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. 69 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 70 [X]
LIBERTY-STEIN ROE FUNDS INVESTMENT TRUST
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 1-800-225-2365
Kevin M. Carome Cameron S. Avery
Exec. Vice-President Bell, Boyd & Lloyd LLC
Liberty-Stein Roe Funds Suite 3300
Investment Trust Three First National Plaza
One Financial Center 70 W. Madison Street
Boston, MA 02111 Chicago, Illinois 60602
(Name and Address of Agents for Service)
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[X] 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 Advisor Select Growth & Income Fund, Stein Roe Balanced Fund, Stein
Roe Growth Stock Fund, Stein Roe Capital Opportunities Fund, Stein Roe
Disciplined Stock Fund, Stein Roe International Fund, Stein Roe Young Investor
Fund, Stein Roe Midcap Growth Fund, Stein Roe Large Company Focus Fund, Stein
Roe Asia Pacific Fund, Stein Roe Small Company Growth Fund, and Stein Roe
Advisor Growth Investor Fund.
The prospectuses and statements of additional information relating to the series
of Stein Roe Funds Investment Trust designated Liberty Value Opportunities Fund,
Stein Roe Balanced Fund, Stein Roe Growth Stock Fund, Liberty Midcap Growth
Fund, Liberty Growth Investor Fund, Stein Roe Focus Fund Stein Roe International
Fund, Stein Roe Young Investor Fund, Stein Roe Asia Pacific Fund, Stein Roe
Small Company Growth Fund, Stein Roe Capital Opportunities Fund and Stein Roe
Disciplined Stock Fund are not affected by the filing of this Post-Effective
Amendment No. 69.
<PAGE>
Stein Roe International Thematic Equity Funds
Global Thematic Equity Fund
European Thematic Equity Fund
Prospectus
January 2, 2001
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is truthful or complete. Anyone
who tells you otherwise is committing a crime.
<PAGE>
Each fund section contains the following information specific to that fund:
investment goal; principal investment strategy; principal investment risks; and
your expenses.
Please keep this prospectus as your reference manual.
_ Global Thematic Equity Fund
_ European Thematic Equity Fund
_ Your Account
Purchasing Shares
Opening an Account
Determining Share Price (NAV)
Selling Shares
Exchanging Shares
Reporting to Shareholders
Dividends and Distributions
_ Other Investments and Risks
_ The Funds' Management
Investment Adviser and Subadviser
<PAGE>
Global Thematic Equity Fund
Investment Goal
SteinRoe Global Thematic Equity Fund seeks long-term growth of
capital.
Principal Investment Strategy
The Global Thematic Equity Fund seeks to achieve its investment goal
by investing in common stocks and other equity securities of U.S. and
foreign companies with market capitalizations generally greater than
$2.5 billion. Under normal circumstances, the Fund will be
substantially invested in equity securities. The Fund seeks to
outperform the MSCI World Index.
Thematic Investing. The Fund's investment subadviser, Unibank
Securities, Inc., uses a thematic strategy that is based on the belief
that structural change in the global economy is the most important
factor underlying individual company performance. The thematic
approach combines top-down stock picking based on an analysis of
global structural changes with bottom-up stock picking based on
traditional considerations such as competitive advantage, company
strategy, industry dynamics and other factors that point to the return
potential of a particular company. The subadviser's portfolio
management team has identified three core structural changes it
currently views as driving the evolution of the global economy:
o demographic change,
o technological revolution, and
o globalization.
The implications of structural change, and the portfolio managers'
understanding of those implications, are the basis for defining the
themes that govern the stock selection process. An implication of
demographic change, for example, is the challenge posed by underfunded
public pension systems and the need to supplement such programs with
individual investment plans for an aging population. This is the
genesis of the Saving for Retirement theme. Following such a theme,
the portfolio management team might consider investing in firms that
provide retirement products. In do doing, however, the portfolio
management team would look for the most promising companies providing
these services, and would apply a rigorous, disciplined approach in
gauging the companies' prospects.
