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[Cover Page]
Stein Roe Small Company Growth Fund
Prospectus
Feb. 2, 1999
The Securities and Exchange Commission has not approved or
disapproved these securities or determined whether this prospectus
is accurate or complete. Anyone who tells you otherwise is
committing a crime.
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The Fund
Investment Goal
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
Market Capitalization
Short Sales
Portfolio Turnover
Temporary Defensive Positions
Interfund Lending Program
The Fund's Management
Investment Adviser
Portfolio Managers
Master/Feeder Structure
Year 2000 Readiness
Please keep this prospectus as your reference manual.
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THE FUND
[CALLOUT]
A company's market capitalization is simply its stock price
multiplied by the number of shares of stock it has issued and
outstanding. In the financial markets, companies generally are
sorted into one of three capitalization-based categories: large
capitalization (large cap); medium capitalization (midcap); or
small capitalization (small cap).
As of Dec. 31, 1998, large-cap companies had market
capitalizations greater than $6.6 billion, midcap companies had
market capitalizations between $1.8 and $6.6 billion and small-cap
companies had market capitalizations less than $1.8 billion.
These amounts will change as the S&P Mid-Cap 400 and S&P Small-Cap
600 indices change.
(For more information, see page 24.)
[/CALLOUT]
INVESTMENT GOAL
Stein Roe Small Company Growth Fund seeks long-term growth.
PRINCIPAL INVESTMENT STRATEGY
Under normal market conditions, the Fund invests at least 65
percent of its assets in common stocks of small-cap companies.
The Fund may invest in new issuers during periods when new issues
are being brought to market. The Fund may also invest in midcap
companies. The Fund invests in companies that compete within
large and growing markets and that have the ability to grow their
market share. To find companies with these growth
characteristics, the portfolio managers seek out companies that
are-or, in the portfolio managers' judgment, have the potential to
be-a market share leader within their respective industry. They
also look for companies with strong management teams that
participate in the ownership of the companies.
PRINCIPAL INVESTMENT RISKS
There are two basic risks for all mutual funds that invest in
stocks: management risk and market risk. Investments in small-
and medium-cap companies may increase these risks relative to
investments in larger-cap companies. These risks may cause you to
lose money when you sell your shares.
[Callout]
What are market and management risks? Management risk means that
stock selections 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
will reduce the value of your investment. Because of management
and market risk, there is no guarantee that the Fund will achieve
its investment goal or perform favorably compared with competing
funds.
[End of callout]
Small- and Medium-Cap Companies
The securities the Fund purchases may involve certain special
risks. Small- and medium-sized companies and new issuers often
have limited product lines, operating histories, markets, or
financial resources. They also may depend heavily on a small
management group. Small-cap companies in particular are more
likely to fail or prove unable to grow. Their securities may
trade less frequently, in smaller volumes, and fluctuate more
sharply in price than securities of larger companies. The price
of the Fund's shares-its net asset value (NAV)-may fluctuate daily
in response to changes in the market value of the securities. In
addition, these risks could negatively impact the Fund's
performance or yield.
An investment in the Fund is not a bank deposit and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any
other government agency. It is not a complete investment program
and you can lose money by investing in the Fund.
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 the Fund if you:
* are a long-term investor who seeks the potentially greater
growth opportunities of small-cap stocks and can tolerate their
greater risks
* can tolerate fluctuations in the Fund's NAV due to greater
volatility of small-cap companies
The Fund is not appropriate for investors who:
* already have significant holdings in small-cap stocks or mutual
funds
* can't tolerate volatility or possible losses
* are saving for a short-term investment
* need regular current income
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 risks of
investing in the Fund.
YEAR-BY-YEAR TOTAL RETURNS*
30%
25%
20%
15% 19.83%
10%
5% 7.85%
0%
- -5%
1997 1998
Best quarter: 4th quarter 1998, +20.21%
Worst quarter: 3rd quarter 1998, -19.32%
*On Feb. 2, 1999, the Colonial Aggressive Growth Fund (Predecessor
Fund) was reorganized into the Fund. The Predecessor Fund had
multiple classes of shares, consisting of Class A, Class B, and
Class C shares. The performance information contained in the
chart is based on the historical returns of the Predecessor Fund's
Class A shares, which, unlike the Fund, had a 0.25% 12b-1
fee. This chart does not reflect the sales load of the Predecessor
Fund's Class A shares.
