1933 Act Registration No. 33-11351
1940 Act File No. 811-4978
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. 52 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 53 [X]
STEIN ROE INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
One South Wacker Drive, Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 1-800-338-2550
Heidi J. Walter Cameron S. Avery
Vice-President & Secretary Bell, Boyd & Lloyd
Stein Roe Investment Trust Three First National Plaza
One South Wacker Drive 70 W. Madison Street, Suite 3300
Chicago, Illinois 60606 Chicago, Illinois 60602
(Name and Address of Agents for Service)
It is proposed that this filing will become effective (check
appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on February 1, 1999 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
Registrant has previously elected to register pursuant to Rule
24f-2 an indefinite number of shares of beneficial interest of
the following series: Stein Roe Growth & Income Fund, Stein
Roe Balanced Fund, Stein Roe Growth Stock Fund, Stein Roe
Capital Opportunities Fund, Stein Roe Special Fund, Stein Roe
International Fund, Stein Roe Young Investor Fund, Stein Roe
Special Venture Fund, Stein Roe Emerging Markets Fund, Stein
Roe Growth Opportunities Fund, Stein Roe Large Company Focus
Fund, Stein Roe Asia Pacific Fund, and Stein Roe Small Cap
Growth Fund.
This amendment to the Registration Statement has also been
signed by SR&F Base Trust as it relates to Stein Roe Growth &
Income Fund, Stein Roe Balanced Fund, Stein Roe Growth Stock
Fund, Stein Roe Special Fund, Stein Roe Special Venture Fund,
and Stein Roe International Fund.
<PAGE>
The prospectuses and statements of additional information
relating to the series of Stein Roe Investment Trust designated
Stein Roe Asia Pacific Fund, Stein Roe Young Investor Fund,
and Stein Roe Small Cap Growth Fund are not affected by the
filing of this Post-Effective Amendment No. 52.
<PAGE>
[Cover Page]
Prospectus
Balanced Fund
Stein Roe Balanced Fund
Growth and Income Fund
Stein Roe Growth & Income Fund
Growth Funds
Stein Roe Growth Stock Fund
Stein Roe Growth Opportunities Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
Stein Roe Large Company Focus Fund
February 1, 1999
The Securities and Exchange Commission has not approved any Fund
shares as an investment or determined whether this prospectus is
accurate or complete. Anyone who tells you otherwise is
committing a crime.
<PAGE>
Stein Roe Balanced Fund
Stein Roe Growth & Income Fund
Stein Roe Growth Stock Fund
Stein Roe Growth Opportunities Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Capital Opportunities Fund
Stein Roe Large Company Focus Fund
Please keep this prospectus as your reference manual.
<PAGE>
TABLE OF CONTENTS
The Funds
Investment Goals
Principal Investment Strategy
Principal Investment Risks
Fund Performance
Your Expenses
Financial Highlights
Your Account
Purchasing Shares
Opening an Account
Determining Share Price (NAV)
Selling Shares
Exchanging Shares
Dividends and Distributions
Other Investments and Risks
Futures and Options
Portfolio Turnover
Temporary Defensive Positions
Interfund Lending Program
The Funds' Management
Investment Adviser
Portfolio Managers
Master/Feeder Fund Structure
Year 2000 Readiness
<PAGE>
[callout]
Defining Large, Mid and Small Capitalization Stocks. In this
Prospectus, we refer to companies that have large, mid or small
market capitalizations. A company's market capitalization is its
common stock price multiplied by the number of its outstanding
shares. We use the classifications of Lipper Analytical Services,
Inc. in defining large (greater than $5 billion), mid ($1 billion
to $5 billion) and small (less than $1 billion) capitalization
companies. Lipper is a leading monitor of mutual fund
performance.
THE FUNDS STEIN ROE BALANCED FUND
Investment Goals
Stein Roe Balanced Fund seeks long-term growth of capital and
current income, consistent with reasonable investment risk.
Principal Investment Strategy
Balanced Fund invests all of its assets in SR&F Balanced Portfolio
as part of a master fund/feeder fund structure. Balanced
Portfolio allocates its investments among common stocks and
securities convertible into common stocks, bonds and cash. The
Portfolio invests primarily in well-established companies that
have large market capitalizations. The portfolio managers invest
in a company because they believe its stock is priced cheaply
compared to the value of its assets. They also may invest in a
company because it has a history of higher-than-average earnings
growth that the portfolio managers believe can be sustained. The
Portfolio may invest up to 25 percent of its assets in foreign
stocks.
The Portfolio also invests at least 25 percent of its assets in
bonds. The Portfolio purchases bonds that are "investment grade"-
that is, within the four highest investment grades assigned by a
nationally recognized statistical rating organization. The
Portfolio may invest in unrated bonds if the portfolio managers
believe that the securities are investment grade quality. To
select debt securities for the Portfolio, the portfolio managers
consider a bond's expected income together with its potential for
price gains or losses.
The portfolio managers set the Portfolio's asset allocation
between stocks, bonds and cash based upon recommendations of Stein
Roe's investment committee. The portfolio managers may change the
allocation if the investment committee recommends a change. The
committee makes its recommendations based upon economic, market
and other factors that affect investment opportunities.
Principal Investment Risks
There are two basic risks for all mutual funds that invest in
stocks and bonds: management risk and market risk. For bonds,
market risk is primarily a factor of interest rate changes. These
risks may cause you to lose money when you sell your shares.
[Callout]
What are market and management risks? Management risk means that
Stein Roe's stock and bond picking and other investment decisions
might produce losses or cause the Fund to underperform when
compared to other funds with similar goals. Market risk means
that security prices in a market, sector or industry may move
down. Downward movements reduce the value of your investment. A
Fund may not achieve its investment goal or may underperform
compared to competing funds due to either or both of these
principal risks.
Because the Portfolio invests in stocks and bonds, the price of
the Fund's shares-its net asset value per share (NAV)-fluctuates
daily in response to changes in the market value of the stocks and
bonds. In addition, the risks associated with the Portfolio's
investment strategy may cause the Fund's total return or yield to
decrease.
Foreign Securities
There are special risks associated with foreign investing.
Foreign stock markets, especially in countries with developing
markets, can be extremely volatile and less liquid than domestic
markets. Fluctuations in currency exchange rates impact the value
of foreign securities. Foreign investments often have higher fees
relating to the purchase and sale of securities. The foreign
custodians that hold the Portfolio's securities also may charge
higher fees. Foreign governments may impose withholding taxes on
distributions and sales proceeds. If a foreign country,
especially a country with a developing market, is not ready for
the Year 2000, the ability to buy and sell securities in that
country could be impacted. Other risks include: possible delays
in settlement; less publicly available information about
companies; the impact of political, social or diplomatic events;
and possible seizure, expropriation or nationalization of the
company or its assets.
Debt Securities
The Portfolio's investments in debt securities, generally bonds,
expose the Fund to interest rate risk. Interest rate risk is the
risk of a decline in the price of a bond when the interest rates
increase. In general, if interest rates rise, bond prices fall;
and if interest rates fall, bond prices rise. Interest rate risk
is generally greater for bonds having longer durations. Duration
mathematically measures how quickly the principal and interest of
a bond are expected to be prepaid.
For more information on the Portfolio's investment techniques,
please refer to "Other Investments and Risks."
Who Should Invest in the Fund?
You may want to invest in Balanced Fund if you:
* are a long-term investor and want a fund that offers both stocks
and bonds in the same investment
* want a fund that invests in both domestic and international
stocks
* are a first-time investor or want to invest primarily in just
one fund
* want to invest in stocks, but are uncomfortable with the risk
level of a fund that invests solely in stocks
* want to invest in bonds, but want more return potential than is
typically available from a fund that invests solely in bonds
Balanced Fund is not appropriate for investors who:
* can't tolerate volatility or possible losses
* are saving for a short-term goal
* don't want current income
Fund Performance
The following charts show the Fund's performance for the past 10
years through December 31, 1998. The returns include the
reinvestment of dividends and distributions. As with all mutual
funds, past performance is no guarantee of future results.
Year-by-Year Total Returns
Year-by-year calendar returns show the Fund's volatility over a
period of time. This chart illustrates performance differences
for each calendar year and provides an indication of the result of
investing in the Fund.
YEAR-BY-YEAR TOTAL RETURNS-BALANCED FUND
45%
40%
35%
30%
25% 29.59%
20% 20.34% 22.65%
15% 17.05% 17.47%
10% 12.34%
5% 7.89%
0%
(5%) -1.72% -4.12%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Best quarter: 1st quarter 1991, +12.40%; worst quarter: 3rd
quarter 1990, -9.49%
Average Annual Total Returns
Average annual total returns measure the Fund's performance over
time and reflect Fund expenses. We compare the Fund's returns
with returns for the S&P 500, which is a broad-based measure of
market performance, and the Fund's peer group as defined by
Lipper. We show returns for calendar years to be consistent with
the way other mutual funds report performance in their
prospectuses. This allows you to accurately compare similar
mutual fund investments.
AVERAGE ANNUAL TOTAL RETURNS
Period ended December 31, 1998
1 yr 5 yr 10 yr
Balanced Fund
S&P 500 Index
Lipper Balanced Fund Peer Group
Your Expenses
You do not pay any sales charge when you purchase or sell your
shares.(a) However, you pay various other indirect expenses
because the Fund or the Portfolio pays fees and other expenses
that reduce your investment return.
ANNUAL FUND OPERATING EXPENSES
(paid directly by the Fund)
Management fees 0.70%
Distribution 12b-1 fees None
Other Expenses 0.33%
-----
Total Annual Fund Operating Expenses 1.03%
=====
(a) There is a $7 charge for wiring redemption proceeds to your
bank.
(b) A fee of $5 per quarter may be charged to accounts that fall
below the required minimum balance.
(c) Annual fund operating expenses consist of Fund expenses plus
the Fund's share of the expenses of the Portfolio.
Expense Example
This example compares the cost of investing in the Fund to the
cost of investing in a similar mutual fund. It uses the same
hypothetical assumptions that other funds use in their
prospectuses:
* $10,000 initial investment
* 5 percent total return each year
* the Fund's operating expenses remain constant as a percent of
net assets
* redemption at the end of each time period
Your actual costs may be higher or lower because in reality Fund
returns and operating expenses change. Expenses based on these
assumptions are:
EXPENSE EXAMPLE
1 yr 3 yrs 5 yrs 10 yrs
Balanced Fund $105 $328 $569 $1,259
Expense Comparison
This scale shows how the Fund's total annual expenses compare to
the average fund in its Lipper fund peer group for direct-marketed
funds only.
EXPENSE COMPARISON
[**] 0.92%
1% 2% 3% 4%
[*] 1.03%
[*] Balanced Fund [**] Lipper Balanced Fund Peer Group
UNDERSTANDING EXPENSES
Fund expenses include management fees and administrative costs.
Administrative costs cover items such as furnishing the Fund with
offices, bookkeeping services and pricing services.
<PAGE>
THE FUNDS STEIN ROE GROWTH & INCOME FUND
Investment Goals
Stein Roe Growth & Income Fund seeks to provide both growth of
capital and current income.
Principal Investment Strategy
Growth & Income Fund invests all of its assets in SR&F Growth &
Income Portfolio as part of a master fund/feeder fund structure.
Growth & Income Portfolio invests primarily in common stocks of
well-established companies having large market capitalizations.
The Portfolio may invest up to 25 percent of its assets in foreign
stocks. To select investments for the Portfolio, the portfolio
manager looks for common stocks that have the potential to
appreciate in value and to pay dividends. The portfolio manager
focuses on the stocks of companies that have experienced
management, broad, highly diversified product lines, deep
financial resources, and easy access to credit.
Principal Investment Risks
There are two basic risks for all mutual funds that invest in
stocks: management risk and market risk. These risks may cause
you to lose money when you sell your shares.
[Callout]
What are market and management risks? Management risk means that
Stein Roe's stock picking and other investment decisions might
produce losses or cause the Fund to underperform when compared to
other funds with similar goals. Market risk means that security
prices in a market, sector or industry may move down. Downward
movements reduce the value of your investment. A Fund may not
achieve its investment goal or may underperform compared to
competing funds due to either or both of these principal risks.
Because the Portfolio invests in stocks, the price of the Fund's
shares-its net asset value per share (NAV)-fluctuates daily in
response to changes in the market value of the securities. In
addition, the risks associated with the Portfolio's investment
strategy may cause the Fund's total return or yield to decrease.
Foreign Securities
There are special risks associated with foreign investing.
Foreign stock markets, especially in countries with developing
markets, can be extremely volatile and less liquid than domestic
markets. Fluctuations in currency exchange rates impact the value
of foreign securities. Foreign investments often have higher fees
relating to the purchase and sale of securities. The foreign
custodians that hold the Portfolio's securities also may charge
higher fees. Foreign governments may impose withholding taxes on
distributions and sales proceeds. If a foreign country,
especially a country with a developing market, is not ready for
the Year 2000, the ability to buy and sell securities in that
country could be impacted. Other risks include: possible delays
in settlement; less publicly available information about
companies; the impact of political, social or diplomatic events;
and possible seizure, expropriation or nationalization of the
company or its assets.
For more information on the Portfolio's investment techniques,
please refer to "Other Investments and Risks."
Who Should Invest in the Fund?
You may want to invest in Growth & Income Fund if you:
* want to invest in the stocks of large companies, but prefer to
temper stock price fluctuations by combining growth with the
potential of a steady source of income from dividends
* are a long-term investor looking for steady, not aggressive,
growth potential
* are a first-time investor or want to invest primarily in just
one stock fund
Growth & Income Fund is not appropriate for investors who:
* are unable to tolerate the risk and volatility associated with
stock market investing
* are saving for a short-term goal
* don't want current income
Fund Performance
The following charts show the Fund's performance for the past 10
years through December 31, 1998. The returns include the
reinvestment of dividends and distributions. As with all mutual
funds, past performance is no guarantee of future results.
Year-by-Year Total Returns
Year-by-year calendar returns show the Fund's volatility over a
period of time. This chart illustrates performance differences
for each calendar year and provides an indication of the result of
investing in the Fund.
YEAR-BY-YEAR TOTAL RETURNS-GROWTH & INCOME FUND
45%
40%
35%
30% 31.00% 32.42% 30.15%
25% 25.71%
20% 21.81%
15%
10% 10.01% 12.86%
5%
0%
(5%) -1.72% -0.14%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Best quarter: 2nd quarter 1997, +14.16%; worst quarter: 3rd
quarter 1990, -12.06%
Average Annual Total Returns
Average annual total returns measure the Fund's performance over
time and reflect Fund expenses. We compare the Fund's returns
with returns for the S&P 500, which is a broad-based measure of
market performance, and the Fund's peer group as defined by
Lipper. We show returns for calendar years to be consistent with
the way other mutual funds report performance in their
prospectuses. This allows you to accurately compare similar
mutual fund investments.
AVERAGE ANNUAL TOTAL RETURNS
Period ended December 31, 1998
1 yr 5 yr 10 yr
Growth & Income Fund
S&P 500 Index
Lipper Growth & Income
Fund Peer Group
Your Expenses
You do not pay any sales charge when you purchase or sell your
shares.(a) However, you pay various other indirect expenses
because the Fund or the Portfolio pays fees and other expenses
that reduce your investment return.
ANNUAL FUND OPERATING EXPENSES
(paid directly by the Fund)
Management fees 0.75%
Distribution 12b-1 fees None
Other Expenses 0.32%
-----
Total Annual Fund Operating Expenses 1.07%
=====
(a) There is a $7 charge for wiring redemption proceeds to your
bank.
(b) A fee of $5 per quarter may be charged to accounts that fall
below the required minimum balance.
(c) Annual fund operating expenses consist of Fund expenses plus
the Fund's share of the expenses of the Portfolio.
Expense Example
This example compares the cost of investing in the Fund to the
cost of investing in a similar mutual fund. It uses the same
hypothetical assumptions that other funds use in their
prospectuses:
* $10,000 initial investment
* 5 percent total return each year
* the Fund's operating expenses remain constant as a percent of
net assets
* redemption at the end of each time period
Your actual costs may be higher or lower because in reality Fund
returns and operating expenses change. Expenses based on these
assumptions are:
EXPENSE EXAMPLE
1 yr 3 yrs 5 yrs 10 yrs
Growth & Income Fund $109 $340 $590 $1,306
Expense Comparison
This scale shows how the Fund's total annual expenses compare to
the average fund in its Lipper fund peer group for direct-marketed
funds only.
<PAGE>
EXPENSE COMPARISON
[**] 1.03%
1% 2% 3% 4%
[*] 1.07%
[*] Growth & Income Fund [**] Lipper Growth & Income Fund Peer
Group
UNDERSTANDING EXPENSES
Fund expenses include management fees and administrative costs.
Administrative costs cover items such as furnishing the Fund with
offices, bookkeeping services and pricing services.
<PAGE>
THE FUNDS STEIN ROE GROWTH STOCK FUND
This Fund is closed to new investors except for
purchases by eligible investors as described
under "Your Account."
Investment Goals
Stein Roe Growth Stock Fund seeks long-term growth.
Principal Investment Strategy
Growth Stock Fund invests all of its assets in SR&F Growth Stock
Portfolio as part of a master fund/feeder fund structure. Growth
Stock Portfolio normally invests substantially all of its assets
in common stocks of companies with a large market capitalization.
The Portfolio emphasizes the technology, financial services,
health care, and global consumer franchise sectors. The Portfolio
may invest up to 25 percent of its assets in foreign stocks. To
select investments for the Portfolio, the portfolio manager
considers companies that he believes will generate earnings growth
over the long term regardless of economic environment.
Principal Investment Risks
There are two basic risks for all mutual funds that invest in
stocks: management risk and market risk. These risks may cause
you to lose money when you sell your shares.
[Callout]
What are market and management risks? Management risk means that
Stein Roe's stock picking and other investment decisions might
produce losses or cause the Fund to underperform when compared to
other funds with similar goals. Market risk means that security
prices in a market, sector or industry may move down. Downward
movements reduce the value of your investment. A Fund may not
achieve its investment goal or may underperform compared to
competing funds due to either or both of these principal risks.
Because the Portfolio invests in stocks, the price of the Fund's
shares-its net asset value per share (NAV)-fluctuates daily in
response to changes in the market value of the securities. In
addition, the risks associated with the Portfolio's investment
strategy may cause the Fund's total return or yield to decrease.
The Portfolio's emphasis on certain market sectors may increase
volatility in the Fund's NAV. If sectors that the Portfolio
invests in do not perform well, the Fund's NAV could decrease.
Foreign Securities
There are special risks associated with foreign investing.
Foreign stock markets, especially in countries with developing
markets, can be extremely volatile and less liquid than domestic
markets. Fluctuations in currency exchange rates impact the value
of foreign securities. Foreign investments often have higher fees
relating to the purchase and sale of securities. The foreign
custodians that hold the Portfolio's securities also may charge
higher fees. Foreign governments may impose withholding taxes on
distributions and sales proceeds. If a foreign country,
especially a country with a developing market, is not ready for
the Year 2000, the ability to buy and sell securities in that
country could be impacted. Other risks include: possible delays
in settlement; less publicly available information about
companies; the impact of political, social or diplomatic events;
and possible seizure, expropriation or nationalization of the
company or its assets.
For more information on the Portfolio's investment techniques,
please refer to "Other Investments and Risks."
Who Should Invest in the Fund?
You may want to invest in Growth Stock Fund if you:
* are a long-term investor and want to participate in the market
for large capitalization growth stocks
* can tolerate the risk and volatility associated with the general
stock market but want less risk and volatility than an
aggressive growth fund
Growth Stock Fund is not appropriate for investors who:
* are unable to tolerate the risk and volatility associated with
stock market investing
* are saving for a short-term goal
* want regular current income
Fund Performance
The following charts show the Fund's performance for the past 10
years through December 31, 1998. The returns include the
reinvestment of dividends and distributions. As with all mutual
funds, past performance is no guarantee of future results.
Year-by-Year Total Returns
Year-by-year calendar returns show the Fund's volatility over a
period of time. This chart illustrates performance differences
for each calendar year and provides an indication of the result of
investing in the Fund.
YEAR-BY-YEAR TOTAL RETURNS-GROWTH STOCK FUND
45% 46.00%
40%
35% 35.49% 35.63%
30% 31.62%
25%
20% 20.94%
15%
10%
5% 8.24%
0% 0.93% 2.84%
(5%) -3.78%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Best quarter: 2nd quarter 1997, +20.12%; worst quarter: 3rd
quarter 1990, -16.61%
Average Annual Total Returns
Average annual total returns measure the Fund's performance over
time and reflect Fund expenses. We compare the Fund's returns
with returns for the S&P 500, which is a broad-based measure of
market performance, and the Fund's peer group as defined by
Lipper. We show returns for calendar years to be consistent with
the way other mutual funds report performance in their
prospectuses. This allows you to accurately compare similar
mutual fund investments.
AVERAGE ANNUAL TOTAL RETURNS
Period ended December 31, 1998
1 yr 5 yr 10 yr
Growth Stock Fund
S&P 500 Index
Lipper Growth Fund Peer Group
Your Expenses
You do not pay any sales charge when you purchase or sell your
shares.(a) However, you pay various other indirect expenses
because the Fund or the Portfolio pays fees and other expenses
that reduce your investment return.
ANNUAL FUND OPERATING EXPENSES
(paid directly by the Fund)
Management fees 0.73%
Distribution 12b-1 fees None
Other Expenses 0.30%
-----
Total Annual Fund Operating Expenses 1.03%
=====
(a) There is a $7 charge for wiring redemption proceeds to your
bank.
(b) A fee of $5 per quarter may be charged to accounts that fall
below the required minimum balance.
(c) Annual fund operating expenses consist of Fund expenses plus
the Fund's share of the expenses of the Portfolio.
Expense Example
This example compares the cost of investing in the Fund to the
cost of investing in a similar mutual fund. It uses the same
hypothetical assumptions that other funds use in their
prospectuses:
* $10,000 initial investment
* 5 percent total return each year
* the Fund's operating expenses remain constant as a percent of
net assets
* redemption at the end of each time period
Your actual costs may be higher or lower because in reality Fund
returns and operating expenses change. Expenses based on these
assumptions are:
EXPENSE EXAMPLE
1 yr 3 yrs 5 yrs 10 yrs
Growth Stock Fund $105 $328 $569 $1,259
Expense Comparison
This scale shows how the Fund's total annual expenses compare to
the average fund in its Lipper fund peer group for direct-marketed
funds only.
EXPENSE COMPARISON
[**] 1.23%
1% 2% 3% 4%
[*] 1.03%
[*] Growth Stock Fund [**] Lipper Growth Fund Peer Group
UNDERSTANDING EXPENSES
Fund expenses include management fees and administrative costs.
Administrative costs cover items such as furnishing the Fund with
offices, bookkeeping services and pricing services.
<PAGE>
THE FUNDS STEIN ROE GROWTH OPPORTUNITIES FUND
Investment Goals
Stein Roe Growth Opportunities Fund seeks long-term growth.
Principal Investment Strategy
Growth Opportunities Fund invests in common stocks of large, mid
and small capitalization companies that the portfolio managers
believe have long-term growth potential. The Fund may invest up
to 25 percent of its assets in foreign stocks. To select
investments for the Fund, the portfolio managers consider
companies of any size that show the potential to generate and
sustain long-term earnings growth at above-average rates. The
portfolio managers seek to moderate risks of investing in small
and midsized companies by also investing in larger, more
established companies. They select companies based on their view
of long-term rather than short-term earnings growth prospects.
Principal Investment Risks
There are two basic risks for all mutual funds that invest in
stocks: management risk and market risk. These risks may cause
you to lose money when you sell your shares.
[Callout]
What are market and management risks? Management risk means that
Stein Roe's stock picking and other investment decisions might
produce losses or cause the Fund to underperform when compared to
other funds with similar goals. Market risk means that security
prices in a market, sector or industry may move down. Downward
movements reduce the value of your investment. A Fund may not
achieve its investment goal or may underperform compared to
competing funds due to either or both of these principal risks.
Investments in stocks of small and midsized companies can be
riskier than investments in larger companies. Small and midsized
companies often have limited product lines, operating histories,
markets, or financial resources. They may depend heavily on a
small management group. Small companies in particular are more
likely to fail or prove unable to grow. Small and midsized
companies may trade less frequently, in smaller volumes, and
fluctuate more sharply in price than larger companies. In
addition, they may not be widely followed by the investment
community, which can lower the demand for their stock.
Because the Fund invests in stocks, the price of its shares-its
net asset value per share (NAV)-fluctuates daily in response to
changes in the market value of the securities. In addition, the
risks associated with the Fund's investment strategy may cause the
Fund's total return or yield to decrease.
Foreign Securities
There are special risks associated with foreign investing.
Foreign stock markets, especially in countries with developing
markets, can be extremely volatile and less liquid than domestic
markets. Fluctuations in currency exchange rates impact the value
of foreign securities. Foreign investments often have higher fees
relating to the purchase and sale of securities. The foreign
custodians that hold the Fund's securities also may charge higher
fees. Foreign governments may impose withholding taxes on
distributions and sales proceeds. If a foreign country,
especially a country with a developing market, is not ready for
the Year 2000, the ability to buy and sell securities in that
country could be impacted. Other risks include: possible delays
in settlement; less publicly available information about
companies; the impact of political, social or diplomatic events;
and possible seizure, expropriation or nationalization of the
company or its assets.
For more information on the Fund's investment techniques, please
refer to "Other Investments and Risks."
Who Should Invest in the Fund?
You may want to invest in Growth Opportunities Fund if you:
* are a long-term investor
* want the diversification of a fund that invests in growth
companies of all sizes
Growth Opportunities Fund is not appropriate for investors who:
* can't tolerate the risk and volatility associated with small
market investing
* are saving for a short-term goal
* need regular current income
Fund Performance
Growth Opportunities Fund commenced operations on June 30, 1997.
The following charts show the Fund's performance through December
31, 1998. The returns include the reinvestment of dividends and
distributions. As with all mutual funds, past performance is no
guarantee of future results.
Year-by-Year Total Returns
This chart illustrates performance for the calendar year ended
Dec. 31, 1998 and provides an indication of the result of
investing in the Fund.
TOTAL RETURNS-GROWTH OPPORTUNITIES FUND
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
(5%)
1998
Best quarter: 1st quarter 1998, +15.51%; worst quarter: 3rd
quarter 1998, -18.35%
Average Annual Total Returns
Average annual total returns measure the Fund's performance over
time and reflect Fund expenses. We compare the Fund's returns
with returns for the S&P 500, which is a broad-based measure of
market performance, and the Fund's peer group as defined by
Lipper. We show returns for calendar years to be consistent with
the way other mutual funds report performance in their
prospectuses. This allows you to accurately compare similar
mutual fund investments.
AVERAGE ANNUAL TOTAL RETURNS
Period ended December 31, 1998
1 yr 5 yr 10 yr
Growth Opportunities Fund N/A N/A
S&P 500 Index
Lipper Growth Fund Peer Group
Your Expenses
You do not pay any sales charge when you purchase or sell your
shares.(a) However, you pay various other indirect expenses
because the Fund pays fees and other expenses that reduce your
investment return.
ANNUAL FUND OPERATING EXPENSES
(paid directly by the Fund)
Management fees 0.90%
Distribution 12b-1 fees None
Other Expenses 0.54%
-----
Total Annual Fund Operating Expenses 1.44%
=====
(a) There is a $7 charge for wiring redemption proceeds to your
bank.
(b) A fee of $5 per quarter may be charged to accounts that fall
below the required minimum balance.
(c) For a Fund that invests all of its assets in a Portfolio,
annual fund operating expenses consist of Fund expenses plus
the Fund's share of the expenses of the Portfolio.
(d) Stein Roe will reimburse Growth Opportunities Fund if its
ordinary operating expenses exceed 1.25% of annual average net
assets. The expense undertaking expires on January 31, 2000,
but may be terminated sooner by Stein Roe on 30 days' notice.
After reimbursement, Management fees were 0.71% and Total
Annual Fund Operating Expenses were 1.25%. A reimbursement
lowers the expense ratio and increases overall return to
investors.
Expense Example
This example compares the cost of investing in the Fund to the
cost of investing in a similar mutual fund. It uses the same
hypothetical assumptions that other funds use in their
prospectuses:
* $10,000 initial investment
* 5 percent total return each year
* the Fund's operating expenses remain constant as a percent of
net assets
* redemption at the end of each time period
Your actual costs may be higher or lower because in reality Fund
returns and operating expenses change. Expenses based on these
assumptions are:
<PAGE>
EXPENSE EXAMPLE
1 yr 3 yrs 5 yrs 10 yrs
Growth Opportunities Fund $147 $456 $787 $1,724
Expense Comparison
This scale shows how the Fund's total annual expenses compare to
the average fund in its Lipper fund peer group for direct-marketed
funds only.
EXPENSE COMPARISON
[**] 1.23%
1% 2% 3% 4%
[*] 1.44%
[*] Growth Opportunities Fund [**] Lipper Growth Fund Peer Group
UNDERSTANDING EXPENSES
Fund expenses include management fees and administrative costs.
Administrative costs cover items such as furnishing the Fund with
offices, bookkeeping services and pricing services.
<PAGE>
THE FUNDS STEIN ROE SPECIAL FUND
Investment Goals
Stein Roe Special Fund seeks long-term growth.
Principal Investment Strategy
Special Fund invests all of its assets in SR&F Special Portfolio
as part of a master fund/feeder fund structure. Special Portfolio
invests primarily in the common stocks of mid capitalization
companies. It may also purchase the common stocks of small and
large capitalization companies. The Portfolio generally purchases
stocks of companies that the portfolio manager believes are
undervalued, underfollowed or out of favor. It may invest in
stocks that have limited marketability. The Portfolio may invest
up to 25 percent of its assets in foreign stocks.
To select investments for the Portfolio, the portfolio manager
considers stocks that he believes have limited downside risk in
comparison to their potential for above-average appreciation over
the long term. The portfolio manager looks for companies that may
benefit from a change in management, the development of new
technology, new product or service developments, or changes in
demand.
Principal Investment Risks
There are two basic risks for all mutual funds that invest in
stocks: management risk and market risk. These risks may cause
you to lose money when you sell your shares.
[Callout]
What are market and management risks? Management risk means that
Stein Roe's stock picking and other investment decisions might
produce losses or cause the Fund to underperform when compared to
other funds with similar goals. Market risk means that security
prices in a market, sector or industry may move down. Downward
movements reduce the value of your investment. A Fund may not
achieve its investment goal or may underperform compared to
competing funds due to either or both of these principal risks.
Investments in stocks of small and midsized companies can be
riskier than investments in larger companies. Small and midsized
companies often have limited product lines, operating histories,
markets, or financial resources. They may depend heavily on a
small management group. Small companies in particular are more
likely to fail or prove unable to grow. Small and midsized
companies may trade less frequently, in smaller volumes, and
fluctuate more sharply in price than larger companies. In
addition, they may not be widely followed by the investment
community, which can lower the demand for their stock.
Because the Portfolio invests in stocks, the price of the Fund's
shares-its net asset value per share (NAV)-fluctuates daily in
response to changes in the market value of the securities. In
addition, the risks associated with the Portfolio's investment
strategy may cause the Fund's total return or yield to decrease.
Foreign Securities
There are special risks associated with foreign investing.
Foreign stock markets, especially in countries with developing
markets, can be extremely volatile and less liquid than domestic
markets. Fluctuations in currency exchange rates impact the value
of foreign securities. Foreign investments often have higher fees
relating to the purchase and sale of securities. The foreign
custodians that hold the Portfolio's securities also may charge
higher fees. Foreign governments may impose withholding taxes on
distributions and sales proceeds. If a foreign country,
especially a country with a developing market, is not ready for
the Year 2000, the ability to buy and sell securities in that
country could be impacted. Other risks include: possible delays
in settlement; less publicly available information about
companies; the impact of political, social or diplomatic events;
and possible seizure, expropriation or nationalization of the
company or its assets.
For more information on the Portfolio's investment techniques,
please refer to "Other Investments and Risks."
Who Should Invest in the Fund?
You may want to invest in Special Fund if you:
* are a long-term investor
* want to invest in a fund that invests in midcap value stocks
* believe that investing in the securities of companies that are
undervalued, underfollowed or out of favor may provide strong
opportunities for appreciation with managed risk
Special Fund is not appropriate for investors who:
* can't tolerate the volatility and risks of stock market
investing
* are saving for a short-term goal
* need regular current income
Fund Performance
The following charts show the Fund's performance for the past 10
years through December 31, 1998. The returns include the
reinvestment of dividends and distributions. As with all mutual
funds, past performance is no guarantee of future results.
Year-by-Year Total Returns
Year-by-year calendar returns show the Fund's volatility over a
period of time. This chart illustrates performance differences
for each calendar year and provides an indication of the result of
investing in the Fund.
<PAGE>
YEAR-BY-YEAR TOTAL RETURNS-SPECIAL FUND
45%
40%
35% 37.84%
30% 34.04%
25% 25.94%
20% 20.42%
15% 18.73% 18.81%
10% 14.05%
5%
0%
(5%) -5.81% -3.35%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Best quarter: 1st quarter 1991, +19.00%; worst quarter: 3rd
quarter 1998, -18.13%
Average Annual Total Returns
Average annual total returns measure the Fund's performance over
time and reflect Fund expenses. We compare the Fund's returns
with returns for the S&P 500, which is a broad-based measure of
market performance, and the Fund's peer group as defined by
Lipper. We show returns for calendar years to be consistent with
the way other mutual funds report performance in their
prospectuses. This allows you to accurately compare similar
mutual fund investments.