The thematic approach focuses on identifying and investing in
individual companies that are best positioned to benefit from a
particular theme, rather than on simply identifying and investing in
the most promising region or sector. The portfolio management team
weighs regional and sector factors in the application of risk
management and optimization techniques to measure and adjust sector
and regional exposure in the Fund relative to the Fund's benchmark
(the MSCI World Index).
Principal Investment Risks
There are two basic risks for all mutual funds that invest in stocks
and bonds: management risk and market risk. These risks may cause you
to lose money by investing in the Fund.
[Callout]
WHAT ARE MARKET AND MANAGEMENT RISKS?
--------------------------------------------------------------------------------
Management risk means that the portfolio managers' 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 Fund 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.
Equity Risk
Since it purchases equity securities, the Fund is subject to equity
risk. This is the risk that stock prices will fall over short or
extended periods of time. Although the stock market has historically
outperformed other asset classes over the long term, the equity market
tends to move in cycles and individual stock prices may fluctuate
drastically from day to day and may underperform other asset classes
over an extended period of time. Individual companies may report poor
results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies
may suffer a decline in response. These price movements may result
from factors affecting individual companies, industries or the
securities market as a whole.
Foreign Securities
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 Fund may at
times be unable to sell them at desirable prices. Fluctuations in
currency exchange rates impact the value of foreign securities.
Brokerage commissions, custodial fees, and other fees are generally
higher for foreign investments. In addition, foreign governments may
impose withholding taxes which would reduce the amount of income
available to distribute to shareholders. Other risks include: possible
delays in settlement of transactions; less publicly available
information about companies; the impact of political, social or
diplomatic events; and possible seizure, expropriation or
nationalization of the company or its assets.
Emerging Markets
Emerging markets are subject to additional risk. The risks of foreign
investments are typically increased in less developed countries, which
are sometimes referred to as emerging markets. For example, political
and economic structures in these countries may be new and developing
rapidly, which may cause instability. These countries are also more
likely to experience high levels of inflation, deflation or currency
devaluations, which could hurt their economies and securities markets.
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.
For more information on the Fund's investment techniques, please refer
to "Other Investments and Risks."
Who Should Invest in the Fund?
You may want to invest in Global Thematic Equity Fund if you:
o are interested in investing in companies throughout the
world and can tolerate the greater share price volatility
that accompanies international investing
o want an international fund that is broadly diversified among
countries and companies
o are a long-term investor and can afford to potentially lose
money on your investment
Global Thematic Equity Fund is not appropriate for investors who:
o want to avoid volatility or possible losses
o are saving for a short-term investment
o need regular current income
o are not interested in generating taxable current income
Fund Performance
Because the Fund is a new fund and has not completed one full year of
investment performance, information related to the Fund's performance,
including a bar chart showing the Fund's annual returns, has not been
included in this prospectus.
Your Expenses
This table shows fees and expenses you may pay if you buy and hold
shares of the Fund. You do not pay any sales charge when you purchase
or sell your shares.(a) However, you pay various other indirect
expenses because the Fund pays fees and other expenses that reduce
your investment return.
ANNUAL FUND OPERATING EXPENSES (b)
(expenses that are deducted from Fund assets)
............................................................. ..........
Management fees(c) 1.00%
Distribution (12b-1) fees None
Other expenses 0.57%
------------------------------------------------------------- ----------
Total annual fund operating expenses 1.57%
(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. There is also a 1%
redemption fee on sales of Fund shares held for less than 90
days. See "Your Account - Selling Shares - Redemption Fee."
(b) Annual fund operating expenses consist of Fund expenses that
include management fees and administrative costs such as
furnishing the Fund with offices and providing tax and
compliance services.
(c) Management fees include both the management fee and the
administrative fee charged to the Fund. The Fund's investment
adviser pays Unibank a subadvisory fee of 0.60% for managing the
assets of the Fund.
Expense Example
This example compares the cost of investing in the Fund to the cost of
investing in other mutual funds. It uses the same hypothetical
assumptions that other funds use in their prospectuses:
o $10,000 initial investment
o 5% return each year
o the Fund's operating expenses remain constant as a percent of
net assets
o 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
----------------------------------------------
Global Thematic Equity Fund $ $
<PAGE>
European Thematic Equity Fund
Investment Goal
Stein Roe European Thematic Equity Fund seeks long-term growth of
capital.