Average Annual Total Returns
Average annual total returns measure the Fund's performance over
time. We compare the Fund's returns with returns for the S&P
Small-Cap 600 Index, which is a measure of market performance for
small-cap companies. 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 and provides an indication of the risks of
investing in the Fund.
AVERAGE ANNUAL TOTAL RETURNS
Periods ending Dec. 31, 1998
1 yr Since Inception
Small Company Growth Fund* 7.85% 15.23%
S&P Small-Cap 600 Index** -1.31% 13.67%
______
*In February 1999, the Colonial Aggressive Growth Fund
(Predecessor Fund) was reorganized into the Fund. The Predecessor
Fund had multiple classes of shares, consisting of Class A, Class
B, and Class C shares. The performance information contained in
the table is based on the historical returns of the Predecessor
Fund's Class A shares, which, unlike the Fund, had a 0.25% 12b-1
fee. The table does not reflect the sales load of the Predecessor
Fund's Class A shares.
**The S&P Small-Cap 600 Index is an unmanaged group of stocks that
differs from the Fund's composition; it is not available for
direct investment. Since inception performance for the S&P Small-
Cap 600 Index is from March 31, 1996 to Dec. 31, 1998.
YOUR EXPENSES
This table shows fees and expenses you may pay if you buy and hold
shares of the Fund. 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 (b)
(expenses that are deducted from Fund assets)
Management fees (c) 1.00%
Distribution (12b-1) fees None
Other expenses 0.64%
Total annual fund operating expenses(d) 1.64%
Less expense reimbursement 0.14%
Net expenses 1.50%
(a) There is a $7 charge for wiring redemption proceeds to your
bank. A fee of $5 per quarter may be charged to accounts that
fall below the required minimum balance.
(b) Management fees reflect increases effective February 1999.
Other Expenses are based on projected average annual assets of
$50 million. In addition, the Fund's 12b-1 fee of 0.25% and
load of 5.75% were eliminated effective February 1999.
(c) Management fees include both the management fee and the
administrative fee charged to the Fund.
(d) Stein Roe will reimburse the Fund if its annual ordinary
operating expenses exceed 1.50% of average daily net assets.
This commitment expires on Jan. 31, 2000. After
reimbursement, management fees will be 0.86%. 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
Small Company Growth Fund $153 $504 $878 $1,930
Understanding Expenses
Fund expenses include management fees and administrative costs
such as furnishing the Fund with offices and providing tax and
compliance services.
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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 July 1 to June 30. The total returns in the table
represent the returns that investors earned assuming that they
reinvested all dividends and distributions. Certain information
in the table reflects the financial results for a single share of
Class A of the Predecessor Fund, outstanding throughout the period
from March 31, 1996 through June 30, 1998. The information has
been derived from the financial statements of the Predecessor
Fund. Pricewaterhouse Coopers LLP, independent accountants,
audited this information and issued an unqualified report that
appears in the Predecessor Fund's 1998 annual report along with
the financial statements. To request the Predecessor Fund's
annual report, please call 800-338-2550.
Small Company Fund
Per Share Data Period
For years ended
ended June 30, June 30,
1998 1997 1996(a)
Net asset value, beginning of period $12.65 $11.30 $10.11
Income from investment operations
Net investment loss (e) (0.14) (0.11) (0.01)
Net gains on securities (both
realized and unrealized) 2.78 1.48 1.20
Total income from investment
operations 2.64 1.37 1.19
Less distributions
Dividends (from net investment income) - (0.01) -
Distributions (from capital gains) (0.90) (0.01) -
Total distributions (0.90) (0.02) -
Net asset value, end of period $14.39 $12.65 $11.30
Total return (b) 21.56% 12.14% 11.77%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period(000 omitted) $3,867 $3,185 $2,826
Ratio of net expenses to average net
assets (d) 1.55% 1.55% 1.55%(c)
Ratio of net investment loss to
average net assets (b) (1.04)% (0.99)% (0.58)%(c)
Portfolio turnover rate 70% 54% -%
_____________________
(a) The Predecessor Fund commenced operation on March 25, 1996.