AVERAGE ANNUAL TOTAL RETURNS
Period ended December 31, 1998
1 yr 5 yr 10 yr
Special Fund
S&P 500 Index
Lipper Mid-Cap Fund Peer Group
Your Expenses
You do not pay any sales charge when you purchase or sell your
shares.(a) However, you pay various other indirect expenses
because the Fund or the Portfolio pays fees and other expenses
that reduce your investment return.
ANNUAL FUND OPERATING EXPENSES
(paid directly by the Fund)
Management fees 0.84%
Distribution 12b-1 fees None
Other Expenses 0.29%
-----
Total Annual Fund Operating Expenses 1.13%
=====
(a) There is a $7 charge for wiring redemption proceeds to your
bank.
(b) A fee of $5 per quarter may be charged to accounts that fall
below the required minimum balance.
(c) Annual fund operating expenses consist of Fund expenses plus
the Fund's share of the expenses of the Portfolio.
Expense Example
This example compares the cost of investing in the Fund to the
cost of investing in a similar mutual fund. It uses the same
hypothetical assumptions that other funds use in their
prospectuses:
* $10,000 initial investment
* 5 percent total return each year
* the Fund's operating expenses remain constant as a percent of
net assets
* redemption at the end of each time period
Your actual costs may be higher or lower because in reality Fund
returns and operating expenses change. Expenses based on these
assumptions are:
EXPENSE EXAMPLE
1 yr 3 yrs 5 yrs 10 yrs
Special Fund $115 $359 $622 $1,375
Expense Comparison
This scale shows how the Fund's total annual expenses compare to
the average fund in its Lipper fund peer group for direct-marketed
funds only.
EXPENSE COMPARISON
[**] 1.19%
1% 2% 3% 4%
[*] 1.13
[*] Special Fund [**] Lipper Mid-Cap Fund Peer Group
UNDERSTANDING EXPENSES
Fund expenses include management fees and administrative costs.
Administrative costs cover items such as furnishing the Fund with
offices, bookkeeping services and pricing services.
<PAGE>
THE FUNDS STEIN ROE SPECIAL VENTURE FUND
Investment Goals
Stein Roe Special Venture Fund seeks long-term growth.
Principal Investment Strategy
Special Venture Fund invests all of its assets in SR&F Special
Venture Portfolio as part of a master fund/feeder fund structure.
Special Venture Portfolio invests primarily in a well diversified
portfolio of equity securities of attractively valued companies.
It emphasizes investments in financially strong, small and mid
capitalization companies. In selecting investments for the
Portfolio, the portfolio managers attempt to identify attractively
valued companies in the earlier phases of growth. The Portfolio
may invest up to 25 percent of its assets in foreign stocks.
Principal Investment Risks
There are two basic risks for all mutual funds that invest in
stocks: management risk and market risk. These risks may cause
you to lose money when you sell your shares.
[Callout]
What are market and management risks? Management risk means that
Stein Roe's stock picking and other investment decisions might
produce losses or cause the Fund to underperform when compared to
other funds with similar goals. Market risk means that security
prices in a market, sector or industry may move down. Downward
movements reduce the value of your investment. A Fund may not
achieve its investment goal or may underperform compared to
competing funds due to either or both of these principal risks.
Investments in stocks of small and midsized companies can be
riskier than investments in larger companies. Small and midsized
companies often have limited product lines, operating histories,
markets, or financial resources. They may depend heavily on a
small management group. Small companies in particular are more
likely to fail or prove unable to grow. Small and midsized
companies may trade less frequently, in smaller volumes, and
fluctuate more sharply in price than larger companies. In
addition, they may not be widely followed by the investment
community, which can lower the demand for their stock.
Because the Portfolio invests in stocks, the price of the Fund's
shares-its net asset value per share (NAV)-fluctuates daily in
response to changes in the market value of the securities. In
addition, the risks associated with the Portfolio's investment
strategy may cause the Fund's total return or yield to decrease.
Foreign Securities
There are special risks associated with foreign investing.
Foreign stock markets, especially in countries with developing
markets, can be extremely volatile and less liquid than domestic
markets. Fluctuations in currency exchange rates impact the value
of foreign securities. Foreign investments often have higher fees
relating to the purchase and sale of securities. The foreign
custodians that hold the Portfolio's securities also may charge
higher fees. Foreign governments may impose withholding taxes on
distributions and sales proceeds. If a foreign country,
especially a country with a developing market, is not ready for
the Year 2000, the ability to buy and sell securities in that
country could be impacted. Other risks include: possible delays
in settlement; less publicly available information about
companies; the impact of political, social or diplomatic events;
and possible seizure, expropriation or nationalization of the
company or its assets.
For more information on the Portfolio's investment techniques,
please refer to "Other Investments and Risks."
Who Should Invest in the Fund?
You may want to invest in Special Venture Fund if you:
* are a long-term investor
* like the upside potential of small and midsized company stocks
and can accept their greater price volatility
Special Venture Fund is not appropriate for investors who:
* can't tolerate the volatility and risks of stock market
investing
* are saving for a short-term goal
* need regular current income
Fund Performance
Special Venture Fund commenced operations on Oct. 17, 1994. The
following charts show the Fund's performance for the past four
years through December 31, 1998. The returns include the
reinvestment of dividends and distributions. As with all mutual
funds, past performance is no guarantee of future results.
Year-by-Year Total Returns
Year-by-year calendar returns show the Fund's volatility over a
period of time. This chart illustrates performance differences
for each calendar year and provides an indication of the result of
investing in the Fund.
YEAR-BY-YEAR TOTAL RETURNS-SPECIAL VENTURE FUND
45%
40%
35%
30%
25% 27.17% 28.65%
20%
15%
10%
5% 9.67%
0%
(5%)
1995 1996 1997 1998
Best quarter: 2nd quarter 1997, +15.58%; worst quarter: 3rd
quarter 1998, -21.45%
Average Annual Total Returns
Average annual total returns measure the Fund's performance over
time and reflect Fund expenses. We compare the Fund's returns
with returns for the Russell 2000, which is a broad-based measure
of market performance, and the Fund's peer group as defined by
Lipper. We show returns for calendar years to be consistent with
the way other mutual funds report performance in their
prospectuses. This allows you to accurately compare similar
mutual fund investments.
AVERAGE ANNUAL TOTAL RETURNS
Period ended December 31, 1998
1 yr 5 yr 10 yr
Special Venture Fund N/A N/A
Russell 2000
Lipper Small Cap Fund Peer Group
Your Expenses
You do not pay any sales charge when you purchase or sell your
shares.(a) However, you pay various other indirect expenses
because the Fund or the Portfolio pays fees and other expenses
that reduce your investment return.
ANNUAL FUND OPERATING EXPENSES
(paid directly by the Fund)
Management fees 0.90%
Distribution 12b-1 fees None
Other Expenses 0.38%
-----
Total Annual Fund Operating Expenses 1.28%
=====
(a) There is a $7 charge for wiring redemption proceeds to your
bank.
(b) A fee of $5 per quarter may be charged to accounts that fall
below the required minimum balance.
(c) Annual fund operating expenses consist of Fund expenses plus
the Fund's share of the expenses of the Portfolio.
Expense Example
This example compares the cost of investing in the Fund to the
cost of investing in a similar mutual fund. It uses the same
hypothetical assumptions that other funds use in their
prospectuses:
* $10,000 initial investment
* 5 percent total return each year
* the Fund's operating expenses remain constant as a percent of
net assets
* redemption at the end of each time period
Your actual costs may be higher or lower because in reality Fund
returns and operating expenses change. Expenses based on these
assumptions are:
EXPENSE EXAMPLE
1 yr 3 yrs 5 yrs 10 yrs
Special Venture Fund $130 $406 $702 $1,545
Expense Comparison
This scale shows how the Fund's total annual expenses compare to
the average fund in its Lipper fund peer group for direct-marketed
funds only.
EXPENSE COMPARISON
[**] 1.33%
1% 2% 3% 4%
[*] 1.28%
[*] Special Venture Fund [**] Lipper Small Cap Fund Peer Group
UNDERSTANDING EXPENSES
Fund expenses include management fees and administrative costs.
Administrative costs cover items such as furnishing the Fund with
offices, bookkeeping services and pricing services.
<PAGE>
THE FUNDS STEIN ROE CAPITAL OPPORTUNITIES FUND
Investment Goals
Stein Roe Capital Opportunities Fund seeks long-term growth.
Principal Investment Strategy
Capital Opportunities Fund invests primarily in the common stocks
of aggressive growth companies. An aggressive growth company has
the ability to increase its earnings at an above-average rate. To
select stocks for the Fund, the managers concentrate on stocks of
small and mid capitalization companies that may benefit from new
products or services, technological developments, or changes in
management. The Fund may invest up to 25 percent of its assets in
foreign stocks.
Principal Investment Risks
There are two basic risks for all mutual funds that invest in
stocks: management risk and market risk. These risks may cause
you to lose money when you sell your shares.
[Callout]
What are market and management risks? Management risk means that
Stein Roe's stock picking and other investment decisions might
produce losses or cause the Fund to underperform when compared to
other funds with similar goals. Market risk means that security
prices in a market, sector or industry may move down. Downward
movements reduce the value of your investment. A Fund may not
achieve its investment goal or may underperform compared to
competing funds due to either or both of these principal risks.
Investments in stocks of small and midsized companies can be
riskier than investments in larger companies. Small and midsized
companies often have limited product lines, operating histories,
markets, or financial resources. They may depend heavily on a
small management group. Small companies in particular are more
likely to fail or prove unable to grow. Small and midsized
companies may trade less frequently, in smaller volumes, and
fluctuate more sharply in price than larger companies. In
addition, they may not be widely followed by the investment
community, which can lower the demand for their stock.
Because the Fund invests in stocks, the price of its shares-its
net asset value per share (NAV)-fluctuates daily in response to
changes in the market value of the securities. In addition, the
risks associated with the Fund's investment strategy may cause the
Fund's total return or yield to decrease.
Foreign Securities
There are special risks associated with foreign investing.
Foreign stock markets, especially in countries with developing
markets, can be extremely volatile and less liquid than domestic
markets. Fluctuations in currency exchange rates impact the value
of foreign securities. Foreign investments often have higher fees
relating to the purchase and sale of securities. The foreign
custodians that hold the Fund's securities also may charge higher
fees. Foreign governments may impose withholding taxes on
distributions and sales proceeds. If a foreign country,
especially a country with a developing market, is not ready for
the Year 2000, the ability to buy and sell securities in that
country could be impacted. Other risks include: possible delays
in settlement; less publicly available information about
companies; the impact of political, social or diplomatic events;
and possible seizure, expropriation or nationalization of the
company or its assets.
For more information on the Fund's investment techniques, please
refer to "Other Investments and Risks."
Who Should Invest in the Fund?
You may want to invest in Capital Opportunities Fund if you:
* are a long-term investor and prefer a fund with a long-term
investment horizon
* like the significant growth potential of aggressive growth
companies and can tolerate their greater price volatility
* believe that company's earnings growth drives its stock price
Capital Opportunities Fund is not appropriate for investors who:
* can't tolerate the increased price volatility and risks
associated with aggressive growth investing
* are saving for a short-term goal
* need regular current income
Fund Performance
The following charts show the Fund's performance for the past 10
years through December 31, 1998. The returns include the
reinvestment of dividends and distributions. As with all mutual
funds, past performance is no guarantee of future results.
Year-by-Year Total Returns
Year-by-year calendar returns show the Fund's volatility over a
period of time. This chart illustrates performance differences
for each calendar year and provides an indication of the result of
investing in the Fund.
<PAGE>
YEAR-BY-YEAR TOTAL RETURNS-CAPITAL OPPORTUNITIES FUND
60% 62.79%
55%
50% 50.77%
45%
40%
35% 36.84%
30%
25% 27.52%
20% 20.39%
15%
10%
5% 6.15%
0% 2.43% 0.00%
(5%)
(10%)
(15%)
(20%)
(25%) -29.09%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Best quarter: 1st quarter 1991, +24.90%; worst quarter: 3rd
quarter 1990, -33.14%
Average Annual Total Returns
Average annual total returns measure the Fund's performance over
time and reflect Fund expenses. We compare the Fund's returns
with returns for the S&P 500, which is a broad-based measure of
market performance, and the Fund's peer group as defined by
Lipper. We show returns for calendar years to be consistent with
the way other mutual funds report performance in their
prospectuses. This allows you to accurately compare similar
mutual fund investments.
AVERAGE ANNUAL TOTAL RETURNS
Period ended December 31, 1998
1 yr 5 yr 10 yr
Capital Opportunities Fund
S&P 500 Index
Lipper Capital Appreciation
Fund Peer Group
Your Expenses
You do not pay any sales charge when you purchase or sell your
shares.(a) However, you pay various other indirect expenses
because the Fund pays fees and other expenses that reduce your
investment return.
ANNUAL FUND OPERATING EXPENSES
(paid directly by the Fund)
Management fees 0.86%
Distribution 12b-1 fees None
Other Expenses 0.34%
-----
Total Annual Fund Operating Expenses 1.20%
=====
(a) There is a $7 charge for wiring redemption proceeds to your
bank.
(b) A fee of $5 per quarter may be charged to accounts that fall
below the required minimum balance.
Expense Example
This example compares the cost of investing in the Fund to the
cost of investing in a similar mutual fund. It uses the same
hypothetical assumptions that other funds use in their
prospectuses:
* $10,000 initial investment
* 5 percent total return each year
* the Fund's operating expenses remain constant as a percent of
net assets
* redemption at the end of each time period
Your actual costs may be higher or lower because in reality Fund
returns and operating expenses change. Expenses based on these
assumptions are:
EXPENSE EXAMPLE
1 yr 3 yrs 5 yrs 10 yrs
Capital Opportunities Fund $122 $381 $660 $1,455
Expense Comparison
This scale shows how the Fund's total annual expenses compare to
the average fund in its Lipper fund peer group for direct-marketed
funds only.
EXPENSE COMPARISON
[**] 1.57%
1% 2% 3% 4%
[*] 1.20%
[*] Capital Opportunities Fund [**] Lipper Capital Appreciation
Fund Peer Group
UNDERSTANDING EXPENSES
Fund expenses include management fees and administrative costs.
Administrative costs cover items such as furnishing the Fund with
offices, bookkeeping services and pricing services.
<PAGE>
THE FUNDS STEIN ROE LARGE COMPANY FOCUS FUND
Investment Goals
Stein Roe Large Company Focus Fund seeks long-term growth.
Principal Investment Strategy
Large Company Focus Fund invests in a limited number of large
capitalization companies that the portfolio manager believes have
above-average growth potential. As a "focus" fund, under normal
conditions, the Fund will hold between 15-25 common stocks. To
select investments for the Fund, the portfolio manager considers
companies that are dominant in their particular industries or
markets that can generate consistent earnings growth despite
normal market declines. Since the Fund is "non-diversified," the
percentage of assets that it may invest in any one issuer is not
limited. The Fund may invest up to 25 percent of its assets in
foreign stocks.
Principal Investment Risks
There are two basic risks for all mutual funds that invest in
stocks: management risk and market risk. These risks may cause
you to lose money when you sell your shares.
[Callout]
What are market and management risks? Management risk means that
Stein Roe's stock picking and other investment decisions might
produce losses or cause the Fund to underperform when compared to
other funds with similar goals. Market risk means that security
prices in a market, sector or industry may move down. Downward
movements reduce the value of your investment. A Fund may not
achieve its investment goal or may underperform compared to
competing funds due to either or both of these principal risks.
Because the Fund invests in stocks, the price of its shares-its
net asset value per share (NAV)-fluctuates daily in response to
changes in the market value of the securities. In addition, the
risks associated with the Fund's investment strategy may cause the
Fund's total return or yield to decrease.
The Fund invests in a limited number of stocks and it owns a
higher concentration in a single stock than a diversified fund.
As a result, a single stock's increase or decrease in value may
have a greater impact on the Fund's NAV, resulting in the Fund's
NAV fluctuating more than the NAV of diversified growth funds.
Foreign Securities
There are special risks associated with foreign investing.
Foreign stock markets, especially in countries with developing
markets, can be extremely volatile and less liquid than domestic
markets. Fluctuations in currency exchange rates impact the value
of foreign securities. Foreign investments often have higher fees
relating to the purchase and sale of securities. The foreign
custodians that hold the Fund's securities also may charge higher
fees. Foreign governments may impose withholding taxes on
distributions and sales proceeds. If a foreign country,
especially a country with a developing market, is not ready for
the Year 2000, the ability to buy and sell securities in that
country could be impacted. Other risks include: possible delays
in settlement; less publicly available information about
companies; the impact of political, social or diplomatic events;
and possible seizure, expropriation or nationalization of the
company or its assets.
For more information on the Fund's investment techniques, please
refer to "Other Investments and Risks."
Who Should Invest in the Fund?
You may want to invest in Large Company Focus Fund if you:
* are a long-term investor
* want a mutual fund that invests in a limited number of large-cap
growth stocks
* want the added performance potential of a "focus" fund and are
comfortable with the increased price volatility that may
accompany focused investing
Large Company Focus Fund is not appropriate for investors who:
* can't tolerate the greater price volatility associated with a
fund that invests in a limited number of stocks
* are saving for a short-term goal
* need regular current income
An investment in a Fund is not a bank deposit and is not FDIC-
insured. It is not a complete investment program, and you can
lose money by investing in any of the Funds.
ANNUAL FUND OPERATING EXPENSES
(paid directly by the Fund)
Management fees 0.90%
Distribution 12b-1 fees None
Other Expenses 0.71%
-----
Total Annual Fund Operating Expenses 1.61%
=====
(a) There is a $7 charge for wiring redemption proceeds to your
bank.
(b) A fee of $5 per quarter may be charged to accounts that fall
below the required minimum balance.
(c) Stein Roe will reimburse the Fund if its ordinary operating
expenses exceed 1.50% of annual average net assets. The
expense undertaking expires on January 31, 2000, but may be
terminated sooner by Stein Roe on 30 days' notice. After
reimbursement, Management fees were 0.79% and Total Annual
Fund Operating Expenses were 1.50%. A reimbursement lowers
the expense ratio and increases overall return to investors.
Expense Example
This example compares the cost of investing in the Fund to the
cost of investing in a similar mutual fund. It uses the same
hypothetical assumptions that other funds use in their
prospectuses:
* $10,000 initial investment
* 5 percent total return each year
* the Fund's operating expenses remain constant as a percent of
net assets
* redemption at the end of each time period
Your actual costs may be higher or lower because in reality Fund
returns and operating expenses change. Expenses based on these
assumptions are:
EXPENSE EXAMPLE
1 yr 3 yrs 5 yrs 10 yrs
Large Company Focus Fund $164 $508 $876 $1,911
Expense Comparison
This scale shows how the Fund's total annual expenses compare to
the average fund in its Lipper fund peer group for direct-marketed
funds only.
EXPENSE COMPARISON
[**] 1.23%
1% 2% 3% 4%
[*] 1.61%
[*] Large Company Focus Fund [**] Lipper Growth Fund Peer Group
UNDERSTANDING EXPENSES
Fund expenses include management fees and administrative costs.
Administrative costs cover items such as furnishing the Fund with
offices, bookkeeping services and pricing services.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights tables explain the Funds' financial
performance. Consistent with other mutual funds, we show
information for the last five fiscal years or for the period of
the Fund's operations (if shorter). Each Fund's fiscal year runs
from October 1 to September 30. The total returns in the table
represent the return that investors earned assuming that they
reinvested all dividends and distributions. Arthur Andersen LLP,
an international public accounting firm, audits this information
and issues a report that appears in the Funds' annual report along
with the financial statements. To request an annual report of the
Funds, please call 800-338-2550.
Balanced Fund Per Share Data
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997 1996 1995 1994
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 30.07 $ 27.82 $ 25.78 $ 27.57
------- ------- ------- ------- -------
Income from Investment Operations
Net investment income 0.95 1.00 1.33 1.15
Net gains on securities (both
realized and unrealized) 5.61 2.96 2.22 (1.06)
------- ------- ------- ------- -------
Total income from investment
operations 6.56 3.96 3.55 0.09
------- ------- ------- ------- -------
Less distributions
Dividends (from net investment
income) (0.96) (1.01) (1.23) (1.17)
Distributions (from capital
gains) (2.26) (0.70) (0.28) (0.71)
------- ------- ------- ------- -------
Total Distributions (3.22) (1.71) (1.51) (1.88)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 33.41 $ 30.07 $ 27.82 $ 25.78
======== ======= ======= ======= =======
Total return 23.60% 14.83% 14.49% 0.36%
Ratios/Supplemental Data
Net assets, end of period
(000 omitted) $284,846 $231,063 $228,560 $229,274
Ratio of net expenses to
average net assets 1.05% 1.05% 0.87% 0.83%
Ratio of net investment income to
average net assets 3.02% 3.45% 5.14% 4.53%
Portfolio turnover rate 15%(a) 87% 45% 29%
</TABLE>
<PAGE>
Growth & Income Fund Per Share Data
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997 1996 1995 1994
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 18.39 $ 16.65 $ 14.54 $ 14.83
------- ------- ------- ------- -------
Income from Investment Operations
Net investment income 0.30 0.27 0.34 0.18
Net gains on securities (both
realized and unrealized) 5.15 3.22 2.56 0.40
------- ------- ------- ------- -------
Total income from invest-
ment operations 5.45 3.49 2.90 0.58
------- ------- ------- ------- -------
Less distributions
Dividends (from net investment
income) (0.28) (0.32) (0.20) (0.16)
Distributions (from capital
gains) (0.65) (1.43) (0.59) (0.71)
------- ------- ------- ------- -------
Total Distributions (0.93) (1.75) (0.79) (0.87
------- ------- ------- ------- -------)
Net Asset Value, End of Period $ 22.91 $ 18.39 $ 16.65 $ 14.54
======= ======= ======= ======= =======
Total return 30.81% 22.67% 21.12% 4.03%
Ratios/Supplemental Data
Net assets, end of period
(000 omitted) $337,466 $204,387 $139,539 $129,680
Ratio of net expenses to
average net assets 1.13% 1.18% 0.96% 0.90%
Ratio of net investment income
to average net assets 1.52% 1.65% 1.78% 1.18%
Portfolio turnover rate 2%(a) 13% 70% 85%
</TABLE>
Growth Stock Fund Per Share Data
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997 1996 1995 1994
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 28.79 $ 26.13 $ 23.58 $ 24.89
------- ------- ------- ------- -------
Income from Investment Operations
Net investment income 0.01 0.08 0.12 0.13
Net gains on securities (both
realized and unrealized) 8.79 5.01 5.60 0.41
------- ------- ------- ------- -------
Total income from investment
operations 8.80 5.09 5.72 0.54
------- ------- ------- ------- -------
Less distributions
Dividends (from net investment
income) (0.07) (0.10) (0.15) (0.12)
Distributions (from capital
gains) (2.23) (2.33) (3.02) (1.73)
------- ------- ------- ------- -------
Total Distributions (2.30) (2.43) (3.17) (1.85)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 35.29 $ 28.79 $ 26.13 $ 23.58
======= ======= ======= ======= =======
Total return 33.10% 21.04% 28.18% 2.10%
Ratios/Supplemental Data
Net assets, end of period
(000 omitted) $607,699 $417,964 $360,336 $321,502
Ratio of net expenses to average
net assets 1.07% 1.08% 0.99% 0.94%
Ratio of net investment income
to average net assets 0.04% 0.32% 0.56% 0.50%
Portfolio turnover rate 5%(a) 39% 36% 27%
</TABLE>
<PAGE>
Growth Opportunities Fund Per Share Data
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997(d)
------ -------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 10.00
-------
Income from Investment Operations
Net investment income -
Net gains on securities (both realized
and unrealized) .77
------
Total income from investment operations .77
------
Less distributions
Dividends (from net investment income) -
Distributions (from capital gains) -
------
Total Distributions -
-------
Net Asset Value, End of Period $ 10.77
=======
Total return 7.70%
Ratios/Supplemental Data
Net assets, end of period (000 omitted) $49,830
Ratio of net expenses to average net
assets (b) 1.25%(e)
Ratio of net investment income to average
net assets (c) 0.02%(e)
Portfolio turnover rate 3%
</TABLE>
Special Fund Per Share Data
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997 1996 1995 1994
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 27.39 $ 25.26 $ 23.54 $ 25.04
------- ------- ------- ------- -------
Income from Investment Operations
Net investment income (0.06) 0.01 0.13 0.15
Net gains on securities (both
realized and unrealized) 8.57 4.14 3.05 0.33
------- ------- ------- ------- -------
Total income from investment
operations 8.51 4.15 3.18 0.48
------- ------- ------- ------- -------
Less distributions
Dividends (from net investment
income) - (0.11) (0.15) (0.21)
Distributions (from capital gains) (2.11) (1.91) (1.31) (1.77)
------- ------- ------- ------- -------
Total Distributions (2.11) (2.02) (1.46) (1.98)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 33.79 $ 27.39 $ 25.26 $ 23.54
======= ======= ======= ======= =======
Total return 33.67% 17.89% 14.60% 2.02%
Ratios/Supplemental Data
Net assets, end of period
(000 omitted) $1,327,578 $1,158,498 $1,201,469 $1,243,885
Ratio of net expenses to average
net assets 1.14% 1.18% 1.02% 0.96%
Ratio of net investment income to
average net assets (0.17%) 0.03% 0.56% 0.91%
Portfolio turnover rate 7%(a) 32% 41% 58%
</TABLE>
<PAGE>
Special Venture Fund Per Share Data
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997 1996 1995(d)
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 15.87 $ 12.60 $ 10.00
------- ------- ------- -------
Income from Investment Operations
Net investment income (0.02) (0.02) 0.01
Net gains on securities (both
realized and unrealized) 3.12 3.86 2.67
------- ------- ------- -------
Total income from investment
operations 3.10 3.84 2.68
------- ------- ------- -------
Less distributions
Dividends (from net investment
income) - - (0.03)
Distributions (from capital gains) (1.52) (0.57) (0.05)
------- ------- ------- -------
Total Distributions (1.52) (0.57) (0.08)
------- ------- ------- -------
Net Asset Value, End of Period $ 17.45 $ 15.87 $ 12.60
======= ======= ======= =======
Total return 21.73% 31.81% 26.96%
Ratios/Supplemental Data
Net assets, end of period
(000 omitted) $235,755 $144,528 $60,533
Ratio of net expenses to average
net assets (b) 1.29% 1.25% 1.25%(e)
Ratio of net investment income to
average net assets (c) (0.18%) (2.19%) 0.12%(e)
Portfolio turnover rate 44%(a) 72% 84%
</TABLE>
Capital Opportunities Fund Per Share Data
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997 1996 1995 1994
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
------- ------- ------- ------- -------
Net Asset Value, Beginning of
Period $ 31.04 $ 21.69 $ 15.79 $ 15.44
------- ------- ------- ------- -------
Income from Investment Operations
Net investment income (0.17) (0.06) 0.01 0.02
Net gains on securities (both
realized and unrealized) (1.77) 10.41 5.91 0.34
------- ------- ------- ------- -------
Total income from investment
operations (1.94) 10.35 5.92 0.36
------- ------- ------- ------- -------
Less distributions
Dividends (from net
investment income) - (0.01) (0.02) (0.01)
Distributions (from capital
gains) - (0.99) - -
------- ------- ------- ------- -------
Total Distributions - (1.00) (0.02) (0.01)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 29.10 $ 31.04 $ 21.69 $ 15.79
======= ======= ======= ======= =======
Total return (6.25%) 49.55% 37.46% 2.31%
Ratios/Supplemental Data
Net assets, end of period
(000 omitted) $1,110,642 $1,684,538 $242,381 $175,687
Ratio of net expenses to
average net assets 1.17% 1.22% 1.05% 0.97%
Ratio of net investment income
to average net assets (0.69%) (0.40%) 0.08% 0.04%
Portfolio turnover rate 35% 22% 60% 46%
</TABLE>
<PAGE>
Large Company Focus Fund Per Share Data
Year Ended Sept. 30,
1998(d)
--------------------
Net Asset Value, Beginning of Period
Income from Investment Operations
Net investment income
Net gains on securities (both realized
and unrealized)
Total income from investment operations
Less distributions
Dividends (from net investment income)
Distributions (from capital gains)
Total Distributions
Net Asset Value, End of Period
Total return
Ratios/Supplemental Data
Net assets, end of period (000 omitted)
Ratio of net expenses to average net
assets (b)
Ratio of net investment income to
average net assets (c)
Portfolio turnover rate
_____________________
(a) Prior to commencement of operations of the Portfolio.
(b) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by Stein Roe, this ratio would have
been 2.87% for the period ended Sept. 30, 1995 and 1.34% for
the year ended Sept. 30, 1996 for Special Venture Fund; and
1.74% for the period ended Sept. 30, 1997 for Growth
Opportunities Fund.
(c) Computed with the effect of Stein Roe's expense reimbursement.
(d) From commencement of operations on: June 30, 1997 for Growth
Opportunities Fund, Oct. 17, 1994 for Special Venture Fund,
and June 26, 1998 for Large Company Focus Fund.
(e) These percentages are for periods of less than one year. They
have been converted to an annual basis making it easier to
compare to prior years.
YOUR ACCOUNT
Purchasing Shares
You may purchase shares of a Fund without a sales charge. Your
purchases are made at the NAV next determined after the Fund
receives your check, wire transfer or electronic transfer. If a
Fund receives your check, wire transfer or electronic transfer
after the close of regular trading on the New York Stock Exchange
(NYSE) (normally 3 p.m. Central time), your purchase is effective
on the next business day. If you participate in the Stein Roe
Counselor [service mark] program or are a client of Stein Roe &
Farnham Private Capital Management, the minimum initial investment
is determined by those programs.
ACCOUNT MINIMUMS
Minimum to Minimum Minimum
Type of Account Open an Account Addition Balance
- -------------------------------------------------------------
Regular $2,500 $100 $1,000
Custodial (UGMA/UTMA) 1,000 100 1,000
Automatic Investment Plan 100 50 --
Roth and Traditional IRA 500 50 500
Educational IRA 500 50 500
Growth Stock Fund Accounts
Growth Stock Fund is closed to purchases (including exchanges) by
new investors except for purchases by eligible investors as
described below. The Board of Trustees has taken this step to
facilitate management of the Fund's portfolio. If you are already
a shareholder of Growth Stock Fund, you may continue to add to
your account or open another account with the Fund in your name.
In addition, you may open a new account if:
* you are a shareholder of any other Stein Roe Fund, having
purchased shares directly from Stein Roe, as of Oct. 15, 1997
and you are opening a new account by exchange or by dividend
reinvestment;
* you are a client of Stein Roe;
* you are a trustee of the Trust; an employee of Stein Roe, or any
of its affiliated companies; or a member of the immediate family
of any trustee or employee;
* you purchase shares (i) under an asset allocation program
sponsored by a financial advisor, broker-dealer, bank, trust
company or other intermediary or (ii) from certain financial
advisors who charge a fee for services and who, as of Oct. 15,
1997, had one or more clients who were Growth Stock Fund
shareholders; or
* you purchase shares for an employee benefit plan, the records
for which are maintained by a trust company or third party
administrator under an investment program with Growth Stock
Fund.
The Board of Trustees concluded that permitting the additional
investments described above would not adversely affect the ability
of Stein Roe to manage the Fund effectively. If you have
questions about your eligibility to purchase shares of Growth
Stock Fund, please call 800-338-2550.
Opening an Account
OPENING OR ADDING TO AN ACCOUNT
BY MAIL: OPENING AN ACCOUNT
Complete the application.
Make check payable to Stein Roe Mutual Funds.
Mail application and check to:
SteinRoe Services Inc.
P.O. Box 8900
Boston, MA 02205
If you participate in the Stein Roe Counselor
[service mark] program, mail application and check
to:
SteinRoe Services Inc.
P.O. Box 803938
Chicago, IL 60680
ADDING TO AN ACCOUNT
Make check payable to Stein Roe Mutual Funds. Be
sure to include your account number on the check.
Fill out investment slip (stub from your statement or
confirmation) or a note indicating amount of
purchase, your account number, and the name in which
your account is registered.
Mail check with investment slip or note to the
appropriate address on the left.
BY WIRE: OPENING AN ACCOUNT
Mail your application to the appropriate address
listed above, then call 800-338-2550 to obtain an
account number. Include your Social Security number.
Wire funds using the instructions on the right.
ADDING TO AN ACCOUNT
Wire funds to:
First National Bank of Boston
ABA: 011000390
Attn.: SSI, Account No. 560-99696
Fund No. __; Stein Roe ____ Fund
Your name (exactly as in the registration)
Account number
(Counselor Account No. if you participate in the
Counselor [service mark] program)
----------------
Fund Numbers:
31-Balanced Fund
11-Growth & Income Fund
32-Growth Stock Fund
20-Growth Opportunities Fund
34-Special Fund
16-Special Venture Fund
33-Capital Opportunities Fund
21-Large Company Focus Fund
BY ELECTRONIC
FUNDS TRANSFER: OPENING AN ACCOUNT
You cannot open a new account via electronic
transfer.
