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. 55 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 56 [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 February 2, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on April 12, 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 Growth Opportunities Fund,
Stein Roe Large Company Focus Fund, Stein Roe Asia Pacific
Fund, Stein Roe Small Company Growth Fund, and Stein Roe
Investor Fund.
This amendment to the Registration Statement has also been
signed by SR&F Base Trust.
<PAGE>
The prospectuses and statements of additional information
relating to the series of Stein Roe Investment Trust
designated 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 Young
Investor Fund, Stein Roe Special Venture Fund, Stein Roe
Growth Opportunities Fund, Stein Roe Large Company Focus Fund,
Stein Roe Asia Pacific Fund, Stein Roe Small Company Growth
Fund, and Stein Roe Investor Fund are not affected by the
filing of this Post-Effective Amendment No. 55.
<PAGE>
[Cover Page]
Stein Roe International Horizons Fund
Prospectus
April 12, 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.
<PAGE>
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
Country Allocation
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
Please keep this prospectus as your reference manual.
<PAGE>
THE FUND
INVESTMENT GOAL
Stein Roe International Horizons Fund seeks the preservation of
capital purchasing power and long-term growth.
PRINCIPAL INVESTMENT STRATEGY
The Fund invests all of its assets in SR&F International Horizons
Portfolio as part of a master fund/feeder fund structure. The
Portfolio invests primarily 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 their value compared to other
world markets. She also looks at 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 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 callout]
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. Foreign securities are subject to
special risks. Foreign stock markets, especially in countries
with developing stock markets, can be extremely volatile. The
liquidity of foreign securities may be more limited than domestic
securities, which means that the Portfolio may at times be unable
to sell them at desirable prices. In addition, foreign
governments may impose withholding taxes which would reduce the
amount of income available to distribute to shareholders.
Eleven countries in the European Union (Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, the Netherlands,
Portugal and Spain) adopted a single currency known as the "euro,"
effective Jan. 1, 1999. Problems with the euro conversion could
adversely affect the Fund's ability to value its portfolio
holdings and to settle trades in these countries, and could
increase the costs associated with the Fund's operations.
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 loses 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.
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 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 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
* are a long-term investor and can afford to potentially lose
money on your investment
The Fund is not appropriate for investors who:
* 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 historical performance of the
Portfolio. 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 a Fund's volatility over a
period of time. This chart illustrates performance differences
for the Portfolio 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%
10%
5%
0%
- -5%
1995 1996 1997 1998
[ ] International Horizons Fund
*The Fund was previously known as the Stein Roe International Fund
and invested all of its assets in the SR&F International
Portfolio. The Fund commenced investing in the Portfolio on April
12, 1999. The Portfolio commenced operations on _______, 1999 and
adopted the performance of the Colonial International Horizons
Fund, a feeder fund of the Portfolio, which has 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 Colonial 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 Colonial Fund's Class A shares.
Best quarter:
Worst quarter:
Average Annual Total Returns
Average annual total returns measure a Fund's performance over
time. We compare the Fund's returns with returns for the MSCI
EAFE Index, which is a broad measure of international market
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 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
(June 8, 1992)
International Horizons Fund**
MSCI EAFE Index*
__________
*The MSCI EAFE 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 Index is from June
30, 1992 to Dec. 31, 1998.
**The Fund was previously known as the Stein Roe International
Fund and invested all of its assets in the SR&F International
Portfolio. The Fund commenced investing in the Portfolio on April
12, 1999. The Portfolio commenced operations on _______, 1999 and
adopted the performance of the Colonial International Horizons
Fund, a feeder fund of the Portfolio, which has 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 Colonial 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 Colonial Fund's Class A shares.
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 or the Portfolio 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) 0.85%
Distribution 12b-1 fees None
Other expenses ____%
Total annual fund operating expenses ____%
(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) Annual fund operating expenses consist of Fund expenses plus
the Fund's share of the expenses of the Portfolio.
(c) Management fees includes both the management fee and the
administrative fee charged to the Fund.
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 Horizons Fund
Understanding Expenses
Fund expenses include management fees and administrative costs
such as furnishing the Fund with offices and providing tax and
compliance services.
<PAGE>
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. Certain information in
the table reflects the financial results for a single share of
Class A of the Colonial Fund, outstanding throughout the period
from June 8, 1992 through October 31, 1998. The information has
been derived from the financial statements of the Colonial Fund.
Price Waterhouse Coopers LLP, independent accountants, audited
this information and issued an unqualified report that appears in
the Colonial Fund's 1998 annual report along with the financial
statements. To request the Fund's annual report, please call 800-
338-2550.
International Horizons Fund
Per Share Data
Period
ending
For years ending September 30, Sept. 30,
1998 1997 1996 1995 1994(a)
Net asset value, beginning
of period
Income from investment
operations
Net investment income
Net gains (losses) 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
Ratio of net investment
income to average net assets
Portfolio turnover rate
_____________________
(a) From commencement of operation on June 8, 1992.
(b) Prior to commencement of operations of the Portfolio.
(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.
<PAGE>
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
CounselorSM 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. 12; Stein Roe International Horizons 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.
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. We will not price shares on days the
NYSE is closed for trading. You will not be able to purchase or
redeem shares until the next NYSE-trading day.
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. In the case of
foreign securities, this could include events occurring after the
close of a foreign market and before the close of the NYSE.
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 that 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
that 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 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 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.
Other Investments and Risks
The primary investment strategies and risks are described in this
prospectus. (See "The Fund.") The Statement of Additional
Information (SAI) describes other investments that the Portfolio
may make and risks associated with them. The Board of Trustees
can change the investment objective without shareholder approval.
The Fund's portfolio manager generally makes decisions on buying
and selling portfolio investments based upon her judgment that the
decision will improve the Fund's investment return and further its
investment goal. The portfolio manager may also be required to
sell portfolio investments to fund redemptions.
Country Allocation
The Portfolio invests across many different countries. While the
Portfolio has no geographic asset distribution limits, it
ordinarily invests in 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:
Country Allocation
Countries Percentage of Total Assets
-------- ----------------------
Foreign Currency Transactions
The Portfolio engages in a variety of foreign currency
transactions. It may buy and sell foreign currencies in the spot
market (commodities market in which goods are sold for cash and
delivered immediately). It may also buy or sell forward contracts
(buy or sell currency on a prespecified date in the future). 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
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
Colonial Management Associates, Inc. (CMA), One Financial Center,
Boston, MA 02111, is the investment adviser to the Portfolio and
the Fund. CMA has been a registered investment adviser since
1931. As of September 30, 1998, CMA managed more than ___ billion
in assets. Stein Roe & Farnham Incorporated (Stein Roe), One
South Wacker Drive, Chicago, IL 60606, provides administrative
services to the Fund and the Portfolio. 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 CMA an annual management fee of 0.60% of
average net assets. The Fund pays Stein Roe an annual
administrative fee of 0.25% of average net assets.
Stein Roe's mutual funds and institutional investment advisory
businesses are managed together with that of 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 Manager
The co-portfolio managers are Gita R. Rao and Nicholas Ghajar.
Ms. Rao has been the Fund's portfolio manager since October 1998.
She has co-managed the Colonial International Horizons Fund since
1996 and the Colonial Global Equity Fund since 1995. Prior to
joining CMA in 1995, Ms. Rao was a quantitative research analyst
at Fidelity Management & Research Company from 1994 to 1995, and a
vice president in the equity research group at Kidder, Peabody and
Company prior thereto. Mr. Ghajar has been either an associate
portfolio manager or an equity analyst of various equity funds for
CMA since 1989.
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
can 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 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.
[BACK COVER]
FOR MORE INFORMATION
You can obtain more information about the Fund's investments in
its 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 Fund's SAI for more information. 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 the Fund's semiannual and annual reports
or the 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 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 April 12, 1999
STEIN ROE INVESTMENT TRUST
Suite 3200, One South Wacker Drive, Chicago, IL 60606
800-338-2550
Stein Roe International Horizons Fund
This Statement of Additional Information ("SAI") is not a
prospectus, but provides additional information that should be
read in conjunction with the Fund's prospectus dated April 12,
1999, and any supplements thereto ("Prospectus"). Financial
statements, which are contained in the Fund's Annual Report, are
attached to this SAI. The Prospectus and Annual Report may be
obtained at no charge by telephoning 800-338-2550.
TABLE OF CONTENTS
Page
General Information and History............................2
Investment Policies........................................3
Portfolio Investments and Strategies.......................4
Investment Restrictions...................................21
Additional Investment Considerations......................24
Purchases and Redemptions.................................25
Management................................................29
Financial Statements......................................32
Principal Shareholders....................................32
Investment Advisory and Other Services....................33
Distributor...............................................35
Transfer Agent............................................35
Custodian.................................................36
Independent Public Accountants............................36
Portfolio Transactions....................................37
Additional Income Tax Considerations......................38
Investment Performance....................................39
Master Fund/Feeder Fund: Structure and Risk Factors.......43
Appendix-Ratings..........................................45
<PAGE>
GENERAL INFORMATION AND HISTORY
Stein Roe International Horizons Fund (Fund), the mutual fund
described in this SAI, is a separate series of Stein Roe
Investment Trust (Trust). On April 12, 1999, the name of the Fund
was changed from Stein Roe International Fund to Stein Roe
International Horizons Fund. On Feb. 1, 1996, the names of the
Trust and the Fund were changed to separate "SteinRoe" into two
words.
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, the Fund seeks to
achieve its objective by pooling its 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. The Fund invested all of its net investable assets
in SR&F International Portfolio, a separate master fund that is a
series of SR&F Base Trust, from Feb. 3, 1997 until April 11, 1999.