Principal Investment Strategy
The European Thematic Equity Fund seeks to achieve its investment goal
by investing in common stocks and other equity securities of European
companies within the full range of market capitalizations. Under
normal circumstances, the Fund will be substantially invested in
equity securities. The Fund seeks to outperform the MSCI Europe index.
Thematic Investing. The Fund's investment subadviser, Unibank
Securities, Inc., uses a thematic strategy that is based on the belief
that structural change in the global economy is the most important
factor underlying individual company performance. The thematic
approach combines top-down stock picking based on an analysis of
global structural changes with bottom-up stock picking based on
traditional considerations such as competitive advantage, company
strategy, industry dynamics and other factors that point to the return
potential of a particular company.The subadviser's portfolio
management team has identified three core structural changes it
currently views as driving the evolution of the global economy:
o demographic change,
o technological revolution, and
o globalization.
The implications of structural change, and the portfolio managers'
understanding of those implications, are the basis for defining the
themes that govern the stock selection process. An implication of
demographic change, for example, is the challenge posed by underfunded
public pension systems and the need to supplement such programs with
individual investment plans for an aging population. This is the
genesis of the Saving for Retirement theme. Following such a theme,
the portfolio management team might consider investing in firms that
provide retirement products. In do doing, however, the portfolio
management team would look for the most promising companies providing
these services, and would apply a rigorous, disciplined approach in
gauging the companies' prospects.
The thematic approach focuses on identifying and investing in
individual companies that are best positioned to benefit from a
particular theme, rather than on simply identifying and investing in
the most promising region or sector. The portfolio management team
weighs regional and sector factors in the application of risk
management and optimization techniques to measure and adjust sector
and regional exposure in the Fund relative to the Fund's benchmark
(the MSCI Europe Index).
Principal Investment Risks
There are two basic risks for all mutual funds that invest in stocks:
management risk and market risk. These risks may cause you to lose
money by investing in the Fund.
[Callout]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
WHAT ARE MARKET AND MANAGEMENT RISKS?
--------------------------------------------------------------------------------
Management risk means that the portfolio managers' 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 Fund 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.
Equity Risk
Since it purchases equity securities, the Fund is subject to equity
risk. This is the risk that stock prices will fall over short or
extended periods of time. Although the stock market has historically
outperformed other asset classes over the long term, the equity market
tends to move in cycles and individual stock prices may fluctuate
drastically from day to day and may underperform other asset classes
over an extended period of time. Individual companies may report poor
results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies
may suffer a decline in response. These price movements may result
from factors affecting individual companies, industries or the
securities market as a whole.
Foreign Securities
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 Fund may at
times be unable to sell them at desirable prices. Fluctuations in
currency exchange rates impact the value of foreign securities.
Brokerage commissions, custodial fees, and other fees are generally
higher for foreign investments. In addition, foreign governments may
impose withholding taxes which would reduce the amount of income
available to distribute to shareholders. Other risks include: possible
delays in settlement of transactions; less publicly available
information about companies; the impact of political, social or
diplomatic events; and possible seizure, expropriation or
nationalization of the company or its assets.
Small Cap and Mid Cap Companies
Small Cap and Mid Cap Companies are more likely than large companies
to have limited product lines, operating histories, markets or
financial resources. They may depend heavily on a small management
team. Stocks of small and mid-size companies may trade less
frequently, in smaller volumes and fluctuate more sharply in price
than stocks of large companies. In addition, they may not be widely
followed by the investment community, which can lower demand for their
stock.
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.
For more information on the Fund's investment techniques, please refer
to "Other Investments and Risks."
Who Should Invest in the Fund?