ADDING TO AN ACCOUNT
Call 800-338-2550 to make your purchase. To set up
prescheduled purchases, be sure to elect the
Automatic Investment Plan option on your application.
BY EXCHANGE: OPENING AN ACCOUNT
By mail, phone, in person or automatically (be sure
to elect the Automatic Exchange Privilege on your
application).
ADDING TO AN ACCOUNT
By mail, phone, in person or automatically (be sure
to elect the Automatic Exchange Privilege on your
application).
THROUGH AN INTERMEDIARY:
OPENING AN ACCOUNT
Contact your financial professional.
ADDING TO AN ACCOUNT
Contact your financial professional.
All checks must be made payable in U. S. dollars and drawn on U. S
banks. Third-party checks will not be accepted. Money orders or
cashiers' checks will not be accepted for initial purchases.
Conditions of Purchase
An order to purchase Fund shares is not binding unless and until
an authorized officer, agent or designee of the Fund accepts and
enters it on the Fund's books. Once we accept your purchase
order, you may not cancel or revoke it; however, you may redeem
your shares. A Fund may reject any purchase order if it
determines that the order is not in the best interests of the Fund
and its investors. A Fund may waive or lower its investment
minimums for any reason.
Purchases through Third Parties
If you purchase Fund shares through certain broker-dealers, banks
or other intermediaries (intermediaries), they may charge a fee
for their services. They may also place limits on your ability to
use services the Funds offer. There are no charges or limitations
if you purchase shares directly from a Fund, except those fees
described in this prospectus.
If an intermediary is an agent or designee of the Funds, orders
are processed at the NAV next calculated after the intermediary
receives the order. The intermediary must segregate any orders it
receives after the close of regular trading on the NYSE and
transmit those orders separately for execution at the NAV next
determined.
Determining Share Price
Each Fund's purchase or redemption price is its NAV next
determined. NAV is the difference between the values of a Fund's
assets and liabilities divided by the number of shares
outstanding. We determine NAV at the close of regular trading on
the NYSE (normally 3 p.m. Central time). If you place an order
after that time, you receive the share price determined on the
next business day.
To calculate the NAV on a given day, we value each stock listed or
traded on a stock exchange at its latest sale price on that day.
If there are no sales that day, we value the security at the most
recently quoted bid (highest) price. We value each over-the-
counter security or National Association of Securities Dealers
Automated Quotation (Nasdaq) security as of the last sale price
for that day. We value all other over-the-counter securities that
have reliable quotes at the latest quoted bid price.
We value long-term debt obligations and securities convertible
into common stock at fair value. Pricing services provide the
Funds with the value of the securities. When the price of a
security is not available, including days when we determine that
the sale or bid price of the security does not reflect that
security's market value, we value the security at a fair value
determined in good faith under procedures established by the Board
of Trustees.
We also value a security at fair value when events have occurred
after the close of the market that materially affect the
security's price. In this circumstance, we use fair value pricing
to protect long-term investors from the actions of short-term
investors who might buy or redeem shares in an attempt to profit
from short-term market movements.
A Fund's foreign securities may trade on days when the NYSE is
closed and we do not calculate NAV. You will not be able to
purchase or redeem shares until the next NYSE-trading day. Shares
will not be priced on days that the NYSE is closed for trading.
Selling Shares
You may sell your shares any day the Funds are open for business.
Please follow the instructions below.
SELLING SHARES
By Mail: Send a letter of instruction, in English, including
your account number and the dollar value or number
of shares you wish to sell. Sign the request
exactly as the account is registered. Be sure to
include a signature guarantee. All supporting
legal documents as required from executors,
trustees, administrators, or others acting on
accounts not registered in their names, must
accompany the request. We will mail the check to
your registered address.
By Phone: This feature is automatically added to your
account unless you decline this feature on your
application. Call 800-338-2550 to redeem an
amount of $1,000 or more. We will mail a check to
your registered address.
By Wire: Fill out the appropriate areas of the account
application for this feature. Proceeds of $1,000
or more ($100,000 maximum) may be wired to your
pre-designated bank account. Call 800-338-2550 to
give instructions to Stein Roe. There is a $7
charge for wiring redemption proceeds to your
bank.
By Electronic Transfer: Fill out the appropriate areas of the
account application for this feature. To request
an electronic transfer (not less than $50; not
more than $100,000), call 800-338-2550. We will
transfer your sale proceeds electronically to your
bank. The bank must be a member of the Automated
Clearing House.
By Exchange: Call 800-338-2550 to exchange any portion of your
Fund shares for shares in any other Stein Roe no-
load fund.
By Automatic Exchange: Fill out the appropriate areas of the
account application for this feature. Redeem a
fixed amount on a regular basis (not less than $50
per month, not more than $100,000) from a Fund for
investment in another Stein Roe no-load fund.
What You Need to Know When Selling Shares
Once we receive and accept your order to sell shares, you may not
cancel or revoke it. We cannot accept an order to sell that
specifies a particular date or price or any other special
conditions. If you have any questions about the requirements for
selling your shares, please call 800-338-2550 before submitting
your order.
A Fund redeems shares at the NAV next determined after an order
has been accepted. We mail proceeds within seven days after the
sale. The Funds normally pay wire redemption or electronic
transfer proceeds on the next business day.
We will not pay sale proceeds until your shares are paid for. If
you attempt to sell shares purchased by check or electronic
transfer within 15 days of the purchase date, we will delay
sending the sale proceeds until we can verify that those shares
are paid for. You may avoid this delay by purchasing shares by a
federal funds wire.
We use procedures reasonably designed to confirm that telephone
instructions are genuine. These include recording the
conversation, testing the identity of the caller by asking for
account information, and sending prompt written confirmation of
the transaction to the shareholder of record. If these procedures
are followed, the Fund and its service providers will not be
liable for any losses due to unauthorized or fraudulent
instructions.
If the amount you redeem is large enough to affect a Fund's
operation, the Fund may pay the redemption "in kind." This is
payment in portfolio securities rather than cash. If this occurs,
you may incur transaction costs when you sell the securities.
Involuntary Redemption
If your account value falls below $1,000,the Fund may redeem your
shares and send the proceeds to the registered address. You will
receive notice 30 days before this happens. If your account falls
below $10, the Fund may redeem your shares without notice to you.
Low Balance Fee
If your account balance falls below $1,800, you will be charged a
low balance fee of $5 per quarter.
Exchanging Shares
You may exchange Fund shares for shares of other Stein Roe no-load
funds. Call 800-338-2550 to request a prospectus and application
for the fund you wish to exchange into. Please be sure to read
the prospectus carefully before you exchange your shares.
The registration of the account you exchange into must be exactly
the same as the account you exchange from. You must meet all
investment minimum requirements for the fund you wish to exchange
into before we can process your exchange transaction.
An exchange is a redemption and purchase of shares for tax
purposes, and you may realize a gain or a loss when you exchange
Fund shares for shares of another fund.
We may change, suspend or eliminate the exchange service after
notification to you.
Generally, we limit you to four telephone exchange "roundtrips"
per year. A roundtrip is an exchange out of a Fund into another
Stein Roe no-load fund and then back to that Fund.
Dividends and Distributions
Each Fund distributes, at least once a year, virtually all of its
net investment income and net realized capital gains. Growth &
Income Fund and Balanced Fund pay dividends quarterly.
A dividend from net investment income represents the income a Fund
earns from dividends and interest paid on its investments, after
payment of the Fund's expenses.
A capital gain is the increase in value of a security that the
Fund holds. The gain is "unrealized" until the security is sold.
Each realized capital gain is either short-term or long-term
depending on whether the Fund held the security for less than or
more than one year, regardless of how long you have held your Fund
shares.
When a Fund makes a distribution of income or capital gains, the
distribution is automatically invested in additional shares of
that Fund unless you elect on the account application to have
distributions paid by check.
OPTIONS FOR RECEIVING DISTRIBUTION AND REDEMPTION PROCEEDS:
* by check
* by electronic transfer into your bank account
* a purchase of shares of another Stein Roe fund
* a purchase of shares in a Stein Roe fund account of another
person
If you elect to receive distributions by check and a distribution
check is returned to a Fund as undeliverable, or if you do not
present a distribution check for payment within six months, we
will change the distribution option on your account and reinvest
the proceeds of the check in additional shares of that Fund. You
will not receive any interest on amounts represented by uncashed
distribution or redemption checks.
Tax Consequences
You are subject to federal income tax on both dividends and
capital gains distributions whether you elect to receive them in
cash or reinvest them in additional Fund shares. If a Fund
declares a distribution in December, but does not pay it until
after December 31, you will be taxed as if the distribution were
paid in December. Stein Roe will process your distributions and
send you a statement for tax purposes each year showing the source
of distributions for the preceding year.
TRANSACTION TAX STATUS
Income dividend Ordinary income
Short-term capital gain distribution Ordinary income
Long-term capital gain distribution Capital gain
Sale of shares owned less than Gain is ordinary income;
one year loss is subject to
special rules
Sale of shares owned more than one year Capital gain or loss
If you sell or exchange your shares, any gain or loss is a taxable
event. You also may be subject to state and local income taxes on
dividends or capital gains from the sale or exchange of Fund
shares.
This tax information provides only a general overview. It does
not apply if you invest in a tax-deferred retirement account such
as an IRA. Please consult your own tax advisor about the tax
consequences of an investment in a Fund.
If you have any account questions, you may call 800-338-2550. We
are here seven days a week to help you.
OTHER INVESTMENTS AND RISKS
The primary investment strategies and risks are described above.
(See "The Funds.") The Statement of Additional Information (SAI)
describes other investments that the Funds and Portfolios may make
and risks associated with them. The investment objectives can be
changed by the Board of Trustees without shareholder approval.
The Funds' portfolio managers generally make decisions on buying
and selling portfolio investments based upon their judgment that
the decision will improve a Fund's investment return and further
its investment goal. The portfolio managers also may be required
to sell portfolio investments to fund redemptions.
Futures
Growth & Income Fund uses futures to gain exposure to groups of
stocks or individual issuers. The Fund does this to invest cash
pending direct investments in stocks and to enhance its return
generally. These investments are efficient since they typically
cost less than direct investments in the underlying securities.
However, the Fund can lose money if the portfolio manager does not
correctly anticipate the market movements of those underlying
securities.
Portfolio Turnover
Although the Funds do not buy securities with a view toward rapid
turnover, there are no limits on turnover. Turnover may vary
significantly from year to year. Stein Roe does not expect it to
exceed 100 percent under normal conditions. Portfolio turnover
typically produces capital gains or losses resulting in tax
consequences for Fund investors. It also increases transaction
expenses, which reduce a Fund's return.
Temporary Defensive Positions
When Stein Roe believes that a temporary defensive position is
necessary, a Fund may invest, without limit, in high-quality debt
securities or hold assets in cash and cash equivalents. Stein Roe
is not required to take a temporary defensive position, and market
conditions may prevent such an action. A Fund may not achieve its
investment objective if it takes a defensive position.
Interfund Lending Program
The Funds and Portfolios may lend money to and borrow money from
other funds advised by Stein Roe. They will do so when Stein Roe
believes such lending or borrowing is necessary and appropriate.
Borrowing costs will be the same as or lower than the costs of a
bank loan.
THE FUND'S MANAGEMENT
Investment Adviser
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
IL 60606, manages the day-to-day operations of the Funds and
Portfolios. Stein Roe (and its predecessor) has advised and
managed mutual funds since 1949. As of September 30, 1998, Stein
Roe managed over $28 billion in assets. For the fiscal year ended
September 30, 1998, the Funds paid to Stein Roe the following
aggregate fees (as a percent of average net assets):
Balanced Fund 0.70%
Growth & Income Fund 0.75%
Growth Stock Fund 0.73%
Growth Opportunities Fund 0.90%
Special Fund 0.84%
Special Venture Fund 0.90%
Capital Opportunities Fund 0.86%
Large Company Focus Fund 0.90%
Stein Roe's mutual funds and institutional asset management
businesses are managed together with those of its affiliate,
Colonial Management Associates, Inc. ("CMA"). A single management
team includes employees of each company. CMA is a registered
investment adviser serving mutual funds and institutions. Certain
officers of CMA also are officers of Stein Roe in their roles as
managers of the combined business. CMA shares personnel,
facilities and systems with Stein Roe that Stein Roe uses in
providing services to the Funds.
Portfolio Managers
Daniel K. Cantor has been portfolio manager of Growth & Income
Portfolio since its inception in 1997 and had been manager of
Growth & Income Fund since 1995. He joined Stein Roe in 1985 and
is a senior vice president. A chartered financial analyst, he
received a B.A. degree from the University of Rochester and an
M.B.A. from the Wharton School of the University of Pennsylvania.
As of Sept. 30, 1998, Mr. Cantor was responsible for managing $338
million in mutual fund net assets. Jeffrey C. Kinzel is associate
portfolio manager. He is a vice president of Stein Roe, which he
joined in 1991. Mr. Kinzel holds a B.A. from Northwestern
University, a J.D. from the University of Michigan Law School, and
an M.B.A. from the Wharton School of the University of
Pennsylvania.
Harvey B. Hirschhorn has been portfolio manager of Balanced
Portfolio since its inception in 1997 and had managed Balanced
Fund since 1996. He joined Stein Roe in 1973 and is executive
vice president and chief economist and investment strategist. He
holds an A.B. degree from Rutgers College and an M.B.A. from the
University of Chicago, and is a chartered financial analyst. Mr.
Hirschhorn was responsible for managing $615 million in mutual
fund net assets at Sept. 30, 1998. William Garrison and Sandra
Knight are associate portfolio managers. Mr. Garrison joined
Stein Roe in 1989 and is a vice president. He received his A.B.
from Princeton University and an M.B.A. from the University of
Chicago. Ms. Knight is a vice president of Stein Roe, which she
joined in 1991. She earned a B.S. degree from Lawrence
Technological University and an M.B.A. from Loyola University of
Chicago.
Erik P. Gustafson has been portfolio manager of Growth Stock
Portfolio since its inception in 1997 and had managed Growth Stock
Fund since 1994. Mr. Gustafson joined Stein Roe in 1992 and is a
senior vice president. He holds a B.A. from the University of
Virginia and M.B.A. and J.D. degrees from Florida State
University. Mr. Gustafson was responsible for managing $1.4
billion in mutual fund net assets at Sept. 30, 1998.
David P. Brady has been portfolio manager of Large Company Focus
Fund since its inception in 1998 and is associate portfolio
manager of Growth Stock Fund. Mr. Brady joined Stein Roe in 1993
and is a vice president. He holds a B.S. in finance, graduating
Magna Cum Laude, from the University of Arizona and an M.B.A. from
the University of Chicago. Mr. Brady managed $767 in mutual fund
net assets as of Sept. 30, 1998.
Gloria J. Santella and Eric S. Maddix are co-portfolio managers of
Capital Opportunities Fund and Growth Opportunities Fund. Arthur
J. McQueen also co-manages Growth Opportunities Fund. They have
managed Growth Opportunities Fund since its inception in 1997.
Ms. Santella has managed Capital Opportunities Fund since 1994 and
had been co-manager since 1991. Ms. Santella is a senior vice
president of Stein Roe which she joined in 1979. She received her
B.B.A. from Loyola University and M.B.A. from the University of
Chicago. Mr. Maddix became co-manager of Capital Opportunities
Fund in 1996, and was previously associate portfolio manager. Mr.
Maddix is a vice president of Stein Roe which he joined in 1987.
He earned a B.B.A. degree from Iowa State University and M.B.A.
from the University of Chicago. Mr. McQueen joined Stein Roe in
1987 and is a senior vice president. He received a B.S. from
Villanova University and an M.B.A. from the Wharton School of the
University of Pennsylvania. As of Sept. 30, 1998, Ms. Santella and
Mr. Maddix co-managed $731 million in mutual fund net assets and
Mr. McQueen co-managed $50 million in mutual fund net assets.
The portfolio managers for Special Venture Fund since October 1998
are James P. Haynie and Michael E. Rega, who are jointly employed
by CMA and Stein Roe (each of which is an indirect wholly owned
subsidiary of Liberty Financial Companies, Inc.). Mr. Haynie has
managed or co-managed the Colonial Small Cap Value Fund since
1993. Mr. Rega has been employed by Colonial as an analyst since
1993 and has co-managed the Colonial Small Cap Value Fund and
another Colonial equity fund since 1996.
M. Gerard Sandel has been manager of Special Portfolio and senior
vice president of Stein Roe since July 1997. Prior to joining
Stein Roe, Mr. Sandel was portfolio manager of the Marshall Mid-
Cap Value Fund and its predecessor fund and vice president of M&I
Investment Management Corporation. A chartered financial analyst,
Mr. Sandel earned a B.A. from the University of Southern
Mississippi and M.A. from the American Graduate School. As of
Sept. 30, 1998, he was responsible for managing $917 million in
mutual fund net assets.
Master/Feeder Fund Structure
Unlike mutual funds that directly acquire and manage their own
portfolio of securities, Balanced Fund, Growth & Income Fund,
Growth Stock Fund, Special Fund and Special Venture Fund are
"feeder" funds in a "master/feeder" structure. This means that
the Fund invests its assets in a larger "master" portfolio of
securities (the Fund's corresponding Portfolio) that has
investment objectives and policies substantially identical to
those of the Fund. The investment performance of a Fund depends
upon the investment performance of its Portfolio. If the
investment policies of a Fund and its Portfolio became
inconsistent, the Board of Trustees of the Fund would decide what
actions to take. Actions the Board of Trustees may recommend
include withdrawal of the Fund's assets from the Portfolio. For
more information on the master/feeder fund structure, see the SAI.
Year 2000 Readiness
Like other investment companies, financial and business
organizations and individuals around the world, the Funds could be
adversely affected if the computer systems used by Stein Roe and
other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000.
This is commonly known as the "Year 2000 Problem." The Funds'
service providers are taking steps that they believe are
reasonably designed to address the Year 2000 problem, including
communicating with vendors who furnish services, software and
systems to the Funds, to provide that date-related information and
data can be properly processed after January 1, 2000. Many Fund
service providers and vendors, including the Funds' service
providers, are in the process of making Year 2000 modifications to
their software and systems and believe that such modifications
will be completed on a timely basis prior to January 1, 2000.
However, no assurances can be given that all modifications
required to ensure proper data processing and calculation on and
after January 1, 2000, will be made on a timely basis or that
services to the Funds will not be adversely affected.
<PAGE>
[BACK COVER]
FOR MORE INFORMATION
You can obtain more information about the Funds' investments in
their semiannual and annual reports to investors. These reports
discuss the market conditions and investment strategies that
affected the Funds' performance over the past six months and year.
You may wish to read the SAI for more information on the Funds.
The SAI is incorporated into this prospectus by reference, which
means that it is considered to be part of this prospectus and you
are deemed to have been told of its contents.
To obtain free copies of Funds' semiannual and annual reports or
SAI or to request other information about the Funds, write or
call:
Stein Roe Mutual Funds
One South Wacker Drive
Suite 3200
Chicago, IL 60606
800-338-2550
www.steinroe.com
Text-only versions of all Fund documents can be viewed online or
downloaded from the SEC at www.sec.gov. You can also obtain
copies by visiting the SEC's Public Reference Room in Washington,
DC, by calling 800-SEC-0330, or by sending your request and the
appropriate fee to the SEC's public reference section, Washington,
DC 20549-6009.
Liberty Funds Distributor, Inc.
Investment Company Act file number of Stein Roe Investment Trust:
811-04978
<PAGE>
[Cover Page]
Prospectus
Stein Roe International Fund
February 1, 1999
The Securities and Exchange Commission has not approved any Fund
shares as an investment or determined whether this prospectus is
accurate or complete. Anyone who tells you otherwise is
committing a crime.
<PAGE>
Stein Roe International Fund
Please keep this prospectus as your reference manual.
<PAGE>
TABLE OF CONTENTS
The Fund
Investment Goals
Principal Investment Strategy
Principal Investment Risks
Fund Performance
Your Expenses
Financial Highlights
Your Account
Purchasing Shares
Opening an Account
Determining Share Price (NAV)
Selling Shares
Exchanging Shares
Dividends and Distributions
Other Investments and Risks
Diversification
Foreign Currency Transactions
Portfolio Turnover
Temporary Defensive Positions
Interfund Lending Program
The Fund's Management
Investment Adviser
Portfolio Manager
Master/Feeder Fund Structure
Year 2000 Readiness
<PAGE>
THE FUND
Investment Goals
Stein Roe International Fund seeks long-term growth.
Principal Investment Strategy
The Fund invests all of its assets in SR&F International Portfolio
as part of a master fund/feeder fund structure. The Portfolio
invests in the stocks of large foreign companies, defined as those
companies with market capitalizations of at least $1 billion. It
seeks broad diversification, both in terms of countries and
issuers. To select stocks, the portfolio manager uses a three-
step process. First, she identifies attractive countries by
evaluating the relative valuation and earnings growth prospects of
a particular country's overall stock market. Next, the portfolio
manager reviews currencies in relation to the U.S. dollar.
Finally, she selects stocks within countries and industry sectors
she believes will increase in price as the market recognizes their
value.
Principal Investment Risks
There are two basic risks for all mutual funds that invest in
stocks: management risk and market risk. These risks tend to be
greater when investing overseas. These risks may cause you to
lose money when you sell your shares.
[Callout]
What are market and management risks? Management risk means that
Stein Roe's stock picking and other investment decisions might
produce losses or cause the Fund to underperform when compared to
other funds with similar goals. Market risk means that security
prices in a market, sector or industry may move down. Downward
movements reduce the value of your investment. The Fund may not
achieve its investment goal or may underperform compared to
competing funds due to either or both of these principal risks.
Because the Portfolio invests in stocks, the price of the Fund's
shares-its net asset value per share (NAV)-fluctuates daily in
response to changes in the market value of the securities. In
addition, the risks associated with its investment strategy may
cause the Fund's total return or yield to decrease.
The Portfolio's focus on certain market sectors may increase
volatility in the Fund's NAV. If sectors that the Portfolio
invests in do not perform well, the Fund's NAV could decrease.
Foreign Securities
The Portfolio invests either directly or indirectly (depositary
receipts) in foreign markets. There are special risks associated
with foreign investing. Foreign stock markets, especially in
countries with developing markets, can be extremely volatile and
less liquid than domestic markets. If a foreign country,
especially a country with a developing market, is not ready for
the Year 2000, the ability to buy and sell securities in that
country could be impacted.
Currency exchange rates will affect the U.S. dollar value of the
Portfolio's foreign stocks. Most of the stocks the Fund owns are
traded and settled in a foreign currency. The Portfolio also
incurs costs when it buys and sells foreign currencies. If the
foreign currency looses value against the dollar, the Fund's
investment may be worth less in dollar terms even if the stock's
value has grown in local terms. In addition, foreign security
transactions may be more costly due to higher brokerage and
custodial costs.
The prices of foreign securities may fluctuate substantially more
than the prices of U.S. securities because the price of a foreign
stock may depend on issues other than the performance of the
particular company. Foreign stocks, especially those of emerging
markets, are subject to political and economic risks such as
possible delays in settlement, the existence of less liquid
markets, the unavailability of reliable information about issuers,
the existence of exchange control regulations, political and
economic instability, immature economic structures, different
legal systems, and the possible seizure, expropriation or
nationalization of a company or its assets. In some foreign
markets, there may not be protection or legal recourse against
failure by other parties to complete transactions.
For more information on the Portfolio's investment techniques,
please refer to "Other Investments and Risks."
Who Should Invest in the Fund?
You may want to invest in the Fund if you:
* are a long-term investor and can afford to lose money on your
investment
* are interested in investing in companies throughout the world
and can tolerate the greater share price volatility that
accompanies international investing
* want an international fund that is broadly diversified among
countries and companies
The Fund is not appropriate for investors who:
* can't tolerate volatility or possible losses
* are saving for a short-term goal
* need regular current income
An investment in the Fund is not a bank deposit and is not FDIC-
insured. It is not a complete investment program, and you can
lose money by investing in the Fund.
Fund Performance
The following charts show the Fund's performance. The returns
include the reinvestment of dividends and distributions. As with
all mutual funds, past performance is no guarantee of future
results.
Year-by-Year Total Returns
Year-by-year calendar returns show the Fund's volatility over a
period of time. This chart illustrates performance differences
for each calendar year and provides an indication of the result of
investing in the Fund.
<PAGE>
YEAR-BY-YEAR TOTAL RETURNS-
INTERNATIONAL FUND
30%
25%
20%
15%
10%
5% 8.35%
0% 3.89%
[5%] -3.51%
1995 1996 1997 1998
best quarter: 1st quarter 1998, +15.60%; worst quarter: 3rd
quarter 1998, -16.80%
Average Annual Total Returns
Average annual total returns measure the Fund's performance over
time and reflect Fund expenses.
We compare the Fund's returns with returns for the MSCI EAFE
Index, which is a broad measure of international market
performance, and the Fund's peer group as defined by Lipper
Analytical Services, Inc., a monitor of mutual fund performance
We show returns for calendar years to be consistent with the way
other mutual funds report performance in their prospectuses. This
allows you to accurately compare similar mutual fund investments.
AVERAGE ANNUAL TOTAL RETURNS
Period ended December 31, 1998
1 yr 5 yr
International Fund
MSCI EAFE Index
Lipper International Fund
Peer Group
Your Expenses
You do not pay any sales charge when you purchase or sell your
shares.(a) However, you pay various other indirect expenses
because the Fund or the Portfolio pays fees and other expenses
that reduce your investment return.
ANNUAL FUND OPERATING EXPENSES(b)
(paid directly by the Fund)
Management fees 1.00%
Distribution 12b-1 fees None
Other Expenses 0.53%
-----
Total Annual Fund Operating Expenses 1.53%
=====
(a) There is a $7 charge for wiring redemption proceeds to your
bank.
(b) A fee of $5 per quarter may be charged to accounts that fall
below the required minimum balance.
(c) Annual fund operating expenses consist of Fund expenses plus
the Fund's share of the expenses of the Portfolio.
Expense Example
This example compares the cost of investing in the Fund to the
cost of investing in a similar mutual fund. It uses the same
hypothetical assumptions that other funds use in their
prospectuses:
* $10,000 initial investment
* 5 percent total return each year
* the Fund's operating expenses remain constant as a percent of
net assets
* redemption at the end of each time period
Your actual costs may be higher or lower because in reality Fund
returns and operating expenses change. Expenses based on these
assumptions are:
EXPENSE EXAMPLE
1 yr 3 yrs 5 yrs 10 yrs
International Fund $156 $483 $834 $1,824
Expense Comparison
This scale shows how the Fund's total annual expenses compare to
the average fund in its Lipper fund peer group for direct-marketed
funds only.
EXPENSE COMPARISON
[**]
1% 2% 3% 4%
[*] 1.53%
[*] International Fund [**] Lipper International Fund Peer Group
UNDERSTANDING EXPENSES
Fund expenses include management fees and administrative costs.
Administrative costs cover items such as furnishing the Fund with
offices, bookkeeping services and pricing services.
FINANCIAL HIGHLIGHTS
The financial highlights table explains the Fund's financial
performance. Consistent with other mutual funds, we show
information for the last five fiscal years or for the period of
the Fund's operations (if shorter). The Fund's fiscal year runs
from October 1 to September 30. The total returns in the table
represent the return that investors earned assuming that they
reinvested all dividends and distributions. Arthur Andersen LLP,
an international public accounting firm, audits this information
and issues a report that appears in the Fund's annual report along
with the financial statements. To request the annual report,
please call 800-338-2550.
<PAGE>
International Fund Per Share Data
<TABLE>
<CAPTION>
Year ended September 30,
1998 1997 1996 1995 1994(a)
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $10.96 $10.25 $10.61 $10.00
------- ------ ------ ------ ------
Income from Investment Operations
Net investment income 0.06 0.09 0.12 0.03
Net gains on securities (both
realized and unrealized) 0.99 0.74 (0.26) 0.58
------- ------ ------ ------ ------
Total income from investment
operations 1.05 0.83 (0.14) 0.61
------- ------ ------ ------ ------
Less distributions
Dividends (from net investment
income) (0.08) (0.12) (0.05) -
Distributions (from capital gains) (0.14) - (0.17) -
------- ------ ------ ------ ------
Total Distributions (0.22) (0.12) (0.22) -
------- ------ ------ ------ ------
Net Asset Value, End of Period $11.79 $10.96 $10.25 $10.61
======= ====== ====== ====== ======
Total return 9.84% 8.23% (1.28%) 6.10%
Ratios/Supplemental Data
Net assets, end of period (000
omitted) $166,088 $135,545 $83,020 $74,817
Ratio of net expenses to average
net assets 1.55% 1.51% 1.59% *1.61%
Ratio of net investment income
to average net assets 0.55% 1.01% 1.41% *0.61%
Portfolio turnover rate 11%(b) 42% 59% 48%
<FN>
_____________________
(a) From commencement of operation on March 1, 1994.
(b) Prior to commencement of operations of the Portfolio.
(c) Computed with the effect of Stein Roe's expense reimbursement.
(d) These percentages are for periods of less than one year. They
have been converted to an annual basis making it easier to
compare to prior years.
(e) Foreign commissions usually are lower than U.S. commissions
when expressed as cents per share due to the lower per share
price of many non-U.S. securities.
</TABLE>
YOUR ACCOUNT
Purchasing Shares
You may purchase shares of the Fund without a sales charge. Your
purchases are made at the NAV next determined after the Fund
receives your check, wire transfer or electronic transfer. If the
Fund receives your check, wire transfer or electronic transfer
after the close of regular trading on the New York Stock Exchange
(NYSE) (normally 3 p.m. Central time), your purchase is effective
on the next business day. If you participate in the Stein Roe
Counselor [service mark] program or are a client of Stein Roe &
Farnham Private Capital Management, the minimum initial investment
is determined by those programs.
ACCOUNT MINIMUMS
ACCOUNT MINIMUMS
Minimum to Minimum Minimum
Type of Account Open an Account Addition Balance
- -------------------------------------------------------------
Regular $2,500 $100 $1,000
Custodial (UGMA/UTMA) 1,000 100 1,000
Automatic Investment Plan 100 50 --
Roth and Traditional IRA 500 50 500
Educational IRA 500 50 500
OPENING OR ADDING TO AN ACCOUNT
BY MAIL: OPENING AN ACCOUNT
Complete the application.
Make check payable to Stein Roe Mutual Funds.
Mail application and check to:
SteinRoe Services Inc.
P.O. Box 8900
Boston, MA 02205
If you participate in the Stein Roe Counselor
[service mark] program, mail application and check
to:
SteinRoe Services Inc.
P.O. Box 803938
Chicago, IL 60680
ADDING TO AN ACCOUNT
Make check payable to Stein Roe Mutual Funds. Be
sure to include your account number on the check.
Fill out investment slip (stub from your statement or
confirmation) or a note indicating amount of
purchase, your account number, and the name in which
your account is registered.
Mail check with investment slip or note to the
appropriate address on the left.
BY WIRE: OPENING AN ACCOUNT
Mail your application to the appropriate address
listed above, then call 800-338-2550 to obtain an
account number. Include your Social Security number.
Wire funds using the instructions on the right.
ADDING TO AN ACCOUNT
Wire funds to:
First National Bank of Boston
ABA: 011000390
Attn.: SSI, Account No. 560-99696
Fund No. 12; Stein Roe International Fund
Your name (exactly as in the registration)
Account number
(Counselor Account No. if you participate in the
Counselor [service mark] program)
BY ELECTRONIC FUNDS TRANSFER:
OPENING AN ACCOUNT
You cannot open a new account via electronic
transfer.
ADDING TO AN ACCOUNT
Call 800-338-2550 to make your purchase. To set up
prescheduled purchases, be sure to elect the
Automatic Investment Plan option on your application.
BY EXCHANGE: OPENING AN ACCOUNT
By mail, phone, in person or automatically (be sure
to elect the Automatic Exchange Privilege on your
application).
ADDING TO AN ACCOUNT
By mail, phone, in person or automatically (be sure
to elect the Automatic Exchange Privilege on your
application).
THROUGH AN INTERMEDIARY:
OPENING AN ACCOUNT
Contact your financial professional.
ADDING TO AN ACCOUNT
Contact your financial professional.
All checks must be made payable in U. S. dollars and drawn on U. S
banks. Third-party checks will not be accepted. Money orders or
cashiers' checks will not be accepted for initial purchases.
Conditions of Purchase
An order to purchase Fund shares is not binding unless and until
an authorized officer, agent or designee of the Fund accepts and
enters it on the Fund's books. Once we accept your purchase
order, you may not cancel or revoke it; however, you may redeem
your shares. The Fund may reject any purchase order if it
determines that the order is not in the best interests of the Fund
and its shareholders. The Fund may waive or lower its investment
minimums for any reason.
Purchases through Third Parties
If you purchase Fund shares through certain broker-dealers, banks
or other intermediaries (intermediaries), they may charge a fee
for their services. They may also place limits on your ability to
use services the Fund offers. There are no charges or limitations
if you purchase shares directly from the Fund, except those fees
described in this prospectus.
If an intermediary is an agent or designee of the Fund, orders are
processed at the NAV next calculated after the intermediary
receives the order. The intermediary must segregate any orders it
receives after the close of regular trading on the NYSE and
transmit those orders separately for execution at the NAV next
determined.
Determining Share Price
The Fund's purchase or redemption price is its NAV next
determined. NAV is the difference between the values of the
Fund's assets and liabilities divided by the number of shares
outstanding. We determine NAV at the close of regular trading on
the NYSE (normally 3 p.m. Central time). If you place an order
after that time, you receive the share price determined on the
next business day.
