), including, but not limited
to, printing and postage charges, securities registration fees,
custodian and transfer agency fees, legal and auditing fees,
compensation of trustees not affiliated with the Adviser, and
expenses incidental to its organization, are paid out of the assets
of Large Company Focus Fund.
Under a separate agreement with Investment Trust, the Adviser
provides certain accounting and bookkeeping services to Large
Company Focus 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 Large Company Focus Fund are offered for
sale through 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. Large Company Focus Fund
shares 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 the Adviser, including payments to the
Distributor for sales of Fund shares.
All Fund correspondence (including purchase and redemption orders)
should be mailed to SteinRoe Services Inc. at P.O. Box 8900, Boston,
Massachusetts 02205. Participants in the Stein Roe Counselor
[service mark] program should send orders to SteinRoe Services Inc.
at P.O. Box 803938, Chicago, Illinois 60680.
Custodian. State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
Large Company Focus Fund. Foreign securities are maintained in the
custody of foreign banks and trust companies that are members of the
Bank's Global Custody Network or foreign depositories used by such
members. (See Custodian in the Statement of Additional
Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
Investment Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of Trust") dated
January 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either Investment
Trust's shareholders or its trustees. Investment Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, 11 series are authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as Investment Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against, Investment Trust or
any particular series shall look only to the assets of Investment
Trust or of the respective series for payment under such credit,
contract or claim, and that the shareholders, trustees and officers
of Investment Trust shall have no personal liability therefor. The
Declaration of Trust requires that notice of such disclaimer of
liability be given in each contract, instrument or undertaking
executed or made on behalf of Investment Trust. The Declaration of
Trust provides for indemnification of any shareholder against any
loss and expense arising from personal liability solely by reason of
being or having been a shareholder. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to circumstances
in which the disclaimer was inoperative and Investment Trust was
unable to meet its obligations.
The risk of a particular series incurring financial loss on account
of unsatisfied liability of another series of Investment Trust also
is believed to be remote, because it would be limited to claims to
which the disclaimer did not apply and to circumstances in which the
other series was unable to meet its obligations.
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.
<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
(Name of Corporation/Association)
and that the following individual(s):
Authorized Persons
_____________________ ____________________
Name Title
_____________________ ____________________
Name Title
_____________________ ____________________
Name Title
is (are) duly authorized by resolution or otherwise to act on
behalf of the Corporation in connection with the Corporation's
ownership of shares of any mutual fund managed by Stein Roe &
Farnham Incorporated (individually, the "Fund" and collectively,
the "Funds") including, without limitation, furnishing any such
Fund and its transfer agent with instructions to transfer or redeem
shares of that Fund payable to any person or in any manner, or to
redeem shares of that Fund and apply the proceeds of such
redemption to purchase shares of another Fund (an "exchange"), and
to execute any necessary forms in connection therewith.
Unless a lesser number is specified, all of the Authorized Persons
must sign written instructions. Number of signatures required:
________.
If the undersigned is the only person authorized to act on behalf
of the Corporation, the undersigned certifies that he is the sole
shareholder, director, and officer of the Corporation and that the
Corporation's Charter and By-laws provide that he is the only
person authorized to so act.
Unless expressly declined on the application (or other form
acceptable to the Funds), the undersigned further certifies that
the Corporation has authorized by resolution or otherwise the
establishment of the Telephone Exchange and Telephone Redemption by
Check Privileges for the Corporation's account with any Fund
offering any such Privilege. If elected on the application (or
other form acceptable to the Funds), the undersigned also certifies
that the Corporation has similarly authorized establishment of the
Electronic Transfer, Telephone Redemption by Wire, and Check-
Writing Privileges for the Corporation's account with any Fund
offering said Privileges. The undersigned has further authorized
each Fund and its transfer agent to honor any written, telephonic,
or telegraphic instructions furnished pursuant to any such
Privilege by any person believed by the Fund or its transfer agent
or their agents, officers, directors, trustees, or employees to be
authorized to act on behalf of the Corporation and agrees that
neither the Fund nor its transfer agent, their agents, officers,
directors, trustees, or employees will be liable for any loss,
liability, cost, or expense for acting upon any such instructions.
These authorizations shall continue in effect until five business
days after the Fund and its transfer agent receive written notice
from the Corporation of any change.
IN WITNESS WHEREOF, I have hereunto subscribed my name as Secretary
and affixed the seal of this Corporation this ____ day of
_________________, 19___.
__________________________
Secretary
__________________________
Signature Guarantee*
Corporate
Seal
Here
<PAGE>
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 Capital Opportunities Fund
Stein Roe Growth Opportunities Fund
Stein Roe Large Company Focus Fund
Stein Roe International Fund
Stein Roe Emerging Markets Fund
Stein Roe Mutual Funds
P. O. Box 8900
Boston, Massachusetts 02205-8900
Financial Advisors call: 1-800-322-0593
Shareholders call 1-800-338-2550
www.steinroe.com
In Chicago, visit our Fund Center at One South Wacker Drive,
Suite 3200
Liberty Financial Investments, Inc., Distributor
<PAGE>
Statement of Additional Information Dated April 30, 1998
STEIN ROE INVESTMENT TRUST
Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
800-338-2550
Stein Roe Large Company Focus Fund
This Statement of Additional Information is not a prospectus,
but provides additional information that should be read in
conjunction with Large Company Focus Fund's prospectus dated
April 30, 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.....................3
Investment Restrictions.................................20
Additional Investment Considerations....................22
Purchases and Redemptions...............................23
Management..............................................24
Principal Shareholders..................................27
Investment Advisory Services............................27
Distributor.............................................29
Transfer Agent..........................................30
Custodian...............................................30
Independent Public Accountants..........................31
Portfolio Transactions..................................31
Additional Income Tax Considerations....................33
Investment Performance..................................33
Appendix--Ratings.......................................37
GENERAL INFORMATION AND HISTORY
Stein Roe Large Company Focus Fund ("Large Company Focus Fund")
is a separate series of Stein Roe Investment Trust ("Investment
Trust"). The name of Investment Trust was changed on February 1,
1996, to separate "SteinRoe" into two words.
As of the date of this Statement of Additional Information,
eleven series of Investment Trust are authorized and outstanding.
Each share of a series, without par value, is entitled to
participate pro rata in any dividends and other distributions
declared by the Board on shares of that series, and all shares of a
series have equal rights in the event of liquidation of that series.