You may want to invest in European Thematic Equity Fund if you:
o can tolerate the greater share price volatility that accompanies
international investing
o want an international fund that emphasizes investment in European
companies
o are a long-term investor and can afford to potentially lose money
on your investment
European Thematic Equity Fund is not appropriate for investors who:
o want to avoid volatility or possible losses
o are saving for a short-term investment
o need regular current income
o are not interested in generating taxable current income
Fund Performance
Because the Fund is a new fund and has not completed one full year of
investment performance, information related to the Fund's performance,
including a bar chart showing the Fund's annual returns, has not been
included in this prospectus.
Your Expenses
This table shows fees and expenses you may pay if you buy and hold
shares of the Fund. You do not pay any sales charge when you purchase
or sell your shares.(a) However, you pay various other indirect
expenses because the Fund pays fees and other expenses that reduce
your investment return.
ANNUAL FUND OPERATING EXPENSES (b)
(expenses that are deducted from Fund assets)
............................................................. ..........
Management fees(c) 1.00%
Distribution (12b-1) fees None
Other expenses 0.57%
------------------------------------------------------------- ----------
Total annual fund operating expenses 1.57%
(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. There is also a 1%
redemption fee on sales of Fund shares held for less than 90
days. See "Your Account - Selling Shares - Redemption Fee."
(b) Annual fund operating expenses consist of Fund expenses that
include management fees and administrative costs such as
furnishing the Fund with offices and providing tax and
compliance services.
(c) Management fees include both the management fee and the
administrative fee charged to the Fund. The Fund's investment
adviser pays Unibank a subadvisory fee of 0.60% for managing the
assets of the Fund.
Expense Example
This example compares the cost of investing in the Fund to the cost of
investing in other mutual funds. It uses the same hypothetical
assumptions that other funds use in their prospectuses:
o $10,000 initial investment
o 5% return each year
o the Fund's operating expenses remain constant as a percent of net
assets
o 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
----------------------------------------------
European Thematic Equity Fund $ $
<PAGE>
Your Account
Purchasing Shares
You will not pay a sales charge when you purchase Fund shares. Your
purchases are made at the NAV next determined after the Fund receives
your check, wire transfer or electronic transfer. If a Fund receives
your check, wire transfer or electronic transfer after the close of
regular trading on the New York Stock Exchange (NYSE)--normally 4 p.m.
Eastern time--your purchase is effective on the next business day.
Purchases through Third Parties
If you purchase Fund shares through certain broker-dealers, banks or
other intermediaries (intermediaries), they may charge a fee for their
services. They may also place limits on your ability to use services
the Funds offer. There are no charges or limitations if you purchase
shares directly from a Fund, except those fees described in this
prospectus.
If an intermediary is an agent or designee of the Funds, orders are
processed at the NAV next calculated after the intermediary receives
the order. The intermediary must segregate any orders it receives
after the close of regular trading on the NYSE and transmit those
orders separately for execution at the NAV next determined.
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 it. Once we
accept your purchase order, you may not cancel or revoke it; however,
you may redeem your shares. A Fund may reject any purchase order if it
determines that the order is not in the best interests of the Fund and
its investors. A Fund may waive or lower its investment minimums for
any reason. 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.
<TABLE>
<CAPTION>
Minimum to Open an Minimum Addition Minimum Balance
Type of Account Account
--------------------------------------------- ---------------------- ----------------- ----------------
<S> <C> <C> <C>
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
*Maximum $500 contribution per year per child.
</TABLE>
Opening an Account
<TABLE>
<CAPTION>
OPENING OR ADDING TO AN ACCOUNT
BY MAIL: BY WIRE:
------------------------- --------------------------------------------- ----------------------------------------------
<S> <C> <C>
Opening an Account Complete the application. Mail your application to the address listed
Make check payable to Stein Roe Mutual on the left, then call 800-338-2550 to
Funds. obtain an account number. Include your
Social Security Number. To wire funds, use
Mail application and check to: the instructions below.
SteinRoe Services Inc.