In computing the net asset value, the values of portfolio
securities are generally based upon market quotations. Depending
upon local convention or regulation, these market quotations may
be the last sale price, last bid or asked price, or the mean
between the last bid and asked prices as of, in each case, the
close of the appropriate exchange or other designated time.
Trading in securities on European and Far Eastern securities
exchanges and over-the-counter markets is normally completed at
various times before the close of business on each day that the
NYSE is open. Trading of these securities may not take place on
every NYSE business day. Foreign securities may trade on days
when the NYSE is closed and we do not calculate NAV. You will not
be able to purchase or redeem shares until the next NYSE-trading
day. Shares will not be priced on days on which the NYSE is
closed for trading.
We value a security at fair value when events have occurred after
the close of the market that materially affect the security's
price. In this circumstance, we use fair value pricing to protect
long-term investors from the actions of short-term investors who
might buy or redeem shares in an attempt to profit from short-term
market movements.
Selling Shares
You may sell your shares any day the Fund is open for business.
Please follow the instructions below.
SELLING SHARES
By Mail: Send a letter of instruction, in English, including
your account number and the dollar value or number of
shares you wish to sell. Sign the request exactly as
the account is registered. Be sure to include a
signature guarantee. All supporting legal documents
as required from executors, trustees, administrators,
or others acting on accounts not registered in their
names, must accompany the request. We will send the
check sent to your registered address.
By Phone: This feature is automatically added to your account
unless you decline this feature on your application.
application to decline this feature. Call
800-338-2550 to redeem an amount of $1,000 or more.
We will send the check sent to your registered
address.
By Wire: Fill out the appropriate areas of the account
application for this feature. Proceeds of $1,000 or
more ($100,000 maximum) may be wired to your pre-
designated bank account. Call 800-338-2550 to give
instructions to Stein Roe. There is a $7 charge for
wiring redemption proceeds to your bank.
By Electronic Transfer:
Fill out the appropriate areas of the account
application for this feature. To request an
electronic transfer (not less than $50; not more than
$100,000), call 800-338-2550. We will transfer your
sale proceeds electronically to your bank. The
bank must be a member of the Automated Clearing
House.
By Exchange: Call 800-338-2550 to exchange any portion of your
Fund shares for shares in any other Stein Roe no-load
fund.
By Automatic Exchange:
Fill out the appropriate areas of the account
application for this feature. Redeem a fixed amount
on a regular basis (not less than $50 per month, not
more than $100,000) from the Fund for investment in
another Stein Roe no-load fund.
What You Need to Know When Selling Shares
Once we receive and accept your order to sell shares, you may not
cancel or revoke it. We cannot accept an order to sell that
specifies a particular date or price or any other special
conditions. If you have any questions about the requirements for
selling your shares, please call 800-338-2550 before submitting
your order.
The Fund redeems shares at the NAV next determined after an order
has been accepted. We mail the proceeds within seven days after
the sale. The Fund normally pays wire redemption or electronic
transfer proceeds on the next business day.
We will not pay sale proceeds until your shares are paid for. If
you attempt to sell shares purchased by check or electronic
transfer within 15 days of the purchase date, we will delay
sending the sale proceeds until we can verify that those shares
are paid for. You may avoid this delay by purchasing shares by a
federal funds wire.
We use procedures reasonably designed to confirm that telephone
instructions are genuine. These include recording the
conversation, testing the identity of the caller by asking for
account information, and sending prompt written confirmation of
the transaction to the shareholder of record. If these procedures
are followed, the Fund and its service providers will not be
liable for any losses due to unauthorized or fraudulent
instructions.
If the amount you redeem is large enough to affect the Fund's
operation, the Fund may pay the redemption "in kind." This is
payment in portfolio securities rather than cash. If this occurs,
you may incur transaction costs when you sell the securities.
Involuntary Redemption
If your account value falls below $1,000,the Fund may redeem your
shares and send the proceeds to the registered address. You will
receive notice 30 days before this happens. If your account falls
below $10, the Fund may redeem your shares without notice to you.
Low Balance Fee
If your account balance falls below $1,800, you will be charged a
low balance fee of $5 per quarter.
Exchanging Shares
You may exchange Fund shares for shares of other Stein Roe no-load
funds. Call 800-338-2550 to request a prospectus and application
for the fund you wish to exchange into. Please be sure to read
the prospectus carefully before you exchange your shares.
The registration of the account you exchange into must be exactly
the same as the account you exchange from. You must meet all
investment minimum requirements for the fund you wish to exchange
into before we can process your exchange transaction.
An exchange is a redemption and purchase of shares for tax
purposes, and you may realize a gain or a loss when you exchange
Fund shares for shares of another fund.
We may change, suspend or eliminate the exchange service after
notification to you.
Generally, we limit you to four telephone exchange "roundtrips"
per year. A roundtrip is an exchange out of the Fund into another
Stein Roe no-load fund and then back to that Fund.
Dividends and Distributions
The Fund distributes, at least once a year, virtually all of its
net investment income and net realized capital gains.
A dividend from net investment income represents the income the
Fund earns from dividends and interest paid on its investments,
after payment of the Fund's expenses.
A capital gain is the increase in value of a security that the
Fund holds. The gain is "unrealized" until the security is sold.
Each realized capital gain is either short-term or long-term
depending on whether the Fund held the security for less than or
more than one year, regardless of how long you have held your Fund
shares.
When the Fund makes a distribution of income or capital gains, the
distribution is automatically invested in additional shares of
that Fund unless you elect on the account application to have
distributions paid by check.
OPTIONS FOR RECEIVING DISTRIBUTION AND REDEMPTION PROCEEDS:
* by check
* by electronic transfer into your bank account
* a purchase of shares of another Stein Roe fund
* a purchase of shares in a Stein Roe fund account of another
person
If you elect to receive distributions by check and a distribution
check is returned to the Fund as undeliverable, or if you do not
present a distribution check for payment within six months, we
will change the distribution option on your account and reinvest
the proceeds of the check in additional shares of that Fund. You
will not receive any interest on amounts represented by uncashed
distribution or redemption checks.
Tax Consequences
You are subject to federal income tax on both dividends and
capital gains distributions whether you elect to receive them in
cash or reinvest them in additional Fund shares. If the Fund
declares a distribution in December, but does not pay it until
after December 31, you will be taxed as if the distribution were
paid in December. Stein Roe will process your distributions and
send you a statement for tax purposes each year showing the source
of distributions for the preceding year.
TRANSACTION TAX STATUS
Income dividend Ordinary income
Short-term capital gain distribution Ordinary income
Long-term capital gain distribution Capital gain
Sale of shares owned less than Gain is ordinary income;
one year loss is subject to
special rules
Sale of shares owned more than one year Capital gain or loss
If you sell or exchange your shares, any gain or loss is a taxable
event. You also may be subject to state and local income taxes on
dividends or capital gains from the sale or exchange of Fund
shares.
This tax information provides only a general overview. It does
not apply if you invest in a tax-deferred retirement account such
as an IRA. Please consult your own tax advisor about the tax
consequences of an investment in the Fund.
If you have any account questions, you may call 800-338-2550. We
are here seven days a week to help you.
OTHER INVESTMENTS AND RISKS
The primary investment strategies and risks are described above.
(See "The Fund.") The Statement of Additional Information (SAI)
describe other investments that the Portfolio may make and risks
associated with them. The investment objective can be changed by
the Board of Trustees without shareholder approval.
The Fund's portfolio managers generally make decisions on buying
and selling portfolio investments based upon their judgment that
the decision will improve the Fund's investment return and further
its investment goal. The portfolio managers also may be required
to sell portfolio investments to fund redemptions.
Diversification
The Portfolio diversifies its investments across many different
countries. While the Portfolio has no geographic asset
distribution limits, it ordinarily concentrates on Western
European countries (such as Belgium, France, Germany, Ireland,
Italy, The Netherlands, the countries of Scandinavia, Spain,
Switzerland, and the United Kingdom); countries in the Pacific
Basin (such as Australia, Hong Kong, Japan, Malaysia, the
Philippines, Singapore, and Thailand); and countries in Latin
America (such as Argentina, Brazil, Colombia, and Mexico). In
addition, it does not currently intend to invest more than 2
percent of its total assets in Russian securities. As of Sept.
30, 1998, the Portfolio had more than 5 percent of its total
assets in each of the following countries:
Percentage of
Countries Total Assets
-------------- --------------
France 12.4%
Germany 12.2
United Kingdom 12.1
Japan 11.8
Italy 10.0
Finland 7.0
Netherlands 6.3
Foreign Currency Transactions
The Portfolio engages in a variety of foreign currency
transactions. It may buy and sell foreign currencies on a spot or
forward basis. It may buy and sell foreign currency futures
contracts. It also may buy and sell options on foreign currencies
and foreign currency futures. The Portfolio uses these
transactions for two primary purposes. First, the Portfolio may
seek to lock in a particular foreign exchange rate for the
settlement of a purchase or sale of a foreign security or for the
receipt of interest, principal or dividend payments on a foreign
security the Portfolio holds. Second, the Portfolio may seek to
hedge against a decline in the value, in U.S. dollars or in
another currency, of a foreign currency in which securities held
by the Portfolio are denominated. These hedging techniques limit
the potential gain to the Portfolio from currency value increases.
Portfolio Turnover
Although the Portfolio does not buy securities with a view toward
rapid turnover, there are no limits on turnover. Turnover may
vary significantly from year to year. Stein Roe does not expect
it to exceed 100 percent under normal conditions. Portfolio
turnover typically produces capital gains or losses resulting in
tax consequences for Fund investors. It also increases
transaction expenses, which reduce the Fund's return.
Temporary Defensive Positions
When Stein Roe believes that a temporary defensive position is
necessary, the Portfolio may hold cash or invest any portion of
its assets in securities of the U.S. Government and equity and
debt securities of U.S. companies, as a temporary defensive
strategy. To meet liquidity needs, the Portfolio may also hold
cash in domestic and foreign currencies and invest in domestic and
foreign money market securities (including repurchase agreements
and foreign money market positions). Stein Roe is not required to
take a temporary defensive position, and market conditions may
prevent such an action. The Fund may not achieve its investment
objective if it takes a defensive position.
Interfund Lending Program
The Fund and Portfolio may lend money to and borrow money from
other funds advised by Stein Roe. They will do so when Stein Roe
believes such lending or borrowing is necessary and appropriate.
Borrowing costs will be the same as or lower than the costs of a
bank loan.
THE FUND'S MANAGEMENT
Investment Adviser
Stein Roe & Farnham Incorporated, One South Wacker Drive, Chicago,
IL 60606, manages the day-to-day operations of the Fund and the
Portfolio. Stein Roe (and its predecessor) has advised and
managed mutual funds since 1949. As of September 30, 1998, Stein
Roe managed over $28 billion in assets. For the fiscal year ended
September 30, 1998, aggregate fees paid by the Fund to Stein Roe
amounted to 1.00% percent of average net assets.
Stein Roe's mutual funds and institutional asset management
businesses are managed together with those of its affiliate,
Colonial Management Associates, Inc. ("CMA"). A single management
team includes employees of each company. CMA is a registered
investment adviser serving mutual funds and institutions. Certain
officers of CMA also are officers of Stein Roe in their roles as
managers of the combined business. CMA shares personnel,
facilities and systems with Stein Roe that Stein Roe uses in
providing services to the Fund.
Portfolio Manager
Effective October 1998, the portfolio manager is Gita R. Rao who
is jointly employed by CMA and Stein Roe (each of which is an
indirect wholly owned subsidiary of Liberty Financial Companies,
Inc.). Ms. Rao has co-managed the Colonial Global Equity Fund and
the Colonial International Horizons Fund since 1996. Prior to
joining the CMA in 1995, Ms. Rao was a quantitative research
analyst at Fidelity Management & Research Company, and a Vice
President in the equity research group at Kidder, Peabody and
Company.
Master/Feeder Fund Structure
Unlike mutual funds that directly acquire and manage their own
portfolio of securities, the Fund is a "feeder" fund in a
"master/feeder" structure. This means that the Fund invests its
assets in a larger "master" portfolio of securities (the
Portfolio) that has investment objectives and policies
substantially identical to those of the Fund. The investment
performance of the Fund depends upon the investment performance of
the Portfolio. If the investment policies of the Fund and the
Portfolio became inconsistent, the Board of Trustees of the Fund
would decide what actions to take. Actions the Board of Trustees
may recommend include withdrawal of the Fund's assets from the
Portfolio. For more information on the master/feeder fund
structure, see the SAI.
Year 2000 Readiness
Like other investment companies, financial and business
organizations and individuals around the world, the Fund could be
adversely affected if the computer systems used by Stein Roe and
other service providers do not properly process and calculate
date-related information and data from and after January 1, 2000.
This is commonly known as the "Year 2000 Problem." The Fund's
service providers are taking steps that they believe are
reasonably designed to address the Year 2000 problem, including
communicating with vendors who furnish services, software and
systems to the Fund, to provide that date-related information and
data can be properly processed after January 1, 2000. Many Fund
service providers and vendors, including the Fund's service
providers, are in the process of making Year 2000 modifications to
their software and systems and believe that such modifications
will be completed on a timely basis prior to January 1, 2000.
However, no assurances can be given that all modifications
required to ensure proper data processing and calculation on and
after January 1, 2000, will be made on a timely basis or that
services to the Fund will not be adversely affected.
<PAGE>
[BACK COVER]
FOR MORE INFORMATION
You can obtain more information about the Fund's investments in
their semiannual and annual reports to investors. These reports
discuss the market conditions and investment strategies that
affected the Fund's performance over the past six months and year.
You may wish to read the SAI for more information on the Fund.
The SAI is incorporated into this prospectus by reference, which
means that it is considered to be part of this prospectus and you
are deemed to have been told of its contents.
You can obtain free copies of the Fund's semiannual and annual
reports and the SAI, request other information, and discuss your
questions about the Fund by writing or calling:
Stein Roe Mutual Funds
One South Wacker Drive
Suite 3200
Chicago, IL 60606
800-338-2550
www.steinroe.com
Text-only versions of all Fund documents can be viewed online or
downloaded from the SEC at www.sec.gov. You can also obtain
copies by visiting the SEC's Public Reference Room in Washington,
DC, by calling 800-SEC-0330, or by sending your request and the
appropriate fee to the SEC's public reference section, Washington,
DC 20549-6009.
Liberty Funds Distributor, Inc.
Investment Company Act file number of Stein Roe Investment Trust:
811-04978
<PAGE>
Statement of Additional Information Dated Feb. 1, 1999
STEIN ROE INVESTMENT TRUST
Suite 3200, One South Wacker Drive, Chicago, IL 60606
800-338-2550
BALANCED FUND
Stein Roe Balanced Fund
GROWTH AND INCOME FUND
Stein Roe Growth & Income Fund
GROWTH FUNDS
Stein Roe Growth Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
Stein Roe Growth Opportunities Fund
Stein Roe Large Company Focus Fund
Stein Roe International Fund
Stein Roe Special Venture Fund
This Statement of Additional Information ("SAI") is not a
prospectus, but provides additional information that should be
read in conjunction with the Funds' prospectuses dated Feb. 1,
1999, and any supplements thereto ("Prospectuses"). Financial
statements, which are contained in the Funds' Annual Reports, are
incorporated by reference into this SAI. The Prospectuses and
Annual Reports may be obtained at no charge by telephoning 800-
338-2550.
TABLE OF CONTENTS
Page
General Information and History.............................2
Investment Policies.........................................4
Balanced Fund............................................4
Growth & Income Fund.....................................4
Growth Stock Fund........................................5
Special Fund.............................................5
Large Company Focus Fund.................................5
Growth Opportunities Fund................................6
Special Venture Fund.....................................6
Capital Opportunities Fund...............................7
International Fund.......................................7
Portfolio Investments and Strategies........................8
Investment Restrictions....................................26
Additional Investment Considerations.......................29
Purchases and Redemptions..................................29
Management.................................................34
Financial Statements.......................................38
Principal Shareholders.....................................38
Investment Advisory and Other Services.....................39
Distributor................................................42
Transfer Agent.............................................42
Custodian..................................................43
Independent Public Accountants.............................43
Portfolio Transactions.....................................44
Additional Income Tax Considerations.......................46
Investment Performance.....................................48
Master Fund/Feeder Fund: Structure and Risk Factors........52
Appendix-Ratings...........................................54
GENERAL INFORMATION AND HISTORY
The mutual funds described in this SAI are the following
separate series of Stein Roe Investment Trust (the "Trust"):
Stein Roe Growth & Income Fund ("Growth & Income Fund")
Stein Roe Balanced Fund ("Balanced Fund")
Stein Roe Growth Stock Fund ("Growth Stock Fund")
Stein Roe Special Fund ("Special Fund")
SteinRoe Large Company Focus Fund ("Large Company Focus Fund")
Stein Roe Special Venture Fund ("Special Venture Fund")
Stein Roe Capital Opportunities Fund ("Capital Opportunities
Fund")
Stein Roe Growth Opportunities Fund ("Growth Opportunities
Fund")
Stein Roe International Fund ("International Fund")
The above series are referred to collectively as "the Funds."
On Feb. 1, 1996, the names of the Trust and each then-existing
Fund were changed to separate "SteinRoe" into two words. Prior to
Feb. 1, 1995, the name of Stein Roe Growth Stock Fund was SteinRoe
Stock Fund; prior to Feb. 1, 1996, Stein Roe Growth & Income Fund
was named SteinRoe Prime Equities; and prior to Apr. 17, 1996, the
name of Stein Roe Balanced Fund was Stein Roe Total Return Fund.
The Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of Trust")
dated Jan. 8, 1987, which provides that each shareholder shall be
deemed to have agreed to be bound by the terms thereof. The
Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, 12 series are authorized and outstanding.
Each series invests in a separate portfolio of securities and
other assets, with its own objectives and policies.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as the Trust could, in some circumstances, be
held personally liable for unsatisfied obligations of the trust.
The Declaration of Trust provides that persons extending credit
to, contracting with, or having any claim against the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, trustees and officers shall have
no personal liability therefor. The Declaration of Trust requires
that notice of such disclaimer of liability be given in each
contract, instrument or undertaking executed or made on behalf of
the Trust. The Declaration of Trust provides for indemnification
of any shareholder against any loss and expense arising from
personal liability solely by reason of being or having been a
shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is believed to be remote,
because it would be limited to circumstances in which the
disclaimer was inoperative and the Trust was unable to meet its
obligations. The risk of a particular series incurring financial
loss on account of unsatisfied liability of another series of the
Trust also is believed to be remote, because it would be limited
to claims to which the disclaimer did not apply and to
circumstances in which the other series was unable to meet its
obligations.
Each share of a series, without par value, is entitled to
participate pro rata in any dividends and other distributions
declared by the Board on shares of that series, and all shares of
a series have equal rights in the event of liquidation of that
series. Each whole share (or fractional share) outstanding on the
record date established in accordance with the By-Laws shall be
entitled to a number of votes on any matter on which it is
entitled to vote equal to the net asset value of the share (or
fractional share) in United States dollars determined at the close
of business on the record date (for example, a share having a net
asset value of $10.50 would be entitled to 10.5 votes). As a
business trust, the Trust is not required to hold annual
shareholder meetings. However, special meetings may be called for
purposes such as electing or removing trustees, changing
fundamental policies, or approving an investment advisory
contract. If requested to do so by the holders of at least 10% of
its outstanding shares, the Trust will call a special meeting for
the purpose of voting upon the question of removal of a trustee or
trustees and will assist in the communications with other
shareholders as if the Trust were subject to Section 16(c) of the
Investment Company Act of 1940. All shares of all series of the
Trust are voted together in the election of trustees. On any
other matter submitted to a vote of shareholders, shares are voted
in the aggregate and not by individual series, except that shares
are voted by individual series when required by the Investment
Company Act of 1940 or other applicable law, or when the Board of
Trustees determines that the matter affects only the interests of
one or more series, in which case shareholders of the unaffected
series are not entitled to vote on such matters.
Special Considerations Regarding Master Fund/Feeder Fund Structure
Rather than invest in securities directly, certain of the
Funds seek to achieve their objectives by pooling their assets
with those of other investment companies for investment in a
master fund having the identical investment objective and
substantially the same investment policies as its feeder funds.
The purpose of such an arrangement is to achieve greater
operational efficiencies and reduce costs. Each feeder Fund has
invested all of its net investable assets in a separate master
fund that is a series of SR&F Base Trust since Feb. 3, 1997, as
follows:
Feeder Fund Master Fund
Growth & Income Fund SR&F Growth & Income Portfolio ("Growth &
Income Portfolio")
Balanced Fund SR&F Balanced Portfolio ("Balanced
Portfolio")
Growth Stock Fund SR&F Growth Stock Portfolio ("Growth Stock
Portfolio")
Special Fund SR&F Special Portfolio ("Special Portfolio")
Special Venture Fund SR&F Special Venture Portfolio ("Special
Venture Portfolio")
International Fund SR&F International Portfolio ("International
Portfolio")
The master funds are referred to collectively as the
"Portfolios." For more information, please refer to Master
Fund/Feeder Fund: Structure and Risk Factors. Large Company Focus
Fund, Capital Opportunities Fund, and Growth Opportunities Fund
may convert into feeder funds at some time in the future.
Stein Roe & Farnham Incorporated ("Stein Roe") provides
administrative and accounting and recordkeeping services to the
Funds and Portfolios and provides investment management services
to each Portfolio, Large Company Focus Fund, Capital Opportunities
Fund, and Growth Opportunities Fund.
INVESTMENT POLICIES
The Trust and SR&F Base Trust are open-end management
investment companies. The Funds and the Portfolios are
diversified, as that term is defined in the Investment Company Act
of 1940.
In pursuing its respective objective, each Fund or Portfolio
will invest as described in the section below and may employ the
investment techniques described in its Prospectus and Portfolio
Investments and Strategies in this SAI. Each investment objective
is a non-fundamental policy and may be changed by the Board of
Trustees without the approval of a "majority of the outstanding
voting securities."/1/
- ----------------
/1/ A "majority of the outstanding voting securities" means the
approval of the lesser of (i) 67% or more of the shares at a
meeting if the holders of more than 50% of the outstanding shares
are present or represented by proxy or (ii) more than 50% of the
outstanding shares.
- ----------------
Balanced Fund
Balanced Fund seeks to achieve its objective by investing in
Balanced Portfolio. Their common investment objective is to seek
long-term growth of capital and current income, consistent with
reasonable investment risk. Balanced Portfolio allocates its
investments among equities, debt securities and cash. The
portfolio manager determines those allocations based on the views
of Stein Roe's investment strategists regarding economic, market
and other factors relative to investment opportunities.
The equity portion of Balanced Portfolio is invested
primarily in well-established companies having market
capitalizations in excess of $1 billion. Fixed income senior
securities will make up at least 25% of Balanced Portfolio's total
assets. Investments in debt securities are limited to those that
are within the four highest grades (generally referred to as
"investment grade") assigned by a nationally recognized
statistical rating organization or, if unrated, determined by
Stein Roe to be of comparable quality.
Growth & Income Fund
Growth & Income Fund seeks to achieve its objective by
investing in Growth & Income Portfolio. Their common investment
objective is to provide both growth of capital and current income.
Growth & Income Fund is designed for investors seeking a
diversified portfolio of securities that offers the opportunity
for long-term growth of capital while also providing a steady
stream of income. Growth & Income Portfolio invests primarily in
well-established companies whose common stocks are believed to
have the potential both to appreciate in value and to pay
dividends to shareholders.
Although it may invest in a broad range of securities
(including common stocks, preferred stocks, securities convertible
into or exchangeable for common stocks, and warrants or rights to
purchase common stocks), normally Growth & Income Portfolio
emphasizes investments in equity securities of companies having
market capitalizations in excess of $1 billion. Securities of
these well-established companies are believed to be generally less
volatile than those of companies with smaller capitalizations
because companies with larger capitalizations tend to have
experienced management; broad, highly diversified product lines;
deep resources; and easy access to credit.
Growth Stock Fund
Growth Stock Fund seeks to achieve its objective by investing
in Growth Stock Portfolio. Their common investment objective is
long-term capital appreciation. Growth Stock Portfolio attempts
to achieve its objective by normally investing at least 65% of its
total assets in common stocks and other equity-type securities
(such as preferred stocks, securities convertible into or
exchangeable for common stocks, and warrants or rights to purchase
common stocks) that, in the opinion of Stein Roe, have long-term
appreciation possibilities.
Special Fund
Special Fund seeks to achieve its objective by investing in
Special Portfolio. Their common investment objective is to invest
in securities selected for possible capital appreciation.
Particular emphasis is placed on securities that are considered to
have limited downside risk relative to their potential for above-
average growth, including securities of undervalued, underfollowed
or out-of-favor companies, and companies that are low-cost
producers of goods or services, financially strong or run by well-
respected managers. Special Portfolio may invest more than 5% of
its net assets in securities of seasoned, established companies
that appear to have appreciation potential, as well as securities
of relatively small, new companies. In addition, it may invest in
securities with limited marketability, new issues of securities,
securities of companies that, in Stein Roe's opinion, will benefit
from management change, new technology, new product or service
development or change in demand, and other securities that Stein
Roe believes have capital appreciation possibilities. Special
Portfolio does not, however, currently intend to invest more than
5% of its net assets in any of these types of securities.
Securities of smaller, newer companies may be subject to greater
price volatility than securities of larger, more well-established
companies. In addition, many smaller companies are less well
known to the investing public and may not be as widely followed by
the investment community. Although Special Portfolio invests
primarily in common stocks, it may also invest in other equity-
type securities, including preferred stocks and securities
convertible into equity securities.
Large Company Focus Fund
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 Stein Roe
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.
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).
Growth Opportunities Fund
The investment objective of Growth Opportunities Fund is
long-term capital appreciation. Growth Opportunities Fund
attempts to achieve its objective by investing in a diversified
portfolio of common stocks of large, mid-sized, and small
companies that, in the view of Stein Roe, have the ability to
generate and sustain earnings growth at an above-average rate.
Growth Opportunities Fund's investments include securities of
both established companies that Stein Roe believes have
appreciation potential and emerging companies. Investment in
established companies tends to moderate the investment risks
associated with investing in emerging, generally smaller
companies. Growth Opportunities Fund invests a portion of its
assets in the securities of small and mid-sized companies. These
companies may present greater opportunities for capital
appreciation because of high potential earnings growth, but also
may involve greater risks. Securities of smaller companies may be
subject to greater price volatility and tend to be less liquid
than securities of larger companies. Small companies, as compared
to large companies, may have a shorter history of operations, may
not have as great an ability to raise additional capital, may have
a less diversified product line making them susceptible to market
pressure, and may have a smaller public market for their shares.
In addition, many smaller companies are less well known to the
investing public and may not be as widely followed by the
investment community. Although it invests primarily in common
stocks, Growth Opportunities Fund may invest in all types of
equity securities, including preferred stocks and securities
convertible into common stocks.
Special Venture Fund
Special Venture Fund seeks to achieve its objective by
investing in Special Venture Portfolio. Their common investment
objective is to seek long-term capital appreciation. Special
Venture Portfolio invests primarily in a diversified portfolio of
common stocks and other equity-type securities (such as preferred
stocks, securities convertible or exchangeable for common stocks,
and warrants or rights to purchase common stocks) of
entrepreneurially managed companies that Stein Roe believes
represent special opportunities. Special Venture Portfolio
emphasizes investments in financially strong small and medium-
sized companies based principally on appraisal of their management
and stock valuations. Stein Roe considers "small" and "medium-
sized" companies to be those with market capitalizations of less
than $1 billion and $1 to $5 billion, respectively.
In both its initial and ongoing appraisals of a company's
management, Stein Roe seeks to know both the principal owners and
senior management and to assess, through personal visits, their
business judgment and strategies. Stein Roe favors companies
whose management has an owner/operator, risk-averse orientation
and a demonstrated ability to create wealth for investors.
Attractive company characteristics include unit growth, favorable
cost structures or competitive positions, and financial strength
that enables management to execute business strategies under
difficult conditions. A company is attractively valued when its
stock can be purchased at a meaningful discount to the value of
the underlying business.
Capital Opportunities Fund
The investment objective of Capital Opportunities Fund is
long-term capital appreciation, which it attempts to achieve by
investing in selected companies that, in the opinion of Stein Roe,
offer opportunities for capital appreciation.
Capital Opportunities Fund pursues its objective by investing
in aggressive growth companies. An aggressive growth company, in
general, is one that appears to have the ability to increase its
earnings at an above-average rate. Investments may include
securities of smaller emerging companies as well as securities of
well-seasoned companies of any size that offer strong earnings
growth potential. Such companies may benefit from new products or
services, technological developments, or changes in management.
Securities of smaller companies may be subject to greater price
volatility than securities of larger companies. In addition, many
smaller companies are less well known to the investing public and
may not be as widely followed by the investment community.
Although it invests primarily in common stocks, Capital
Opportunities Fund may invest in all types of equity securities,
including preferred stocks and securities convertible into common
stocks.
International Fund
International Fund pursues its objective by investing in
International Portfolio. Their common investment objective is to
seek long-term growth of capital. International Portfolio seeks
to achieve this objective by investing primarily in a diversified
portfolio of foreign securities. Current income is not a primary
factor in the selection of portfolio securities. International
Portfolio invests primarily in common stocks and other equity-type
securities (such as preferred stocks, securities convertible or
exchangeable for common stocks, and warrants or rights to purchase
common stocks). International Portfolio may invest in securities
of smaller emerging companies as well as securities of well-
seasoned companies of any size. Smaller companies, however,
involve higher risks in that they typically have limited product
lines, markets, and financial or management resources. In
addition, the securities of smaller companies may trade less
frequently and have greater price fluctuation than larger
companies, particularly those operating in countries with
developing markets.
International Portfolio diversifies its investments among
several countries and does not concentrate investments in any
particular industry. In pursuing its objective, International
Portfolio varies the geographic allocation and types of securities
in which it invests based on Stein Roe's continuing evaluation of
economic, market, and political trends throughout the world.
While International Portfolio has not established limits on
geographic asset distribution, it ordinarily invests in the
securities markets of at least three countries outside the United
States, including but not limited to Western European countries
(such as Belgium, France, Germany, Ireland, Italy, The
Netherlands, the countries of Scandinavia, Spain, Switzerland, and
the United Kingdom); countries in the Pacific Basin (such as
Australia, Hong Kong, Japan, Malaysia, the Philippines, Singapore,
and Thailand); and countries in the Americas (such as Argentina,
Brazil, Colombia, and Mexico). In addition, it does not currently
intend to invest more than 2% of its total assets in Russian
securities.
Under normal market conditions, International Portfolio will
invest at least 65% of its total assets (taken at market value) in
foreign securities. If, however, investments in foreign
securities appear to be relatively unattractive in the judgment of
Stein Roe because of current or anticipated adverse political or
economic conditions, International Portfolio may hold cash or
invest any portion of its assets in securities of the U.S.
Government and equity and debt securities of U.S. companies, as a
temporary defensive strategy. To meet liquidity needs,
International Portfolio may also hold cash in domestic and foreign
currencies and invest in domestic and foreign money market
securities (including repurchase agreements and "synthetic"
foreign money market positions).
In the past, the U.S. Government has from time to time
imposed restrictions, through taxation and otherwise, on foreign
investments by U.S. investors such as International Portfolio. If
such restrictions should be reinstated, it might become necessary
for International Portfolio to invest all or substantially all of
its assets in U.S. securities. In such an event, International
Portfolio would review its investment objective and policies to
determine whether changes are appropriate.
PORTFOLIO INVESTMENTS AND STRATEGIES
Unless otherwise noted, for purposes of discussion under
Portfolio Investments and Strategies, the term "Fund" refers to
each Fund and each Portfolio.
Debt Securities
In pursuing its investment objective, each Fund may invest in
debt securities of corporate and governmental issuers. The risks
inherent in debt securities depend primarily on the term and
quality of the obligations in a Fund's portfolio as well as on
market conditions. A decline in the prevailing levels of interest
rates generally increases the value of debt securities, while an
increase in rates usually reduces the value of those securities.
Investments in debt securities by Growth & Income Portfolio,
Balanced Portfolio, Growth Stock Portfolio, and International
Portfolio are limited to those that are within the four highest
grades (generally referred to as "investment grade") assigned by a
nationally recognized statistical rating organization or, if
unrated, deemed to be of comparable quality by Stein Roe. Growth
Opportunities Fund, Special Venture Portfolio, Capital
Opportunities Fund, Special Portfolio, and Large Company Focus
Fund may invest up to 35% of their net assets in debt securities,
but do not expect to invest more than 5% of their net assets in
debt securities that are rated below investment grade.
Securities in the fourth highest grade may possess
speculative characteristics, and changes in economic conditions
are more likely to affect the issuer's capacity to pay interest
and repay principal. If the rating of a security held by a Fund
is lost or reduced below investment grade, the Fund is not
required to dispose of the security, but Stein Roe will consider
that fact in determining whether that Fund should continue to hold
the security.
Securities that are rated below investment grade are
considered predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal according to the
terms of the obligation and therefore carry greater investment
risk, including the possibility of issuer default and bankruptcy.
When Stein Roe determines that adverse market or economic
conditions exist and considers a temporary defensive position
advisable, a Fund may invest without limitation in high-quality
fixed income securities or hold assets in cash or cash
equivalents.