Each whole share (or fractional share) outstanding on the record
date established in accordance with the By-Laws shall be entitled to
a number of votes on any matter on which it is entitled to vote
equal to the net asset value of the share (or fractional share) in
United States dollars determined at the close of business on the
record date (for example, a share having a net asset value of $10.50
would be entitled to 10.5 votes). As a business trust, Investment
Trust is not required to hold annual shareholder meetings. However,
special meetings may be called for purposes such as electing or
removing trustees, changing fundamental policies, or approving an
investment advisory contract. If requested to do so by the holders
of at least 10% of its outstanding shares, Investment Trust will
call a special meeting for the purpose of voting upon the question
of removal of a trustee or trustees and will assist in the
communications with other shareholders as if Investment Trust were
subject to Section 16(c) of the Investment Company Act of 1940. All
shares of all series of Investment Trust are voted together in the
election of trustees. On any other matter submitted to a vote of
shareholders, shares are voted in the aggregate and not by
individual series, except that shares are voted by individual series
when required by the Investment Company Act of 1940 or other
applicable law, or when the Board of Trustees determines that the
matter affects only the interests of one or more series, in which
case shareholders of the unaffected series are not entitled to vote
on such matters.
Stein Roe & Farnham Incorporated (the "Adviser") provides
investment management, administrative, and accounting and
recordkeeping services to Large Company Focus Fund.
Special Considerations Regarding Master Fund/Feeder Fund Structure
Rather than invest in securities directly, Large Company Focus
Fund may in the future act as a "feeder fund;" that is, it would
seek to achieve its objective by pooling its assets with those of
other investment companies for investment in a "master fund" having
the same investment objective and substantially the same investment
policies as the feeder funds. The purpose of such an arrangement is
to achieve greater operational efficiencies and reduce costs. The
Adviser is expected to manage any such mutual fund in which the Fund
would invest. Such investment would be subject to determination by
the Board of Trustees that it was in the best interests of the Fund
and its shareholders, and shareholders would receive advance notice
of any such change.
INVESTMENT POLICIES
The investment objective of Large Company Focus fund is long-
term growth of capital by investing in a non-diversified portfolio
of equity securities. Large Company Focus Fund invests in a limited
number of large-cap companies, defined as those with market
capitalizations in excess of $5 billion, that the Adviser believes
have above-average growth potential. As a "focus fund," under normal
conditions, Large Company Focus Fund will hold between 15-25 common
stocks and will invest at least 65% of its total assets in common
stocks of large-cap companies.
Large Company Focus Fund may employ the investment techniques
set forth in 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, Large Company Focus Fund
may invest in debt securities of corporate and governmental issuers.
The risks inherent in debt securities depend primarily on the term
and quality of the obligations in its investment portfolio as well
as on market conditions. A decline in the prevailing levels of
interest rates generally increases the value of debt securities,
while an increase in rates usually reduces the value of those
securities.
Large Company Focus Fund may invest up to 35% of its net assets
in debt securities, but does not expect to invest more than 5% of
its net assets in debt securities that are rated below investment
grade.
Securities in the fourth highest grade may possess speculative
characteristics, and changes in economic conditions are more likely
to affect the issuer's capacity to pay interest and repay principal.
If the rating of a security held by Large Company Focus Fund is lost
or reduced below investment grade, it is not required to dispose of
the security, but the Adviser will consider that fact in determining
whether it should continue to hold the security.
Securities that are rated below investment grade are considered
predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal according to the terms of the
obligation and therefore carry greater investment risk, including
the possibility of issuer default and bankruptcy.
When the Adviser determines that adverse market or economic
conditions exist and considers a temporary defensive position
advisable, Large Company Focus Fund may invest without limitation in
high-quality fixed income securities or hold assets in cash or cash
equivalents.
Derivatives
Consistent with its objective, Large Company Focus 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.
Large Company Focus Fund currently does not intend to invest
more than 5% of its net assets in any type of Derivative except for
options, futures contracts, and futures options. (See Options and
Futures below.)
Some mortgage-backed debt securities are of the "modified pass-
through type," which means the interest and principal payments on
mortgages in the pool are "passed through" to investors. During
periods of declining interest rates, there is increased likelihood
that mortgages will be prepaid, with a resulting loss of the full-
term benefit of any premium paid by Large Company Focus 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 Large Company Focus 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, Large Company Focus
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 Large Company
Focus Fund are frequently rated investment grade, Large Company
Focus 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, either
common stock or conventional debt securities. As a result, the
Adviser's own investment research and analysis tend to be more
important in the purchase of such securities than other factors.
Foreign Securities
Large Company Focus 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. Large Company Focus Fund
may invest in sponsored or unsponsored ADRs. In the case of an
unsponsored ADR, Large Company Focus 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. Large Company Focus Fund does
not intend to invest more than 5% of its net assets in unsponsored
ADRs.
With respect to portfolio securities that are issued by foreign
issuers or denominated in foreign currencies, investment performance
is affected by the strength or weakness of the U.S. dollar against
these currencies. For example, if the dollar falls in value
relative to the Japanese yen, the dollar value of a yen-denominated
stock held in the portfolio will rise even though the price of the
stock remains unchanged. Conversely, if the dollar rises in value
relative to the yen, the dollar value of the yen-denominated stock
will fall. (See discussion of transaction hedging and portfolio
hedging under Currency Exchange Transactions.)
Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities,
positions which are generally denominated in foreign currencies, and
utilization of forward foreign currency exchange contracts involves
certain considerations comprising both risks and opportunities not
typically associated with investing in U.S. securities. These
considerations include: fluctuations in exchange rates of foreign
currencies; possible imposition of exchange control regulation or
currency restrictions that would prevent cash from being brought
back to the United States; less public information with respect to
issuers of securities; less governmental supervision of stock
exchanges, securities brokers, and issuers of 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 Large Company Focus Fund will try to invest in
companies and governments of countries having stable political
environments, there is the possibility of expropriation or
confiscatory taxation, seizure or nationalization of foreign bank
deposits or other assets, establishment of exchange controls, the
adoption of foreign government restrictions, or other adverse
political, social or diplomatic developments that could affect
investment in these nations.
Currency Exchange Transactions. Currency exchange transactions
may be conducted either on a spot (i.e., cash) basis at the spot
rate for purchasing or selling currency prevailing in the foreign
exchange market or through forward currency exchange contracts
("forward contracts"). Forward contracts are contractual agreements
to purchase or sell a specified currency at a specified future date
(or within a specified time period) and price set at the time of the
contract. Forward contracts are usually entered into with banks and
broker-dealers, are not exchange traded, and are usually for less
than one year, but may be renewed.