On _______, 1999, the Fund's shareholders approved changing the
Fund's master fund to SR&F International Horizons Portfolio (the
"Portfolio"), a new portfolio of SR&F Base Trust. The Fund has
invested its assets in the Portfolio since April 12, 1999. For
more information, please refer to Master Fund/Feeder Fund:
Structure and Risk Factors.
Colonial Management Associates, Inc. (CMA) provides
investment advisory services to the Portfolio. Stein Roe &
Farnham Incorporated (Stein Roe) provides administrative and
accounting and recordkeeping services to the Fund and the
Portfolio.
INVESTMENT POLICIES
The Trust and SR&F Base Trust are open-end management
investment companies. The Fund and the Portfolio are diversified,
as that term is defined in the Investment Company Act of 1940.
In pursuing its respective objective, the Portfolio may
employ the investment techniques described in the Prospectus and
Portfolio Investments and Strategies in this SAI. The investment
objective is a non-fundamental policy and may be changed by the
Board of Trustees without the approval of a "majority of the
outstanding voting securities."/1/
- --------------
/1/ A "majority of the outstanding voting securities" means the
approval of the lesser of (i) 67% or more of the shares at a
meeting if the holders of more than 50% of the outstanding shares
are present or represented by proxy or (ii) more than 50% of the
outstanding shares.
- --------------
The Fund pursues its objective by investing in the Portfolio.
Their common investment objective is to preserve capital
purchasing power and seek long-term growth. The 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. The 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). The 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.
The Portfolio diversifies its investments among several
countries and does not concentrate investments in any particular
industry. In pursuing its objective, the Portfolio varies the
geographic allocation and types of securities in which it invests
based on the portfolio manager's continuing evaluation of
economic, market, and political trends throughout the world.
While the 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, the 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 CMA because of
current or anticipated adverse political or economic conditions,
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 "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 the Portfolio. If such
restrictions should be reinstated, it might become necessary for
the Portfolio to invest all or substantially all of its assets in
U.S. securities. In such an event, the Portfolio would review its
investment objective and policies to determine whether changes are
appropriate.
PORTFOLIO INVESTMENTS AND STRATEGIES
Debt Securities
In pursuing its investment objective, the Portfolio may
invest in debt securities of corporate and governmental issuers.
The risks inherent in debt securities depend primarily on the term
and quality of the obligations in the 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 are limited to those that are
within the four highest grades (generally referred to as
"investment grade") assigned by a nationally recognized
statistical rating organization or, if unrated, deemed to be of
comparable quality by the portfolio manager.
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 the
Portfolio is lost or reduced below investment grade, the Portfolio
is not required to dispose of the security, but the portfolio
manager will consider that fact in determining whether the
Portfolio should continue to hold the security.
Securities that are rated below investment grade are
considered predominantly speculative with respect to the issuer's
capacity to pay interest and repay principal according to the
terms of the obligation and therefore carry greater investment
risk, including the possibility of issuer default and bankruptcy.
When the portfolio manager determines that adverse market or
economic conditions exist and considers a temporary defensive
position advisable, the Portfolio may invest without limitation in
high-quality fixed income securities or hold assets in cash or
cash equivalents.
Derivatives
Consistent with its objective, the Portfolio may invest in a
broad array of financial instruments and securities, including
conventional exchange-traded and non-exchange-traded options;
futures contracts; futures options; securities collateralized by
underlying pools of mortgages or other receivables; floating rate
instruments; and other instruments that securitize assets of
various types ("Derivatives"). In each case, the value of the
instrument or security is "derived" from the performance of an
underlying asset or a "benchmark" such as a security index, an
interest rate, or a currency.
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because 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 the portfolio
manager'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.
The 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
Portfolio on purchase of such securities; in addition, the
proceeds of prepayment would likely be invested at lower interest
rates.
Mortgage-backed securities provide either a pro rata interest
in underlying mortgages or an interest in collateralized mortgage
obligations ("CMOs") that represent a right to interest and/or
principal payments from an underlying mortgage pool. CMOs are not
guaranteed by either the U.S. Government or by its agencies or
instrumentalities, and are usually issued in multiple classes each
of which has different payment rights, prepayment risks, and yield
characteristics. Mortgage-backed securities involve the risk of
prepayment on the underlying mortgages at a faster or slower rate
than the established schedule. Prepayments generally increase
with falling interest rates and decrease with rising rates but
they also are influenced by economic, social, and market factors.
If mortgages are pre-paid during periods of declining interest
rates, there would be a resulting loss of the full-term benefit of
any premium paid by the Portfolio on purchase of the CMO, and the
proceeds of prepayment would likely be invested at lower interest
rates.
Non-mortgage asset-backed securities usually have less
prepayment risk than mortgage-backed securities, but have the risk
that the collateral will not be available to support payments on
the underlying loans that finance payments on the securities
themselves.
Floating rate instruments provide for periodic adjustments in
coupon interest rates that are automatically reset based on
changes in amount and direction of specified market interest
rates. In addition, the adjusted duration of some of these
instruments may be materially shorter than their stated
maturities. To the extent such instruments are subject to
lifetime or periodic interest rate caps or floors, such
instruments may experience greater price volatility than debt
instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and
refers to the approximate percentage change in price for a 100
basis point change in yield. For example, if interest rates
decrease by 100 basis points, a market price of a security with an
adjusted duration of 2 would increase by approximately 2%.
Convertible Securities
By investing in convertible securities, the Portfolio obtains
the right to benefit from the capital appreciation potential in
the underlying stock upon exercise of the conversion right, while
earning higher current income than would be available if the stock
were purchased directly. In determining whether to purchase a
convertible, the portfolio manager will consider substantially the
same criteria that would be considered in purchasing the
underlying stock. While convertible securities purchased by the
Portfolio are frequently rated investment grade, the Portfolio may
purchase unrated securities or securities rated below investment
grade if the securities meet the portfolio manager's other
investment criteria. Convertible securities rated below
investment grade (a) tend to be more sensitive to interest rate
and economic changes, (b) may be obligations of issuers who are
less creditworthy than issuers of higher quality convertible
securities, and (c) may be more thinly traded due to such
securities being less well known to investors than investment
grade convertible securities, common stock or conventional debt
securities. As a result, the portfolio manager's own investment
research and analysis tend to be more important in the purchase of
such securities than other factors.
Foreign Securities
The Portfolio invests primarily in foreign securities.
Investment in foreign securities may entail a greater degree of
risk (including risks relating to exchange rate fluctuations, tax
provisions, or expropriation of assets) than investment in
securities of domestic issuers. For this purpose, foreign
securities do not include American Depositary Receipts (ADRs) or
securities guaranteed by a United States person. ADRs are
receipts typically issued by an American bank or trust company
evidencing ownership of the underlying securities. The Portfolio
may invest in sponsored or unsponsored ADRs. In the case of an
unsponsored ADR, the Portfolio is likely to bear its proportionate
share of the expenses of the depositary and it may have greater
difficulty in receiving shareholder communications than it would
have with a sponsored ADR. The 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.
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, investment
performance is affected by the strength or weakness of the U.S.
dollar against these currencies. For example, if the dollar falls
in value relative to the Japanese yen, the dollar value of a yen-
denominated stock held in the portfolio will rise even though the
price of the stock remains unchanged. Conversely, if the dollar
rises in value relative to the yen, the dollar value of the yen-
denominated stock will fall. (See discussion of transaction
hedging and portfolio hedging under Currency Exchange
Transactions.)
Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities,
positions which are generally denominated in foreign currencies,
and utilization of forward foreign currency exchange contracts
involve certain considerations comprising both risks and
opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and issuers of securities; lack of uniform accounting, auditing,
and financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment
in securities of companies in developing as well as developed
countries; and sometimes less advantageous legal, operational, and
financial protections applicable to foreign sub-custodial
arrangements. These risks are greater for emerging markets.
Although the Portfolio will try to invest in companies and
governments of countries having stable political environments,
there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of
foreign government restrictions, or other adverse political,
social or diplomatic developments that could affect investment in
these nations.
Currency Exchange Transactions. Currency exchange
transactions may be conducted either on a spot (i.e., cash) basis
at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market or through forward currency exchange
contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at
a specified future date (or within a specified time period) and
price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not
exchange traded, and are usually for less than one year, but may
be renewed.
The Portfolio's foreign currency exchange transactions are
limited to transaction and portfolio hedging involving either
specific transactions or portfolio positions. Transaction hedging
is the purchase or sale of forward contracts with respect to
specific receivables or payables of the Portfolio arising in
connection with the purchase and sale of its portfolio securities.
Portfolio hedging is the use of forward contracts with respect to
portfolio security positions denominated or quoted in a particular
foreign currency. Portfolio hedging allows the Portfolio to limit
or reduce its exposure in a foreign currency by entering into a
forward contract to sell such foreign currency (or another foreign
currency that acts as a proxy for that currency) at a future date
for a price payable in U.S. dollars so that the value of the
foreign-denominated portfolio securities can be approximately
matched by a foreign-denominated liability. the Portfolio may not
engage in portfolio hedging with respect to the currency of a
particular country to an extent greater than the aggregate market
value (at the time of making such sale) of the securities held in
its portfolio denominated or quoted in that particular currency,
except that the Portfolio may hedge all or part of its foreign
currency exposure through the use of a basket of currencies or a
proxy currency where such currencies or currency act as an
effective proxy for other currencies. In such a case, the
Portfolio may enter into a forward contract where the amount of
the foreign currency to be sold exceeds the value of the
securities denominated in such currency. The use of this basket
hedging technique may be more efficient and economical than
entering into separate forward contracts for each currency held in
the Portfolio. The Portfolio may not may engage in "speculative"
currency exchange transactions.
At the maturity of a forward contract to deliver a particular
currency, the Portfolio may either sell the portfolio security
related to such contract and make delivery of the currency, or it
may retain the security and either acquire the currency on the
spot market or terminate its contractual obligation to deliver the
currency by purchasing an offsetting contract with the same
currency trader obligating it to purchase on the same maturity
date the same amount of the currency.