Derivatives
Consistent with its objective, a 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 using them is
more efficient or less costly than direct investment that cannot
be readily established directly due to portfolio size, cash
availability, or other factors. They also may be used in an
effort to enhance portfolio returns.
The successful use of Derivatives depends on Stein Roe's
ability to correctly predict changes in the levels and directions
of movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives.
No Fund, other than International Portfolio, currently
intends to invest more than 5% of its net assets in any type of
Derivative except for options, futures contracts, and futures
options. International Portfolio currently intends to invest no
more than 5% of its net assets in any type of Derivative other
than options, futures contracts, futures options, and forward
contracts. (See Options and Futures below.)
Some mortgage-backed debt securities are of the "modified
pass-through type," which means the interest and principal
payments on mortgages in the pool are "passed through" to
investors. During periods of declining interest rates, there is
increased likelihood that mortgages will be prepaid, with a
resulting loss of the full-term benefit of any premium paid by the
Fund on purchase of such securities; in addition, the proceeds of
prepayment would likely be invested at lower interest rates.
Mortgage-backed securities provide either a pro rata interest
in underlying mortgages or an interest in collateralized mortgage
obligations ("CMOs") that represent a right to interest and/or
principal payments from an underlying mortgage pool. CMOs are not
guaranteed by either the U.S. Government or by its agencies or
instrumentalities, and are usually issued in multiple classes each
of which has different payment rights, prepayment risks, and yield
characteristics. Mortgage-backed securities involve the risk of
prepayment on the underlying mortgages at a faster or slower rate
than the established schedule. Prepayments generally increase
with falling interest rates and decrease with rising rates but
they also are influenced by economic, social, and market factors.
If mortgages are pre-paid during periods of declining interest
rates, there would be a resulting loss of the full-term benefit of
any premium paid by the Fund on purchase of the CMO, and the
proceeds of prepayment would likely be invested at lower interest
rates.
Non-mortgage asset-backed securities usually have less
prepayment risk than mortgage-backed securities, but have the risk
that the collateral will not be available to support payments on
the underlying loans that finance payments on the securities
themselves.
Floating rate instruments provide for periodic adjustments in
coupon interest rates that are automatically reset based on
changes in amount and direction of specified market interest
rates. In addition, the adjusted duration of some of these
instruments may be materially shorter than their stated
maturities. To the extent such instruments are subject to
lifetime or periodic interest rate caps or floors, such
instruments may experience greater price volatility than debt
instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and
refers to the approximate percentage change in price for a 100
basis point change in yield. For example, if interest rates
decrease by 100 basis points, a market price of a security with an
adjusted duration of 2 would increase by approximately 2%.
Convertible Securities
By investing in convertible securities, a Fund obtains the
right to benefit from the capital appreciation potential in the
underlying stock upon exercise of the conversion right, while
earning higher current income than would be available if the stock
were purchased directly. In determining whether to purchase a
convertible, Stein Roe will consider substantially the same
criteria that would be considered in purchasing the underlying
stock. While convertible securities purchased by a Fund are
frequently rated investment grade, a Fund may purchase unrated
securities or securities rated below investment grade if the
securities meet Stein Roe's other investment criteria.
Convertible securities rated below investment grade (a) tend to be
more sensitive to interest rate and economic changes, (b) may be
obligations of issuers who are less creditworthy than issuers of
higher quality convertible securities, and (c) may be more thinly
traded due to such securities being less well known to investors
than investment grade convertible securities, common stock or
conventional debt securities. As a result, Stein Roe's own
investment research and analysis tend to be more important in the
purchase of such securities than other factors.
Foreign Securities
International Portfolio invests primarily in foreign
securities. Each other Fund may invest up to 25% of its total
assets in foreign securities, which may entail a greater degree of
risk (including risks relating to exchange rate fluctuations, tax
provisions, or expropriation of assets) than investment in
securities of domestic issuers. For this purpose, foreign
securities do not include American Depositary Receipts (ADRs) or
securities guaranteed by a United States person. ADRs are
receipts typically issued by an American bank or trust company
evidencing ownership of the underlying securities. A Fund may
invest in sponsored or unsponsored ADRs. In the case of an
unsponsored ADR, a Fund is likely to bear its proportionate share
of the expenses of the depositary and it may have greater
difficulty in receiving shareholder communications than it would
have with a sponsored ADR. No Fund intends to invest, nor during
the past fiscal year has any Fund invested, more than 5% of its
net assets in unsponsored ADRs. International Portfolio may also
purchase foreign securities in the form of European Depositary
Receipts (EDRs) or other securities representing underlying shares
of foreign issuers. Positions in these securities are not
necessarily denominated in the same currency as the common stocks
into which they may be converted. EDRs are European receipts
evidencing a similar arrangement. Generally, ADRs, in registered
form, are designed for the U.S. securities markets and EDRs, in
bearer form, are designed for use in European securities markets.
As of Sept. 30, 1998, holdings of foreign companies, as a
percentage of net assets, were as follows: Balanced Portfolio,
___% (___% in foreign securities and ___% in ADRs); Growth &
Income Portfolio, ___% (__% in foreign securities and ___% in
ADRs); Growth Stock Portfolio, ___% (___% in foreign securities
and ___% in ADRs); Growth Opportunities Fund, ___% (___% in
foreign securities and ___% in ADRs); Special Portfolio, ___%
(___% in foreign securities and ___% in ADRs and ADSs); Large
Company Focus Fund, ___% (__% in foreign securities and ___% in
ADRs); Special Venture Portfolio, ___% (___% in foreign securities
and ___% in ADRs); and Capital Opportunities Fund, ___% (___% in
foreign securities and ___% in ADRs).
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, a Fund's
investment performance is affected by the strength or weakness of
the U.S. dollar against these currencies. For example, if the
dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise
even though the price of the stock remains unchanged. Conversely,
if the dollar rises in value relative to the yen, the dollar value
of the yen-denominated stock will fall. (See discussion of
transaction hedging and portfolio hedging under Currency Exchange
Transactions.)
Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities,
positions which are generally denominated in foreign currencies,
and utilization of forward foreign currency exchange contracts
involve certain considerations comprising both risks and
opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and issuers of securities; lack of uniform accounting, auditing,
and financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment
in securities of companies in developing as well as developed
countries; and sometimes less advantageous legal, operational, and
financial protections applicable to foreign sub-custodial
arrangements. These risks are greater for emerging markets.
Although the Funds will try to invest in companies and
governments of countries having stable political environments,
there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of
foreign government restrictions, or other adverse political,
social or diplomatic developments that could affect investment in
these nations.
Currency Exchange Transactions. Currency exchange
transactions may be conducted either on a spot (i.e., cash) basis
at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market or through forward currency exchange
contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at
a specified future date (or within a specified time period) and
price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not
exchange traded, and are usually for less than one year, but may
be renewed.
The Funds' foreign currency exchange transactions are limited
to transaction and portfolio hedging involving either specific
transactions or portfolio positions. Transaction hedging is the
purchase or sale of forward contracts with respect to specific
receivables or payables of a Fund arising in connection with the
purchase and sale of its portfolio securities. Portfolio hedging
is the use of forward contracts with respect to portfolio security
positions denominated or quoted in a particular foreign currency.
Portfolio hedging allows the Fund to limit or reduce its exposure
in a foreign currency by entering into a forward contract to sell
such foreign currency (or another foreign currency that acts as a
proxy for that currency) at a future date for a price payable in
U.S. dollars so that the value of the foreign-denominated
portfolio securities can be approximately matched by a foreign-
denominated liability. A Fund may not engage in portfolio hedging
with respect to the currency of a particular country to an extent
greater than the aggregate market value (at the time of making
such sale) of the securities held in its portfolio denominated or
quoted in that particular currency, except that a Fund may hedge
all or part of its foreign currency exposure through the use of a
basket of currencies or a proxy currency where such currencies or
currency act as an effective proxy for other currencies. In such
a case, a Fund may enter into a forward contract where the amount
of the foreign currency to be sold exceeds the value of the
securities denominated in such currency. The use of this basket
hedging technique may be more efficient and economical than
entering into separate forward contracts for each currency held in
a Fund. No Fund may engage in "speculative" currency exchange
transactions.
At the maturity of a forward contract to deliver a particular
currency, a Fund may either sell the portfolio security related to
such contract and make delivery of the currency, or it may retain
the security and either acquire the currency on the spot market or
terminate its contractual obligation to deliver the currency by
purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same
amount of the currency.
It is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of a
forward contract. Accordingly, it may be necessary for a Fund to
purchase additional currency on the spot market (and bear the
expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver
and if a decision is made to sell the security and make delivery
of the currency. Conversely, it may be necessary to sell on the
spot market some of the currency received upon the sale of the
portfolio security if its market value exceeds the amount of
currency a Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an
offsetting transaction, the Fund will incur a gain or a loss to
the extent that there has been movement in forward contract
prices. If a Fund engages in an offsetting transaction, it may
subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between
a Fund's entering into a forward contract for the sale of a
currency and the date it enters into an offsetting contract for
the purchase of the currency, the Fund will realize a gain to the
extent the price of the currency it has agreed to sell exceeds the
price of the currency it has agreed to purchase. Should forward
prices increase, a Fund will suffer a loss to the extent the price
of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell. A default on the contract would
deprive the Fund of unrealized profits or force the Fund to cover
its commitments for purchase or sale of currency, if any, at the
current market price.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for a Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it
anticipates. The cost to a Fund of engaging in currency exchange
transactions varies with such factors as the currency involved,
the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually
conducted on a principal basis, no fees or commissions are
involved.
Synthetic Foreign Money Market Positions. International
Portfolio may invest in money market instruments denominated in
foreign currencies. In addition to, or in lieu of, such direct
investment, International Portfolio may construct a synthetic
foreign money market position by (a) purchasing a money market
instrument denominated in one currency, generally U.S. dollars,
and (b) concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
For example, a synthetic money market position in Japanese yen
could be constructed by purchasing a U.S. dollar money market
instrument, and entering concurrently into a forward contract to
deliver a corresponding amount of U.S. dollars in exchange for
Japanese yen on a specified date and at a specified rate of
exchange. Because of the availability of a variety of highly
liquid short-term U.S. dollar money market instruments, a
synthetic money market position utilizing such U.S. dollar
instruments may offer greater liquidity than direct investment in
foreign currency money market instruments. The result of a direct
investment in a foreign currency and a concurrent construction of
a synthetic position in such foreign currency, in terms of both
income yield and gain or loss from changes in currency exchange
rates, in general should be similar, but would not be identical
because the components of the alternative investments would not be
identical. Except to the extent a synthetic foreign money market
position consists of a money market instrument denominated in a
foreign currency, the synthetic foreign money market position
shall not be deemed a "foreign security" for purposes of the
policy that, under normal conditions, International Portfolio will
invest at least 65% of total assets in foreign securities.
Eurodollar Instruments
International Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated
futures contracts or options thereon which are linked to LIBOR,
although foreign currency-denominated instruments are available
from time to time. Eurodollar future contracts enable purchasers
to obtain a fixed rate for the lending of funds and sellers to
obtain a fixed rate for borrowings. The Fund might use Eurodollar
futures contracts and options thereon to hedge against changes in
LIBOR, to which many interest rate swaps and fixed income
instruments are linked.
Structured Notes
Structured Notes are Derivatives on which the amount of
principal repayment and or interest payments is based upon the
movement of one or more factors. These factors include, but are
not limited to, currency exchange rates, interest rates (such as
the prime lending rate and the London Interbank Offered Rate
("LIBOR")), stock indices such as the S&P 500 Index and the price
fluctuations of a particular security. In some cases, the impact
of the movements of these factors may increase or decrease through
the use of multipliers or deflators. The use of Structured Notes
allows a Fund to tailor its investments to the specific risks and
returns Stein Roe wishes to accept while avoiding or reducing
certain other risks.
Swaps, Caps, Floors and Collars
A Fund may enter into swaps and may purchase or sell related
caps, floors and collars. A Fund would enter into these
transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio, to protect
against currency fluctuations, as a duration management technique
or to protect against any increase in the price of securities it
purchases at a later date. The Funds intend to use these
techniques as hedges and not as speculative investments and will
not sell interest rate income stream a Fund may be obligated to
pay.
A swap agreement is generally individually negotiated and
structured to include exposure to a variety of different types of
investments or market factors. Depending on its structure, a swap
agreement may increase or decrease a Fund's exposure to changes in
the value of an index of securities in which the Fund might
invest, the value of a particular security or group of securities,
or foreign currency values. Swap agreements can take many
different forms and are known by a variety of names. A Fund may
enter into any form of swap agreement if Stein Roe determines it
is consistent with its investment objective and policies.
A swap agreement tends to shift a Fund's investment exposure
from one type of investment to another. For example, if a Fund
agrees to exchange payments in dollars at a fixed rate for
payments in a foreign currency the amount of which is determined
by movements of a foreign securities index, the swap agreement
would tend to increase exposure to foreign stock market movements
and foreign currencies. Depending on how it is used, a swap
agreement may increase or decrease the overall volatility of a
Fund's investments and its net asset value.
The performance of a swap agreement is determined by the
change in the specific currency, market index, security, or other
factors that determine the amounts of payments due to and from a
Fund. If a swap agreement calls for payments by a Fund, the Fund
must be prepared to make such payments when due. If the
counterparty's creditworthiness declines, the value of a swap
agreement would be likely to decline, potentially resulting in a
loss. A Fund will not enter into any swap, cap, floor or collar
transaction unless, at the time of entering into such transaction,
the unsecured long-term debt of the counterparty, combined with
any credit enhancements, is rated at least A by Standard & Poor's
Corporation or Moody's 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 Stein Roe.
The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling the
cap to the extent that a specified index exceeds a predetermined
interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is
a combination of a cap and floor that preserves a certain return
within a predetermined range of interest rates or values.
At the time a Fund enters into swap arrangements or purchases
or sells caps, floors or collars, liquid assets of the Fund having
a value at least as great as the commitment underlying the
obligations will be segregated on the books of the Fund and held
by the custodian throughout the period of the obligation.
Lending of Portfolio Securities
Subject to restriction (5) under Investment Restrictions in
this SAI, a Fund may lend its portfolio securities to broker-
dealers and banks. Any such loan must be continuously secured by
collateral in cash or cash equivalents maintained on a current
basis in an amount at least equal to the market value of the
securities loaned by the Fund. The Fund would continue to receive
the equivalent of the interest or dividends paid by the issuer on
the securities loaned, and would also receive an additional return
that may be in the form of a fixed fee or a percentage of the
collateral. The Fund would have the right to call the loan and
obtain the securities loaned at any time on notice of not more
than five business days. The Fund would not have the right to
vote the securities during the existence of the loan but would
call the loan to permit voting of the securities if, in Stein
Roe's judgment, a material event requiring a shareholder vote
would otherwise occur before the loan was repaid. In the event of
bankruptcy or other default of the borrower, the Fund could
experience both delays in liquidating the loan collateral or
recovering the loaned securities and losses, including (a)
possible decline in the value of the collateral or in the value of
the securities loaned during the period while the Fund seeks to
enforce its rights thereto, (b) possible subnormal levels of
income and lack of access to income during this period, and (c)
expenses of enforcing its rights. No Fund loaned portfolio
securities during the fiscal year ended Sept. 30, 1998 nor does it
currently intend to loan more than 5% of its net assets.
Repurchase Agreements
A Fund may invest in repurchase agreements, provided that it
will not invest more than 15% of net assets in repurchase
agreements maturing in more than seven days and any other illiquid
securities. A repurchase agreement is a sale of securities to a
Fund in which the seller agrees to repurchase the securities at a
higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of
bankruptcy of the seller, a Fund could experience both losses and
delays in liquidating its collateral.
When-Issued and Delayed-Delivery Securities; Reverse Repurchase
Agreements
A Fund may purchase securities on a when-issued or delayed-
delivery basis. Although the payment and interest terms of these
securities are established at the time a Fund enters into the
commitment, the securities may be delivered and paid for a month
or more after the date of purchase, when their value may have
changed. A Fund make such commitments only with the intention of
actually acquiring the securities, but may sell the securities
before settlement date if Stein Roe deems it advisable for
investment reasons. No Fund had during its last fiscal year, nor
does any Fund currently intend to have, commitments to purchase
when-issued securities in excess of 5% of its net assets.
International Portfolio may utilize spot and forward foreign
currency exchange transactions to reduce the risk inherent in
fluctuations in the exchange rate between one currency and another
when securities are purchased or sold on a when-issued or delayed-
delivery basis.
A Fund may enter into reverse repurchase agreements with
banks and securities dealers. A reverse repurchase agreement is a
repurchase agreement in which a Fund is the seller of, rather than
the investor in, securities and agrees to repurchase them at an
agreed-upon time and price. Use of a reverse repurchase agreement
may be preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and transaction
costs. No Fund entered into reverse repurchase agreements during
the fiscal year ended Sept. 30, 1998.
At the time a Fund enters into a binding obligation to
purchase securities on a when-issued basis or enters into a
reverse repurchase agreement, liquid assets (cash, U.S. Government
securities or other "high-grade" debt obligations) of the Fund
having a value at least as great as the purchase price of the
securities to be purchased will be segregated on the books of the
Fund and held by the custodian throughout the period of the
obligation. The use of these investment strategies, as well as
borrowing under a line of credit as described below, may increase
net asset value fluctuation.
Short Sales "Against the Box"
A Fund may sell securities short against the box; that is,
enter into short sales of securities that it currently owns or has
the right to acquire through the conversion or exchange of other
securities that it owns at no additional cost. A Fund may make
short sales of securities only if at all times when a short
position is open 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, a Fund does not deliver from
its portfolio the securities sold. Instead, the Fund borrows the
securities sold short from a broker-dealer through which the short
sale is executed, and the broker-dealer delivers such securities,
on behalf of the Fund, to the purchaser of such securities. The
Fund is required to pay to the broker-dealer the amount of any
dividends paid on shares sold short. Finally, to secure its
obligation to deliver to such broker-dealer the securities sold
short, the Fund must deposit and continuously maintain in a
separate account with its custodian an equivalent amount of the
securities sold short or securities convertible into or
exchangeable for such securities at no additional cost. A Fund is
said to have a short position in the securities sold until it
delivers to the broker-dealer the securities sold. A Fund may
close out a short position by purchasing on the open market and
delivering to the broker-dealer an equal amount of the securities
sold short, rather than by delivering portfolio securities.
Short sales may protect a Fund against the risk of losses in
the value of its portfolio securities because any unrealized
losses with respect to such portfolio securities should be wholly
or partially offset by a corresponding gain in the short position.
However, any potential gains in such portfolio securities should
be wholly or partially offset by a corresponding loss in the short
position. The extent to which such gains or losses are offset
will depend upon the amount of securities sold short relative to
the amount the Fund owns, either directly or indirectly, and, in
the case where the Fund owns convertible securities, changes in
the conversion premium.
Short sale transactions involve certain risks. If the price
of the security sold short increases between the time of the short
sale and the time a Fund replaces the borrowed security, the Fund
will incur a loss and if the price declines during this period,
the Fund will realize a short-term capital gain. Any realized
short-term capital gain will be decreased, and any incurred loss
increased, by the amount of transaction costs and any premium,
dividend or interest which the Fund may have to pay in connection
with such short sale. Certain provisions of the Internal Revenue
Code may limit the degree to which a Fund is able to enter into
short sales. There is no limitation on the amount of a Fund's
assets that, in the aggregate, may be deposited as collateral for
the obligation to replace securities borrowed to effect short
sales and allocated to segregated accounts in connection with
short sales. Up to 20% of the assets of Balanced Portfolio may be
involved in short sales against the box, but no other Fund
currently expects that more than 5% of its total assets would be
involved in short sales against the box.
Rule 144A Securities
A 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. That Rule permits certain
qualified institutional buyers, such as a Fund, to trade in
privately placed securities that have not been registered for sale
under the 1933 Act. Stein Roe, under the supervision of the Board
of Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to the restriction of investing
no more than 15% of its net assets in illiquid securities. A
determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, Stein Roe will
consider the trading markets for the specific security, taking
into account the unregistered nature of a Rule 144A security. In
addition, Stein Roe could consider the (1) frequency of trades and
quotes, (2) number of dealers and potential purchasers, (3) dealer
undertakings to make a market, and (4) nature of the security and
of marketplace trades (e.g., the time needed to dispose of the
security, the method of soliciting offers, and the mechanics of
transfer). The liquidity of Rule 144A securities would be
monitored and if, as a result of changed conditions, it is
determined that a Rule 144A security is no longer liquid, the
Fund's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that the Fund
does not invest more than 15% of its assets in illiquid
securities. Investing in Rule 144A securities could have the
effect of increasing the amount of a Fund's assets invested in
illiquid securities if qualified institutional buyers are
unwilling to purchase such securities. No Fund expects to invest
as much as 5% of its total assets in Rule 144A securities that
have not been deemed to be liquid by Stein Roe.
Line of Credit
Subject to restriction (6) under Investment Restrictions in
this SAI, a 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, a Fund may lend money to and borrow money
from other mutual funds advised by Stein Roe. A Fund will borrow
through the program when borrowing is necessary and appropriate
and the costs are equal to or lower than the costs of bank loans.
Portfolio Turnover
Although the Funds do not purchase securities with a view to
rapid turnover, there are no limitations on the length of time
that portfolio securities must be held. At times, Special
Portfolio and Capital Opportunities Fund may invest for short-term
capital appreciation. Portfolio turnover can occur for a number
of reasons such as general conditions in the securities markets,
more favorable investment opportunities in other securities, or
other factors relating to the desirability of holding or changing
a portfolio investment. Because of the Funds' flexibility of
investment and emphasis on growth of capital, they may have
greater portfolio turnover than that of mutual funds that have
primary objectives of income or maintenance of a balanced
investment position. The future turnover rate may vary greatly
from year to year. A high rate of portfolio turnover in a Fund,
if it should occur, would result in increased transaction
expenses, which must be borne by that Fund. High portfolio
turnover may also result in the realization of capital gains or
losses and, to the extent net short-term capital gains are
realized, any distributions resulting from such gains will be
considered ordinary income for federal income tax purposes.
Options on Securities and Indexes
A 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. A Fund may
purchase agreements, sometimes called cash puts, that may
accompany the purchase of a new issue of bonds from a dealer.
An option on a security (or index) is a contract that gives
the purchaser (holder) of the option, in return for a premium, the
right to buy from (call) or sell to (put) the seller (writer) of
the option the security underlying the option (or the cash value
of the index) at a specified exercise price at any time during the
term of the option (normally not exceeding nine months). The
writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver
the underlying security or foreign currency upon payment of the
exercise price or to pay the exercise price upon delivery of the
underlying security or foreign currency. Upon exercise, the
writer of an option on an index is obligated to pay the difference
between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An
index is designed to reflect specified facets of a particular
financial or securities market, a specific group of financial
instruments or securities, or certain economic indicators.)
A Fund will write call options and put options only if they
are "covered." For example, in the case of a call option on a
security, the option is "covered" if the Fund owns the security
underlying the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or,
if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its
custodian) upon conversion or exchange of other securities held in
its portfolio.
If an option written by a Fund expires, the Fund realizes a
capital gain equal to the premium received at the time the option
was written. If an option purchased by a Fund expires, the Fund
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may
be closed out by an offsetting purchase or sale of an option of
the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when a Fund desires.
A Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the
premium received from writing the option, or, if it is more, the
Fund will realize a capital loss. If the premium received from a
closing sale transaction is more than the premium paid to purchase
the option, the Fund will realize a capital gain or, if it is
less, the Fund will realize a capital loss. The principal factors
affecting the market value of a put or a call option include
supply and demand, interest rates, the current market price of the
underlying security or index in relation to the exercise price of
the option, the volatility of the underlying security or index,
and the time remaining until the expiration date.
A put or call option purchased by a Fund is an asset of the
Fund, valued initially at the premium paid for the option. The
premium received for an option written by a Fund is recorded as a
deferred credit. The value of an option purchased or written is
marked-to-market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or
no closing price is available, at the mean between the last bid
and asked prices.
Risks Associated with Options on Securities and Indexes.
There are several risks associated with transactions in options.
For example, there are significant differences between the
securities markets, the currency markets, and the options markets
that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use options
involves the exercise of skill and judgment, and even a well-
conceived transaction may be unsuccessful to some degree because
of market behavior or unexpected events.
There can be no assurance that a liquid market will exist
when a Fund seeks to close out an option position. If a Fund were
unable to close out an option that it had purchased on a security,
it would have to exercise the option in order to realize any
profit or the option would expire and become worthless. If a Fund
were unable to close out a covered call option that it had written
on a security, it would not be able to sell the underlying
security until the option expired. As the writer of a covered
call option on a security, a Fund foregoes, during the option's
life, the opportunity to profit from increases in the market value
of the security covering the call option above the sum of the
premium and the exercise price of the call.
If trading were suspended in an option purchased or written
by a Fund, the Fund would not be able to close out the option. If
restrictions on exercise were imposed, the Fund might be unable to
exercise an option it has purchased.
Futures Contracts and Options on Futures Contracts
A 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.
- -----------------
A 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. A Fund might,
for example, use futures contracts to hedge against or gain
exposure to fluctuations in the general level of stock prices,
anticipated changes in interest rates or currency fluctuations
that might adversely affect either the value of the Fund's
securities or the price of the securities that the Fund intends to
purchase. Although other techniques could be used to reduce or
increase that Fund's exposure to stock price, interest rate and
currency fluctuations, the Fund may be able to achieve its
exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.
A 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 accurate
predictions of changes in the level and direction of stock prices,
interest rates, currency exchange rates and other factors. Should
those predictions be incorrect, the return might have been better
had the transaction not been attempted; however, in the absence of
the ability to use futures contracts, Stein Roe might have taken
portfolio actions in anticipation of the same market movements
with similar investment results but, presumably, at greater
transaction costs.
When a purchase or sale of a futures contract is made by a
Fund, the Fund is required to deposit with its custodian (or
broker, if legally permitted) a specified amount of cash or U.S.
Government securities or other securities acceptable to the broker
("initial margin"). The margin required for a futures contract is
set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is
in the nature of a performance bond or good faith deposit on the
futures contract, which is returned to the Fund upon termination
of the contract, assuming all contractual obligations have been
satisfied. A Fund expects to earn interest income on its initial
margin deposits. A futures contract held by a Fund is valued
daily at the official settlement price of the exchange on which it
is traded. Each day the Fund pays or receives cash, called
"variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking-to-market."
Variation margin paid or received by a Fund does not represent a
borrowing or loan by the Fund but is instead settlement between
the Fund and the broker of the amount one would owe the other if
the futures contract had expired at the close of the previous day.
In computing daily net asset value, a Fund will mark-to-market its
open futures positions.
A Fund is also required to deposit and maintain margin with
respect to put and call options on futures contracts written by
it. Such margin deposits will vary depending on the nature of the
underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking
delivery of the underlying securities, usually these obligations
are closed out prior to delivery by offsetting purchases or sales
of matching futures contracts (same exchange, underlying security
or index, and delivery month). If an offsetting purchase price is
less than the original sale price, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund
realizes a capital loss. Conversely, if an offsetting sale price
is more than the original purchase price, the Fund engaging in the
transaction realizes a capital gain, or if it is less, the Fund
realizes a capital loss. The transaction costs must also be
included in these calculations.
Risks Associated with Futures
There are several risks associated with the use of futures
contracts and futures options. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in
the futures contract. In trying to increase or reduce market
exposure, there can be no guarantee that there will be a
correlation between price movements in the futures contract and in
the portfolio exposure sought. In addition, there are significant
differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a
given transaction not to achieve its objectives. The degree of
imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures
options and the related securities, including technical influences
in futures and futures options trading and differences between the
securities market and the securities underlying the standard
contracts available for trading. For example, in the case of
index futures contracts, the composition of the index, including
the issuers and the weighting of each issue, may differ from the
composition of the Fund's portfolio, and, in the case of interest
rate futures contracts, the interest rate levels, maturities, and
creditworthiness of the issues underlying the futures contract may
differ from the financial instruments held in the Fund's
portfolio. A decision as to whether, when and how to use futures
contracts involves the exercise of skill and judgment, and even a
well-conceived transaction may be unsuccessful to some degree
because of market behavior or unexpected stock price or interest
rate trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit governs
only price movements during a particular trading day and therefore
does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses. Stock
index futures contracts are not normally subject to such daily
price change limitations.
There can be no assurance that a liquid market will exist at
a time when a Fund seeks to close out a futures or futures option
position. The Fund would be exposed to possible loss on the
position during the interval of inability to close, and would
continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed
above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active
secondary market will develop or continue to exist.
Limitations on Options and Futures
If other options, futures contracts, or futures options of
types other than those described herein are traded in the future,
a Fund may also use those investment vehicles, provided the Board
of Trustees determines that their use is consistent with the
Fund's investment objective.
A Fund will not enter into a futures contract or purchase an
option thereon if, immediately thereafter, the initial margin
deposits for futures contracts held by that Fund plus premiums
paid by it for open futures option positions, less the amount by
which any such positions are "in-the-money," /3/ would exceed 5%
of the Fund's total assets.
- --------------
/3/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
- --------------
When purchasing a futures contract or writing a put option on
a futures contract, a Fund must maintain with its custodian (or
broker, if legally permitted) cash or cash equivalents (including
any margin) equal to the market value of such contract. When
writing a call option on a futures contract, the Fund similarly
will maintain with its custodian cash or cash equivalents
(including any margin) equal to the amount by which such option is
in-the-money until the option expires or is closed out by the
Fund.
A Fund may not maintain open short positions in futures
contracts, call options written on futures contracts or call
options written on indexes if, in the aggregate, the market value
of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the
positions. For this purpose, to the extent the Fund has written
call options on specific securities in its portfolio, the value of
those securities will be deducted from the current market value of
the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," a Fund will use commodity futures or commodity options
contracts solely for bona fide hedging purposes within the meaning
and intent of Regulation 1.3(z), or, with respect to positions in
commodity futures and commodity options contracts that do not come
within the meaning and intent of 1.3(z), the aggregate initial
margin and premiums required to establish such positions will not
exceed 5% of the fair market value of the assets of a Fund, after
taking into account unrealized profits and unrealized losses on
any such contracts it has entered into [in the case of an option
that is in-the-money at the time of purchase, the in-the-money
amount (as defined in Section 190.01(x) of the Commission
Regulations) may be excluded in computing such 5%].
Taxation of Options and Futures
If a Fund exercises a call or put option that it holds, the
premium paid for the option is added to the cost basis of the
security purchased (call) or deducted from the proceeds of the
security sold (put). For cash settlement options and futures
options exercised by a Fund, the difference between the cash
received at exercise and the premium paid is a capital gain or
loss.
If a call or put option written by a Fund is exercised, the
premium is included in the proceeds of the sale of the underlying
security (call) or reduces the cost basis of the security
purchased (put). For cash settlement options and futures options
written by a Fund, the difference between the cash paid at
exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by a Fund was in-the-
money at the time it was written and the security covering the
option was held for more than the long-term holding period prior
to the writing of the option, any loss realized as a result of a
closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
If a Fund writes an equity call option /4/ other than a
"qualified covered call option," as defined in the Internal
Revenue Code, any loss on such option transaction, to the extent
it does not exceed the unrealized gains on the securities covering
the option, may be subject to deferral until the securities
covering the option have been sold.
- ---------------
/4/ An equity option is defined to mean any option to buy or sell
stock, and any other option the value of which is determined by
reference to an index of stocks of the type that is ineligible to
be traded on a commodity futures exchange (e.g., an option
contract on a sub-index based on the price of nine hotel-casino
stocks). The definition of equity option excludes options on
broad-based stock indexes (such as the Standard & Poor's 500
index).
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A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If a Fund
delivers securities under a futures contract, the Fund also
realizes a capital gain or loss on those securities.
For federal income tax purposes, a Fund generally is required
to recognize as income for each taxable year its net unrealized
gains and losses as of the end of the year on futures, futures
options and non-equity options positions ("year-end mark-to-
market"). Generally, any gain or loss recognized with respect to
such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and
40% short-term, without regard to the holding periods of the
contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options
positions, the related securities and certain successor positions
thereto) may be deferred to a later taxable year. Sale of futures
contracts or writing of call options (or futures call options) or
buying put options (or futures put options) that are intended to
hedge against a change in the value of securities held by a Fund:
(1) will affect the holding period of the hedged securities; and
(2) may cause unrealized gain or loss on such securities to be
recognized upon entry into the hedge.
If a Fund were to enter into a short index future, short
index futures option or short index option position and the Fund's
portfolio were deemed to "mimic" the performance of the index
underlying such contract, the option or futures contract position
and the Fund's stock positions would be deemed to be positions in
a mixed straddle, subject to the above-mentioned loss deferral
rules.
In order for a Fund to continue to qualify for federal income
tax treatment as a regulated investment company, at least 90% of
its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). Any net gain
realized from futures (or futures options) contracts will be
considered gain from the sale of securities and therefore be
qualifying income for purposes of the 90% requirement.
Each Fund distributes to shareholders annually any net
capital gains that have been recognized for federal income tax
purposes (including year-end mark-to-market gains) on options and
futures transactions. Such distributions are combined with
distributions of capital gains realized on the Fund's other
investments, and shareholders are advised of the nature of the
payments.