The activity shown is from the effective date of registration
(March 31, 1996) with the Securities and Exchange Commission.
The Predecessor Fund was not publicly offered and may have
been managed differently than a publicly offered fund.
(b) Computed with the effect of the expense reimbursement.
(c) 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.
(d) If the Fund had paid all of its expenses and there had been no
reimbursement by the previous investment adviser, this ratio
would have been 3.76% and 4.12% for the years ended June 30,
1998 and 1997, and 2.93% for the period ended June 30, 1996.
(e) Per share data was calculated using average shares outstanding
during the period.
<PAGE>
YOUR ACCOUNT
Purchasing Shares
You may purchase shares of the Fund without a sales charge. Your
purchases are made at 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
Private Capital Management, the minimum initial investment is
determined by those programs.
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.
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.
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 $1,000 $50 -
Roth and Traditional IRA $500 $50 $500
Educational IRA $500 $50 $500
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
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 write your account number on the check.
Fill out investment slip (stub from your statement or
confirmation) or include a note indicating the amount
of your purchase, your account number, and the name
in which your account is registered.
Mail check with investment slip or note to the
appropriate address above.
BY WIRE: Opening an Account
Mail your application to the address listed on the
left, then call 800-338-2550 to obtain an account
number. Include your Social Security Number. To
wire funds, use the instructions below.
Adding to an Account
Wire funds to:
First National Bank of Boston
ABA: 011000390
Attn.: SSI, Account No. 560-99696
Fund No. 25; Stein Roe Small Company Growth Fund
Your name (exactly as in the registration).
Account number
(Counselor Account No. if you participate in the
Stein Roe Counselor 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
will not be accepted for initial purchases.
Determining Share Price
The Fund's share 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.
To calculate 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 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
Fund 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 value a security at fair value when events have occurred after
the last available market price and before the close of the NYSE
that materially affect the security's price.
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 to your registered
address.
By Phone: This feature is automatically added to your account
unless you decline it on your application. Call
800-338-2550 to redeem an amount of $1,000 or more.
We will send the 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
predesignated 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
Due to the expense of maintaining accounts with low balances, if
your account balance falls below $2,000 ($800 for custodial
accounts), you will be charged a low balance fee of $5 per
quarter. The low 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 Fund can waive the fee, at its discretion, in the
event of significant market corrections.
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 account you exchange into must be registered 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 exchanges "roundtrips"
per year. A roundtrip is an exchange out of the Fund into another
Stein Roe no-load fund and then back to the Fund.
Reporting to Shareholders
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 want to receive additional copies free of charge. This
policy may not apply if you purchase shares through an
intermediary.
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 one year or
less 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 the
Fund unless you elect on the account application to have
distributions paid by check.
[CALLOUT]
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
[/CALLOUT]
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 the 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 shares of the Fund. 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 one year or less Gain is ordinary income;
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 may also 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.
<PAGE>
OTHER INVESTMENTS AND RISKS
The Fund's primary investment strategies and risks are described
in this prospectus. (See "The Fund.") This section and the
Statement of Additional Information (SAI) describe other
investments that the Fund may make and risks associated with them.
The Board of Trustees can change the Fund's investment objective
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 may also be required
to sell portfolio investments to fund redemptions.
Market Capitalization
In this prospectus, we refer frequently to market capitalization
as a means to distinguish among companies based on their size. A
company's market capitalization is simply its stock price
multiplied by the number of shares of stock it has issued and
outstanding. In the financial markets, companies generally are
sorted into one of three capitalization-based categories: large
capitalization (large cap); medium capitalization (midcap); or
small capitalization (small cap).
To sort companies in this manner, we compare a company's
capitalization with the capitalization of an appropriate index.
(An index is a statistical composite that measures a group of
stocks.) We utilize two indices in grouping stocks: the S&P Mid-
Cap 400 Index and the S&P Small-Cap 600 Index.
We consider a company to be large cap if its market capitalization
is at least 90 percent of the weighted market capitalization of
the S&P Mid-Cap 400 Index.
We consider a company to be midcap if its market capitalization is
less than 90 percent of the weighted market capitalization of the
S&P Mid-Cap 400 Index and at least 90 percent of the weighted
market capitalization of the S&P Small-Cap 600 Index.