It is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of a
forward contract. Accordingly, it may be necessary for the
Portfolio to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the
security is less than the amount of currency the Portfolio is
obligated to deliver and if a decision is made to sell the
security and make delivery of the currency. Conversely, it may be
necessary to sell on the spot market some of the currency received
upon the sale of the portfolio security if its market value
exceeds the amount of currency the Portfolio is obligated to
deliver.
If the Portfolio retains the portfolio security and engages
in an offsetting transaction, the Portfolio will incur a gain or a
loss to the extent that there has been movement in forward
contract prices. If the Portfolio engages in an offsetting
transaction, it may subsequently enter into a new forward contract
to sell the currency. Should forward prices decline during the
period between the Portfolio's entering into a forward contract
for the sale of a currency and the date it enters into an
offsetting contract for the purchase of the currency, the
Portfolio will realize a gain to the extent the price of the
currency it has agreed to sell exceeds the price of the currency
it has agreed to purchase. Should forward prices increase, the
Portfolio will suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell. A default on the contract would
deprive the Portfolio of unrealized profits or force the Portfolio
to cover its commitments for purchase or sale of currency, if any,
at the current market price.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for the Portfolio to hedge against a devaluation that is
so generally anticipated that the Portfolio is not able to
contract to sell the currency at a price above the devaluation
level it anticipates. The cost to the Portfolio of engaging in
currency exchange transactions varies with such factors as the
currency involved, the length of the contract period, and
prevailing market conditions. Since currency exchange
transactions are usually conducted on a principal basis, no fees
or commissions are involved.
Synthetic Foreign Money Market Positions. The Portfolio may
invest in money market instruments denominated in foreign
currencies. In addition to, or in lieu of, such direct
investment, the 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, the Portfolio will invest at
least 65% of total assets in foreign securities.
Eurodollar Instruments
The Portfolio 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 Portfolio 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 the Portfolio to tailor its investments to the specific
risks and returns the portfolio manager wishes to accept while
avoiding or reducing certain other risks.
Swaps, Caps, Floors and Collars
The Portfolio may enter into swaps and may purchase or sell
related caps, floors and collars. The Portfolio 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 Portfolio intends to use these
techniques as hedges and not as speculative investments and will
not sell interest rate income stream the Portfolio may be
obligated to pay.
A swap agreement is generally individually negotiated and
structured to include exposure to a variety of different types of
investments or market factors. Depending on its structure, a swap
agreement may increase or decrease the Portfolio's exposure to
changes in the value of an index of securities in which the
Portfolio might invest, the value of a particular security or
group of securities, or foreign currency values. Swap agreements
can take many different forms and are known by a variety of names.
The Portfolio may enter into any form of swap agreement if the
portfolio manager determines it is consistent with its investment
objective and policies.
A swap agreement tends to shift the Portfolio's investment
exposure from one type of investment to another. For example, if
the Portfolio agrees to exchange payments in dollars at a fixed
rate for payments in a foreign currency the amount of which is
determined by movements of a foreign securities index, the swap
agreement would tend to increase exposure to foreign stock market
movements and foreign currencies. Depending on how it is used, a
swap agreement may increase or decrease the overall volatility of
the Portfolio's investments and its net asset value.
The performance of a swap agreement is determined by the
change in the specific currency, market index, security, or other
factors that determine the amounts of payments due to and from the
Portfolio. If a swap agreement calls for payments by the
Portfolio, it must be prepared to make such payments when due. If
the counterparty's creditworthiness declines, the value of a swap
agreement would be likely to decline, potentially resulting in a
loss. The Portfolio will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the counterparty,
combined with any credit enhancements, is rated at least A by
Standard & Poor's Corporation or Moody's Investors Service, Inc.
or has an equivalent rating from a nationally recognized
statistical rating organization or is determined to be of
equivalent credit quality by the portfolio manager.
The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling the
cap to the extent that a specified index exceeds a predetermined
interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is
a combination of a cap and floor that preserves a certain return
within a predetermined range of interest rates or values.
At the time the Portfolio enters into swap arrangements or
purchases or sells caps, floors or collars, liquid assets of the
Portfolio having a value at least as great as the commitment
underlying the obligations will be segregated on the books of the
Portfolio and held by the custodian throughout the period of the
obligation.
Lending of Portfolio Securities
Subject to restriction (5) under Investment Restrictions in
this SAI, the Portfolio may lend its portfolio securities to
broker-dealers and banks. Any such loan must be continuously
secured by collateral in cash or cash equivalents maintained on a
current basis in an amount at least equal to the market value of
the securities loaned by the Portfolio. The Portfolio 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 Portfolio 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 Portfolio
would not have the right to vote the securities during the
existence of the loan but would call the loan to permit voting of
the securities if, in the portfolio manager'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 Portfolio 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 Portfolio 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. The Portfolio did not lend 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
The Portfolio may invest in repurchase agreements, provided
that it will not invest more than 15% of net assets in repurchase
agreements maturing in more than seven days and any other illiquid
securities. A repurchase agreement is a sale of securities to the
Portfolio in which the seller agrees to repurchase the securities
at a higher price, which includes an amount representing interest
on the purchase price, within a specified time. In the event of
bankruptcy of the seller, the Portfolio could experience both
losses and delays in liquidating its collateral.
When-Issued and Delayed-Delivery Securities; Reverse Repurchase
Agreements
The Portfolio may purchase securities on a when-issued or
delayed-delivery basis. Although the payment and interest terms
of these securities are established at the time the Portfolio
enters into the commitment, the securities may be delivered and
paid for a month or more after the date of purchase, when their
value may have changed. The Portfolio makes such commitments only
with the intention of actually acquiring the securities, but may
sell the securities before settlement date if the portfolio
manager deems it advisable for investment reasons. During its last
fiscal year, the Portfolio had no commitments to purchase when-
issued securities in excess of 5% of its net assets. The
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.
The Portfolio may enter into reverse repurchase agreements
with banks and securities dealers. A reverse repurchase agreement
is a repurchase agreement in which the Portfolio is the seller of,
rather than the investor in, securities and agrees to repurchase
them at an agreed-upon time and price. Use of a reverse
repurchase agreement may be preferable to a regular sale and later
repurchase of securities because it avoids certain market risks
and transaction costs. The Portfolio did not enter into reverse
repurchase agreements during the fiscal year ended Sept. 30, 1998.
At the time the Portfolio enters into a binding obligation to
purchase securities on a when-issued basis or enters into a
reverse repurchase agreement, liquid assets (cash, U.S. Government
securities or other "high-grade" debt obligations) of the
Portfolio having a value at least as great as the purchase price
of the securities to be purchased will be segregated on the books
of the Portfolio and held by the custodian throughout the period
of the obligation. The use of these investment strategies, as
well as borrowing under a line of credit as described below, may
increase net asset value fluctuation.
Short Sales "Against the Box"
The Portfolio may sell securities short against the box; that
is, enter into short sales of securities that it currently owns or
has the right to acquire through the conversion or exchange of
other securities that it owns at no additional cost. The
Portfolio 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, the Portfolio does not
deliver from its portfolio the securities sold. Instead, the
Portfolio 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 Portfolio, to the
purchaser of such securities. The Portfolio is required to pay to
the broker-dealer the amount of any dividends paid on shares sold
short. Finally, to secure its obligation to deliver to such
broker-dealer the securities sold short, the Portfolio must
deposit and continuously maintain in a separate account with its
custodian an equivalent amount of the securities sold short or
securities convertible into or exchangeable for such securities at
no additional cost. The Portfolio is said to have a short
position in the securities sold until it delivers to the broker-
dealer the securities sold. The Portfolio may close out a short
position by purchasing on the open market and delivering to the
broker-dealer an equal amount of the securities sold short, rather
than by delivering portfolio securities.
Short sales may protect the Portfolio 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 Portfolio owns, either directly
or indirectly, and, in the case where the Portfolio owns
convertible securities, changes in the conversion premium.
Short sale transactions involve certain risks. If the price
of the security sold short increases between the time of the short
sale and the time the Portfolio replaces the borrowed security,
the Portfolio will incur a loss and if the price declines during
this period, the Portfolio 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 Portfolio may have to
pay in connection with such short sale. Certain provisions of the
Internal Revenue Code may limit the degree to which the Portfolio
is able to enter into short sales. There is no limitation on the
amount of the Portfolio'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.
Rule 144A Securities
The Portfolio 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 the Portfolio, to
trade in privately placed securities that have not been registered
for sale under the 1933 Act. CMA, 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, CMA will consider the trading markets for the
specific security, taking into account the unregistered nature of
a Rule 144A security. In addition, CMA 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 Portfolio's holdings of illiquid securities
would be reviewed to determine what, if any, steps are required to
assure that the Portfolio does not invest more than 15% of its
assets in illiquid securities. Investing in Rule 144A securities
could have the effect of increasing the amount of the Portfolio's
assets invested in illiquid securities if qualified institutional
buyers are unwilling to purchase such securities. The Portfolio
does not expect to invest as much as 5% of its total assets in
Rule 144A securities that have not been deemed to be liquid by
CMA.
Line of Credit
Subject to restriction (6) under Investment Restrictions in
this SAI, the Portfolio may establish and maintain a line of
credit with a major bank in order to permit borrowing on a
temporary basis to meet share redemption requests in circumstances
in which temporary borrowing may be preferable to liquidation of
portfolio securities.
Interfund Borrowing and Lending Program
Pursuant to an exemptive order issued by the Securities and
Exchange Commission, the Portfolio may lend money to and borrow
money from other mutual funds advised by Stein Roe. The Portfolio
will borrow through the program when borrowing is necessary and
appropriate and the costs are equal to or lower than the costs of
bank loans.