Large Company Focus Fund's foreign currency exchange
transactions are limited to transaction and portfolio hedging
involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward contracts
with respect to specific receivables or payables of Large Company
Focus 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 Large Company Focus 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. Large Company Focus 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 Large
Company Focus 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, Large Company Focus Fund may
enter into a forward contract where the amount of the foreign
currency to be sold exceeds the value of the securities denominated
in such currency. The use of this basket hedging technique may be
more efficient and economical than entering into separate forward
contracts for each currency held in the portfolio. Large Company
Focus Fund may not engage in "speculative" currency exchange
transactions.
At the maturity of a forward contract to deliver a particular
currency, Large Company Focus 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 Large Company Focus
Fund to purchase additional currency on the spot market (and bear
the expense of such purchase) if the market value of the security is
less than the amount of currency it is obligated to deliver and if a
decision is made to sell the security and make delivery of the
currency. Conversely, it may be necessary to sell on the spot
market some of the currency received upon the sale of the portfolio
security if its market value exceeds the amount of currency Large
Company Focus Fund is obligated to deliver.
If Large Company Focus Fund retains the portfolio security and
engages in an offsetting transaction, it will incur a gain or a loss
to the extent that there has been movement in forward contract
prices. If Large Company Focus Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract
to sell the currency. Should forward prices decline during the
period between entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for the
purchase of the currency, Large Company Focus 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, Large Company Focus 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 Large Company Focus Fund of unrealized
profits or force it to cover its commitments for purchase or sale of
currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value of
the hedged currency should rise. Moreover, it may not be possible
for Large Company Focus Fund to hedge against a devaluation that is
so generally anticipated that it is not able to contract to sell the
currency at a price above the devaluation level it anticipates. The
cost to Large Company Focus 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.
Swaps, Caps, Floors and Collars
Large Company Focus Fund may enter into swaps and may purchase
or sell related caps, floors and collars. The Fund would enter into
these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect
against currency fluctuations, as a duration management technique or
to protect against any increase in the price of securities it
purchases at a later date. The Fund intends to use these techniques
as hedges and not as speculative investments and will not sell
interest rate income stream the 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 the 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. The 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 the Fund's investment exposure
from one type of investment to another. For example, if the 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 the 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 the Fund. If
a swap agreement calls for payments by the 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. The Fund will
not enter into any swap, cap, floor or collar transaction unless, at
the time of entering into such transaction, the unsecured long-term
debt of the counterparty, combined with any credit enhancements, is
rated at least A by Standard & Poor's Corporation or Moody's
Investors Service, Inc. 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 the Fund enters into swap arrangements or purchases
or sells caps, floors or collars, liquid assets of the Fund having a
value at least as great as the commitment underlying the obligations
will be segregated on the books of the Fund and held by the
custodian throughout the period of the obligation.
Lending of Portfolio Securities
Subject to restriction (4) under Investment Restrictions in
this Statement of Additional Information, Large Company Focus 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 Large Company
Focus Fund. Large Company Focus 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.
Large Company Focus 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. Large Company Focus 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, Large Company Focus
Fund could experience both delays in liquidating the loan collateral
or recovering the loaned securities and losses, including (a)
possible decline in the value of the collateral or in the value of
the securities loaned during the period while it seeks to enforce
its rights thereto, (b) possible subnormal levels of income and lack
of access to income during this period, and (c) expenses of
enforcing its rights.
Repurchase Agreements
Large Company Focus Fund may invest in repurchase agreements,
provided that it will not invest more than 15% of net assets in
repurchase agreements maturing in more than seven days and any other
illiquid securities. A repurchase agreement is a sale of securities
to the Fund in which the seller agrees to repurchase the securities
at a higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, the Fund could experience both losses and
delays in liquidating its collateral.
When-Issued and Delayed-Delivery Securities; Reverse Repurchase
Agreements
Large Company Focus 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 Large Company
Focus 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. Large Company Focus Fund makes
such commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
the Adviser deems it advisable for investment reasons. Large
Company Focus Fund does not currently intend to have commitments to
purchase when-issued securities in excess of 5% of its net assets.
Large Company Focus Fund may enter into reverse repurchase
agreements with banks and securities dealers. A reverse repurchase
agreement is a repurchase agreement in which Large Company Focus
Fund is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use of
a reverse repurchase agreement may be preferable to a regular sale
and later repurchase of securities because it avoids certain market
risks and transaction costs.
At the time Large Company Focus 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
Large Company Focus having a value at least as great as the purchase
price of the securities to be purchased will be segregated on the
books of Large Company Focus 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"
Large Company Focus 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. Large
Company Focus Fund may make short sales of securities only if at all
times when a short position is open it owns at least an equal amount
of such securities or securities convertible into or exchangeable
for securities of the same issue as, and equal in amount to, the
securities sold short, at no additional cost.
In a short sale against the box, Large Company Focus Fund 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 behalf of Large Company Focus Fund, to the purchaser
of such securities. Large Company Focus 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, Large Company Focus 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. Large Company Focus Fund is said to have a
short position in the securities sold until it delivers to the
broker-dealer the securities sold. Large Company Focus 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 Large Company Focus 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 Large Company Focus Fund owns, either directly or indirectly,
and, in the case where it owns convertible securities, changes in
the conversion premium.
Short sale transactions involve certain risks. If the price of
the security sold short increases between the time of the short sale
and the time Large Company Focus Fund replaces the borrowed
security, it will incur a loss and if the price declines during this
period, it will realize a short-term capital gain. Any realized
short-term capital gain will be decreased, and any incurred loss
increased, by the amount of transaction costs and any premium,
dividend or interest which Large Company Focus Fund may have to pay
in connection with such short sale. Certain provisions of the
Internal Revenue Code may limit the degree to which Large Company
Focus Fund is able to enter into short sales. There is no
limitation on the amount of Large Company Focus Fund's assets that,
in the aggregate, may be deposited as collateral for the obligation
to replace securities borrowed to effect short sales and allocated
to segregated accounts in connection with short sales. It is
currently expected that no more than 5% of the total assets of Large
Company Focus Fund would be involved in short sales against the box.