The Taxpayer Relief Act of 1997 (the "Act") imposed
constructive sale treatment for federal income tax purposes on
certain hedging strategies with respect to appreciated securities.
Under these rules, taxpayers will recognize gain, but not loss,
with respect to securities if they enter into short sales of
"offsetting notional principal contracts" (as defined by the Act)
or futures or "forward contracts" (as defined by the Act) with
respect to the same or substantially identical property, or if
they enter into such transactions and then acquire the same or
substantially identical property. These changes generally apply
to constructive sales after June 8, 1997. Furthermore, the
Secretary of the Treasury is authorized to promulgate regulations
that will treat as constructive sales certain transactions that
have substantially the same effect as short sales, offsetting
notional principal contracts, and futures or forward contracts to
deliver the same or substantially similar property.
INVESTMENT RESTRICTIONS
The Funds and the Portfolios operate under the following
investment restrictions. No Fund or Portfolio may:
(1) with respect to 75% of its total assets, invest more than
5% of its total assets, taken at market value at the time of a
particular purchase, in the securities of a single issuer, except
for securities issued or guaranteed by the U. S. Government or any
of its agencies or instrumentalities or repurchase agreements for
such securities, and [Funds only] except that all or substantially
all of the assets of the Fund may be invested in another
registered investment company having the same investment objective
and substantially similar investment policies as the Fund;
(2) acquire more than 10%, taken at the time of a particular
purchase, of the outstanding voting securities of any one issuer,
[Funds only] except that all or substantially all of the assets of
the Fund may be invested in another registered investment company
having the same investment objective and substantially similar
investment policies as the Fund;
(3) act as an underwriter of securities, except insofar as it
may be deemed an underwriter for purposes of the Securities Act of
1933 on disposition of securities acquired subject to legal or
contractual restrictions on resale, [Funds only] except that all
or substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate or
interests therein), commodities, or commodity contracts, except
that it may enter into (a) futures and options on futures and (b)
forward contracts;
(5) make loans, although it may (a) lend portfolio securities
and participate in an interfund lending program with other Stein
Roe Funds and Portfolios provided that no such loan may be made
if, as a result, the aggregate of such loans would exceed 33 1/3%
of the value of its total assets (taken at market value at the
time of such loans); (b) purchase money market instruments and
enter into repurchase agreements; and (c) acquire publicly
distributed or privately placed debt securities;
(6) borrow except that it may (a) borrow for nonleveraging,
temporary or emergency purposes, (b) engage in reverse repurchase
agreements and make other borrowings, provided that the
combination of (a) and (b) shall not exceed 33 1/3% of the value
of its total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage
permitted by law, and (c) enter into futures and options
transactions; it may borrow from banks, other Stein Roe Funds and
Portfolios, and other persons to the extent permitted by
applicable law;
(7) invest in a security if more than 25% of its total assets
(taken at market value at the time of a particular purchase) would
be invested in the securities of issuers in any particular
industry, /5/ except that this restriction does not apply to
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, and [Funds only] except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund; or
- ----------------
/5/ For purposes of this investment restriction, International
Portfolio uses industry classifications contained in Morgan
Stanley Capital International Perspective, which is published by
Morgan Stanley, an international investment banking and brokerage
firm.
- ----------------
(8) issue any senior security except to the extent permitted
under the Investment Company Act of 1940.
The above restrictions (other than bracketed portions thereof
and, in the case of Special Fund and Special Portfolio, other than
1 and 2) are fundamental policies and may not be changed without
the approval of a "majority of the outstanding voting securities"
as defined above. Each Fund and, in the case of Special Fund and
Special Portfolio, together with restrictions 1 and 2 above, is
also subject to the following non-fundamental restrictions and
policies, which may be changed by the Board of Trustees. None of
the following restrictions shall prevent a Fund from investing all
or substantially all of its assets in another investment company
having the same investment objective and substantially the same
investment policies as the Fund. No Fund or Portfolio may:
(a) invest in any of the following: (i) interests in oil,
gas, or other mineral leases or exploration or development
programs (except readily marketable securities, including but not
limited to master limited partnership interests, that may
represent indirect interests in oil, gas, or other mineral
exploration or development programs); (ii) puts, calls, straddles,
spreads, or any combination thereof (except that it may enter into
transactions in options, futures, and options on futures); (iii)
shares of other open-end investment companies, except in
connection with a merger, consolidation, acquisition, or
reorganization; and (iv) limited partnerships in real estate
unless they are readily marketable;
(b) invest in companies for the purpose of exercising control
or management;
(c) purchase more than 3% of the stock of another investment
company or purchase stock of other investment companies equal to
more than 5% of its total assets (valued at time of purchase) in
the case of any one other investment company and 10% of such
assets (valued at time of purchase) in the case of all other
investment companies in the aggregate; any such purchases are to
be made in the open market where no profit to a sponsor or dealer
results from the purchase, other than the customary broker's
commission, except for securities acquired as part of a merger,
consolidation or acquisition of assets;
(d) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in
warrants that are not listed on the New York or American Stock
Exchange or [International Fund and International Portfolio only]
a recognized foreign exchange;
(e) write an option on a security unless the option is issued
by the Options Clearing Corporation, an exchange, or similar
entity;
(f) [all Funds and Portfolios except International Fund and
International Portfolio] invest more than 25% of its total assets
(valued at time of purchase) in securities of foreign issuers
(other than securities represented by American Depositary Receipts
(ADRs) or securities guaranteed by a U.S. person);
(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) [all except International Fund and International
Portfolio] 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; [International Fund
and International Portfolio only] invest more than 10% of its
total assets (taken at market value at the time of a particular
investment) in restricted securities, other than securities
eligible for resale pursuant to Rule 144A under the Securities Act
of 1933;
(j) invest more than 15% of its net assets (taken at market
value at the time of a particular investment) in illiquid
securities, including repurchase agreements maturing in more than
seven days.
Notwithstanding the foregoing investment restrictions,
International Portfolio may purchase securities pursuant to the
exercise of subscription rights, subject to the condition that
such purchase will not result in its ceasing to be a diversified
investment company. Far Eastern and European corporations
frequently issue additional capital stock by means of subscription
rights offerings to existing shareholders at a price substantially
below the market price of the shares. The failure to exercise
such rights would result in the interest of International
Portfolio in the issuing company being diluted. The market for
such rights is not well developed in all cases and, accordingly,
International Portfolio may not always realize full value on the
sale of rights. The exception applies in cases where the limits
set forth in the investment restrictions would otherwise be
exceeded by exercising rights or would have already been exceeded
as a result of fluctuations in the market value of the portfolio
securities with the result that it would be forced either to sell
securities at a time when it might not otherwise have done so, to
forego exercising the rights.
ADDITIONAL INVESTMENT CONSIDERATIONS
Stein Roe 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, Stein Roe 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
Fund Closed
Growth Stock Fund is closed to purchases (including
exchanges) by new investors except for purchases by eligible
investors as described below. The Board of Trustees has taken
this step to facilitate management of the Fund's portfolio. If
you are already a shareholder of Growth Stock Fund, you may
continue to add to your account or open another account with the
Fund in your name. In addition, you may open a new account if:
- - you are a shareholder of any other Stein Roe Fund, having
purchased shares directly from Stein Roe, as of Oct. 15, 1997
and you are opening a new account by exchange or by dividend
reinvestment;
- - you are a client of Stein Roe;
- - you are a trustee of the Trust; an employee of Stein Roe, or any
of its affiliated companies; or a member of the immediate family
of any trustee or employee;
- - you purchase shares (i) under an asset allocation program
sponsored by a financial advisor, broker-dealer, bank, trust
company or other intermediary or (ii) from certain financial
advisors who charge a fee for services and who, as of Oct. 15,
1997, have one or more clients who were Growth Stock Fund
shareholders; or
- - you purchase shares for an employee benefit plan, the records
for which are maintained by a trust company or third party
administrator under an investment program with Growth Stock
Fund.
The Board of Trustees concluded that permitting the
additional investments described above would not adversely affect
the ability of Stein Roe to manage the Fund effectively. If you
have questions about your eligibility to purchase shares of Growth
Stock Fund, please call 800-338-2550.
Purchases Through Third Parties
You may purchase (or redeem) shares through certain broker-
dealers, banks, or other intermediaries ("Intermediaries"). The
state of Texas has asked that investment companies disclose in
their SAIs, as a reminder to any such bank or institution, that it
must be registered as a securities dealer in Texas.
Intermediaries may charge for their services or place limitations
on the extent to which you may use the services offered by the
Trust. It is the responsibility of any such Intermediary to
establish procedures insuring the prompt transmission to the Trust
of any such purchase order. 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
authorized agent or 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 that business day.
Some Intermediaries that maintain nominee accounts with the
Funds for their clients for whom they hold Fund shares charge an
annual fee of up to 0.35% of the average net assets held in such
accounts for accounting, servicing, and distribution services they
provide with respect to the underlying Fund shares. Stein Roe and
the Funds' transfer agent share in the expense of these fees, and
Stein Roe pays all sales and promotional expenses.
Net Asset Value
The net asset value of each Fund is determined on days on
which the New York Stock Exchange (the "NYSE") is open for regular
session 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 of a Fund should be determined on any
such day, in which case the determination will be made at 3:00
p.m., Central time. Please refer to Your Account-Determining
Share Price in the Prospectuses for additional information on how
the purchase and redemption price of Fund shares is determined.
General Redemption Policies
The Trust intends to pay all redemptions in cash and is
obligated to redeem shares solely in cash up to the lesser of
$250,000 or one percent of the net assets 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.
The 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. The
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 $1,800 or an UGMA account with a balance
below $800. This minimum balance fee does not apply to: (1)
shareholders whose accounts in the Stein Roe Funds total $50,000
or more, (2) Stein Roe IRAs, (3) other Stein Roe prototype
retirement plans, (4) accounts with automatic investment plans
(unless regular investments have been discontinued), or (5)
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 the Trust to redeem shares under certain other
circumstances as may be specified by the Board of Trustees.
The Trust reserves the right to suspend or postpone
redemptions of shares 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.
You may not cancel or revoke your redemption order once
instructions have been received and accepted. The Trust cannot
accept a redemption request that specifies a particular date or
price for redemption or any special conditions. Please call 800-
338-2550 if you have any questions about requirements for a
redemption before submitting your request. The Trust reserves the
right to require a properly completed application before making
payment for shares redeemed.
The Trust will generally mail payment for shares redeemed
within seven days after proper instructions are received.
However, the Trust normally intends to pay proceeds of a Telephone
Redemption paid by wire on the next business day. If you attempt
to redeem shares within 15 days after they have been purchased by
check or electronic transfer, the Trust 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, the 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. The Trust reserves the right at any time
without prior notice to suspend, limit, modify, or terminate any
Privilege or its use in any manner by any person or class.
Neither the Trust, its transfer agent, nor their respective
officers, trustees, directors, employees, or agents will be
responsible for the authenticity of instructions provided under
the Privileges, nor for any loss, liability, cost or expense for
acting upon instructions furnished thereunder if they reasonably
believe that such instructions are genuine. The Funds employ
procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special Electronic Transfer Redemption Privilege are
genuine. Use of any Special Redemption Privilege or the Special
Electronic Transfer Redemption Privilege authorizes the Funds and
their transfer agent to tape-record all instructions to redeem.
In addition, callers are asked to identify the account number and
registration, and may be required to provide other forms of
identification. Written confirmations of transactions are mailed
promptly to the registered address; a legend on the confirmation
requests that the shareholder review the transactions and inform
the Fund immediately if there is a problem. If the Funds do 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.
Shares in any account you maintain with a Fund or any of the
other Stein Roe Funds may be redeemed to the extent necessary to
reimburse any Stein Roe Fund for any loss you cause it to sustain
(such as loss from an uncollected check or electronic transfer for
the purchase of shares, or any liability under the Internal
Revenue Code provisions on backup withholding).
The Trust reserves the right to suspend or terminate, at any
time and without prior notice, the use of the Telephone Exchange
Privilege by any person or class of persons. The Trust believes
that use of the Telephone Exchange Privilege by investors
utilizing market-timing strategies adversely affects the Funds.
Therefore, regardless of the number of telephone exchange round-
trips made by an investor, the Trust generally will not honor
requests for Telephone Exchanges by shareholders identified by the
Trust as "market-timers" if the officers of the Trust determine
the order not to be in the best interests of the Trust or its
shareholders. The Trust generally identifies as a "market-timer"
an investor whose investment decisions appear to be based on
actual or anticipated near-term changes in the securities markets
other than for investment considerations. Moreover, the Trust
reserves the right to suspend, limit, modify, or terminate, at any
time and without prior notice, the Telephone Exchange Privilege in
its entirety. Because such a step would be taken only if the
Board of Trustees believes it would be in the best interests of
the Funds, the Trust expects that it would provide shareholders
with prior written notice of any such action unless the resulting
delay in the suspension, limitation, modification, or termination
of the Telephone Exchange Privilege would adversely affect the
Funds. If the Trust were to suspend, limit, modify, or terminate
the Telephone Exchange Privilege, a shareholder expecting to make
a Telephone Exchange might find that an exchange could not be
processed or that there might be a delay in the implementation of
the exchange. During periods of volatile economic and market
conditions, you may have difficulty placing your exchange by
telephone.
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. A
signature guarantee may be required to establish a Privilege after
you open your account. If you establish both the Telephone
Redemption by Wire Privilege and the Electronic Transfer
Privilege, the bank account that you designate for both Privileges
must be the same. The Telephone Redemption by Check Privilege,
Telephone Redemption by Wire Privilege, and Special Electronic
Transfer Redemptions may not be used to redeem shares held by a
tax-sheltered retirement plan sponsored by Stein Roe.
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.
Redemption Privileges
Exchange Privilege. You may redeem all or any portion of
your Fund shares and use the proceeds to purchase shares of any
other no-load Stein Roe Fund offered for sale in your state if
your signed, properly completed application is on file. An
exchange transaction is a sale and purchase of shares for federal
income tax purposes and may result in capital gain or loss.
Before exercising the Exchange Privilege, you should obtain the
prospectus for the no-load Stein Roe Fund in which you wish to
invest and read it carefully. The registration of the account to
which you are making an exchange must be exactly the same as that
of the Fund account from which the exchange is made and the amount
you exchange must meet any applicable minimum investment of the
no-load Stein Roe Fund being purchased.
Telephone Exchange Privilege. You may use the Telephone
Exchange Privilege to exchange an amount of $50 or more from your
account by calling 800-338-2550 or by sending a telegram; new
accounts opened by exchange are subject to the $2,500 initial
purchase minimum. Generally, you will be limited to four
Telephone Exchange round-trips per year and the Funds may refuse
requests for Telephone Exchanges in excess of four round-trips (a
round-trip being the exchange out of a Fund into another no-load
Stein Roe Fund, and then back to that Fund). In addition, the
Trust's general redemption policies apply to redemptions of shares
by Telephone Exchange.
Automatic Exchanges. You may use the Automatic Exchange
Privilege to automatically redeem a fixed amount from your Fund
account for investment in another no-load Stein Roe Fund account
on a regular basis ($50 minimum; $100,000 maximum).
Telephone Redemption by Wire Privilege. You may use this
Privilege to redeem shares from your account ($1,000 minimum;
$100,000 maximum) by calling 800-338-2550. The proceeds will be
transmitted by wire to your account at a commercial bank
previously designated by you that is a member of the Federal
Reserve System. The fee for wiring proceeds (currently $7.00 per
transaction) will be deducted from the amount wired.
Telephone Redemption by Check Privilege. You may use the
Telephone Redemption by Check Privilege to redeem an amount of
$1,000 or more from your account by calling 800-338-2550. The
proceeds will be sent by check to your registered address.
Electronic Transfer Privilege. You may redeem shares by
calling 800-338-2550 and requesting an electronic transfer
("Special Redemption") of the proceeds to a bank account
previously designated by you at a bank that is a member of the
Automated Clearing House. You may also request electronic
transfers at scheduled intervals ("Automatic Redemptions"). A
Special Redemption request received by telephone after 3:00 p.m.,
central time, is deemed received on the next business day. You
may purchase Fund shares directly from your bank account either at
regular intervals ("Regular Investments") or upon your request
("Special Investments"). Electronic transfers are subject to a
$50 minimum and a $100,000 maximum. You may also have income
dividends and capital gains distributions deposited directly into
your bank account ("Automatic Dividend Deposits").
Systematic Withdrawals. You may 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.
Dividend Purchase Option. You may have distributions from
one Fund account automatically invested in another no-load Stein
Roe Fund account. Before establishing this option, you should
obtain and read the prospectus of the Stein Roe Fund into which
you wish to have your distributions invested. The account from
which distributions are made must be of sufficient size to allow
each distribution to usually be at least $25.
MANAGEMENT
The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. The following table
sets forth certain information with respect to the trustees and
officers of the Trust:
<TABLE>
<CAPTION>
Position(s) held Principal occupation(s)
Name with the Trust during past five years
- ------------------ ------------------------ -----------------------------------
<S> <C> <C>
William D. Andrews, 51 (4) Executive Vice-President Executive vice president of Stein Roe
& Farnham Incorporated (Stein Roe)
Gary A. Anetsberger, 43 (4) Senior Vice-President Chief financial officer and chief administrative
officer of the Mutual Funds division of Stein Roe;
senior vice president of Stein Roe since April 1996;
vice president of Stein Roe prior thereto
John A. Bacon Jr.,70(3)(4) Trustee Private investor
William W. Boyd, 72 Trustee Chairman and director of
(2) (3) (4) Sterling Plumbing (manufacturer of plumbing products)
David P. Brady, 34 Vice-President Senior vice president of Stein Roe since March 1998;
vice president of Stein Roe from Nov. 1995 to March
1998; portfolio manager for Stein Roe since 1993
Thomas W. Butch, 42 (4) President President of the Mutual Funds division of Stein Roe
since March 1998; senior vice president of Stein Roe
from Sept. 1994 to March 1998; first vice president,
corporate communications, of Mellon Bank Corporation
prior thereto
Daniel K. Cantor, 39 Vice-President Senior vice president of Stein Roe
Kevin M. Carome, 42 (4) Vice-President; Associate general counsel
Assistant Secretary and (since Feb. 1995) vice president of Liberty
Financial Companies, Inc.; general counsel and
secretary of Stein Roe since Jan. 1998
Kevin Connaughton, __ Vice-President Employee of Colonial Management Associates,
Inc. ("CMA")
Lindsay Cook, 46 (1)(2) Trustee Executive vice president of Liberty Financial
Companies, Inc. (the indirect parent of Stein
Roe) since March 1997; senior vice president
prior thereto
Erik P. Gustafson, 35 Vice-President Senior portfolio manager of Stein Roe; senior
vice president of Stein Roe since April 1996;
vice president of Stein Roe from May 1994 to
April 1996; associate of Stein Roe prior thereto
Douglas A. Hacker, 43 (3) Trustee Senior vice president and chief financial officer
of UAL, Inc. (airline) since July 1994; senior vice
president, finance of UAL, Inc. prior thereto
Loren A. Hansen, 50 Executive Vice-President Chief investment officer/equity of CMA since 1997;
executive vice president of Stein Roe since Dec. 1995;
vice president of The Northern Trust (bank) prior
thereto
James P. Haynie, XX Vice-President Vice President of Stein Roe since Oct. 1998; Vice
President of CMA since 1993
Harvey B. Hirschhorn, 49 Vice-President Executive vice president, senior portfolio manager,
and chief economist and investment strategist of
Stein Roe; director of research of Stein Roe, 1991
to 1995
Timothy J. Jacoby, 46 Vice-President Fund treasurer for The Colonial Group since Sept.
1996; chief financial officer for Fidelity Investments
since August 1997; senior vice president of Fidelity
Investments from Sept. 1993 to Sept. 1996
Janet Langford Kelly, 41(3) Trustee Senior vice president, secretary and general counsel
of Sara Lee Corporation (branded, packaged, consumer-
products manufacturer) since 1995; partner of Sidley &
Austin (law firm) prior thereto
Gail Knudsen, XX Vice-President Employee of CMA
Eric S. Maddix, 35 Vice-President Senior vice president of Stein Roe since March 1998;
vice president of Stein Roe from Nov. 1995 to March
1998; portfolio manager or research assistant for
Stein Roe since 1987
Lynn C. Maddox, 58 Vice-President Senior vice president of Stein Roe
Arthur J. McQueen, 40 Vice-President Senior vice president of Stein Roe
Charles R. Nelson, 56 (3) Trustee Van Voorhis Professor of Political Economy, Department
of Economics of the University of Washington
Nicolette D. Parrish, 49 Vice-President; Senior legal assistant and assistant secretary of
Assistant Secretary Stein Roe
Gita R. Rao, 39 Vice-President Vice President of Stein Roe since Oct. 1998; vice
president and portfolio manager for CMA since 1995;
global equity research analyst at Fidelity Management
& Research Company prior thereto
Michael E. Rega, 39 Vice-President Vice President of Stein Roe since Oct. 1998; Vice
President of CMA since 1996
Janet B. Rysz, 43 Assistant Secretary Senior legal assistant and assistant secretary of
Stein Roe
M. Gerard Sandel, 44 Vice-President Senior vice president of Stein Roe since July 1997;
vice president of M&I Investment Management
Corporation prior thereto
Gloria J. Santella, 41 Vice-President Senior vice president of Stein Roe since Nov. 1995;
vice president of Stein Roe prior thereto
Thomas C. Theobald, 61 (3) Trustee Managing director, William Blair 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, 27 Treasurer Financial reporting manager for Stein Roe '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
Heidi J. Walter, 31 Vice-President; Vice president of Stein Roe since March 1998; senior
Secretary legal counsel for Stein Roe since Feb. 1998; legal
counsel for Stein Roe March 1995 to Jan. 1998;
associate with Beeler Schad & Diamond, PC (law firm)
prior thereto
Hans P. Ziegler, 57 Executive Vice-President Chief executive officer of Stein Roe since May 1994;
president of the Investment Counsel division of Stein
Roe prior thereto
<FN>
- -----------------
(1) Trustee who is an "interested person" of the Trust and of
Stein Roe, as defined in the Investment Company Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope and
results of the audit.
</TABLE>
Certain of the trustees and officers of the Trust are
trustees or officers of other investment companies managed by
Stein Roe. Mr. Anetsberger, Mr. Butch, and Ms. Walter are also
officers of Liberty Funds Distributor, Inc., the Fund's
distributor. The address of Mr. Bacon is 4N640 Honey Hill Road,
Box 296, Wayne, IL 60184; that of Mr. Boyd is 2900 Golf Road,
Rolling Meadows, IL 60008; that of Mr. Cook is 600 Atlantic
Avenue, Boston, MA 02210; that of Mr. Hacker is P.O. Box 66100,
Chicago, IL 60666; that of Ms. Kelly is Three First National
Plaza, Chicago, IL 60602; that of Mr. Nelson is Department of
Economics, University of Washington, Seattle, WA 98195; that of
Mr. Theobald is Suite 3300, 222 West Adams Street, Chicago, IL
60606; that of Mr. Cantor is 1330 Avenue of the Americas, New
York, NY 10019; that of Ms. Knudsen, Ms. Rao, and Messrs.
Connaughton, Haynie, Jacoby, and Rega is One Financial Center,
Boston, MA 02111; and that of the other officers is One South
Wacker Drive, Chicago, IL 60606.
Officers and trustees affiliated with Stein Roe serve without
any compensation from the Trust. In compensation for their
services to the Trust, trustees who are not "interested persons"
of the Trust or Stein Roe are paid an annual retainer plus an
attendance fee for each meeting of the Board or standing committee
thereof attended. The Trust has no retirement or pension plan.
The following table sets forth compensation paid during the fiscal
year ended Sept. 30, 1998 to each of the trustees:
Compensation from the
Stein Roe Fund Complex*
-----------------------
Aggregate Compensation Total Average
Name of Trustee from the Trust Compensation Per Series
- ------------------- -------------------- ------------ ----------
Timothy K. Armour** -0- -0- -0-
Thomas W. Butch** -0- -0- -0-
Lindsay Cook -0- -0- -0-
John A. Bacon Jr.** -0- -0- -0-
Kenneth L. Block**
William W. Boyd
Douglas A. Hacker
Janet Langford Kelly
Francis W. Morley**
Charles R. Nelson
Thomas C. Theobald
_______________
*At Sept. 30, 1998, the Stein Roe Fund Complex consisted of 11
series of the Trust, 10 series of Stein Roe Advisor Trust, four
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 13 series of SR&F Base Trust.
**Messrs. Block and Morley retired as trustees on Dec. 31, 1997.
Mr. Armour resigned as a trustee on April 14, 1998. Mr. Butch
served as a trustee from April 14, 1998 to Nov. 3, 1998. Mr.
Bacon was elected a trustee effective Nov. 3, 1998.
FINANCIAL STATEMENTS
Please refer to the Funds' Sept. 30, 1998 Financial
Statements (statements of assets and liabilities and schedules of
investments as of Sept. 30, 1998 and the statements of operations,
changes in net assets, and notes thereto) and the report of
independent public accountants contained in the Sept. 30, 1998
Annual Reports of the Funds. The Financial Statements and the
report of independent public accountants (but no other material
from the Annual Reports ) are incorporated herein by reference.
The Annual Reports may be obtained at no charge by telephoning
800-338-2550.
PRINCIPAL SHAREHOLDERS
As of Oct. 31, 1998, the only persons known by the Trust to
own of record or "beneficially" 5% or more of the outstanding
shares of a Fund within the definition of that term as contained
in Rule 13d-3 under the Securities Exchange Act of 1934 were as
follows:
Approximate
Percentage of
Outstanding
Name and Address Fund Shares Held
- --------------------- --------------------------- -------------
U.S. Bank National Growth & Income Fund 11.31%
Association (1) Balanced Fund 18.97
410 N. Michigan Avenue Growth Stock Fund 17.80
Chicago, IL 60611 Growth Opportunities Fund 14.46
Special Fund 17.05
Special Venture Fund 6.37
Capital Opportunities Fund 11.36
Large Company Focus Fund 10.68
Charles Schwab & Co. Growth & Income Fund 30.55
Inc. Special Custody Special Venture Fund 6.43
Account for the Growth Opportunities Fund 34.21
Exclusive Benefit of Large Company Focus Fund 43.48
Customers (2) Balanced Fund 9.50
Attn Mutual Funds Growth Stock Fund 8.02
101 Montgomery Street Capital Opportunities Fund 29.48
San Francisco., CA Special Fund 18.19
94104-4122
The Northern Trust International Fund 6.53
Co. (3) Special Venture Fund 20.51
F/B/O Liberty Mutual Capital Opportunities Fund 5.58
Daily Valuation
P. O. Box 92956
Chicago, IL 60675
FTC & Co., Attn: Balanced Fund 7.40
Datalynx House Acct
P.O. Box 173736
Denver, CO 80217-3736
The Northern Trust Capital Opportunities Fund 5.58
Company Trustee FBO
Chiron 401(K)
P.O. Box 92956 DV
Chicago, IL 60606
____________________________________
(1) Shares held as custodian.
(2) Shares held for accounts of customers.
(3) Northern Trust Company holds shares of record on behalf of the
Liberty Mutual Employees' Thrift-Incentive Plan.
The following table shows shares of the Funds held by the
categories of persons indicated as of Oct. 31, 1998, and in each
case the approximate percentage of outstanding shares represented:
Clients of the Adviser Trustees and
in their Client Accounts* Officers
------------------------ -------------------
Shares Held Percent Shares Held Percent
----------- ------- ----------- -------
Growth & Income Fund **
Balanced Fund **
Growth Stock Fund **
Special Fund **
Large Company Focus Fund **
Special Venture Fund **
Capital Opportunities Fund **
Growth Opportunities Fund **
International Fund **
- -------
*Stein Roe may have discretionary authority over such shares and,
accordingly, they could be deemed to be owned "beneficially" by
Stein Roe under Rule 13d-3. However, Stein Roe disclaims actual
beneficial ownership of such shares.
**Represents less than 1% of the outstanding shares.
INVESTMENT ADVISORY AND OTHER SERVICES
Stein Roe & Farnham Incorporated provides investment
management services to each Portfolio, Capital Opportunities Fund,
Growth Opportunities Fund and Large Company Focus Fund, and
administrative services to each Fund and each Portfolio. Stein
Roe 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 Liberty
Corporate Holdings, Inc., which is a wholly 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 Stein Roe are Kenneth R. Leibler, C. Allen
Merritt, Jr., Thomas W. Butch, and Hans P. Ziegler. Mr. Leibler
is President and Chief Executive Officer of Liberty Financial; Mr.
Merritt is Chief Operating Officer of Liberty Financial; Mr. Butch
is President of Stein Roe's Mutual Funds division; and Mr. Ziegler
is Chief Executive Officer of Stein Roe. The business address of
Messrs. Leibler and Merritt is 600 Atlantic Avenue, Boston, MA
02210; and that of Messrs. Butch and Ziegler is One South Wacker
Drive, Chicago, IL 60606.
Stein Roe and its predecessor have been providing investment
advisory services since 1932. Stein Roe acts as investment
adviser to wealthy individuals, trustees, pension and profit
sharing plans, charitable organizations, and other institutional
investors. As of Sept. 30, 1998, Stein Roe managed over $28.3
billion in assets: over $9.4 billion in equities and over $18.9
billion in fixed income securities (including $1.1 billion in
municipal securities). The $28.3 billion in managed assets
included over $8.3 billion held by open-end mutual funds managed
by Stein Roe (approximately 14% of the mutual fund assets were
held by clients of Stein Roe). These mutual funds were owned by
over 295,000 shareholders. The $8.3 billion in mutual fund assets
included over $637 million in over 43,000 IRA accounts. In
managing those assets, Stein Roe utilizes a proprietary computer-
based information system that maintains and regularly updates
information for approximately 7,500 companies. Stein Roe also
monitors over 1,400 issues via a proprietary credit analysis
system. At Sept. 30, 1998, Stein Roe employed 18 research
analysts and 55 account managers. The average investment-related
experience of these individuals was 17 years.
Stein Roe Counselor [service mark] and Stein Roe Personal
Counselor [service mark] are professional investment advisory
services offered to Fund shareholders. Each is designed to help
shareholders construct Fund investment portfolios to suit their
individual needs. Based on information shareholders provide about
their financial circumstances, goals, and objectives in response
to a questionnaire, Stein Roe's investment professionals create
customized portfolio recommendations for investments in the mutual
funds managed by Stein Roe. Shareholders participating in Stein
Roe Counselor [service mark] are free to self direct their
investments while considering Stein Roe's recommendations;
shareholders participating in Stein Roe Personal Counselor
[service mark] enjoy the added benefit of having Stein Roe
implement portfolio recommendations automatically for a fee of 1%
or less, depending on the size of their portfolios. In addition
to reviewing shareholders' circumstances, goals, and objectives
periodically and updating portfolio recommendations to reflect any
changes, the shareholders who participate in these programs are
assigned a dedicated Counselor [service mark] representative.
Other distinctive services include specially designed account
statements with portfolio performance and transaction data,
newsletters, and regular investment, economic, and market updates.
A $50,000 minimum investment is required to participate in either
program.
In return for its services, Stein Roe is entitled to receive
a monthly administrative fee from each Fund and a monthly
management fee from each non-feeder Fund and each Portfolio. The
table below shows the annual rates of such fees as a percentage of
average net assets (shown in millions), gross fees paid for the
three most recent fiscal years, and any expense reimbursements by
Stein Roe:
<TABLE>
<CAPTION>
Current Rates Year Ended Year Ended Year Ended
Fund/Portfolio Type (dollars shown in millions) 9/30/98 9/30/97 9/30/96
- -------------------- ------------- --------------------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Growth & Income Fund Management N/A N/A $ 484,689 $ 989,415
Administrative .15% up to $500,
.125% next $500,
.10% thereafter 422,974 247,354
Growth & Income Management .60% up to $500, .55% next
Portfolio $500, .50% thereafter 1,191,730 N/A
Balanced Fund Management N/A N/A 493,328 1,246,713
Administrative .15% up to $500, .125% next
$500, .10% thereafter 399,157 340,013
Balanced Portfolio Management .55% up to $500, .50% next
$500, .45% thereafter 971,102 N/A
Growth Stock Fund Management N/A N/A 933,019 2,316,351
Administrative .15% up to $500, .125% next
$500, .10% thereafter 757,086 579,088
Growth Stock Management .60% up to $500, .55% next
Portfolio $500, .50% thereafter 2,119,802 N/A
Special Fund Management N/A N/A 2,638,251 7,920,534
Administrative .15% up to $500, .125% next
$500, .10% next $500, .075%
thereafter 1,537,601 1,499,506
Special Portfolio Management .75% up to $500, .70% next
$500, .65% next $500, .60%
thereafter 5,249,467 N/A
Large Company Management .75% up to $500, .70% next
Focus Fund $500, .65% next $500, .60%
thereafter N/A N/A
Administrative .15% up to $500, .125% next
$500, .10% next $500, .075%
thereafter N/A N/A
Reimbursement Expenses exceeding 1.50% N/A N/A
Special Venture Fund Management N/A N/A 396,022 807,861
Administrative .15% 267,585 46,272
Reimbursement N/A -0- -0- 85,898
Special Venture Management .75% 942,785 N/A
Portfolio
Capital Opportun- Management .75% up to $500, .70% next
ities Fund $500, .65% next $500, .60%
thereafter 9,097,549 5,695,180
Administrative .15% up to $500, .125% next
$500, .10% next $500, .075%
thereafter 1,655,427 1,064,461
Growth Opportun- Management .75% up to $500, .70% next
ities Fund $500, .65% next $500, .60%
thereafter 86,304 N/A
Administrative .15% up to $500, .125% next
$500, .10% next $500, .075%
thereafter 17,260 N/A
Reimbursement Expenses exceeding 1.25% 55,876 N/A
International Fund Management N/A N/A 407,439 1,504,810
Administrative .15% 219,771 48,884
International
Portfolio Management .85% 838,780 N/A
</TABLE>
Stein Roe provides office space and executive and other
personnel to the Funds, and bears any sales or promotional
expenses. Each Fund pays all expenses other than those paid by
Stein Roe, including but not limited to printing and postage
charges, securities registration and custodian fees, and expenses
incidental to its organization.