Portfolio Turnover
Although the Portfolio does not purchase securities with a
view to rapid turnover, there are no limitations on the length of
time that portfolio securities must be held. Portfolio turnover
can occur for a number of reasons such as general conditions in
the securities markets, more favorable investment opportunities in
other securities, or other factors relating to the desirability of
holding or changing a portfolio investment. Because of the
Portfolio's flexibility of investment and emphasis on growth of
capital, it may have greater portfolio turnover than that of
mutual funds that have primary objectives of income or maintenance
of a balanced investment position. The future turnover rate may
vary greatly from year to year. A high rate of portfolio
turnover, if it should occur, would result in increased
transaction expenses, which must be borne by the Portfolio. High
portfolio turnover may also result in the realization of capital
gains or losses and, to the extent net short-term capital gains
are realized, any distributions resulting from such gains will be
considered ordinary income for federal income tax purposes.
Options on Securities and Indexes
The Portfolio may purchase and sell put options and call
options on securities, indexes or foreign currencies in
standardized contracts traded on recognized securities exchanges,
boards of trade, or similar entities, or quoted on Nasdaq. The
Portfolio may purchase agreements, sometimes called cash puts,
that may accompany the purchase of a new issue of bonds from a
dealer.
An option on a security (or index) is a contract that gives
the purchaser (holder) of the option, in return for a premium, the
right to buy from (call) or sell to (put) the seller (writer) of
the option the security underlying the option (or the cash value
of the index) at a specified exercise price at any time during the
term of the option (normally not exceeding nine months). The
writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver
the underlying security or foreign currency upon payment of the
exercise price or to pay the exercise price upon delivery of the
underlying security or foreign currency. Upon exercise, the
writer of an option on an index is obligated to pay the difference
between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An
index is designed to reflect specified facets of a particular
financial or securities market, a specific group of financial
instruments or securities, or certain economic indicators.)
The Portfolio will write call options and put options only if
they are "covered." For example, in the case of a call option on
a security, the option is "covered" if the Portfolio owns the
security underlying the call or has an absolute and immediate
right to acquire that security without additional cash
consideration (or, if additional cash consideration is required,
cash or cash equivalents in such amount are held in a segregated
account by its custodian) upon conversion or exchange of other
securities held in its portfolio.
If an option written by the Portfolio expires, the Portfolio
realizes a capital gain equal to the premium received at the time
the option was written. If an option purchased by the Portfolio
expires, the Portfolio realizes a capital loss equal to the
premium paid.
Prior to the earlier of exercise or expiration, an option may
be closed out by an offsetting purchase or sale of an option of
the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when the Portfolio desires.
The Portfolio will realize a capital gain from a closing
purchase transaction if the cost of the closing option is less
than the premium received from writing the option, or, if it is
more, the Portfolio 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 Portfolio will realize a capital
gain or, if it is less, the Portfolio will realize a capital loss.
The principal factors affecting the market value of a put or a
call option include supply and demand, interest rates, the current
market price of the underlying security or index in relation to
the exercise price of the option, the volatility of the underlying
security or index, and the time remaining until the expiration
date.
A put or call option purchased by the Portfolio is an asset
of the Portfolio, valued initially at the premium paid for the
option. The premium received for an option written by the
Portfolio is recorded as a deferred credit. The value of an
option purchased or written is marked-to-market daily and is
valued at the closing price on the exchange on which it is traded
or, if not traded on an exchange or no closing price is available,
at the mean between the last bid and asked prices.
Risks Associated with Options on Securities and Indexes.
There are several risks associated with transactions in options.
For example, there are significant differences between the
securities markets, the currency markets, and the options markets
that could result in an imperfect correlation between these
markets, causing a given transaction not to achieve its
objectives. A decision as to whether, when and how to use options
involves the exercise of skill and judgment, and even a well-
conceived transaction may be unsuccessful to some degree because
of market behavior or unexpected events.
There can be no assurance that a liquid market will exist
when the Portfolio seeks to close out an option position. If the
Portfolio were unable to close out an option that it had purchased
on a security, it would have to exercise the option in order to
realize any profit or the option would expire and become
worthless. If the Portfolio were unable to close out a covered
call option that it had written on a security, it would not be
able to sell the underlying security until the option expired. As
the writer of a covered call option on a security, the Portfolio
foregoes, during the option's life, the opportunity to profit from
increases in the market value of the security covering the call
option above the sum of the premium and the exercise price of the
call.
If trading were suspended in an option purchased or written
by the Portfolio, the Portfolio would not be able to close out the
option. If restrictions on exercise were imposed, the Portfolio
might be unable to exercise an option it has purchased.
Futures Contracts and Options on Futures Contracts
The Portfolio may use interest rate futures contracts, index
futures contracts, and foreign currency futures contracts. An
interest rate, index or foreign currency futures contract provides
for the future sale by one party and purchase by another party of
a specified quantity of a financial instrument or the cash value
of an index/2/ at a specified price and time. A public market
exists in futures contracts covering a number of indexes
(including, but not limited to: the Standard & Poor's 500 Index,
the Value Line Composite Index, and the New York Stock Exchange
Composite Index) as well as financial instruments (including, but
not limited to: U.S. Treasury bonds, U.S. Treasury notes,
Eurodollar certificates of deposit, and foreign currencies).
Other index and financial instrument futures contracts are
available and it is expected that additional futures contracts
will be developed and traded.
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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.
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The Portfolio may purchase and write call and put futures
options. Futures options possess many of the same characteristics
as options on securities, indexes and foreign currencies
(discussed above). A futures option gives the holder the right,
in return for the premium paid, to assume a long position (call)
or short position (put) in a futures contract at a specified
exercise price at any time during the period of the option. Upon
exercise of a call option, the holder acquires a long position in
the futures contract and the writer is assigned the opposite short
position. In the case of a put option, the opposite is true. The
Portfolio might, for example, use futures contracts to hedge
against or gain exposure to fluctuations in the general level of
stock prices, anticipated changes in interest rates or currency
fluctuations that might adversely affect either the value of the
Portfolio's securities or the price of the securities that the
Portfolio intends to purchase. Although other techniques could be
used to reduce or increase the Portfolio's exposure to stock
price, interest rate and currency fluctuations, the Portfolio may
be able to achieve its exposure more effectively and perhaps at a
lower cost by using futures contracts and futures options.
The Portfolio will only enter into futures contracts and
futures options that are standardized and traded on an exchange,
board of trade, or similar entity, or quoted on an automated
quotation system.
The success of any futures transaction depends on 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, the portfolio manager might
have taken portfolio actions in anticipation of the same market
movements with similar investment results but, presumably, at
greater transaction costs.
When a purchase or sale of a futures contract is made by the
Portfolio, the Portfolio 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
Portfolio upon termination of the contract, assuming all
contractual obligations have been satisfied. The Portfolio
expects to earn interest income on its initial margin deposits. A
futures contract held by the Portfolio is valued daily at the
official settlement price of the exchange on which it is traded.
Each day the Portfolio pays or receives cash, called "variation
margin," equal to the daily change in value of the futures
contract. This process is known as "marking-to-market."
Variation margin paid or received by the Portfolio does not
represent a borrowing or loan by the Portfolio but is instead
settlement between the Portfolio and the broker of the amount one
would owe the other if the futures contract had expired at the
close of the previous day. In computing daily net asset value,
the Portfolio will mark-to-market its open futures positions.
The Portfolio is also required to deposit and maintain margin
with respect to put and call options on futures contracts written
by it. Such margin deposits will vary depending on the nature of
the underlying futures contract (and the related initial margin
requirements), the current market value of the option, and other
futures positions held by the Portfolio.
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 Portfolio engaging in the
transaction realizes a capital gain, or if it is more, the
Portfolio realizes a capital loss. Conversely, if an offsetting
sale price is more than the original purchase price, the Portfolio
engaging in the transaction realizes a capital gain, or if it is
less, the Portfolio 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 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 portfolio. A
decision as to whether, when and how to use futures contracts
involves the exercise of skill and judgment, and even a well-
conceived transaction may be unsuccessful to some degree because
of market behavior or unexpected stock price or interest rate
trends.
Futures exchanges may limit the amount of fluctuation
permitted in certain futures contract prices during a single
trading day. The daily limit establishes the maximum amount that
the price of a futures contract may vary either up or down from
the previous day's settlement price at the end of the current
trading session. Once the daily limit has been reached in a
futures contract subject to the limit, no more trades may be made
on that day at a price beyond that limit. The daily limit governs
only price movements during a particular trading day and therefore
does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for
several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting
some holders of futures contracts to substantial losses. Stock
index futures contracts are not normally subject to such daily
price change limitations.
There can be no assurance that a liquid market will exist at
a time when the Portfolio seeks to close out a futures or futures
option position. The Portfolio would be exposed to possible loss
on the position during the interval of inability to close, and
would continue to be required to meet margin requirements until
the position is closed. In addition, many of the contracts
discussed above are relatively new instruments without a
significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue
to exist.
Limitations on Options and Futures
If other options, futures contracts, or futures options of
types other than those described herein are traded in the future,
the Portfolio may also use those investment vehicles, provided the
Board of Trustees determines that their use is consistent with the
Portfolio's investment objective.
The Portfolio will not enter into a futures contract or
purchase an option thereon if, immediately thereafter, the initial
margin deposits for futures contracts held by the Portfolio 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 Portfolio's total assets.
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/3/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
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When purchasing a futures contract or writing a put option on
a futures contract, the Portfolio must maintain with its custodian
(or broker, if legally permitted) cash or cash equivalents
(including any margin) equal to the market value of such contract.
When writing a call option on a futures contract, the Portfolio
similarly will maintain with its custodian cash or cash
equivalents (including any margin) equal to the amount by which
such option is in-the-money until the option expires or is closed
out by the Portfolio.