Rule 144A Securities
Large Company Focus Fund may purchase securities that have been
privately placed but that are eligible for purchase and sale under
Rule 144A under the Securities Act of 1933 ("1933 Act"). That Rule
permits certain qualified institutional buyers, such as Large Company
Focus 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, Large Company Focus Fund's holdings of illiquid securities
would be reviewed to determine what, if any, steps are required to assure
that Large Company Focus Fund does not invest more than 15% of its assets
in illiquid securities. Investing in Rule 144A securities could have the
effect of increasing the amount of assets invested in illiquid securities
if qualified institutional buyers are unwilling to purchase such
securities. Large Company Focus Fund does not expect to invest as
much as 5% of its total assets in Rule 144A securities that have not
been deemed to be liquid by the Adviser.
Line of Credit
Subject to restriction (5) under Investment Restrictions in
this Statement of Additional Information, Large Company Focus 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, Large Company Focus Fund has received
permission to lend money to, and borrow money from, other mutual
funds advised by the Adviser. Large Company Focus 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 Large Company Focus Fund does not purchase securities
with a view to rapid turnover, there are no limitations on the
length of time that portfolio securities must be held. Accordingly,
the portfolio turnover rate may vary significantly from year to
year, but is not expected to exceed 100% under normal market
conditions. At times, Large Company Focus 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 Large Company Focus
Fund's flexibility of investment and emphasis on growth of capital,
it may have greater portfolio turnover than that of mutual funds
that have primary objectives of income or maintenance of a balanced
investment position. A high rate of portfolio turnover, if it
should occur, would result in increased transaction expenses, which
must be borne by the Fund. High portfolio turnover may also result
in the realization of capital gains or losses and, to the extent net
short-term capital gains are realized, any distributions resulting
from such gains will be considered ordinary income for federal
income tax purposes. (See Risks and Investment Considerations and
Distributions and Income Taxes in the Prospectus, and Additional
Income Tax Considerations in this Statement of Additional
Information.)
Options on Securities and Indexes
Large Company Focus 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. Large
Company Focus 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.)
Large Company Focus 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 Large Company
Focus 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 Large Company Focus Fund expires, it
realizes a capital gain equal to the premium received at the time
the option was written. If an option purchased by Large Company
Focus Fund expires, it realizes a capital loss equal to the premium
paid.
Prior to the earlier of exercise or expiration, an option may
be closed out by an offsetting purchase or sale of an option of the
same series (type, exchange, underlying security or index, exercise
price, and expiration). There can be no assurance, however, that a
closing purchase or sale transaction can be effected when Large
Company Focus Fund desires.
Large Company Focus Fund will realize a capital gain from a
closing purchase transaction if the cost of the closing option is
less than the premium received from writing the option, or, if it is
more, it will realize a capital loss. If the premium received from
a closing sale transaction is more than the premium paid to purchase
the option, it will realize a capital gain or, if it is less, it
will realize a capital loss. The principal factors affecting the
market value of a put or a call option include supply and demand,
interest rates, the current market price of the underlying security
or index in relation to the exercise price of the option, the
volatility of the underlying security or index, and the time
remaining until the expiration date.
A put or call option purchased by Large Company Focus Fund is
an asset, valued initially at the premium paid for the option. The
premium received for an option written by Large Company Focus 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
Large Company Focus Fund seeks to close out an option position. If
Large Company Focus 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 Large Company Focus 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, Large Company
Focus 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
Large Company Focus Fund, it would not be able to close out the
option. If restrictions on exercise were imposed, Large Company
Focus Fund might be unable to exercise an option it has purchased.
Futures Contracts and Options on Futures Contracts
Large Company Focus 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.
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/2/ A futures contract on an index is an agreement pursuant to which
two parties agree to take or make delivery of an amount of cash
equal to the difference between the value of the index at the close
of the last trading day of the contract and the price at which the
index contract was originally written. Although the value of a
securities index is a function of the value of certain specified
securities, no physical delivery of those securities is made.
- -------
Large Company Focus Fund may purchase and write call and put
futures options. Futures options possess many of the same
characteristics as options on securities, indexes and foreign
currencies (discussed above). A futures option gives the holder the
right, in return for the premium paid, to assume a long position
(call) or short position (put) in a futures contract at a specified
exercise price at any time during the period of the option. Upon
exercise of a call option, the holder acquires a long position in
the futures contract and the writer is assigned the opposite short
position. In the case of a put option, the opposite is true. Large
Company Focus 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 its
portfolio securities or the price of the securities that it intends
to purchase. Although other techniques could be used to reduce or
increase Large Company Focus Fund's exposure to stock price,
interest rate and currency fluctuations, it may be able to achieve
its exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.
Large Company Focus 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, Large Company Focus 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 Large
Company Focus Fund, it is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the broker
("initial margin"). The margin required for a futures contract is
set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is in
the nature of a performance bond or good faith deposit on the
futures contract, which is returned to Large Company Focus Fund upon
termination of the contract, assuming all contractual obligations
have been satisfied. Large Company Focus Fund expects to earn
interest income on its initial margin deposits. A futures contract
held by Large Company Focus Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day
Large Company Focus 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 Large Company Focus Fund does not represent a
borrowing or loan but is instead settlement between Large Company
Focus 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, Large Company Focus Fund will
mark-to-market its open futures positions.
Large Company Focus Fund is also required to deposit and
maintain margin with respect to put and call options on futures
contracts written by it. Such margin deposits will vary depending
on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the
option, and other futures positions it holds.
Although some futures contracts call for making or taking
delivery of the underlying securities, usually these obligations are
closed out prior to delivery by offsetting purchases or sales of
matching futures contracts (same exchange, underlying security or
index, and delivery month). If an offsetting purchase price is less
than the original sale price, Large Company Focus Fund realizes a
capital gain, or if it is more, it realizes a capital loss.
Conversely, if an offsetting sale price is more than the original
purchase price, Large Company Focus Fund realizes a capital gain, or
if it is less, it realizes a capital loss. The transaction costs
must also be included in these calculations.
Risks Associated with Futures
There are several risks associated with the use of futures
contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in
the futures contract. In trying to increase or reduce market
exposure, there can be no guarantee that there will be a correlation
between price movements in the futures contract and in the portfolio
exposure sought. In addition, there are significant differences
between the securities and futures markets that could result in an
imperfect correlation between the markets, causing a given
transaction not to achieve its objectives. The degree of
imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures options
and the related securities, including technical influences in
futures and futures options trading and differences between the
securities market and the securities underlying the standard
contracts available for trading. For example, in the case of index
futures contracts, the composition of the index, including the
issuers and the weighting of each issue, may differ from the
composition of the investments portfolio, and, in the case of
interest rate futures contracts, the interest rate levels,
maturities, and creditworthiness of the issues underlying the
futures contract may differ from the financial instruments held in
the investment portfolio. A decision as to whether, when and how to
use futures contracts involves the exercise of skill and judgment,
and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected stock price or
interest rate trends.