The administrative agreement provides that Stein Roe shall
reimburse the Fund to the extent that total annual expenses of the
Fund (including fees paid to Stein Roe, but excluding taxes,
interest, commissions and other normal charges incident to the
purchase and sale of portfolio securities, and expenses of
litigation to the extent permitted under applicable state law)
exceed the applicable limits prescribed by any state in which
shares of the Fund are being offered for sale to the public;
provided, however, Stein Roe is not required to reimburse a Fund
an amount in excess of fees paid by the Fund under that agreement
for such year. In addition, in the interest of further limiting
expenses of a Fund, Stein Roe may voluntarily waive its fees
and/or absorb certain expenses, as described under The Funds-Your
Expenses in the Prospectuses. Any such reimbursement will enhance
the yield of such Fund.
Each management agreement provides that neither Stein Roe,
nor any of its directors, officers, stockholders (or partners of
stockholders), agents, or employees shall have any liability to
the Trust or any shareholder of the Trust for any error of
judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance by
Stein Roe of its duties under the agreement, except for liability
resulting from willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless
disregard by it of its obligations and duties under the agreement.
Any expenses that are attributable solely to the
organization, operation, or business of a series of the Trust are
paid solely out of the assets of that series. Any expenses
incurred by the Trust that are not solely attributable to a
particular series are apportioned in such manner as Stein Roe
determines is fair and appropriate, unless otherwise specified by
the Board of Trustees.
Bookkeeping and Accounting Agreement
Pursuant to a separate agreement with the Trust, Stein Roe
receives a fee for performing certain bookkeeping and accounting
services. For such services, Stein Roe receives an annual fee of
$25,000 per series plus .0025 of 1% of average net assets over $50
million. During the fiscal years ended Sept. 30, 1996, 1997 and
1998, Stein Roe received aggregate fees of $265,246, $315,067 and
$______, respectively, from the Trust for services performed under
this Agreement.
DISTRIBUTOR
Shares of each Fund are distributed by Liberty Funds
Distributor, Inc. ("Distributor"), One Financial Center, Boston,
MA 02111, under a Distribution Agreement. The Distributor is a
subsidiary of Colonial Management Associates, Inc., which is an
indirect subsidiary of Liberty Financial. The Distribution
Agreement continues in effect from year to year, provided such
continuance is approved annually (i) by a majority of the trustees
or by a majority of the outstanding voting securities of the
Trust, and (ii) by a majority of the trustees who are not parties
to the Agreement or interested persons of any such party. The
Trust has agreed to pay all expenses in connection with
registration of its shares with the Securities and Exchange
Commission and auditing and filing fees in connection with
registration of its shares under the various state blue sky laws
and assumes the cost of preparation of prospectuses and other
expenses.
As agent, the Distributor offers shares of each Fund to
investors in states where the shares are qualified for sale, at
net asset value, without sales commissions or other sales load to
the investor. In addition, no sales commission or "12b-1" payment
is paid by any Fund. The Distributor offers the Funds' shares
only on a best-efforts basis.
TRANSFER AGENT
SteinRoe Services Inc. ("SSI"), One South Wacker Drive,
Chicago, IL 60606, is the agent of the Trust for the transfer of
shares, disbursement of dividends, and maintenance of shareholder
accounting records. For performing these services, SSI receives
from each Fund a fee based on an annual rate of .22 of 1% of the
Fund's average net assets. The Trust believes the charges by SSI
to the Funds are comparable to those of other companies performing
similar services. (See Investment Advisory and Other Services.)
Under a separate agreement, SSI also provides certain investor
accounting services to the Portfolios.
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, MA 02101, is the custodian for the Trust
and SR&F Base Trust. It is responsible for holding all securities
and cash, receiving and paying for securities purchased,
delivering against payment securities sold, receiving and
collecting income from investments, making all payments covering
expenses, and performing other administrative duties, all as
directed by authorized persons. The Bank does not exercise any
supervisory function in such matters as purchase and sale of
portfolio securities, payment of dividends, or payment of
expenses.
Portfolio securities purchased in the U.S. are maintained in
the custody of the Bank or of other domestic banks or
depositories. Portfolio securities purchased outside of the U.S.
are maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network and foreign
depositories ("foreign sub-custodians"). Each of the domestic and
foreign custodial institutions holding portfolio securities has
been approved by the Board of Trustees in accordance with
regulations under the Investment Company Act of 1940.
Each Board of Trustees reviews, at least annually, whether it
is in the best interests of each Fund, each Portfolio, and their
shareholders to maintain assets in each of the countries in which
a Fund or Portfolio invests with particular foreign sub-custodians
in such countries, pursuant to contracts between such respective
foreign sub-custodians and the Bank. The review includes an
assessment of the risks of holding assets in any such country
(including risks of expropriation or imposition of exchange
controls), the operational capability and reliability of each such
foreign sub-custodian, and the impact of local laws on each such
custody arrangement. Each Board of Trustees is aided in its
review by the Bank, which has assembled the network of foreign
sub-custodians, as well as by Stein Roe and counsel. However,
with respect to foreign sub-custodians, there can be no assurance
that a Fund and the value of its shares will not be adversely
affected by acts of foreign governments, financial or operational
difficulties of the foreign sub-custodians, difficulties and costs
of obtaining jurisdiction over or enforcing judgments against the
foreign sub-custodians, or application of foreign law to the
foreign sub-custodial arrangements. Accordingly, an investor
should recognize that the non-investment risks involved in holding
assets abroad are greater than those associated with investing in
the United States.
The Funds and the Portfolios may invest in obligations of the
Bank and may purchase or sell securities from or to the Bank.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Funds and the
Portfolios are Arthur Andersen LLP, 33 West Monroe Street,
Chicago, IL 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
Stein Roe places the orders for the purchase and sale of
portfolio securities and options and futures contracts. Stein
Roe's overriding objective in selecting brokers and dealers to
effect portfolio transactions is to seek the best combination of
net price and execution. The best net price, giving effect to
brokerage commissions, if any, is an important factor in this
decision; however, a number of other judgmental factors may also
enter into the decision. These factors include Stein Roe's
knowledge of negotiated commission rates currently available and
other current transaction costs; the nature of the security being
purchased or sold; the size of the transaction; the desired timing
of the transaction; 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 considered; Stein Roe's knowledge of
the financial condition of the broker or dealer selected and such
other brokers and dealers; and Stein Roe's knowledge of actual or
apparent operation problems of any broker or dealer. Recognizing
the value of these factors, Stein Roe may cause a client to pay a
brokerage commission in excess of that which another broker may
have charged for effecting the same transaction.
Stein Roe has established internal policies for the guidance
of its trading personnel, specifying minimum and maximum
commissions to be paid for various types and sizes of transactions
and effected for clients in those cases where Stein Roe has
discretion to select the broker or dealer by which the transaction
is to be executed. Transactions which vary from the guidelines
are subject to periodic supervisory review. These guidelines are
reviewed and periodically adjusted, and the general level of
brokerage commissions paid is periodically reviewed by Stein Roe.
Evaluations of the reasonableness of brokerage commissions, based
on the factors described in the preceding paragraph, are made by
Stein Roe's trading personnel while effecting portfolio
transactions. The general level of brokerage commissions paid is
reviewed by Stein Roe, and reports are made annually to the Board
of Trustees.
Where more than one broker or dealer is believed to be
capable of providing a combination of best net price and execution
with respect to a particular portfolio transaction, Stein Roe
often selects a broker or dealer that has furnished it with
investment research products or services such as: economic,
industry or company research reports or investment
recommendations; subscriptions to financial publications or
research data compilations; compilations of securities prices,
earnings, dividends, and similar data; computerized data bases;
quotation equipment and services; research or analytical computer
software and services; or services of economic and other
consultants. Such selections are not made pursuant to any
agreement or understanding with any of the brokers or dealers.
However, Stein Roe does in some instances request a broker to
provide a specific research or brokerage product or service which
may be proprietary to the broker or produced by a third party and
made available by the broker and, in such instances, the broker in
agreeing to provide the research or brokerage product or service
frequently will indicate to Stein Roe a specific or minimum amount
of commissions which it expects to receive by reason of its
provision of the product or service. Stein Roe does not agree
with any broker to direct such specific or minimum amounts of
commissions; however, Stein Roe does maintain an internal
procedure to identify those brokers who provide it with research
products or services and the value of such products or services,
and Stein Roe endeavors to direct sufficient commissions on client
transactions (including commissions on transactions in fixed
income securities effected on an agency basis and, in the case of
transactions for certain types of clients, dealer selling
concessions on new issues of securities) to ensure the continued
receipt of research products or services Stein Roe believes are
useful.
In a few instances, Stein Roe receives from a broker a
product or service which is used by Stein Roe both for investment
research and for administrative, marketing, or other non-research
or brokerage purposes. In such an instance, Stein Roe makes a
good faith effort to determine the relative proportion of its use
of such product or service which is for investment research or
brokerage, and that portion of the cost of obtaining such product
or service may be defrayed through brokerage commissions generated
by client transactions, while the remaining portion of the costs
of obtaining the product or service is paid by Stein Roe in cash.
Stein Roe may also receive research in connection with selling
concessions and designations in fixed income offerings.
The Funds and the Portfolios do not believe they pay
brokerage commissions higher than those obtainable from other
brokers in return for research or brokerage products or services
provided by brokers. Research or brokerage products or services
provided by brokers may be used by Stein Roe in servicing any or
all of its clients and such research products or services may not
necessarily be used by Stein Roe in connection with client
accounts which paid commissions to the brokers providing such
products or services.
The table below shows information on brokerage commissions
paid by the Funds and the Portfolios (in the case of a feeder
fund, brokerage commissions were paid by the Fund prior to Feb. 3,
1997 and by its related Portfolio since that date):
Large
Growth & Growth Company
Income Balanced Stock Special Focus
Portfolio Portfolio Portfolio Portfolio Fund
--------- --------- --------- --------- -------
Total amount of
brokerage commis-
sions paid during
fiscal year ended
9/30/98
Amount of commis-
sions paid to
brokers or dealers
who supplied
research services
to Stein Roe
Total dollar
amount involved
in such
transactions
(000 omitted)
Amount of commis-
sions paid to
brokers or dealers
that were allocated
to such brokers or
dealers by the Fund's
portfolio manager
because of research
services provided to
the Fund
Total dollar amount
involved in such
transactions (000
omitted)
Total amount of
brokerage commis-
sions paid during
fiscal year ended
9/30/97 120,469 144,101 240,427 766,278 N/A
Total amount of
brokerage commis-
sions paid during
fiscal year ended
9/30/96 76,692 276,367 259,829 1,519,821 N/A
Capital Growth
Special Oppor- Oppor- Inter-
Venture tunities tunities national
Portfolio Fund Fund Portfolio
--------- -------- -------- ---------
Total amount of brokerage
commissions paid during
fiscal year ended 9/30/98
Amount of commissions
paid to brokers or
dealers who supplied
research services to
Stein Roe
Total dollar amount
involved in such
transactions (000 omitted)
Amount of commissions
paid to brokers or dealers
that were allocated to
such brokers or dealers
by the Fund's portfolio
manager because of
research services provided
to the Fund
Total dollar amount
involved in such
transactions (000
omitted)
Total amount of brokerage
commissions paid during
fiscal year ended 9/30/97 389,281 543,951 38,375 305,856
Total amount of brokerage
commissions paid during
fiscal year ended 9/30/96 179,391 709,905 N/A 422,447
Each Trust has arranged for its custodian to act as a
soliciting dealer to accept any fees available to the custodian as
a soliciting dealer in connection with any tender offer for
portfolio securities. The custodian will credit any such fees
received against its custodial fees. In addition, the Board of
Trustees has reviewed the legal developments pertaining to and the
practicability of attempting to recapture underwriting discounts
or selling concessions when portfolio securities are purchased in
underwritten offerings. However, the Board has been advised by
counsel that recapture by a mutual fund currently is not permitted
under the Rules of the Association of the National Association of
Securities Dealers.
During the last fiscal year, certain Funds and Portfolios
held securities issued by one or more of their regular broker-
dealers or the parent of such broker-dealers that derive more than
15% of gross revenue from securities-related activities. Such
holdings were as follows at Sept. 30, 1998:
Value of
Securities Held
Fund/Portfolio Broker-Dealer (in thousands)
- ---------------- -------------- ------------------
ADDITIONAL INCOME TAX CONSIDERATIONS
Each Fund and Portfolio intends to qualify under Subchapter M
of the Internal Revenue Code and 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 gains distributions reduce net
asset value, a shareholder who purchases shares shortly before a
record date will, in effect, receive a return of a portion of his
investment in such distribution. The distribution would
nonetheless be taxable to him, even if the net asset value of
shares were reduced below his cost. However, for federal income
tax purposes the shareholder's original cost would continue as his
tax basis.
Each Fund expects that less than 100% of its dividends will
qualify for the deduction for dividends received by corporate
shareholders.
To the extent a Fund invests in foreign securities, it may be
subject to withholding and other taxes imposed by foreign
countries. Tax treaties between certain countries and the United
States may reduce or eliminate such taxes. Investors may be
entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in
the Code. Specifically, if more than 50% of the Fund's total
assets at the close of any fiscal year consist of stock or
securities of foreign corporations, the Fund may file an election
with the Internal Revenue Service pursuant to which shareholders
of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their
pro rata shares of foreign income taxes paid by the Fund even
though not actually received, (ii) treat such respective pro rata
shares as foreign income taxes paid by them, and (iii) deduct such
pro rata shares in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to
applicable limitations, against their United States income taxes.
Shareholders who do not itemize deductions for federal income tax
purposes will not, however, be able to deduct their pro rata
portion of foreign taxes paid by the Fund, although such
shareholders will be required to include their share of such taxes
in gross income. Shareholders who claim a foreign tax credit may
be required to treat a portion of dividends received from the Fund
as separate category income for purposes of computing the
limitations on the foreign tax credit available to such
shareholders. Tax-exempt shareholders will not ordinarily benefit
from this election relating to foreign taxes. Each year, the
Funds will notify shareholders of the amount of (i) each
shareholder's pro rata share of foreign income taxes paid by the
Fund and (ii) the portion of Fund dividends which represents
income from each foreign country, if the Fund qualifies to pass
along such credit.
Passive Foreign Investment Companies. International
Portfolio may purchase the securities of certain foreign
investment funds or trusts called passive foreign investment
companies ("PFICs"). In addition to bearing their proportionate
share of Fund expenses (management fees and operating expenses),
shareholders will also indirectly bear similar expenses of PFICs.
Capital gains on the sale of PFIC holdings will be deemed to be
ordinary income regardless of how long International Portfolio
holds its investment. In addition, International Portfolio may be
subject to corporate income tax and an interest charge on certain
dividends and capital gains earned from PFICs, regardless of
whether such income and gains are distributed to shareholders.
In accordance with tax regulations, International Portfolio
intends to treat PFICs as sold on the last day of their fiscal
year and recognize any gains for tax purposes at that time; losses
will not be recognized. Such gains will be considered ordinary
income which it will be required to distribute even though it has
not sold the security and received cash to pay such distributions.
INVESTMENT PERFORMANCE
A Fund may quote certain total return figures from time to
time. A "Total Return" on a per share basis is the amount of
dividends distributed per share plus or minus the change in the
net asset value per share for a period. A "Total Return
Percentage" may be calculated by dividing the value of a share at
the end of a period by the value of the share at the beginning of
the period and subtracting one. For a given period, an "Average
Annual Total Return" may be computed by finding the average annual
compounded rate that would equate a hypothetical initial amount
invested of $1,000 to the ending redeemable value.
n
Average Annual Total Return is computed as follows: ERV = P(1+T)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the
end of the period (or fractional portion).
For example, for a $1,000 investment in a Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at Sept. 30, 1998 were:
TOTAL RETURN AVERAGE ANNUAL
TOTAL RETURN PERCENTAGE TOTAL RETURN
------------ ------------- --------------
Growth & Income Fund
1 year
5 years
10 years
Balanced Fund
1 year
5 years
10 years
Growth Stock Fund
1 year
5 years
10 years
Special Fund
1 year
5 years
10 years
Large Company Focus Fund
Life of Fund*
Special Venture Fund
1 year
Life of Fund*
Capital Opportunities Fund
1 year
5 years
10 years
Growth Opportunities Fund
Life of Fund*
International Fund
1 year
Life of Fund*
______________________________________
*Life of Fund is from its date of public offering: 10/17/94 for
Special Venture Fund, 3/1/94 for International Fund;6/30/97 for
Growth Opportunities Fund; and 6/25/98 for Large Company Focus
Fund.
Investment performance figures assume reinvestment of all
dividends and distributions and do not take into account any
federal, state, or local income taxes which shareholders must pay
on a current basis. They are not necessarily indicative of future
results. The performance of a Fund is a result of conditions in
the securities markets, portfolio management, and operating
expenses. Although investment performance information is useful
in reviewing a Fund's performance and in providing some basis for
comparison with other investment alternatives, it should not be
used for comparison with other investments using different
reinvestment assumptions or time periods.
A Fund may note its mention or recognition in newspapers,
magazines, or other media from time to time. However, the Funds
assume no responsibility for the accuracy of such data.
Newspapers and magazines which might mention the Funds include,
but are not limited to, the following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Atlantic Monthly
Associated Press
Barron's
Bloomberg
Boston Globe
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Investment Advisor
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World
Forbes
Fortune
Fund Action
Fund Marketing Alert
Gourmet
Individual Investor
Investment Dealers' Digest
Investment News
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Lipper Analytical Services
Los Angeles Times
Louis Rukeyser's Wall Street
Money
Money on Line
Morningstar
Mutual Fund Market News
Mutual Fund News Service
Mutual Funds Magazine
Newsday
Newsweek
New York Daily News
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
Reuters
The San Francisco Chronicle
Securities Industry Daily
Smart Money
Smithsonian
Strategic Insight
Street.com
Time
Travel & Leisure
USA Today
U.S. News & World Report
Value Line
The Wall Street Journal
The Washington Post
Working Women
Worth
Your Money
In advertising and sales literature, a Fund may compare its
performance with that of other mutual funds, indexes or averages
of other mutual funds, indexes of related financial assets or
data, and other competing investment and deposit products
available from or through other financial institutions. The
composition of these indexes or averages differs from that of the
Funds. Comparison of a Fund to an alternative investment should
be made with consideration of differences in features and expected
performance. All of the indexes and averages noted below will be
obtained from the indicated sources or reporting services, which
the Funds believe to be generally accurate. All of the Funds may
compare their performance to the Consumer Price Index (All Urban),
a widely recognized measure of inflation. Each Fund's performance
may be compared to the following indexes or averages:
Dow-Jones Industrial Average New York Stock Exchange Composite Index
Standard & Poor's 500 Stock Index American Stock Exchange Composite Index
Standard & Poor's 400 Industrials NASDAQ Composite
Wilshire 5000 NASDAQ Industrials
(These indexes are widely (These indexes generally reflect
recognized indicators of the performance of stocks
general U.S. stock market traded in the indicated
results.) markets.)
In addition, the Funds may compare performance to the
indicated benchmarks:
Benchmark Fund(s)
- ----------------------------- ----------------------------
Lipper Balanced Fund Average Balanced Fund
Lipper Balanced Fund Index Balanced Fund
Lipper Capital Appreciation
Fund Average Capital Opportunities Fund,
Growth Opportunities Fund, Large
Company Focus Fund
Lipper Capital Appreciation
Fund Index Capital Opportunities Fund,
Growth Opportunities Fund, Large
Company Focus Fund
Lipper Equity Fund Average All Funds
Lipper General Equity Fund
Average All Funds
Lipper Growth & Income Fund
Average Growth & Income Fund
Lipper Growth & Income Fund Index Growth & Income Fund
Lipper Growth Fund Average Growth Stock Fund, Special Fund
Lipper Growth Fund Index Growth Stock Fund, Special Fund
Lipper International & Global
Funds Average International Fund
Lipper International Fund Index International Fund
Lipper Small Company Growth
Fund Average Special Venture Fund
Lipper Small Company Growth
Fund Index Special Venture Fund
Morningstar Aggressive Growth
Fund Average Capital Opportunities Fund,
Growth Opportunities Fund, Large
Company Focus Fund
Morningstar All Equity Funds
Average All Funds
Morningstar Advisor Balanced
Fund Average Balanced Fund
Morningstar Domestic Stock
Average All Funds except International Fund
Morningstar Equity Fund Average All Funds
Morningstar General Equity
Average* International Fund
Morningstar Growth & Income
Fund Average Growth & Income Fund
Morningstar Growth Fund Average Growth Stock Fund, Special Fund
Morningstar Hybrid Fund Average Balanced Fund, International
Fund
Morningstar International Stock
Average International Fund
Morningstar Small Company Growth
Fund Average Special Venture Fund
Morningstar Total Fund Average All Funds
Morningstar U.S. Diversified
Average International Fund
Value Line Index Capital Opportunities Fund,
(Widely recognized indicator Special Fund, Special Venture
of the performance of small- Fund, Growth Opportunities
and medium-sized company Fund, Large Company Focus Fund
stocks)
*Includes Morningstar Aggressive Growth, Growth, Balanced, Equity
Income, and Growth and Income Averages.
Lipper Growth Fund Index reflects the net asset value
weighted total return of the largest thirty growth funds and
thirty growth and income funds, respectively, as calculated and
published by Lipper. The Lipper International Fund Index reflects
the net asset value weighted return of the ten largest
international funds. The Lipper and Morningstar averages are
unweighted averages of total return performance of mutual funds as
classified, calculated, and published by these independent
services that monitor the performance of mutual funds. The Funds
may also use comparative performance as computed in a ranking by
Lipper or category averages and rankings provided by another
independent service. Should Lipper or another service reclassify
a Fund to a different category or develop (and place a Fund into)
a new category, that Fund may compare its performance or ranking
with those of other funds in the newly assigned category, as
published by the service.
A Fund may also cite its rating, recognition, or other
mention by Morningstar or any other entity. Morningstar's rating
system is based on risk-adjusted total return performance and is
expressed in a star-rating format. The risk-adjusted number is
computed by subtracting a fund's risk score (which is a function
of the fund's monthly returns less the 3-month T-bill return) from
its load-adjusted total return score. This numerical score is
then translated into rating categories, with the top 10% labeled
five star, the next 22.5% labeled four star, the next 35% labeled
three star, the next 22.5% labeled two star, and the bottom 10%
one star. A high rating reflects either above-average returns or
below-average risk, or both.
Of course, past performance is not indicative of future
results.
________________
To illustrate the historical returns on various types of
financial assets, the Funds may use historical data provided by
Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based investment
firm. Ibbotson constructs (or obtains) very long-term (since
1926) total return data (including, for example, total return
indexes, total return percentages, average annual total returns
and standard deviations of such returns) for the following asset
types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
_____________________
A Fund may also use hypothetical returns to be used as an
example in a mix of asset allocation strategies. One such example
is reflected in the chart below, which shows the effect of tax
deferral on a hypothetical investment. This chart assumes that an
investor invested $2,000 a year on 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.)
<TABLE>
<CAPTION>
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
Interest
Rate 3% 5% 7% 9% 3% 5% 7% 9%
- --------------------------------------------------------------------------------
Com-
pound-
ing
Years Tax-Deferred Investment Taxable Investment
- ---- ------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30 $82,955 $108,031 $145,856 $203,239 $80,217 $98,343 $121,466 $151,057
25 65,164 80,337 101,553 131,327 63,678 75,318 89,528 106,909
20 49,273 57,781 68,829 83,204 48,560 55,476 63,563 73,028
15 35,022 39,250 44,361 50,540 34,739 38,377 42,455 47,025
10 22,184 23,874 25,779 27,925 22,106 23,642 25,294 27,069
5 10,565 10,969 11,393 11,840 10,557 10,943 11,342 11,754
1 2,036 2,060 2,085 2,109 2,036 2,060 2,085 2,109
</TABLE>
Dollar Cost Averaging. Dollar cost averaging is an
investment strategy that requires investing a fixed amount of
money in Fund shares at set intervals. This allows you to
purchase more shares when prices are low and fewer shares when
prices are high. Over time, this tends to lower your average cost
per share. Like any investment strategy, dollar cost averaging
can't guarantee a profit or protect against losses in a steadily
declining market. Dollar cost averaging involves uninterrupted
investing regardless of share price and therefore may not be
appropriate for every investor.
From time to time, a Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe Counselor
[service mark] and the Stein Roe Personal Counselor [service mark]
programs and asset allocation and other investment strategies.
MASTER FUND/FEEDER FUND: STRUCTURE AND RISK FACTORS
Each of Growth & Income Fund, Balanced Fund, Growth Stock
Fund, Special Fund, Special Venture Fund and International Fund
(which are series of the Trust, an open-end management investment
company) seeks to achieve its objective by investing all of its
assets in another mutual fund having an investment objective
identical to that of the Fund. The shareholders of each Fund
approved this policy of permitting a Fund to act as a feeder fund
by investing in a Portfolio. Please refer to Investment Policies,
Portfolio Investments and Strategies, and Investment Restrictions
for a description of the investment objectives, policies, and
restrictions of the Funds and the Portfolios. The management fees
and expenses of the Funds and the Portfolios are described under
Investment Advisory and Other Services. Each feeder Fund bears
its proportionate share of the expenses of its master Portfolio.
Stein Roe has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
Each Portfolio is a separate series of SR&F Base Trust ("Base
Trust"), a Massachusetts common law trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
Aug. 23, 1993. The Declaration of Trust of Base Trust provides
that a Fund and other investors in a Portfolio will be liable for
all obligations of that Portfolio that are not satisfied by the
Portfolio. However, the risk of a Fund incurring financial loss
on account of such liability is limited to circumstances in which
liability was inadequately insured and a Portfolio was unable to
meet its obligations. Accordingly, the trustees of the Trust
believe that neither the Funds nor their shareholders will be
adversely affected by reason of a Fund's investing in a Portfolio.
The Declaration of Trust of Base Trust provides that a
Portfolio will terminate 120 days after the withdrawal of a Fund
or any other investor in the Portfolio, unless the remaining
investors vote to agree to continue the business of the Portfolio.
The trustees of the Trust may vote a Fund's interests in a
Portfolio for such continuation without approval of the Fund's
shareholders.
The common investment objectives of the Funds and the
Portfolios are nonfundamental and may be changed without
shareholder approval, subject, however, to at least 30 days'
advance written notice to a Fund's shareholders.
The fundamental policies of each Fund and the corresponding
fundamental policies of its master Portfolio can be changed only
with shareholder approval. If a Fund, as a Portfolio investor, is
requested to vote on a change in a fundamental policy of a
Portfolio or any other matter pertaining to the Portfolio (other
than continuation of the business of the Portfolio after
withdrawal of another investor), the Fund will solicit proxies
from its shareholders and vote its interest in the Portfolio for
and against such matters proportionately to the instructions to
vote for and against such matters received from Fund shareholders.
A Fund will vote shares for which it receives no voting
instructions in the same proportion as the shares for which it
receives voting instructions. There can be no assurance that any
matter receiving a majority of votes cast by Fund shareholders
will receive a majority of votes cast by all investors in a
Portfolio. If other investors hold a majority interest in a
Portfolio, they could have voting control over that Portfolio.
In the event that a Portfolio's fundamental policies were
changed so as to be inconsistent with those of the corresponding
Fund, the Board of Trustees of the Trust would consider what
action might be taken, including changes to the Fund's fundamental
policies, withdrawal of the Fund's assets from the Portfolio and
investment of such assets in another pooled investment entity, or
the retention of an investment adviser to invest those assets
directly in a portfolio of securities. Any of these actions would
require the approval of a Fund's shareholders. A Fund's inability
to find a substitute master fund or comparable investment
management could have a significant impact upon its shareholders'
investments. Any withdrawal of a Fund's assets could result in a
distribution in kind of portfolio securities (as opposed to a cash
distribution) to the Fund. Should such a distribution occur, the
Fund would incur brokerage fees or other transaction costs in
converting such securities to cash. In addition, a distribution
in kind could result in a less diversified portfolio of
investments for the Fund and could affect the liquidity of the
Fund.
Each investor in a Portfolio, including a Fund, may add to or
reduce its investment in the Portfolio on each day the NYSE is
open for business. The investor's percentage of the aggregate
interests in the Portfolio will be computed as the percentage
equal to the fraction (i) the numerator of which is the beginning
of the day value of such investor's investment in the Portfolio on
such day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investor's investment in the
Portfolio effected on such day; and (ii) the denominator of which
is the aggregate beginning of the day net asset value of the
Portfolio on such day plus or minus, as the case may be, the
amount of the net additions to or withdrawals from the aggregate
investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio as of the close
of business.
Base Trust may permit other investment companies and/or other
institutional investors to invest in a Portfolio, but members of
the general public may not invest directly in the Portfolio.
Other investors in a Portfolio are not required to sell their
shares at the same public offering price as a Fund, might incur
different administrative fees and expenses than the Fund, and
might charge a sales commission. Therefore, Fund shareholders
might have different investment returns than shareholders in
another investment company that invests exclusively in a
Portfolio. Investment by such other investors in a Portfolio
would provide funds for the purchase of additional portfolio
securities and would tend to reduce the operating expenses as a
percentage of the Portfolio's net assets. Conversely, large-scale
redemptions by any such other investors in a Portfolio could
result in untimely liquidations of the Portfolio's security
holdings, loss of investment flexibility, and increases in the
operating expenses of the Portfolio as a percentage of its net
assets. As a result, a Portfolio's security holdings may become
less diverse, resulting in increased risk.
Information regarding other investors in a Portfolio may be
obtained by writing to SR&F Base Trust at Suite 3200, One South
Wacker Drive, Chicago, IL 60606, or by calling 800-338-2550.
Stein Roe may provide administrative or other services to one or
more of such investors.
APPENDIX-RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's opinion
as to the credit quality of the security being rated. However,
the ratings are general and are not absolute standards of quality
or guarantees as to the creditworthiness of an issuer.
Consequently, Stein Roe believes that the quality of debt
securities invests should be continuously reviewed and that
individual analysts give different weightings to the various
factors involved in credit analysis. A rating is not a
recommendation to purchase, sell or hold a security because it
does not take into account market value or suitability for a
particular investor. When a security has received a rating from
more than one service, each rating should be evaluated
independently. Ratings are based on current information furnished
by the issuer or obtained by the rating services from other
sources which they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability
of such information, or for other reasons.
The following is a description of the characteristics of
ratings of corporate debt securities used by Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Corporation
("S&P").
RATINGS BY MOODY'S
Aaa. Bonds rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or an exceptionally stable margin and principal is secure.
Although the various protective elements are likely to change,
such changes as can be visualized are more unlikely to impair the
fundamentally strong position of such bonds.
Aa. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa bonds.
A. Bonds rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa. Bonds rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any
long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Ca. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in
each generic rating classification from Aa through B in its
corporate bond rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
RATINGS BY S&P
AAA. Debt rated AAA has the highest rating. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A. Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than for debt in higher rated categories.
BB, B, CCC, CC, and C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no interest
is being paid.
D. Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears. The D rating is also used
upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
NOTES:
The ratings from AA to CCC may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the
major rating categories. Foreign debt is rated on the same basis
as domestic debt measuring the creditworthiness of the issuer;
ratings of foreign debt do not take into account currency exchange
and related uncertainties.
The "r" is attached to highlight derivative, hybrid, and certain
other obligations that S&P believes may experience high volatility
or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or
interest return is indexed to equities, commodities, or
currencies; certain swaps and options; and interest only and
principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will
exhibit no volatility or variability in total return.
_______________________
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS [Note: As used herein, the term "PEA"
refers to a post-effective amendment to the Registration
Statement of the Registrant on Form N-1A under the Securities
Act of 1933, No. 33-11351.]
(a) (1) Agreement and Declaration of Trust as amended
through February 1, 1996. (Exhibit 1 to PEA #32.)*
(2) Amendment dated December 31, 1996 to Agreement and
Declaration of Trust. (Exhibit 1(b) to PEA #37.)*
(b) (1) By-Laws of Registrant as amended through February
3, 1993. (Exhibit 2 to PEA #34).*
(2) Amendment to By-Laws dated February 4, 1998.
(Exhibit 2(a) to PEA #45.)*
(c) None.
(d) Management agreement between Registrant and Stein Roe
& Farnham Incorporated (the "Adviser") as amended
through July 1, 1996. (Exhibit 5(a) to PEA #34.)*
(e) (1) Underwriting agreement between Registrant and
Liberty Financial Investments, Inc. (Exhibit
6(a) to PEA #46.)*
(2) Specimen copy of selected dealer agreement.