The Portfolio may not maintain open short positions in
futures contracts, call options written on futures contracts or
call options written on indexes if, in the aggregate, the market
value of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the
positions. For this purpose, to the extent the Portfolio has
written call options on specific securities in its portfolio, the
value of those securities will be deducted from the current market
value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," the Portfolio will use commodity futures or commodity
options contracts solely for bona fide hedging purposes within the
meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of 1.3(z), the
aggregate initial margin and premiums required to establish such
positions will not exceed 5% of the fair market value of the
assets of the Portfolio, after taking into account unrealized
profits and unrealized losses on any such contracts it has entered
into [in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount (as defined in Section 190.01(x)
of the Commission Regulations) may be excluded in computing such
5%].
Taxation of Options and Futures
If the Portfolio exercises a call or put option that it
holds, the premium paid for the option is added to the cost basis
of the security purchased (call) or deducted from the proceeds of
the security sold (put). For cash settlement options and futures
options exercised by the Portfolio, the difference between the
cash received at exercise and the premium paid is a capital gain
or loss.
If a call or put option written by the Portfolio is
exercised, the premium is included in the proceeds of the sale of
the underlying security (call) or reduces the cost basis of the
security purchased (put). For cash settlement options and futures
options written by the Portfolio, the difference between the cash
paid at exercise and the premium received is a capital gain or
loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by the Portfolio was
in-the-money at the time it was written and the security covering
the option was held for more than the long-term holding period
prior to the writing of the option, any loss realized as a result
of a closing purchase transaction will be long-term. The holding
period of the securities covering an in-the-money option will not
include the period of time the option is outstanding.
If the Portfolio writes an equity call option/4/ other than a
"qualified covered call option," as defined in the Internal
Revenue Code, any loss on such option transaction, to the extent
it does not exceed the unrealized gains on the securities covering
the option, may be subject to deferral until the securities
covering the option have been sold.
- ----------------
/4/ An equity option is defined to mean any option to buy or sell
stock, and any other option the value of which is determined by
reference to an index of stocks of the type that is ineligible to
be traded on a commodity futures exchange (e.g., an option
contract on a sub-index based on the price of nine hotel-casino
stocks). The definition of equity option excludes options on
broad-based stock indexes (such as the Standard & Poor's 500
index).
- ----------------
A futures contract held until delivery results in capital
gain or loss equal to the difference between the price at which
the futures contract was entered into and the settlement price on
the earlier of delivery notice date or expiration date. If the
Portfolio delivers securities under a futures contract, the
Portfolio also realizes a capital gain or loss on those
securities.
For federal income tax purposes, the Portfolio generally is
required to recognize as income for each taxable year its net
unrealized gains and losses as of the end of the year on futures,
futures options and non-equity options positions ("year-end mark-
to-market"). Generally, any gain or loss recognized with respect
to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and
40% short-term, without regard to the holding periods of the
contracts. However, in the case of positions classified as part
of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options
positions, the related securities and certain successor positions
thereto) may be deferred to a later taxable year. Sale of futures
contracts or writing of call options (or futures call options) or
buying put options (or futures put options) that are intended to
hedge against a change in the value of securities held by the
Portfolio: (1) will affect the holding period of the hedged
securities; and (2) may cause unrealized gain or loss on such
securities to be recognized upon entry into the hedge.
If the Portfolio were to enter into a short index future,
short index futures option or short index option position and the
portfolio were deemed to "mimic" the performance of the index
underlying such contract, the option or futures contract position
and the Portfolio's stock positions would be deemed to be
positions in a mixed straddle, subject to the above-mentioned loss
deferral rules.
In order for the Portfolio to continue to qualify for federal
income tax treatment as a regulated investment company, at least
90% of its gross income for a taxable year must be derived from
qualifying income; i.e., dividends, interest, income derived from
loans of securities, and gains from the sale of securities or
foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). Any net gain
realized from futures (or futures options) contracts will be
considered gain from the sale of securities and therefore be
qualifying income for purposes of the 90% requirement.
The Fund distributes to shareholders annually any net capital
gains that have been recognized for federal income tax purposes
(including year-end mark-to-market gains) on options and futures
transactions. Such distributions are combined with distributions
of capital gains realized on the Portfolio'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 Fund and the Portfolio operate under the following
investment restrictions. The Fund or Portfolio may:
(1) not, 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 [Fund only] except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(2) not acquire more than 10%, taken at the time of a
particular purchase, of the outstanding voting securities of any
one issuer, [Fund only] except that all or substantially all of
the assets of the Fund may be invested in another registered
investment company having the same investment objective and
substantially similar investment policies as the Fund;
(3) underwrite securities issued by others only when
disposing of portfolio securities, 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) only own real estate acquired as the result of owning
securities; and not more than 5% of total assets;
(5) make loans (a) through lending of securities, (b) through
the purchase of debt instruments or similar indebtedness typically
sold privately to financial institutions; (c) through an interfund
lending program with other affiliated funds, 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); and (d) through
repurchase agreements;
(6) borrow money from banks, other affiliated funds and other
entities to the extent permitted by applicable law, provided that
the Fund's borrowing 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;
(7) not concentrate more than 25% of its total assets in any
one industry, 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;
(8) not without the approval of the holders of a majority of
the shares of the Fund, issue senior securities, except to the
extent permitted under the Investment Company Act of 1940; or
(9) purchase and sell futures contracts and related options
so long as the total initial margin and premiums on the contracts
does not exceed 5% of its total assets.
The above restrictions are fundamental policies and may not
be changed without the approval of a "majority of the outstanding
voting securities" as defined above. The Fund and Portfolio are
also subject to the following non-fundamental restrictions and
policies, which may be changed by the Board of Trustees. None of
the following restrictions shall prevent the Portfolio from
investing all or substantially all of its assets in another
investment company having the same investment objective and
substantially the same investment policies as the Fund. The Fund
or Portfolio may not:
(a) invest in any of the following: (i) interests in oil,
gas, or other mineral leases or exploration or development
programs (except readily marketable securities, including but not
limited to master limited partnership interests, that may
represent indirect interests in oil, gas, or other mineral
exploration or development programs); (ii) puts, calls, straddles,
spreads, or any combination thereof (except that it may enter into
transactions in options, futures, and options on futures); (iii)
shares of other open-end investment companies, except in
connection with a merger, consolidation, acquisition, or
reorganization; and (iv) limited partnerships in real estate
unless they are readily marketable;
(b) invest in companies for the purpose of exercising control
or management;
(c) purchase more than 3% of the stock of another investment
company or purchase stock of other investment companies equal to
more than 5% of its total assets (valued at time of purchase) in
the case of any one other investment company and 10% of such
assets (valued at time of purchase) in the case of all other
investment companies in the aggregate; any such purchases are to
be made in the open market where no profit to a sponsor or dealer
results from the purchase, other than the customary broker's
commission, except for securities acquired as part of a merger,
consolidation or acquisition of assets;
(d) invest more than 5% of its net assets (valued at time of
purchase) in warrants, nor more than 2% of its net assets in
warrants that are not listed on the New York or American Stock
Exchange or a recognized foreign exchange;
(e) write an option on a security unless the option is issued
by the Options Clearing Corporation, an exchange, or similar
entity;
(f) 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;
(g) 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;
(h) 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;
(i) invest more than 15% of its net assets (taken at market
value at the time of a particular investment) in illiquid
securities, including repurchase agreements maturing in more than
seven days.
Notwithstanding the foregoing investment restrictions, the
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 the Portfolio in the issuing company
being diluted. The market for such rights is not well developed
in all cases and, accordingly, the 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
take sensible risks and make intelligent investments 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.
PURCHASES AND REDEMPTIONS
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
Fund 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 Fund's 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 the 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, the net asset value should be determined on any such
day, in which case the determination will be made at 3 p.m.,
Central time. Please refer to Your Account-Determining Share
Price in the Prospectus 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 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 Fund employs
procedures reasonably designed to confirm that instructions
communicated by telephone under any Special Redemption Privilege
or the Special Electronic Transfer Redemption Privilege are
genuine. Use of any Special Redemption Privilege or the Special
Electronic Transfer Redemption Privilege authorizes the Fund and
its transfer agent to tape-record all instructions to redeem. In
addition, callers are asked to identify the account number and
registration, and may be required to provide other forms of
identification. Written confirmations of transactions are mailed
promptly to the registered address; a legend on the confirmation
requests that the shareholder review the transactions and inform
the Fund immediately if there is a problem. If the Fund does not
follow reasonable procedures for protecting shareholders against
loss on telephone transactions, it may be liable for any losses
due to unauthorized or fraudulent instructions.
Shares in any account you maintain with the Fund or any of
the other Stein Roe Funds may be redeemed to the extent necessary
to reimburse any Stein Roe Fund for any loss 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 Fund.
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 Fund, the Trust expects that it would provide shareholders
with prior written notice of any such action unless the resulting
delay in the suspension, limitation, modification, or termination
of the Telephone Exchange Privilege would adversely affect the
Fund. If the Trust were to suspend, limit, modify, or terminate
the Telephone Exchange Privilege, a shareholder expecting to make
a Telephone Exchange might find that an exchange could not be
processed or that there might be a delay in the implementation of
the exchange. 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.
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 Fund may refuse
requests for Telephone Exchanges in excess of four round-trips (a
round-trip being the exchange out of the Fund into another no-load
Stein Roe Fund, and then back to the Fund). In addition, the
Trust's general redemption policies apply to redemptions of shares
by Telephone Exchange.