Futures exchanges may limit the amount of fluctuation permitted
in certain futures contract prices during a single trading day. The
daily limit establishes the maximum amount that the price of a
futures contract may vary either up or down from the previous day's
settlement price at the end of the current trading session. Once
the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond
that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses
because the limit may work to prevent the liquidation of unfavorable
positions. For example, futures prices have occasionally moved to
the daily limit for several consecutive trading days with little or
no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
Stock index futures contracts are not normally subject to such daily
price change limitations.
There can be no assurance that a liquid market will exist at a
time when Large Company Focus Fund seeks to close out a futures or
futures option position. Large Company Focus 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,
Large Company Focus Fund may also use those investment vehicles,
provided the Board of Trustees determines that their use is
consistent with its investment objective.
Large Company Focus Fund will not enter into a futures contract
or purchase an option thereon if, immediately thereafter, the
initial margin deposits for futures contracts it holds plus premiums
paid by it for open futures option positions, less the amount by
which any such positions are "in-the-money," /3/ would exceed 5% of
its total assets.
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/3/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price exceeds
the value of the futures contract that is the subject of the option.
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When purchasing a futures contract or writing a put option on a
futures contract, Large Company Focus 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, Large Company
Focus 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.
Large Company Focus 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 Large Company Focus 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," Large Company Focus 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 Large Company Focus 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 Large Company Focus 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 Large Company Focus 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 Large Company Focus 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 Large Company Focus 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 Large Company Focus
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 Large Company Focus 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.
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/4/ An equity option is defined to mean any option to buy or sell
stock, and any other option the value of which is determined by
reference to an index of stocks of the type that is ineligible to be
traded on a commodity futures exchange (e.g., an option contract on
a sub-index based on the price of nine hotel-casino stocks). The
definition of equity option excludes options on broad-based stock
indexes (such as the Standard & Poor's 500 index).
- ---------
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 Large
Company Focus Fund delivers securities under a futures contract, it
also realizes a capital gain or loss on those securities.
For federal income tax purposes, Large Company Focus 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 Large Company Focus
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 Large Company Focus Fund were to enter into a short index
future, short index futures option or short index option position
and its portfolio were deemed to "mimic" the performance of the
index underlying such contract, the option or futures contract
position and its stock positions would be deemed to be positions in
a mixed straddle, subject to the above-mentioned loss deferral
rules.
In order for Large Company Focus Fund to continue to qualify
for federal income tax treatment as a regulated investment company,
at least 90% of its gross income for a taxable year must be derived
from qualifying income; i.e., dividends, interest, income derived
from loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). In addition,
gains realized on the sale or other disposition of securities held
for less than three months must be limited to less than 30% of its
annual gross income. Any net gain realized from futures (or futures
options) contracts will be considered gain from the sale of
securities and therefore be qualifying income for purposes of the
90% requirement.
Large Company Focus 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
Large Company Focus Fund operates under the following
investment restrictions. It may not:
(1) acquire more than 10%, taken at the time of a particular
purchase, of the outstanding voting securities of any one issuer,
except that all or substantially all of its assets may be invested
in another registered investment company having the same investment
objective and substantially similar investment policies as the Fund;
(2) act as an underwriter of securities, except insofar as it
may be deemed an underwriter for purposes of the Securities Act of
1933 on disposition of securities acquired subject to legal or
contractual restrictions on resale, except that all or substantially
all of its assets may be invested in another registered investment
company having the same investment objective and substantially
similar investment policies as the Fund;
(3) 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;
(4) 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;
(5) 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;
(6) invest in a security if more than 25% of its total assets
(taken at market value at the time of a particular purchase) would
be invested in the securities of issuers in any particular industry,
except that this restriction does not apply to securities issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities, and except that all or substantially all of its
assets may be invested in another registered investment company
having the same investment objective and substantially similar
investment policies as the Fund; or
(7) 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. Large Company Focus Fund is
also subject to the following non-fundamental restrictions and
policies, which may be changed by the Board of Trustees. None of
the following restrictions shall prevent Large Company Focus 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. Large Company Focus
Fund may not:
(a) invest in any of the following: (i) interests in oil, gas,
or other mineral leases or exploration or development programs
(except readily marketable securities, including but not limited to
master limited partnership interests, that may represent indirect
interests in oil, gas, or other mineral exploration or development
programs); (ii) puts, calls, straddles, spreads, or any combination
thereof (except that it may enter into transactions in options,
futures, and options on futures); (iii) shares of other open-end
investment companies, except in connection with a merger,
consolidation, acquisition, or reorganization; and (iv) limited
partnerships in real estate unless they are readily marketable;
(b) invest in companies for the purpose of exercising control
or management;
(c) purchase more than 3% of the stock of another investment
company or purchase stock of other investment companies equal to
more than 5% of its total assets (valued at time of purchase) in the
case of any one other investment company and 10% of such assets
(valued at time of purchase) in the case of all other investment
companies in the aggregate; any such purchases are to be made in the
open market where no profit to a sponsor or dealer results from the
purchase, other than the customary broker's commission, except for
securities acquired as part of a merger, consolidation or
acquisition of assets; /5/
- ------------
/5/ Large Company Focus Fund has no current intent to invest in stocks
of other investment companies
- ------------
(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.
Large Company Focus 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 January, the third Monday in
February, Good Friday, the last Monday in May, Independence Day,
Labor Day, Thanksgiving, and Christmas. If one of these holidays
falls on a Saturday or Sunday, the NYSE will be closed on the
preceding Friday or the following Monday, respectively. Net asset
value will not be determined on days when the NYSE is closed unless,
in the judgment of the Board of Trustees, net asset value should be
determined on 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 Large Company Focus Fund during any period
when: (a) trading on the NYSE is restricted, as determined by the
Securities and Exchange Commission, or the NYSE is closed for other
than customary weekend and holiday closings; (b) the Securities and
Exchange Commission has by order permitted such suspension; or (c)
an emergency, as determined by the Securities and Exchange
Commission, exists, making disposal of portfolio securities or
valuation of net assets not reasonably practicable.