(Exhibit 6(b) to PEA #40.)*
(f) None.
(g) Custodian contract between Registrant and State
Street Bank and Trust Company as amended through May
8, 1995.(Exhibit 8 to PEA #31.)*
(h) (1) Restated Transfer Agency Agreement between
Registrant and SteinRoe Services Inc. dated August
1, 1995.(Exhibit 9(a) to PEA #31.)*
(2) Accounting and Bookkeeping Agreement dated August
1, 1994. (Exhibit 9(b) to PEA #34.)*
(3) Administrative Agreement between Registrant and the
Adviser dated August 15, 1995 as amended through
July 1, 1996. (Exhibit 9(c) to PEA #34.)*
(4) Sub-transfer agent agreement with Colonial
Investors Service Center as amended through April
30, 1998. (Exhibit 9(d) to PEA #46.)*
(i) (1) Opinions and consents of Ropes & Gray. (Exhibit
10(a) to PEA #34).*
(2) Opinions and consents of Bell, Boyd & Lloyd with
respect to SteinRoe Prime Equities (now named Stein
Roe Growth & Income Fund), Stein Roe Capital
Opportunities Fund, Stein Roe Special Fund,
SteinRoe Stock Fund (now named Stein Roe Growth
Stock Fund), SteinRoe Total Return Fund (now named
Stein Roe Balanced Fund), Stein Roe International
Fund, Stein Roe Young Investor Fund, and Stein Roe
Special Venture Fund. (Exhibit 10(b) to PEA #34).*
(3) Opinion and consent of Bell, Boyd & Lloyd with
respect to Stein Roe Emerging Markets Fund.
(Exhibit 10(c) to PEA #37.)*
(4) Opinion and consent of Bell, Boyd & Lloyd with
respect to Stein Roe Growth Opportunities Fund.
(Exhibit 10(d) to PEA #39.)*
(5) Opinion and consent of Bell, Boyd & Lloyd with
respect to Stein Roe Large Company Focus Fund.
(Exhibit 10(e) to PEA #45.)*
(6) Opinion and consent of Bell, Boyd & Lloyd with
respect to Stein Roe Asia Pacific Fund. (Exhibit
10(f) to PEA #46.)*
(j) (1) None.
(2) Consent of Morningstar, Inc. (Exhibit 11(b) to PEA
#34).*
(3) Consent of Bell, Boyd & Lloyd. (Exhibit (j)(3) to PEA
#49.)*
(k) None.
(l) Inapplicable.
(m) None
(n) Financial Data Schedules:
(1) Stein Roe Growth & Income Fund.
(2) Stein Roe Balanced Fund.
(3) Stein Roe Growth Stock Fund.
(4) Stein Roe Capital Opportunities Fund.
(5) Stein Roe Special Fund.
(6) Stein Roe International Fund.
(7) Stein Roe Young Investor Fund.
(8) Stein Roe Special Venture Fund.
(9) Stein Roe Emerging Markets Fund.
(10) Stein Roe Growth Opportunities Fund.
(o) Inapplicable
(p) (Miscellaneous.) Mutual Fund Application. (Exhibit
19(a) to PEA #44.)*
- ------
*Incorporated by reference.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
The Registrant does not consider that it is directly or
indirectly controlling, controlled by, or under common control
with other persons within the meaning of this Item. See
"Investment Advisory Services," "Management," and "Transfer
Agent" in the Statement of Additional Information, each of
which is incorporated herein by reference.
ITEM 25. INDEMNIFICATION.
Article Tenth of the Agreement and Declaration of Trust of
Registrant (Exhibit (a)), which Article is incorporated herein
by reference, provides that Registrant shall provide
indemnification of its trustees and officers (including each
person who serves or has served at Registrant's request as a
director, officer, or trustee of another organization in which
Registrant has any interest as a shareholder, creditor or
otherwise) ("Covered Persons") under specified circumstances.
Section 17(h) of the Investment Company Act of 1940 ("1940
Act") provides that neither the Agreement and Declaration of
Trust nor the By-Laws of Registrant, nor any other instrument
pursuant to which Registrant is organized or administered,
shall contain any provision which protects or purports to
protect any trustee or officer of Registrant against any
liability to Registrant or its shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. In accordance with
Section 17(h) of the 1940 Act, Article Tenth shall not protect
any person against any liability to Registrant or its
shareholders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of
his office.
Unless otherwise permitted under the 1940 Act,
(i) Article Tenth does not protect any person against
any liability to Registrant or to its shareholders to which he
would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office;
(ii) in the absence of a final decision on the merits by
a court or other body before whom a proceeding was brought
that a Covered Person was not liable by reason of willful
misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office,
no indemnification is permitted under Article Tenth unless a
determination that such person was not so liable is made on
behalf of Registrant by (a) the vote of a majority of the
trustees who are neither "interested persons" of Registrant,
as defined in Section 2(a)(19) of the 1940 Act, nor parties to
the proceeding ("disinterested, non-party trustees"), or (b)
an independent legal counsel as expressed in a written
opinion; and
(iii) Registrant will not advance attorneys' fees or
other expenses incurred by a Covered Person in connection with
a civil or criminal action, suit or proceeding unless
Registrant receives an undertaking by or on behalf of the
Covered Person to repay the advance (unless it is ultimately
determined that he is entitled to indemnification) and (a) the
Covered Person provides security for his undertaking, or (b)
Registrant is insured against losses arising by reason of any
lawful advances, or (c) a majority of the disinterested, non-
party trustees of Registrant or an independent legal counsel
as expressed in a written opinion, determine, based on a
review of readily available facts (as opposed to a full trial-
type inquiry), that there is reason to believe that the
Covered Person ultimately will be found entitled to
indemnification.
Any approval of indemnification pursuant to Article Tenth does
not prevent the recovery from any Covered Person of any amount
paid to such Covered Person in accordance with Article Tenth
as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have
acted in good faith in the reasonable belief that such Covered
Person's action was in, or not opposed to, the best interests
of Registrant or to have been liable to Registrant or its
shareholders by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved
in the conduct of such Covered Person's office.
Article Tenth also provides that its indemnification
provisions are not exclusive.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers,
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses
incurred or paid by a trustee, officer, or controlling person
of Registrant in the successful defense of any action, suit,
or proceeding) is asserted by such trustee, officer, or
controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Registrant, its trustees and officers, its investment adviser,
the other investment companies advised by the adviser, and
persons affiliated with them are insured against certain
expenses in connection with the defense of actions, suits, or
proceedings, and certain liabilities that might be imposed as
a result of such actions, suits, or proceedings. Registrant
will not pay any portion of the premiums for coverage under
such insurance that would (1) protect any trustee or officer
against any liability to Registrant or its shareholders to
which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office
or (2) protect its investment adviser or principal
underwriter, if any, against any liability to Registrant or
its shareholders to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, or gross
negligence, in the performance of its duties, or by reason of
its reckless disregard of its duties and obligations under its
contract or agreement with the Registrant; for this purpose
the Registrant will rely on an allocation of premiums
determined by the insurance company.
Pursuant to the indemnification agreement among the
Registrant, its transfer agent and its investment adviser
dated July 1, 1995, the Registrant, its trustees, officers and
employees, its transfer agent and the transfer agent's
directors, officers and employees are indemnified by
Registrant's investment adviser against any and all losses,
liabilities, damages, claims and expenses arising out of any
act or omission of the Registrant or its transfer agent
performed in conformity with a request of the investment
adviser that the transfer agent and the Registrant deviate
from their normal procedures in connection with the issue,
redemption or transfer of shares for a client of the
investment adviser.
Registrant, its trustees, officers, employees and
representatives and each person, if any, who controls the
Registrant within the meaning of Section 15 of the Securities
Act of 1933 are indemnified by the distributor of Registrant's
shares (the "distributor"), pursuant to the terms of the
distribution agreement, which governs the distribution of
Registrant's shares, against any and all losses, liabilities,
damages, claims and expenses arising out of the acquisition of
any shares of the Registrant by any person which (i) may be
based upon any wrongful act by the distributor or any of the
distributor's directors, officers, employees or
representatives or (ii) may be based upon any untrue or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, statement of additional
information, shareholder report or other information covering
shares of the Registrant filed or made public by the
Registrant or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statement therein not misleading if such statement or omission
was made in reliance upon information furnished to the
Registrant by the distributor in writing. In no case does the
distributor's indemnity indemnify an indemnified party against
any liability to which such indemnified party would otherwise
be subject by reason of willful misfeasance, bad faith, or
negligence in the performance of its or his duties or by
reason of its or his reckless disregard of its or his
obligations and duties under the distribution agreement.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT
ADVISER.
The Adviser is a wholly owned subsidiary of SteinRoe Services
Inc. ("SSI"), which in turn is a wholly owned subsidiary of
Liberty Financial Companies, Inc., which is a majority owned
subsidiary of Liberty Corporation Holdings, Inc., which is a
wholly owned subsidiary of LFC Holdings, Inc., which in turn is a
subsidiary of Liberty Mutual Equity Corporation, which in turn is
a subsidiary of Liberty Mutual Insurance Company. The Adviser
acts as investment adviser to individuals, trustees, pension and
profit-sharing plans, charitable organizations, and other
investors. In addition to Registrant, it also acts as investment
adviser to other investment companies having different investment
policies.
For a two-year business history of officers and directors of
the Adviser, please refer to the Form ADV of Stein Roe &
Farnham Incorporated and to the section of the statement of
additional information (Part B) entitled "Investment Advisory
and Other Services."
Certain directors and officers of the Adviser also serve and
have during the past two years served in various capacities as
officers, directors, or trustees of SSI and of the Registrant,
and other investment companies managed by the Adviser. (The
listed entities are located at One South Wacker Drive,
Chicago, Illinois 60606, except for SteinRoe Variable
Investment Trust and Liberty Variable Investment Trust, which
are located at Federal Reserve Plaza, Boston, MA 02210 and
LFC Utilities Trust, which is located at One Financial Center,
Boston, MA 02111.) A list of such capacities is given below.
POSITION FORMERLY
HELD WITHIN
CURRENT POSITION PAST TWO YEARS
------------------- -------------
STEINROE SERVICES INC.
Gary A. Anetsberger Vice President
Kenneth J. Kozanda Vice President; Treasurer
Kenneth R. Leibler Director
C. Allen Merritt, Jr. Director; Vice President
Heidi J. Walter Vice President; Secretary
Hans P. Ziegler Director; President; Chairman
SR&F BASE TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Sr. Vice-President Treasurer
Thomas W. Butch President Exec. V-P;
Trustee
Kevin M. Carome Vice-President; Asst. Secy.
Loren A. Hansen Executive Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
STEIN ROE INCOME TRUST; STEIN ROE INSTITUTIONAL TRUST; AND
STEIN ROE TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Sr. Vice-President Treasurer
Thomas W. Butch President Exec. V-P;
V-P; Trustee
Kevin M. Carome Vice-President; Asst. Secy.
Loren A. Hansen Executive Vice-President
Michael T. Kennedy Vice-President
Stephen F. Lockman Vice-President
Steven P. Luetger Vice-Pres.
Lynn C. Maddox Vice-President
Jane M. Naeseth Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
STEIN ROE INVESTMENT TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Sr. Vice-President Treasurer
David P. Brady Vice-President
Thomas W. Butch President Exec. V-P;
V-P; Trustee
Daniel K. Cantor Vice-President
Kevin M. Carome Vice-President; Asst. Secy.
E. Bruce Dunn Vice-President
Erik P. Gustafson Vice-President
Loren A. Hansen Executive Vice-President
James P. Haynie Vice-President
Harvey B. Hirschhorn Vice-President
Eric S. Maddix Vice-President
Lynn C. Maddox Vice-President
Arthur J. McQueen Vice-President
Gita R. Rao Vice-President
Michael E. Rega Vice-President
M. Gerard Sandel Vice-President
Gloria J. Santella Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
STEIN ROE ADVISOR TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Sr. Vice-President Treasurer
David P. Brady Vice-President
Thomas W. Butch President Exec. V-P;
V-P; Trustee
Daniel K. Cantor Vice-President
Kevin M. Carome Vice-President; Asst. Secy.
E. Bruce Dunn Vice-President
Erik P. Gustafson Vice-President
Loren A. Hansen Executive Vice-President
James P. Haynie Vice-President
Harvey B. Hirschhorn Vice-President
Michael T. Kennedy Vice-President
Stephen F. Lockman Vice-President
Eric S. Maddix Vice-President
Lynn C. Maddox Vice-President
Arthur J. McQueen Vice-President
Maureen G. Newman Vice-President
Gita R. Rao Vice-President
Michael E. Rega Vice-President
M. Gerard Sandel Vice-President
Gloria J. Santella Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
STEIN ROE MUNICIPAL TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Sr. Vice-President Treasurer
Thomas W. Butch President Exec. V-P;
V-P; Trustee
Kevin M. Carome Vice-President; Asst. Secy.
Joanne T. Costopoulos Vice-President
Loren A. Hansen Executive Vice-President
Brian M. Hartford Vice-President
William C. Loring Vice-President
Lynn C. Maddox Vice-President
Maureen G. Newman Vice-President
Veronica M. Wallace Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
STEINROE VARIABLE INVESTMENT TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior Vice-President Treasurer
Thomas W. Butch President
Kevin M. Carome Vice-President; Asst. Secretary
E. Bruce Dunn Vice Pres.
William M. Garrison Vice President
Erik P. Gustafson Vice President
Loren A. Hansen Executive Vice-President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice Pres.
Jane M. Naeseth Vice President
Steven M. Salopek Vice President
William M. Wadden IV Vice President
Heidi J. Walter Vice President
Hans P. Ziegler Executive Vice-President
STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior Vice-President
Thomas W. Butch President; Manager
Kevin M. Carome Vice-President; Asst. Secretary
Loren A. Hansen Executive Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive V-P
STEIN ROE FLOATING RATE INCOME TRUST; STEIN ROE INSTITUTIONAL
FLOATING RATE INCOME TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior Vice-President
Thomas W. Butch President; Trustee
Kevin M. Carome Vice-President; Asst. Secretary
Brian W. Good Vice-President
James R. Fellows Vice-President
Loren A. Hansen Executive Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive V-P
LFC UTILITIES TRUST
Gary A. Anetsberger Vice President
Ophelia L. Barsketis Vice President
Deborah A. Jansen Vice President
LIBERTY VARIABLE INVESTMENT TRUST
Ophelia L. Barsketis Vice President
Deborah A. Jansen Vice President
Kevin M. Carome Vice President
ITEM 27. PRINCIPAL UNDERWRITERS.
Registrant's principal underwriter, Liberty Funds Distributor,
Inc., a subsidiary of Colonial Management Associates, Inc., also
acts in the same capacity to Colonial Trust I, Colonial Trust II,
Colonial Trust III, Colonial Trust IV, Colonial Trust V, Colonial
Trust VI, Colonial Trust VII, Stein Roe Advisor Trust, Stein Roe
Income Trust, Stein Roe Municipal Trust, Stein Roe Institutional
Trust and Stein Roe Trust; and sponsor for Colony Growth Plans
(public offering of which was discontinued on June 14, 197l).
The table below lists each director or officer of Liberty Funds
Distributor, Inc.
Position and Offices Positions and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
- -------------------- --------------------- -------------
Anderson, Judith Vice President None
Anetsberger, Gary A. Senior Vice President Senior V-P
Babbitt, Debra VP & Compliance Officer None
Ballou, Rich Vice President None
Balzano, Christine R. Vice President None
Bartlett, John Managing Director None
Blumenfeld, Alex Vice President None
Brown, Beth Vice President None
Burtman, Tracy Vice President None
Butch, Thomas W. Senior Vice President Pres., Trustee
Campbell, Patrick Vice President None
Chrzanowski, Daniel Vice President None
Claiborne, Douglas Vice President None
Clapp, Elizabeth A. Senior Vice President None
Conlin, Nancy L. Director, Clerk None
Davey, Cynthia Sr. Vice President None
Desilets, Marian Vice President None
Devaney, James Vice President None
DiMaio, Steve Vice President None
Downey, Christopher Vice President None
Emerson, Kim P. Vice President None
Erickson, Cynthia G. Senior Vice President None
Evans, C. Frazier Managing Director None
Feldman, David Senior Vice President None
Fifield, Robert Vice President None
Gauger, Richard Vice President None
Gerokoulis, Stephen A. Senior Vice President None
Gibson, Stephen E. Director, Chairman of Board None
Goldberg, Matthew Vice President None
Geunard, Brian Vice President None
Harrington, Tom Sr. Vice President None
Harris, Carla L. Vice President None
Hodgkins, Joseph Sr. Vice President None
Hussey, Robert Senior Vice President None
Iudice, Jr., Philip Treasurer and CFO None
Jones, Cynthia Vice President None
Jones, Jonathan Vice President None
Karagiannis, Marilyn Managing Director None
Kelley, Terry M. Vice President None
Kelson, David W. Senior Vice President None
Libutti, Chris Vice President None
McCombe, Gregory Senior Vice President None
McKenzie, Mary Vice President None
Menchin, Catherine Vice President None
Miller, Anthony Vice President None
Moberly, Ann R. Senior Vice President None
Morner, Patrick Vice President None
Morse, Jonathan Vice President None
O'Shea, Kevin Managing Director None
Piken, Keith Vice President None
Pollard, Brian S. Vice President None
Predmore, Tracy Vice President None
Quirk, Frank Vice President None
Reed, Christopher B. Senior Vice President None
Riegel, Joyce B. Vice President None
Robb, Douglas Vice President None
Sandberg, Travis Vice President None
Scarlott, Rebecca Vice President None
Schulman, David Vice President None
Scoon, Davey Director None
Scott, Michael W. Senior Vice President None
Sideropoulos, Lou Vice President None
Smith, Darren Vice President None
Studer, Eric Vice President None
Sutton, R. Andrew Vice President None
Tambone, James Chief Executive Officer None
Tasiopoulos, Lou President None
Tuttle, Brian Vice President None
Van Etten, Keith Vice President None
Villanova, Paul Vice President None
Wallace, John Vice President None
Walter, Heidi J. Vice President V-P & Secy.
Wess, Valerie Vice President None
Young, Deborah Vice President None
- ---------
* The address of Ms. Harris, Ms. Riegel, Ms. Walter, and Messrs.
Anetsberger, Butch and Pollard is One South Wacker Drive,
Chicago, IL 60606. The address of each other director and
officer is One Financial Center, Boston, MA 02111.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
Registrant maintains the records required to be maintained by
it under Rules 31a-1(a), 31a-1(b), and 31a-2(a) under the
Investment Company Act of 1940 at its principal executive
offices at One South Wacker Drive, Chicago, Illinois 60606.
Certain records, including records relating to Registrant's
shareholders and the physical possession of its securities,
may be maintained pursuant to Rule 31a-3 at the main office of
Registrant's transfer agent or custodian.
ITEM 29. MANAGEMENT SERVICES.
None.
ITEM 30. UNDERTAKINGS.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940, the has duly caused this
amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of Chicago and State of Illinois on the 20th day of November,
1998.
STEIN ROE INVESTMENT TRUST
By THOMAS W. BUTCH
Thomas W. Butch
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated:
Signature* Title Date
- ------------------------ --------------------- --------------
THOMAS W. BUTCH President Nov. 20, 1998
Thomas W. Butch
Principal Executive Officer
GARY A. ANETSBERGER Senior Vice-President Nov. 20, 1998
Gary A. Anetsberger
Principal Financial Officer
SHARON R. ROBERTSON Controller Nov. 20, 1998
Sharon R. Robertson
Principal Accounting Officer
JOHN A. BACON JR. Trustee Nov. 20, 1998
John A. Bacon Jr.
WILLIAM W. BOYD Trustee Nov. 20, 1998
William W. Boyd
LINDSAY COOK Trustee Nov. 20, 1998
Lindsay Cook
DOUGLAS A. HACKER Trustee Nov. 20, 1998
Douglas A. Hacker
JANET LANGFORD KELLY Trustee Nov. 20, 1998
Janet Langford Kelly
CHARLES R. NELSON Trustee Nov. 20, 1998
Charles R. Nelson
THOMAS C. THEOBALD Trustee Nov. 20, 1998
Thomas C. Theobald
*Each person signing this amendment is signing in his or her
indicated capacity with the Registrant and also in the same
capacity with SR&F Base Trust.
<PAGE>
STEIN ROE INVESTMENT TRUST
INDEX TO EXHIBITS FILED WITH THIS AMENDMENT
Exhibit
Number Description
- ------- ------------
(n) Financial Data Schedules:
(1) Stein Roe Growth & Income Fund.
(2) Stein Roe Balanced Fund.
(3) Stein Roe Growth Stock Fund.
(4) Stein Roe Capital Opportunities Fund.
(5) Stein Roe Special Fund.
(6) Stein Roe International Fund.
(7) Stein Roe Young Investor Fund.
(8) Stein Roe Special Venture Fund.
(9) Stein Roe Emerging Markets Fund.
(10) Stein Roe Growth Opportunities Fund.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> STEIN ROE GROWTH & INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 212,463
<INVESTMENTS-AT-VALUE> 337,631
<RECEIVABLES> 363
<ASSETS-OTHER> 77
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 338,071
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 605
<TOTAL-LIABILITIES> 605
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 212,463
<SHARES-COMMON-STOCK> 14,731
<SHARES-COMMON-PRIOR> 11,116
<ACCUMULATED-NII-CURRENT> 1,295
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,111
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 112,597
<NET-ASSETS> 337,466
<DIVIDEND-INCOME> 4,127
<INTEREST-INCOME> 3,350
<OTHER-INCOME> 0
<EXPENSES-NET> 3,189
<NET-INVESTMENT-INCOME> 4,288
<REALIZED-GAINS-CURRENT> 12,317
<APPREC-INCREASE-CURRENT> 58,865
<NET-CHANGE-FROM-OPS> 75,470
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,709
<DISTRIBUTIONS-OF-GAINS> 8,004
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,996
<NUMBER-OF-SHARES-REDEEMED> 3,826
<SHARES-REINVESTED> 445
<NET-CHANGE-IN-ASSETS> 133,079
<ACCUMULATED-NII-PRIOR> 716
<ACCUMULATED-GAINS-PRIOR> 7,047
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 485
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,189
<AVERAGE-NET-ASSETS> 279,941
<PER-SHARE-NAV-BEGIN> 18.39
<PER-SHARE-NII> 0.30
<PER-SHARE-GAIN-APPREC> 5.15
<PER-SHARE-DIVIDEND> (0.28)
<PER-SHARE-DISTRIBUTIONS> (0.65)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.91
<EXPENSE-RATIO> 1.13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> STEIN ROE BALANCED FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 191,100
<INVESTMENTS-AT-VALUE> 284,829
<RECEIVABLES> 410
<ASSETS-OTHER> 112
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 285,351
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 505
<TOTAL-LIABILITIES> 505
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 191,10
<SHARES-COMMON-STOCK> 8,526
<SHARES-COMMON-PRIOR> 7,685
<ACCUMULATED-NII-CURRENT> 182
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 9,383
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 84,181
<NET-ASSETS> 284,846
<DIVIDEND-INCOME> 2,685
<INTEREST-INCOME> 8,157
<OTHER-INCOME> 0
<EXPENSES-NET> 2,805
<NET-INVESTMENT-INCOME> 8,037
<REALIZED-GAINS-CURRENT> 11,658
<APPREC-INCREASE-CURRENT> 36,801
<NET-CHANGE-FROM-OPS> 56,496
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,239
<DISTRIBUTIONS-OF-GAINS> 18,744
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,769
<NUMBER-OF-SHARES-REDEEMED> 1,678
<SHARES-REINVESTED> 750
<NET-CHANGE-IN-ASSETS> 53,783
<ACCUMULATED-NII-PRIOR> (555)
<ACCUMULATED-GAINS-PRIOR> 16,469
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 493
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,805
<AVERAGE-NET-ASSETS> 264,191
<PER-SHARE-NAV-BEGIN> 30.07
<PER-SHARE-NII> 0.95
<PER-SHARE-GAIN-APPREC> 5.61
<PER-SHARE-DIVIDEND> (0.96)
<PER-SHARE-DISTRIBUTIONS> (2.26)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 33.41
<EXPENSE-RATIO> 1.05
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> STEIN ROE GROWTH STOCK FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 307,598
<INVESTMENTS-AT-VALUE> 608,119
<RECEIVABLES> 518
<ASSETS-OTHER> 121
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 608,758
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,089
<TOTAL-LIABILITIES> 1,089
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 307,598
<SHARES-COMMON-STOCK> 17,218
<SHARES-COMMON-PRIOR> 14,517
<ACCUMULATED-NII-CURRENT> 55
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 34,207
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 265,809
<NET-ASSETS> 607,669
<DIVIDEND-INCOME> 4,186
<INTEREST-INCOME> 1,492
<OTHER-INCOME> 0
<EXPENSES-NET> 5,480
<NET-INVESTMENT-INCOME> 198
<REALIZED-GAINS-CURRENT> 34,268
<APPREC-INCREASE-CURRENT> 107,140
<NET-CHANGE-FROM-OPS> 141,606
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,100
<DISTRIBUTIONS-OF-GAINS> 33,200
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,268
<NUMBER-OF-SHARES-REDEEMED> 4,578
<SHARES-REINVESTED> 1,011
<NET-CHANGE-IN-ASSETS> 189,705
<ACCUMULATED-NII-PRIOR> 957
<ACCUMULATED-GAINS-PRIOR> 33,139
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 933
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,480
<AVERAGE-NET-ASSETS> 508,490
<PER-SHARE-NAV-BEGIN> 28.79
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 8.79
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> (2.23)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 35.29
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> STEIN ROE CAPITAL OPPORTUNITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 783,381
<INVESTMENTS-AT-VALUE> 1,118,126
<RECEIVABLES> 4,647
<ASSETS-OTHER> 232
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,123,005
<PAYABLE-FOR-SECURITIES> 2,583
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,780
<TOTAL-LIABILITIES> 12,363
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 895,253
<SHARES-COMMON-STOCK> 38,173
<SHARES-COMMON-PRIOR> 54,262
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (119,356)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 334,745
<NET-ASSETS> 1,110,642
<DIVIDEND-INCOME> 1,266
<INTEREST-INCOME> 4,987
<OTHER-INCOME> 0
<EXPENSES-NET> 15,061
<NET-INVESTMENT-INCOME> (8,808)
<REALIZED-GAINS-CURRENT> (110,932)
<APPREC-INCREASE-CURRENT> (7,539)
<NET-CHANGE-FROM-OPS> (127,279)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,657
<NUMBER-OF-SHARES-REDEEMED> 35,746
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (573,896)
<ACCUMULATED-NII-PRIOR> (3,208)
<ACCUMULATED-GAINS-PRIOR> (8,424)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,098
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,061
<AVERAGE-NET-ASSETS> 1,282,295
<PER-SHARE-NAV-BEGIN> 31.04
<PER-SHARE-NII> (0.17)
<PER-SHARE-GAIN-APPREC> (1.77)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 29.07
<EXPENSE-RATIO> 1.17
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> STEIN ROE SPECIAL FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 615,803
<INVESTMENTS-AT-VALUE> 1,328,513
<RECEIVABLES> 472
<ASSETS-OTHER> 174
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,329,159
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,581
<TOTAL-LIABILITIES> 1,581
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 615,803
<SHARES-COMMON-STOCK> 39,288
<SHARES-COMMON-PRIOR> 42,299
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 110,545
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 601,230
<NET-ASSETS> 1,327,578
<DIVIDEND-INCOME> 6,750
<INTEREST-INCOME> 4,568
<OTHER-INCOME> 0
<EXPENSES-NET> 13,301
<NET-INVESTMENT-INCOME> (1,983)
<REALIZED-GAINS-CURRENT> 113,915
<APPREC-INCREASE-CURRENT> 232,265
<NET-CHANGE-FROM-OPS> 344,197
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 86,856
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,195
<NUMBER-OF-SHARES-REDEEMED> 12,222
<SHARES-REINVESTED> 3,016
<NET-CHANGE-IN-ASSETS> 169,080
<ACCUMULATED-NII-PRIOR> (2,611)
<ACCUMULATED-GAINS-PRIOR> 85,469
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,638
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,301
<AVERAGE-NET-ASSETS> 1,162,903
<PER-SHARE-NAV-BEGIN> 27.39
<PER-SHARE-NII> (0.06)
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<EXPENSE-RATIO> 1.14
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> STEIN ROE INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 145,658
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<TOTAL-ASSETS> 166,591
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<TOTAL-LIABILITIES> 503
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 145,658
<SHARES-COMMON-STOCK> 14,090
<SHARES-COMMON-PRIOR> 12,369
<ACCUMULATED-NII-CURRENT> 554
<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,249
<NET-ASSETS> 166,088
<DIVIDEND-INCOME> 3,067
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<NET-INVESTMENT-INCOME> 802
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<NUMBER-OF-SHARES-SOLD> 4,883
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<SHARES-REINVESTED> 203
<NET-CHANGE-IN-ASSETS> 30,543
<ACCUMULATED-NII-PRIOR> 933
<ACCUMULATED-GAINS-PRIOR> 1,010
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,268
<AVERAGE-NET-ASSETS> 146,918
<PER-SHARE-NAV-BEGIN> 10.96
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.99
<PER-SHARE-DIVIDEND> (0.08)
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<EXPENSE-RATIO> 1.55
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> STEIN ROE YOUNG INVESTOR FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 365,322
<INVESTMENTS-AT-VALUE> 475,423
<RECEIVABLES> 690
<ASSETS-OTHER> 74
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<TOTAL-ASSETS> 476,187
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 681
<TOTAL-LIABILITIES> 681
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 365,322
<SHARES-COMMON-STOCK> 20,899
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<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> 7,149
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 103,035
<NET-ASSETS> 475,506
<DIVIDEND-INCOME> 2,552
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<EXPENSES-NET> 4,981
<NET-INVESTMENT-INCOME> (658)
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<APPREC-INCREASE-CURRENT> 80,440
<NET-CHANGE-FROM-OPS> 86,939
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<NUMBER-OF-SHARES-SOLD> 20,131
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<SHARES-REINVESTED> 446
<NET-CHANGE-IN-ASSETS> 296,417
<ACCUMULATED-NII-PRIOR> 136
<ACCUMULATED-GAINS-PRIOR> 8,287
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,178
<AVERAGE-NET-ASSETS> 343,734
<PER-SHARE-NAV-BEGIN> 18.64
<PER-SHARE-NII> (0.03)
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<PER-SHARE-DIVIDEND> (0.02)
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<EXPENSE-RATIO> 1.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> STEIN ROE SPECIAL VENTURE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 176,713
<INVESTMENTS-AT-VALUE> 235,922
<RECEIVABLES> 151
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<TOTAL-LIABILITIES> 389
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 176,713
<SHARES-COMMON-STOCK> 13,511
<SHARES-COMMON-PRIOR> 9,106
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16,736
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42,306
<NET-ASSETS> 235,755
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<OTHER-INCOME> 0
<EXPENSES-NET> 2,303
<NET-INVESTMENT-INCOME> (330)
<REALIZED-GAINS-CURRENT> 22,532
<APPREC-INCREASE-CURRENT> 17,242
<NET-CHANGE-FROM-OPS> 39,444
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<DISTRIBUTIONS-OF-GAINS> 14,445
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<NUMBER-OF-SHARES-SOLD> 7,337
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<SHARES-REINVESTED> 931
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<ACCUMULATED-NII-PRIOR> (214)
<ACCUMULATED-GAINS-PRIOR> 8,979
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<GROSS-EXPENSE> 2,303
<AVERAGE-NET-ASSETS> 178,586
<PER-SHARE-NAV-BEGIN> 15.87
<PER-SHARE-NII> (0.02)
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<EXPENSE-RATIO> 1.29
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 13
<NAME> STEIN ROE EMERGING MARKETS FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 44,193
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<TOTAL-ASSETS> 42,170
<PAYABLE-FOR-SECURITIES> 355
<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 553
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 41,256
<SHARES-COMMON-STOCK> 4,062
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 146
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,494
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,279)
<NET-ASSETS> 41,617
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<OTHER-INCOME> 0
<EXPENSES-NET> 450
<NET-INVESTMENT-INCOME> 233
<REALIZED-GAINS-CURRENT> 2,407
<APPREC-INCREASE-CURRENT> (2,279)
<NET-CHANGE-FROM-OPS> 361
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<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,529
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 41,617
<ACCUMULATED-NII-PRIOR> 0
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<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 511
<AVERAGE-NET-ASSETS> 37,884
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.06
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<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
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<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> STEIN ROE GROWTH OPPORTUNITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> MAY-09-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 46,081
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<TOTAL-ASSETS> 49,996
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<SENIOR-LONG-TERM-DEBT> 0
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<TOTAL-LIABILITIES> 166
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 46,479
<SHARES-COMMON-STOCK> 4,625
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (373)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,722
<NET-ASSETS> 49,830
<DIVIDEND-INCOME> 28
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<EXPENSES-NET> 144
<NET-INVESTMENT-INCOME> 2
<REALIZED-GAINS-CURRENT> (373)
<APPREC-INCREASE-CURRENT> 3,722
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
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<NUMBER-OF-SHARES-SOLD> 4,965
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 49,830
<ACCUMULATED-NII-PRIOR> 0
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<AVERAGE-NET-ASSETS> 45,654
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
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</TABLE>