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 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 Executive Vice-President Executive vice president of Stein Roe
Gary A. Anetsberger, 43(4) Senior Vice-President; Chief financial officer and chief administrative
Controller 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.,71(3)(4) Trustee Private investor
William W. Boyd, 72 Trustee Chairman and director of Sterling Plumbing
(2) (3) (4) (manufacturer of plumbing products)
David P. Brady, 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 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; Assistant Senior vice president, legal, COGRA LLC (an affiliate
Secretary of Stein Roe) since Jan. 1999; general counsel and
secretary of Stein Roe since Jan. 1998; associate
general counsel and vice president of Liberty
Financial Companies, Inc. (the indirect parent of
Stein Roe) through Jan. 1999
J. Kevin Connaughton, 34 Vice-President Vice president of Colonial Management Associates, Inc.
(4) ("CMA") , since February, 1998; senior tax manager,
Coopers & Lybrand, LLP from April, 1996 to January,
1998; vice president, 440 Financial Group/First Data
Investor Services Group from March,1994 to April, 1996
Lindsay Cook, 47 (1)(2)(4) Trustee Executive vice president of Liberty Financial
Companies, Inc. 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 Trustee Senior vice president and chief financial officer of
(3) (4) UAL, Inc. (airline) since July 1994; senior vice
president, finance of UAL, Inc. prior thereto
Loren A. Hansen, 51 (4) 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, 36 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 (4) 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 Trustee Senior vice president, secretary and general counsel
(3) (4) of Sara Lee Corporation (branded, packaged, consumer-
products manufacturer) since 1995; partner of Sidley &
Austin (law firm) prior thereto
Gail D. Knudsen, 36 (4) Vice-President Vice president and assistant controller 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 Trustee Van Voorhis Professor of Political Economy, Department
(3) (4) of Economics of the University of Washington
Nicolette D. Parrish,49 Vice-President; Assistant Senior legal assistant and assistant secretary of
(4) Secretary Stein Roe
Gita R. Rao, 39 Vice-President Vice President of Stein Roe since Oct. 1998; vice
president and portfolio manager 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 (4) 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 Trustee Managing director, William Blair Capital Partners
(3) (4) (private equity fund) since 1994; chief executive
officer and chairman of the Board of Directors of
Continental Bank Corporation, 1987-1994
Scott E. Volk, 27 (4) 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 (4) Vice-President; Secretary Vice president of Stein Roe since March 1998; senior
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, 58 (4) 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.
(4) This person holds the corresponding officer or trustee
position with SR&F Base Trust.
</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** $ 3,800 $ 23,100 $ 525
William W. Boyd 21,700 109,902 2,498
Douglas A. Hacker 19,050 101,148 2,299
Janet Langford Kelly 19,050 97,950 2,226
Francis W. Morley** 3,800 23,100 525
Charles R. Nelson 21,700 109,552 2,490
Thomas C. Theobald 19,050 101,148 2,299
_______________
* 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 Fund's Sept. 30, 1998 Financial
Statements (statement of assets and liabilities and schedule of
investments as of Sept. 30, 1998 and the statement of operations,
changes in net assets, and notes thereto) and the report of
independent public accountants contained in the Sept. 30, 1998
Annual Report. The Financial Statements and the report of
independent public accountants (but no other material from the
Annual Report) are attached to the SAI. The Annual Report may be
obtained at no charge by telephoning 800-338-2550.
PRINCIPAL SHAREHOLDERS
As of Jan. 31, 1999, the only person known by the Trust to
own of record or "beneficially" 5% or more of the outstanding
shares of the 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
Name and Address of Outstanding Shares Held
--------------- ----------------------
The following table shows shares of the Fund held by the
categories of persons indicated as of Jan. 31, 1999, 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
----------- ------- ----------- -------
_________________________
*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
Colonial Management Associates, Inc. (CMA) provides
investment management services to the Portfolio. Stein Roe &
Farnham Incorporated (Stein Roe) provides administrative services
to the Fund and the Portfolio. CMA is an indirect 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. 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.
The directors of CMA are Stephen E. Gibson, Nancy L. Conlin,
and Davey S. Scoon. Mr. Gibson is chairman of the board, chief
executive officer and president of CMA; Ms. Conlin is senior vice
president, general counsel, clerk, and secretary of CMA; and Mr.
Scoon is executive vice president of CMA. The business address of
Ms. Conlin and Messrs. Gibson and Scoon is One Financial Center,
Boston, MA 02111.
CMA has been providing investment advisory services since
1931. As of Sept. 30, 1998, CMA managed over $_________ in
assets.
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 CounselorSM and Stein Roe Personal CounselorSM 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 CounselorSM are free to self direct their investments while
considering Stein Roe's recommendations; shareholders
participating in Stein Roe Personal CounselorSM 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
CounselorSM 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, CMA is entitled to receive a
monthly management fee from the Portfolio and Stein Roe is
entitled to receive a monthly administrative fee from the Fund.
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>
Year Ended Year Ended Year Ended
Fund/Portfolio Type Current Rates 9/30/98 9/30/97 9/30/96
- -------------- -------------- ------------ ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Fund Management N/A N/A $ $
Administrative .25% $ $ $
Portfolio Management .60% $ $ N/A
</TABLE>
Stein Roe provides office space and executive and other
personnel to the Fund, and bears any sales or promotional
expenses. The Fund pays all expenses other than those paid by
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 the 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 the Fund, Stein Roe may voluntarily waive its fees
and/or absorb certain expenses, as described under The Fund-Your
Expenses in the Prospectus. Any such reimbursement will enhance
the yield of the Fund.
The management agreement provides that CMA shall not be
subject to any liability to the Trust or the Fund, to any
shareholder of the Trust or the Fund or to any other person, firm
or organization, for any act or omission in the course of, or
connected with, rendering services 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
$358,936, respectively, from the Trust for services performed
under this Agreement.
DISTRIBUTOR
Fund shares are distributed by Liberty Funds Distributor,
Inc. ("Distributor"), One Financial Center, Boston, MA 02111,
under a Distribution Agreement. The Distributor is a subsidiary
of CMA. 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 prospectus
and other expenses.
As agent, the Distributor offers shares of the Fund to
investors in states where the shares are qualified for sale, at
net asset value, without sales commissions or other sales load to
the investor. In addition, no sales commission or "12b-1" payment
is paid by the Fund. The Distributor offers the Fund's 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 the 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 Fund 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 Portfolio.
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 the Fund, the Portfolio, and their
shareholders to maintain assets in each of the countries in which
the 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 the Fund and the value of its shares will not be adversely
affected by acts of foreign governments, financial or operational
difficulties of the foreign sub-custodians, difficulties and costs
of obtaining jurisdiction over or enforcing judgments against the
foreign sub-custodians, or application of foreign law to the
foreign sub-custodial arrangements. Accordingly, an investor
should recognize that the non-investment risks involved in holding
assets abroad are greater than those associated with investing in
the United States.
The Fund and the Portfolio may invest in obligations of the
Bank and may purchase or sell securities from or to the Bank.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Fund and the
Portfolio 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 Fund and the Portfolio 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.
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.
ADDITIONAL INCOME TAX CONSIDERATIONS
The Fund and the Portfolio intend 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.
The Fund expects that less than 100% of its dividends will
qualify for the deduction for dividends received by corporate
shareholders.
The Fund may be subject to withholding and other taxes
imposed by foreign countries. Tax treaties between certain
countries and the United States may reduce or eliminate such
taxes. Investors may be entitled to claim U.S. foreign tax
credits with respect to such taxes, subject to certain provisions
and limitations contained in the Code. Specifically, if more than
50% of the Fund's total assets at the close of any fiscal year
consist of stock or securities of foreign corporations, the Fund
may file an election with the Internal Revenue Service pursuant to
which shareholders of the Fund will be required to (i) include in
ordinary gross income (in addition to taxable dividends actually
received) their pro rata shares of foreign income taxes paid by
the Fund even though not actually received, (ii) treat such
respective pro rata shares as foreign income taxes paid by them,
and (iii) deduct such pro rata shares in computing their taxable
incomes, or, alternatively, use them as foreign tax credits,
subject to applicable limitations, against their United States
income taxes. Shareholders who do not itemize deductions for
federal income tax purposes will not, however, be able to deduct
their pro rata portion of foreign taxes paid by the Fund, although
such shareholders will be required to include their share of such
taxes in gross income. Shareholders who claim a foreign tax
credit may be required to treat a portion of dividends received
from the Fund as separate category income for purposes of
computing the limitations on the foreign tax credit available to
such shareholders. Tax-exempt shareholders will not ordinarily
benefit from this election relating to foreign taxes. Each year,
the Fund will notify shareholders of the amount of (i) each
shareholder's pro rata share of foreign income taxes paid by the
Fund and (ii) the portion of Fund dividends which represents
income from each foreign country, if the Fund qualifies to pass
along such credit.
Passive Foreign Investment Companies. The 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 the Portfolio holds its investment. In
addition, the 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, the 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
The Fund may quote certain total return figures from time to
time. A "Total Return" on a per share basis is the amount of
dividends distributed per share plus or minus the change in the
net asset value per share for a period. A "Total Return
Percentage" may be calculated by dividing the value of a share at
the end of a period by the value of the share at the beginning of
the period and subtracting one. For a given period, an "Average
Annual Total Return" may be computed by finding the average annual
compounded rate that would equate a hypothetical initial amount
invested of $1,000 to the ending redeemable value.
n
Average Annual Total Return is computed as follows: ERV = P(1+T)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the
end of the period (or fractional portion).
For example, for a $1,000 investment in the 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
------------ ------------- --------------
1 year $ 833 -16.67% -16.67%
Life of Fund* 1,038 3.76 0.81
______________
*Life of Fund is from 3/1/94, its date of public offering.
Investment performance figures assume reinvestment of all
dividends and distributions and do not take into account any
federal, state, or local income taxes which shareholders must pay
on a current basis. They are not necessarily indicative of future
results. The performance of the Fund is a result of conditions in
the securities markets, portfolio management, and operating
expenses. Although investment performance information is useful
in reviewing the Fund's performance and in providing some basis
for comparison with other investment alternatives, it should not
be used for comparison with other investments using different
reinvestment assumptions or time periods.