MANAGEMENT
The following table sets forth certain information with respect
to the trustees and officers of Investment Trust:
<TABLE>
<CAPTION>
Position(s) held Principal occupation(s)
Name, Age with Investment Trust during past five years
<S> <C> <C>
William D. Andrews, 50 Executive Vice-President Executive vice president of Stein
Roe & Farnham Incorporated (the
"Adviser")
Gary A. Anetsberger, 42 Senior Vice-President Chief financial officer of the Mutual
Funds division of the Adviser; senior
vice president of the Adviser since
April 1996; vice president of the
Adviser prior thereto
William W. Boyd, 71 Trustee Chairman and director of Sterling
(2)(3) Plumbing Group, Inc. (manufacturer of
plumbing products)
David P. Brady, 34 Vice-President Portfolio manager for the Adviser;
senior vice president of the Adviser
since March 1998; vice president of the
Adviser from Nov. 1995 to March 1998;
equity investment analyst, State Farm
Mutual Automobile Insurance Company
prior thereto
Thomas W. Butch, 41 Trustee; President President of the Mutual Funds division
(1) (2) of the Adviser since March 1998; senior
vice president of the Adviser from
Sept. 1994 to March 1998; first vice
president, corporate communications, of
Mellon Bank Corporation prior thereto
Daniel K. Cantor, 38 Vice-President Senior vice president of the Adviser
Kevin M. Carome, 42 Vice-President; Associate General Counsel and (since
Assistant Secretary Feb. 1995) Vice President, Liberty
Financial Companies, Inc.; General
Counsel of the Adviser since Jan. 1998
Lindsay Cook, 46 (1) Trustee Executive vice president of Liberty
Financial Companies, Inc. (the indirect
parent of the Adviser) since March
1997; senior vice president prior
thereto
Erik P. Gustafson, 34 Vice-President Senior portfolio manager of the
Adviser senior vice president of the
Adviser since April 1996; vice
president of the Adviser from May 1994
to April 1996; associate of the Adviser
prior thereto
Douglas A. Hacker,42(3) Trustee Senior vice president and chief
financial officer of United Airlines
since July 1994; senior vice president,
finance, United Airlines prior thereto
Loren A. Hansen, 50 Executive Vice-President Chief investment officer of Colonial
Management Associates, Inc. since 1997;
executive vice president of the Adviser
since Dec. 1995; vice president of The
Northern Trust (bank) prior thereto
David P. Harris, 33 Vice-President Senior vice president of the Adviser
since March 1998; vice president of
Colonial Management Associates, Inc.
since Jan. 1996; vice president of the
Adviser from May 1995 to March 1998;
global equity portfolio manager with
Rockefeller & Co. prior thereto
Harvey B. Hirschhorn, Vice-President Executive vice president, senior
48 portfolio manager, and chief economist
and investment strategist of the
Adviser; director of research of the
Adviser, 1991 to 1995
Janet Langford Kelly, Trustee Senior vice president, secretary and
40 (3) general counsel of Sara Lee Corporation
(branded, packaged, consumer-products
manufacturer), since 1995; partner of
Sidley & Austin (law firm) prior
thereto
Eric S. Maddix, 34 Vice-President Senior vice president of the Adviser
since March 1998; vice president of the
Adviser from Nov. 1995 to March 1998;
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
April 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, Vice-President Vice president of the Adviser since
31 March 1998; portfolio manager for the
Adviser since April, 1996; securities
analyst, CS First Boston from June 1993
to Dec. 1995; securities analyst,
National City Bank of Cleveland prior
thereto
Arthur J. McQueen, 39 Vice-President Senior vice president of the Adviser
Charles R. Nelson, 55 Trustee Van Voorhis Professor of Political
(3) Economy, Department of Economics of the
University of Washington
Nicolette D. Parrish, Vice-President; Senior legal assistant and assistant
48 Assistant Secretary secretary of the Adviser
Richard B. Peterson,57 Vice-President Senior vice president of the Adviser
Sharon R. Robertson, 36 Controller Accounting manager for the Adviser's
Mutual Funds division
Janet B. Rysz, 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
(3) Capital Partners (private equity fund)
since 1994; chief executive officer and
chairman of the Board of Directors of
Continental Bank Corporation, 1987-1994
Scott E. Volk, 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 April 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, 30 Vice-President; Vice president of the Adviser since
Secretary March 1998; legal counsel for the
Adviser since March 1995; associate
with Beeler Schad & Diamond, PC (law
firm) prior thereto
Hans P. Ziegler, 57 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, 31 Assistant Treasurer Project manager for the Adviser's
Mutual Funds division since April 1997;
compliance manager from Aug. 1995 to
April 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.
</TABLE>
Certain of the trustees and officers of Investment Trust are
trustees or officers of other investment companies managed by the
Adviser. Ms. Walter is a vice president of Liberty Financial
Investments, Inc., the Fund's 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 plus an attendance fee for each meeting of the Board or
standing committee thereof attended. 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
from Investment Trust the Stein Roe Fund Complex*
- -------------------- ---------------------- -------------------------
Timothy K. Armour** -0- -0-
Thomas W. Butch** -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 SR&F Base Trust.
**Messrs. Block and Morley retired as trustees on Dec. 31, 1997. Mr.
Armour resigned as a trustee and Mr. Butch was elected as a trustee
on April 14, 1998.
PRINCIPAL SHAREHOLDERS
As of the date of this Statement of Additional Information,
Large Company Focus Fund had no shareholders.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated provides investment management
services and administrative services to Large Company Focus Fund.
The Adviser is a wholly owned subsidiary of SteinRoe Services Inc.
("SSI"), the Fund's transfer agent, which is a wholly owned
subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which is a majority owned subsidiary of LFC Holdings,
Inc., which is a wholly owned subsidiary of Liberty Mutual Equity
Corporation, which is a wholly owned subsidiary of Liberty Mutual
Insurance Company. Liberty Mutual Insurance Company is a mutual
insurance company, principally in the property/casualty insurance
field, organized under the laws of Massachusetts in 1912.
The directors of the Adviser are Kenneth R. Leibler, Harold W.
Cogger, C. Allen Merritt, Jr., Thomas W. Butch, 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 Chief Operating Officer of Liberty Financial;
Mr. Butch 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. Butch, 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
Dec. 31, 1997, the Adviser managed over $27.5 billion in assets: over
$9.8 billion in equities and over $17.7 billion in fixed income
securities (including $1.7 billion in municipal securities). The
$27.5 billion in managed assets included over $7.1 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 268,000 shareholders. The $7.1
billion in mutual fund assets included over $714 million in over
41,000 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 Dec. 31, 1997, the Adviser employed 18
research analysts and 55 account managers. The average investment-
related experience of these individuals was 24 years.