We consider a company to be small cap if its market capitalization
is less than 90 percent of the weighted market capitalization of
the S&P Small-Cap 600 Index.
As of Dec. 31, 1998, large-cap companies had market
capitalizations greater than $6.6 billion, midcap companies had
market capitalizations between $1.8 and $6.6 billion and small-cap
companies had market capitalizations less than $1.8 billion.
These amounts will change as the S&P Mid-Cap 400 and S&P Small-Cap
600 indices change.
Short Sales
The Fund may make short sales of securities. Short selling
involves the sale of borrowed securities. When the Fund thinks
the price of a stock will decline, it borrows the stock and then
sells the borrowed stock. When the Fund has to return the
borrowed stock, it tries to buy the stock at a lower price. If
the Fund is successful, it has a capital gain. If the Fund is
unsuccessful and buys the stock at a higher price than the price
at which it sold the stock, the Fund has a capital loss. The
Fund's capital gains and losses may result in federal income tax
consequences to the Fund's shareholders. Short selling involves
certain risks. The Fund could have a loss if the borrowed
security increases in value and if the purchased security declines
in value.
Portfolio 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 for Fund shareholders resulting
in tax consequences for the Fund's shareholders. 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 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. The Fund may
not achieve its investment objective if it takes a defensive
position.
Interfund Lending Program
The Fund may lend money to and borrow money from other funds
advised by Stein Roe. The Fund 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.
<PAGE>
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. Stein
Roe (and its predecessor) has advised and managed mutual funds
since 1949. As of Sept. 30, 1998, Stein Roe managed more than $28
billion in assets. The Fund pays Stein Roe (1) an annual
management fee of 0.85% of average net assets and (2) an annual
administrative fee of 0.15% of average net assets. For the most
recent fiscal year, the Fund paid 1.00% of average net assets to
Colonial Management Associates, Inc. (CMA). CMA is an affiliate
of Stein Roe and was investment adviser to the Fund from March 25,
1996 to September 1998. For providing services to the Fund, CMA
received an annual management fee of 0.85% of average net assets.
Stein Roe's mutual funds and institutional investment advisory
businesses are managed together with that of its affiliate,
Colonial Management Associates, Inc. (CMA), by a combined
management team of employees from both companies. CMA also shares
personnel, facilities, and systems with Stein Roe that may be used
in providing administrative or operational services to the Fund.
CMA is a registered investment adviser. Both Stein Roe and CMA
are subsidiaries of Liberty Financial Companies, Inc.
Stein Roe can use the services of AlphaTrade Inc., an affiliated
broker-dealer, when buying or selling equity securities for the
Fund's portfolio, pursuant to procedures adopted by the Fund's
Board of Trustees.
Portfolio Managers
William M. Garrison and Steven M. Salopek have been the portfolio
managers for the Fund since September 1998. Mr. Garrison has been
employed by Stein Roe since 1989 as an equity research analyst and
is a vice president. In addition, Mr. Garrison has served as
associate portfolio manager for SR&F Balanced Portfolio since 1995.
He earned an A.B. degree from Princeton University and an M.B.A.
degree from the University of Chicago.
Mr. Salopek joined Stein Roe as a research analyst in June 1996
and is a vice president. He was an analyst with Banc One
Investment Advisors from 1990 to May 1996. Mr. Salopek earned a
B.A. degree and an M.B.A. degree from The Ohio State University.
Master/Feeder Fund Structure
The Fund could convert into a "feeder" fund in a "master/feeder"
structure at some future date. This means that all of the Fund's
assets would be invested in a larger "master" portfolio of
securities that has investment objectives and policies
substantially identical to those of the Fund.
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 Jan. 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 Jan. 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 Jan. 1, 2000.
However, no assurances can be given that all modifications
required to ensure proper data processing and calculation on and
after Jan. 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
its semiannual and annual reports to shareholders. 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 Fund's SAI for more information. The SAI
is incorporated into this prospectus by reference, which means
that it is legally considered to be part of this prospectus and
you are deemed to have been told of its contents.
To obtain free copies of the Fund's semiannual and annual reports
or SAI or to request other information about the Fund, 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 Securities and Exchange Commission (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.
Investment Company Act file number: 811-04978
Liberty Funds Distributor, Inc.