The Fund may note its mention or recognition in newspapers,
magazines, or other media from time to time. However, the Fund
assumes no responsibility for the accuracy of such data.
Newspapers and magazines which might mention the Fund include, but
are not limited to, the following:
Architectural Digest
Arizona Republic
Atlanta Constitution
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, the Fund may compare its
performance with that of other mutual funds, indexes or averages
of other mutual funds, indexes of related financial assets or
data, and other competing investment and deposit products
available from or through other financial institutions. The
composition of these indexes or averages differs from that of the
Fund. Comparison of the Fund to an alternative investment should
be made with consideration of differences in features and expected
performance. All of the indexes and averages noted below will be
obtained from the indicated sources or reporting services, which
the Fund believes to be generally accurate. The Fund may compare
its performance to the Consumer Price Index (All Urban), a widely
recognized measure of inflation. The Fund's performance may be
compared to the following indexes or averages:
Dow-Jones Industrial Average New York Stock Exchange
Composite Index
Standard & Poor's 500 Stock Index American Stock Exchange
Composite Index
Standard & Poor's 400 Industrials Nasdaq Composite
Russell 2000 Index Nasdaq Industrials
Wilshire 5000
(These indexes are widely (These indexes generally
recognized indicators of reflect the performance of
general U.S. stock market stocks traded in the
results.) indicated markets.)
In addition, the Fund may compare its performance to the
indicated benchmarks:
Lipper Equity Fund Average
Lipper General Equity Fund Average
Lipper International & Global Funds Average
Lipper International Fund Index
Morningstar All Equity Funds Average
Morningstar Equity Fund Average
Morningstar General Equity Average*
Morningstar Hybrid Fund Average
Morningstar U.S. Diversified Average
*Includes Morningstar Aggressive Growth, Growth, Balanced,
Equity Income, and Growth and Income Averages.
The Lipper International Fund Index reflects the net asset
value weighted return of the ten largest international funds. The
Lipper and Morningstar averages are unweighted averages of total
return performance of mutual funds as classified, calculated, and
published by these independent services that monitor the
performance of mutual funds. The Fund may also use comparative
performance as computed in a ranking by Lipper or category
averages and rankings provided by another independent service.
Should Lipper or another service reclassify the Fund to a
different category or develop (and place the Fund into) a new
category, the Fund may compare its performance or ranking with
those of other funds in the newly assigned category, as published
by the service.
The Fund may also cite its rating, recognition, or other
mention by Morningstar or any other entity. Morningstar's rating
system is based on risk-adjusted total return performance and is
expressed in a star-rating format. The risk-adjusted number is
computed by subtracting a fund's risk score (which is a function
of the fund's monthly returns less the 3-month T-bill return) from
its load-adjusted total return score. This numerical score is
then translated into rating categories, with the top 10% labeled
five star, the next 22.5% labeled four star, the next 35% labeled
three star, the next 22.5% labeled two star, and the bottom 10%
one star. A high rating reflects either above-average returns or
below-average risk, or both.
Of course, past performance is not indicative of future
results.
_______________
To illustrate the historical returns on various types of
financial assets, the Fund may use historical data provided by
Ibbotson Associates, Inc. ("Ibbotson"), a Chicago-based investment
firm. Ibbotson constructs (or obtains) very long-term (since
1926) total return data (including, for example, total return
indexes, total return percentages, average annual total returns
and standard deviations of such returns) for the following asset
types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
_____________________
The Fund may also use hypothetical returns to be used as an
example in a mix of asset allocation strategies. One such example
is reflected in the chart below, which shows the effect of tax
deferral on a hypothetical investment. This chart assumes that an
investor invested $2,000 a year on January 1, for any specified
period, in both a Tax-Deferred Investment and a Taxable
Investment, that both investments earn either 6%, 8% or 10%
compounded annually, and that the investor withdrew the entire
amount at the end of the period. (A tax rate of 39.6% is applied
annually to the Taxable Investment and on the withdrawal of
earnings on the Tax-Deferred Investment.)
<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, the Fund may offer in its advertising and
sales literature to send an investment strategy guide, a tax
guide, or other supplemental information to investors and
shareholders. It may also mention the Stein Roe CounselorSM and
the Stein Roe Personal CounselorSM programs and asset allocation
and other investment strategies.
MASTER FUND/FEEDER FUND: STRUCTURE AND RISK FACTORS
The Fund (which is a 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 the Fund approved this policy of permitting the
Fund to act as a feeder fund by investing in the 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 Fund and
the Portfolio. The management fees and expenses of the Fund and
the Portfolio 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. CMA has provided investment
management services in connection with other mutual funds
employing the master fund/feeder fund structure since 1999.
The 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 the Fund and other investors in the Portfolio will be liable
for all obligations of the Portfolio that are not satisfied by the
Portfolio. However, the risk of the Fund incurring financial loss
on account of such liability is limited to circumstances in which
liability was inadequately insured and the Portfolio was unable to
meet its obligations. Accordingly, the trustees of the Trust
believe that neither the Fund nor its shareholders will be
adversely affected by reason of the Fund's investing in the
Portfolio.
The Declaration of Trust of Base Trust provides that the
Portfolio will terminate 120 days after the withdrawal of the 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 the Fund's interests in the
Portfolio for such continuation without approval of the Fund's
shareholders.
The common investment objectives of the Fund and the
Portfolio are nonfundamental and may be changed without
shareholder approval, subject, however, to at least 30 days'
advance written notice to the Fund's shareholders.
The fundamental policies of the Fund and the corresponding
fundamental policies of its master Portfolio can be changed only
with shareholder approval. If the Fund, as a Portfolio investor,
is requested to vote on a change in a fundamental policy of the
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.
The Fund will vote shares for which it receives no voting
instructions in the same proportion as the shares for which it
receives voting instructions. There can be no assurance that any
matter receiving a majority of votes cast by Fund shareholders
will receive a majority of votes cast by all investors in the
Portfolio. If other investors hold a majority interest in the
Portfolio, they could have voting control over the Portfolio.
In the event that the 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. The 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 the 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 the Portfolio, including the 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 the Portfolio, but members of
the general public may not invest directly in the Portfolio.
Other investors in the Portfolio are not required to sell their
shares at the same public offering price as the 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 the
Portfolio. Investment by such other investors in the 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 the 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, the Portfolio's security holdings may become
less diverse, resulting in increased risk.
Information regarding other investors in the 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 13, 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 October 19, 1998. (Exhibit (d) to PEA #53.)*
(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
October 19, 1998. (Exhibit (h)(3) to PEA #53.)*
(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 Growth Opportunities Fund.
(Exhibit 10(d) to PEA #39.)*
(4) Opinion and consent of Bell, Boyd & Lloyd with
respect to Stein Roe Large Company Focus Fund.
(Exhibit 10(e) to PEA #45.)*
(5) Opinion and consent of Bell, Boyd & Lloyd with
respect to Stein Roe Asia Pacific Fund. (Exhibit
10(f) to PEA #46.)*
(6) Opinion and consent of Bell, Boyd & Lloyd with
respect to Stein Roe Small Company Growth Fund.
(exhibit (i)(6) to PEA #54.)*
(j) (1) 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 Growth Opportunities Fund.
(10) Stein Roe Large Company Focus 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 Senior V-P; Controller 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 Senior V-P; Controller 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-President
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 Senior V-P; Controller 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 Senior V-P; Controller 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 Senior V-P; Controller 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 V-P; Controller Treasurer
Thomas W. Butch President
Kevin M. Carome Vice-President; Asst. Secretary
E. Bruce Dunn Vice President
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; Controller
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; Controller
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 the directors and officers 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 Vice President None
Ballou, Rick Senior Vice President None
Bartlett, John Managing Director None
Blakeslee, James Senior Vice President None
Blumenfeld, Alex Vice President None
Bozek, James Senior Vice President None
Brown, Beth Vice President None
Burtman, Stacy Vice President None
Butch, Thomas W. Senior Vice President Pres., Trustee
Campbell, Patrick Vice President None
Chrzanowski, Daniel Vice President None
Clapp, Elizabeth A. Managing Director None
Conlin, Nancy L. Director, Clerk None
Davey, Cynthia Sr. Vice President None
Desilets, Marian Vice President None
Devaney, James Senior Vice President None
DiMaio, Steve Vice President None
Downey, Christopher Vice President None
Emerson, Kim P. Senior Vice President None
Evans, C. Frazier Managing Director None
Feldman, David Managing Director 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 Senior 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
Martin, Peter Vice President None
McCombs, 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
Morse, Jonathan Vice President None
O'Shea, Kevin Managing Director None
Piken, Keith Vice President None
Place, Jeffrey Managing Director None
Pollard, Brian S. Vice President None
Predmore, Tracy Vice President None
Quirk, Frank Vice President None
Raftery-Arpino, Linda 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
Santosuosso, Louise Vice President None
Scarlott, Rebecca Vice President None
Schulman, David Senior Vice President None
Scoon, Davey S. Director None
Shea, Terence Vice President None
Sideropoulos, Lou Vice President None
Smith, Darren Vice President None
Studer, Eric Vice President None
Soester, Trisha Vice President None
Sweeney, Maureen Managing Director None
Tambone, James Chief Executive Officer None
Tasiopoulos, Lou President None
VanEtten, Keith H. Senior Vice President None
Walter, Heidi J. Vice President V-P & Secy.
Young, Deborah Vice President None
Zarker, Cynthia Erickson Senior 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 Registrant 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 9th day of
February, 1999.