Stein Roe Counselor [service mark] is a professional investment
advisory services offered to Fund shareholders. It is designed to
help shareholders construct Fund investment portfolios to suit their
individual needs. Based on information shareholders provide about
their financial circumstances, goals, and objectives in response to
a questionnaire, the Adviser's investment professionals create
customized portfolio recommendations for investments in mutual funds
managed by the Adviser. Shareholders participating in Stein Roe
Counselor [service mark] are free to self direct their investments
while considering the Adviser's recommendations. 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 the program.
Please refer to the description of the Adviser, the management
agreement and administrative agreement, fees, expense limitations,
and transfer agency services under Fee Table and Management in the
Prospectus, which are incorporated herein by reference.
The Adviser provides office space and executive and other
personnel to Large Company Focus Fund, and bears any sales or
promotional expenses. Large Company Focus 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 Large Company Focus Fund to the extent its that total
annual expenses (including fees paid to the Adviser, but excluding
taxes, interest, commissions and other normal charges incident to
the purchase and sale of portfolio securities, and expenses of
litigation to the extent permitted under applicable state law)
exceed the applicable limits prescribed by any state in which shares
of Large Company Focus Fund are being offered for sale to the
public; provided, however, the Adviser is not required to reimburse
Large Company Focus 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 Large Company Focus 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 Large Company Focus
Fund.
The management agreement provides that neither the Adviser, nor
any of its directors, officers, stockholders (or partners of
stockholders), agents, or employees shall have any liability to the
Trust or any shareholder of the Trust for any error of judgment,
mistake of law or any loss arising out of any investment, or for any
other act or omission in the performance by the Adviser of its
duties under the agreement, except for liability resulting from
willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it of
its obligations and duties under the agreement.
Any expenses that are attributable solely to the organization,
operation, or business of Large Company Focus Fund shall be paid
solely out its assets. Any expenses incurred by Investment Trust
that are not solely attributable to a particular series are
apportioned in such manner as the Adviser determines is fair and
appropriate, unless otherwise specified by the Board of Trustees.
Bookkeeping and Accounting Agreement
Pursuant to a separate agreement with Investment Trust, the
Adviser receives a fee for performing certain bookkeeping and
accounting services. For these services, the Adviser receives
an annual fee of $25,000 per series plus .0025 of 1% of average
net assets over $50 million.
DISTRIBUTOR
Shares of Large Company Focus 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 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 Fund 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 the
Fund. The Distributor offers the Fund's 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 Large Company Focus
Fund a fee based on an annual rate of .22 of 1% of Large Company
Focus Fund's average net assets. Investment Trust believes the
charges by SSI to Large Company Focus Fund are comparable to those
of other companies performing similar services. (See Investment
Advisory Services.)
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian for Investment
Trust. It is responsible for holding all securities and cash,
receiving and paying for securities purchased, delivering against
payment securities sold, receiving and collecting income from
investments, making all payments covering expenses, and performing
other administrative duties, all as directed by authorized persons.
The 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.
The Board of Trustees reviews, at least annually, whether it is
in the best interests of Large Company Focus Fund and its
shareholders to maintain assets in each of the countries in which it
invests with particular foreign sub-custodians in such countries,
pursuant to contracts between such respective foreign sub-custodians
and the Bank. The review includes an assessment of the risks of
holding assets in any such country (including risks of expropriation
or imposition of exchange controls), the operational capability and
reliability of each such foreign sub-custodian, and the impact of
local laws on each such custody arrangement. The Board of Trustees
is aided in its review by the Bank, which has assembled the network
of foreign sub-custodians utilized, as well as by the Adviser and
counsel. However, with respect to foreign sub-custodians, there can
be no assurance that Large Company Focus 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.
Large Company Focus Fund 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 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
Large Company Focus 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, Large Company Focus 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 Large Company
Focus 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 Large Company Focus Fund, to
such brokers or dealers to ensure the continued receipt of research
products or services the Adviser feels are useful. In certain
instances, the Adviser receives from brokers and dealers products or
services that are used both as investment research and for
administrative, marketing, or other non-research purposes. In such
instances, the Adviser makes a good faith effort to determine the
relative proportions of such products or services which may be
considered as investment research. The portion of the costs of such
products or services attributable to research usage may be defrayed
by the Adviser (without prior agreement or understanding, as noted
above) through brokerage commissions generated by transactions by
clients (including Large Company Focus Fund), while the portion of
the costs attributable to non-research usage of such products or
services is paid by the Adviser in cash. No person acting on behalf
of Large Company Focus 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 Fund participates. Research
products or services furnished by brokers and dealers may be used in
servicing any or all of the clients of the Adviser and not all such
research products or services are used in connection with the
management of Large Company Focus Fund.
With respect to Large Company Focus 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.
Investment Trust has arranged for its custodian to act as a
soliciting dealer to accept any fees available to the custodian as a
soliciting dealer in connection with any tender offer for portfolio
securities. The custodian will credit any such fees received
against its custodial fees. In addition, the Board of Trustees has
reviewed the legal developments pertaining to and the practicability
of attempting to recapture underwriting discounts or selling
concessions when portfolio securities are purchased in underwritten
offerings. However, the Board has been advised by counsel that
recapture by a mutual fund currently is not permitted under the
Rules of the Association of the National Association of Securities
Dealers.
ADDITIONAL INCOME TAX CONSIDERATIONS
Large Company Focus Fund intends to comply with the special
provisions of the Internal Revenue Code that relieve it of federal
income tax to the extent of its net investment income and capital
gains currently distributed to shareholders.
Because dividend and capital gain distributions reduce net
asset value, a shareholder who purchases shares shortly before a
record date will, in effect, receive a return of a portion of his
investment in such distribution. The distribution would nonetheless
be taxable to him, even if the net asset value of shares were
reduced below his cost. However, for federal income tax purposes
the shareholder's original cost would continue as his tax basis.
Large Company Focus Fund expects that less than 100% of its
dividends will qualify for the deduction for dividends received by
corporate shareholders.
To the extent Large Company Focus Fund invests in foreign
securities, it may be subject to withholding and other taxes imposed
by foreign countries. Tax treaties between certain countries and
the United States may reduce or eliminate such taxes. Investors may
be entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in
the Code. Specifically, if more than 50% of total assets at the
close of any fiscal year consist of stock or securities of foreign
corporations, Large Company Focus Fund may file an election with the
Internal Revenue Service pursuant to which its shareholders will be
required to (i) include in ordinary gross income (in addition to
taxable dividends actually received) their pro rata shares of
foreign income taxes paid even though not actually received, (ii)
treat such respective pro rata shares as foreign income taxes paid
by them, and (iii) deduct such pro rata shares in computing their
taxable incomes, or, alternatively, use them as foreign tax credits,
subject to applicable limitations, against their United States
income taxes. Shareholders who do not itemize deductions for
federal income tax purposes will not, however, be able to deduct
their pro rata portion of foreign taxes paid by Large Company Focus
Fund, although such shareholders will be required to include their
share of such taxes in gross income. Shareholders who claim a
foreign tax credit may be required to treat a portion of dividends
received as separate category income for purposes of computing the
limitations on the foreign tax credit available to such
shareholders. Tax-exempt shareholders will not ordinarily benefit
from this election relating to foreign taxes. Each year, Large
Company Focus Fund will notify shareholders of the amount of (i)
each shareholder's pro rata share of foreign income taxes paid and
(ii) the portion of Fund dividends which represents income from each
foreign country, if it qualifies to pass along such credit.
INVESTMENT PERFORMANCE
Large Company Focus Fund may quote certain total return figures
from time to time. A "Total Return" on a per share basis is the
amount of dividends distributed per share plus or minus the change
in the net asset value per share for a period. A "Total Return
Percentage" may be calculated by dividing the value of a share at
the end of a period by the value of the share at the beginning of
the period and subtracting one. For a given period, an "Average
Annual Total Return" may be computed by finding the average annual
compounded rate that would equate a hypothetical initial amount
invested of $1,000 to the ending redeemable value.
n
Average Annual Total Return is computed as follows: ERV = P(1+T)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the
end of the period (or fractional portion thereof)
Investment performance figures assume reinvestment of all
dividends and distributions and do not take into account any
federal, state, or local income taxes which shareholders must pay on
a current basis. They are not necessarily indicative of future
results. The performance of Large Company Focus Fund is a result of
conditions in the securities markets, portfolio management, and
operating expenses. Although investment performance information is
useful in reviewing Large Company Focus 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, Large Company Focus 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 Large
Company Focus Fund. Comparison of Large Company Focus 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. Large Company Focus 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 Large Company Focus Fund 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
Large Company Focus Fund may compare its performance to the
Consumer Price Index (All Urban), a widely recognized measure of
inflation.
Large Company Focus 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, Large Company Focus Fund may compare its performance to
the following benchmarks:
Lipper Capital Appreciation Fund Average
Lipper Capital Appreciation Fund Index
Lipper Equity Fund Average
Lipper General Equity Fund Average
Morningstar Aggressive Growth Fund Average
Morningstar Domestic Stock Average
Morningstar Total Fund Average
Value Line Index
(Widely recognized indicator of the performance of small-
and medium-sized company stocks)
The Lipper and Morningstar averages are unweighted averages of
total return performance of mutual funds as classified, calculated,
and published by these independent services that monitor the
performance of mutual funds. Large Company Focus 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 Large Company
Focus Fund to a different category or develop (and place the Fund
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.
Large Company Focus Fund may also cite its rating, recognition,
or other mention by Morningstar or any other entity. Morningstar's
rating system is based on risk-adjusted total return performance and
is expressed in a star-rating format. The risk-adjusted number is
computed by subtracting its risk score (which is a function of a
fund's monthly returns less the 3-month T-bill return) from its
load-adjusted total return score. This numerical score is then
translated into rating categories, with the top 10% labeled five
star, the next 22.5% labeled four star, the next 35% labeled three
star, the next 22.5% labeled two star, and the bottom 10% one star.
A high rating reflects either above-average returns or below-average
risk, or both.
Of course, past performance is not indicative of future
results.
________________
To illustrate the historical returns on various types of
financial assets, Large Company Focus 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
_____________________
Large Company Focus Fund may also use hypothetical returns to
be used as an example in a mix of asset allocation strategies. One
such example is reflected in the chart below, which shows the effect
of tax deferral on a hypothetical investment. This chart assumes
that an investor invested $2,000 a year on January 1, for any
specified period, in both a Tax-Deferred Investment and a Taxable
Investment, that both investments earn either 6%, 8% or 10%
compounded annually, and that the investor withdrew the entire
amount at the end of the period. (A tax rate of 39.6% is applied
annually to the Taxable Investment and on the withdrawal of earnings
on the Tax-Deferred Investment.)
Tax-Deferred Investment Vs. Taxable Investment
Interest Rate 6% 8% 10% 6% 8% 10%
Compounding
Years Tax-Deferred Investment Taxable Investment
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 150,484 82,067 97,780 117,014
20 62,943 75,543 91,947 59,362 68,109 78,351
15 41,684 47,304 54,099 40,358 44,675 49,514
10 24,797 26,820 29,098 24,453 26,165 28,006
5 11,178 11,613 12,072 11,141 11,546 11,965
1 2,072 2,096 2,121 2,072 2,096 2,121
Dollar Cost Averaging. Dollar cost averaging is an investment
strategy that requires investing a fixed amount of money in Fund
shares at set intervals. This allows you to purchase more shares
when prices are low and fewer shares when prices are high. Over
time, this tends to lower your average cost per share. Like any
investment strategy, dollar cost averaging can't guarantee a profit
or protect against losses in a steadily declining market. Dollar
cost averaging involves uninterrupted investing regardless of share
price and therefore may not be appropriate for every investor.
From time to time, Large Company Focus 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] program and asset allocation and other investment
strategies.
APPENDIX--RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's opinion
as to the credit quality of the security being rated. However, the
ratings are general and are not absolute standards of quality or
guarantees as to the creditworthiness of an issuer. Consequently,
the Adviser believes that the quality of debt securities should be
continuously reviewed and that individual analysts give different
weightings to the various factors involved in credit analysis. A
rating is not a recommendation to purchase, sell or hold a security
because it does not take into account market value or suitability
for a particular investor. When a security has received a rating
from more than one service, each rating should be evaluated
independently. Ratings are based on current information furnished
by the issuer or obtained by the rating services from other sources
which they consider reliable. Ratings may be changed, suspended or
withdrawn as a result of changes in or unavailability of such
information, or for other reasons.
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.