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 Feb. 9, 1999
Thomas W. Butch
Principal Executive Officer
GARY A. ANETSBERGER Senior Vice- Feb. 9, 1999
Gary A. Anetsberger President; Controller
Principal Financial and
Accounting Officer
JOHN A. BACON JR. Trustee Feb. 9, 1999
John A. Bacon Jr.
WILLIAM W. BOYD Trustee Feb. 9, 1999
William W. Boyd
LINDSAY COOK Trustee Feb. 9, 1999
Lindsay Cook
DOUGLAS A. HACKER Trustee Feb. 9, 1999
Douglas A. Hacker
JANET LANGFORD KELLY Trustee Feb. 9, 1999
Janet Langford Kelly
CHARLES R. NELSON Trustee Feb. 9, 1999
Charles R. Nelson
THOMAS C. THEOBALD Trustee Feb. 9, 1999
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 Growth Opportunities Fund
(10) Stein Roe Large Company Focus Fund
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> STEIN ROE GROWTH & INCOME FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 351,183
<RECEIVABLES> 222
<ASSETS-OTHER> 53
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 351,458
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 406
<TOTAL-LIABILITIES> 406
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 233,215
<SHARES-COMMON-STOCK> 15,634
<SHARES-COMMON-PRIOR> 14,731
<ACCUMULATED-NII-CURRENT> 855
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,614
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 112,368
<NET-ASSETS> 351,052
<DIVIDEND-INCOME> 4,404
<INTEREST-INCOME> 3,194
<OTHER-INCOME> 0
<EXPENSES-NET> 3,902
<NET-INVESTMENT-INCOME> 3,696
<REALIZED-GAINS-CURRENT> 7,267
<APPREC-INCREASE-CURRENT> (229)
<NET-CHANGE-FROM-OPS> 10,734
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,131
<DISTRIBUTIONS-OF-GAINS> 14,181
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,902
<NUMBER-OF-SHARES-REDEEMED> 3,635
<SHARES-REINVESTED> 636
<NET-CHANGE-IN-ASSETS> 13,586
<ACCUMULATED-NII-PRIOR> 1,295
<ACCUMULATED-GAINS-PRIOR> 11,111
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,902
<AVERAGE-NET-ASSETS> 363,393
<PER-SHARE-NAV-BEGIN> 22.91
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> 0.55
<PER-SHARE-DIVIDEND> 0.28
<PER-SHARE-DISTRIBUTIONS> 0.97
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.45
<EXPENSE-RATIO> 1.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> STEIN ROE BALANCED FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 248,128
<RECEIVABLES> 21
<ASSETS-OTHER> 61
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 248,210
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 358
<TOTAL-LIABILITIES> 358
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 175,957
<SHARES-COMMON-STOCK> 8,074
<SHARES-COMMON-PRIOR> 8,526
<ACCUMULATED-NII-CURRENT> 573
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 15,117
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 56,205
<NET-ASSETS> 247,852
<DIVIDEND-INCOME> 2,361
<INTEREST-INCOME> 8,542
<OTHER-INCOME> 0
<EXPENSES-NET> 2,857
<NET-INVESTMENT-INCOME> 8,046
<REALIZED-GAINS-CURRENT> 22,004
<APPREC-INCREASE-CURRENT> (27,976)
<NET-CHANGE-FROM-OPS> 2,074
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,492
<DISTRIBUTIONS-OF-GAINS> 16,945
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 668
<NUMBER-OF-SHARES-REDEEMED> 1,735
<SHARES-REINVESTED> 615
<NET-CHANGE-IN-ASSETS> (36,994)
<ACCUMULATED-NII-PRIOR> 182
<ACCUMULATED-GAINS-PRIOR> 9,383
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,857
<AVERAGE-NET-ASSETS> 277,843
<PER-SHARE-NAV-BEGIN> 33.41
<PER-SHARE-NII> 0.95
<PER-SHARE-GAIN-APPREC> (0.90)
<PER-SHARE-DIVIDEND> 0.76
<PER-SHARE-DISTRIBUTIONS> 2.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 30.70
<EXPENSE-RATIO> 1.03
<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-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 615,756
<RECEIVABLES> 237
<ASSETS-OTHER> 80
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 616,073
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 728
<TOTAL-LIABILITIES> 728
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 323,268
<SHARES-COMMON-STOCK> 17,730
<SHARES-COMMON-PRIOR> 17,218
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,589)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 295,666
<NET-ASSETS> 615,345
<DIVIDEND-INCOME> 4,698
<INTEREST-INCOME> 1,399
<OTHER-INCOME> 0
<EXPENSES-NET> 6,749
<NET-INVESTMENT-INCOME> (652)
<REALIZED-GAINS-CURRENT> (894)
<APPREC-INCREASE-CURRENT> 29,857
<NET-CHANGE-FROM-OPS> 28,311
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 36,957
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,955
<NUMBER-OF-SHARES-REDEEMED> 3,319
<SHARES-REINVESTED> 876
<NET-CHANGE-IN-ASSETS> 7,676
<ACCUMULATED-NII-PRIOR> 55
<ACCUMULATED-GAINS-PRIOR> 34,207
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,749
<AVERAGE-NET-ASSETS> 657,231
<PER-SHARE-NAV-BEGIN> 35.29
<PER-SHARE-NII> (0.04)
<PER-SHARE-GAIN-APPREC> 1.61
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.15
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 34.71
<EXPENSE-RATIO> 1.03
<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-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 544,869
<INVESTMENTS-AT-VALUE> 683,729
<RECEIVABLES> 15,854
<ASSETS-OTHER> 113
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 699,676
<PAYABLE-FOR-SECURITIES> 16,172
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,391
<TOTAL-LIABILITIES> 18,563
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 551,069
<SHARES-COMMON-STOCK> 26,962
<SHARES-COMMON-PRIOR> 38,173
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (8,796)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 138,860
<NET-ASSETS> 681,133
<DIVIDEND-INCOME> 860
<INTEREST-INCOME> 3,662
<OTHER-INCOME> 0
<EXPENSES-NET> 11,313
<NET-INVESTMENT-INCOME> (6,791)
<REALIZED-GAINS-CURRENT> 110,560
<APPREC-INCREASE-CURRENT> (195,885)
<NET-CHANGE-FROM-OPS> (92,116)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,722
<NUMBER-OF-SHARES-REDEEMED> 19,933
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (429,509)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (119,356)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,828
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11,313
<AVERAGE-NET-ASSETS> 940,411
<PER-SHARE-NAV-BEGIN> 29.10
<PER-SHARE-NII> (0.25)
<PER-SHARE-GAIN-APPREC> (3.60)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.25
<EXPENSE-RATIO> 1.20
<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-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 917,000
<RECEIVABLES> 215
<ASSETS-OTHER> 146
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 917,361
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,711
<TOTAL-LIABILITIES> 5,711
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 591,705
<SHARES-COMMON-STOCK> 37,241
<SHARES-COMMON-PRIOR> 39,288
<ACCUMULATED-NII-CURRENT> 2,198
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 158,186
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 159,561
<NET-ASSETS> 911,650
<DIVIDEND-INCOME> 7,362
<INTEREST-INCOME> 9,114
<OTHER-INCOME> 0
<EXPENSES-NET> 13,914
<NET-INVESTMENT-INCOME> 2,562
<REALIZED-GAINS-CURRENT> 212,315
<APPREC-INCREASE-CURRENT> (441,669)
<NET-CHANGE-FROM-OPS> (226,792)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 130,064
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,671
<NUMBER-OF-SHARES-REDEEMED> 12,731
<SHARES-REINVESTED> 4,013
<NET-CHANGE-IN-ASSETS> (415,928)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 110,545
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,914
<AVERAGE-NET-ASSETS> 1,232,669
<PER-SHARE-NAV-BEGIN> 33.79
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> (6.06)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> STEIN ROE INTERNATIONAL FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
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<TOTAL-LIABILITIES> 241
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<NET-CHANGE-IN-ASSETS> (51,844)
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<GROSS-EXPENSE> 2,264
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<PER-SHARE-GAIN-APPREC> (2.01)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 11
<NAME> STEIN ROE YOUNG INVESTOR FUND
<S> <C>
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<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
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<NET-INVESTMENT-INCOME> (1,746)
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<APPREC-INCREASE-CURRENT> (31,047)
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<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 8,189
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<PER-SHARE-NAV-BEGIN> 22.75
<PER-SHARE-NII> (0.06)
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<EXPENSE-RATIO> 1.31
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> STEIN ROE SPECIAL VENTURE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
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<NET-INVESTMENT-INCOME> (1,024)
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<APPREC-INCREASE-CURRENT> (67,561)
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<PER-SHARE-NII> (0.09)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 14
<NAME> STEIN ROE GROWTH OPPORTUNITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
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<TOTAL-LIABILITIES> 148
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 49,005
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<SHARES-COMMON-PRIOR> 4,625
<ACCUMULATED-NII-CURRENT> (26)
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<ACCUMULATED-NET-GAINS> (1,785)
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 49,974
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<NET-INVESTMENT-INCOME> (347)
<REALIZED-GAINS-CURRENT> (1,412)
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<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> (373)
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 781
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<PER-SHARE-NAV-BEGIN> 10.77
<PER-SHARE-NII> (0.07)
<PER-SHARE-GAIN-APPREC> (0.29)
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<EXPENSE-RATIO> 1.25
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 15
<NAME> STEIN ROE LARGE COMPANY FOCUS FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> JUN-26-1998
<PERIOD-END> SEP-30-1998
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<SENIOR-EQUITY> 0
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<SHARES-COMMON-PRIOR> 0
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<ACCUMULATED-NET-GAINS> (1,997)
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<NET-INVESTMENT-INCOME> (14)
<REALIZED-GAINS-CURRENT> (1,997)
<APPREC-INCREASE-CURRENT> (4,559)
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<PER-SHARE-NAV-BEGIN> 10.00
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</TABLE>