P.O. Box 8900 Fund Numbers:
Boston, MA 02205 __--Global Thematic Equity Fund
__--European Thematic Equity Fund
Adding to an Account Make check payable to Stein Roe Mutual Wire funds to:
Funds. Be sure to write your account First National Bank of Boston
number on the check. ABA: 011000390
Attn: SSI, Account No. 560-99696
Fill out investment slip (stub from your Fund No. __; Stein Roe ____ Fund
statement or confirmation) or include a Your name (exactly as in the
note indicating the amount of your registration).
purchase, your account number, and the name Fund account number.
in which your account is registered.
Mail check with investment slip or note to the address
above.
</TABLE>
<TABLE>
<CAPTION>
OPENING OR ADDING TO AN ACCOUNT
BY ELECTRONIC FUNDS TRANSFER: BY EXCHANGE: THROUGH AN INTERMEDIARY:
-------------------- -------------------------------------- ----------------------------------- ------------------------
<S> <C> <C> <C>
Opening an Account You cannot open a new account via By mail, phone, or automatically Contact your
electronic transfer. (be sure to elect the Automatic financial
Exchange Privilege on your professional.
application).
Adding to an Call 800-338-2550 to make your By mail, phone, or automatically Contact your
Account purchase. To set up prescheduled (be sure to elect the Automatic financial
purchases, be sure to elect the Exchange Privilege on your professional.
Automatic Investment Plan (Stein Roe application).
AssetSM Builder) option on your
application.
All checks must be made payable in U.S. dollars and drawn on U.S. banks. Money orders and third-party checks will not be accepted.
</TABLE>
Determining Share Price (NAV)
A Fund's share price is its NAV next determined. NAV is the difference
between the values of a Fund's assets and liabilities divided by the
number of shares outstanding. We determine NAV at the close of regular
trading on the NYSE--normally 4 p.m. Eastern time. If you place an
order after that time, you receive the share price determined on the
next business day.
To calculate the NAV on a given day, we value each stock listed or
traded on a stock exchange at its latest sale price on that day. If
there are no sales that day, we value the security at the most
recently quoted bid price. We value each over-the-counter security or
National Association of Securities Dealers Automated Quotation
(Nasdaq) security as of the last sale price for that day. We value all
other over-the-counter securities that have reliable quotes at the
latest quoted bid price.
We value securities convertible into common stock at fair value.
Pricing services provide the Funds with the value of the securities.
When the price of a security is not available, including days when we
determine that the sale or bid price of the security does not reflect
that security's market value, we value the security at a fair value
determined in good faith under procedures established by the Board of
Trustees.
We 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 the
foreign market and before the close of the NYSE. Foreign securities
may trade on days when the NYSE is closed. We will not price shares on
days that the NYSE is closed for trading. You will not be able to
purchase or redeem shares until the next NYSE-trading day.
Selling Shares You may sell your shares any day the Funds are open for business.
Please follow the instructions below.
SELLING SHARES
BY MAIL: Send a letter of instruction, in English, including your account
number and the dollar value or number of shares you wish to sell.
Sign the request exactly as the account is registered. Be sure to
include a signature guarantee. All supporting legal documents as
required from executors, trustees, administrators, or others
acting on accounts not registered in their names, must accompany
the request. We will mail the check to your registered address.
BY PHONE: This feature is automatically added to your account unless you
decline it on your application. Call 800-338-2550 to redeem an
amount of $1,000 or more. We will mail a check to your registered
address.
BY WIRE: Fill out the appropriate areas of the account application for
this feature. Proceeds of $1,000 or more ($100,000 maximum) may
be wired to your 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 a Fund for
investment in another Stein Roe no-load fund.
What You Need to Know When Selling Shares
Once we receive and accept your order to sell shares, you may not
cancel or revoke it. We cannot accept an order to sell that specifies
a particular date or price or any other special conditions. If you
have any questions about the requirements for selling your shares,
please call 800-338-2550 before submitting your order.
A Fund redeems shares at the NAV next determined after an order has
been accepted. We mail proceeds within seven days after the sale. The
Funds normally pay wire redemption or electronic transfer proceeds on
the next business day.
We will not pay sale proceeds until your shares are paid for. If you
attempt to sell shares purchased by check or electronic transfer
within 15 days of the purchase date, we will delay sending the sale
proceeds until we can verify that those shares are paid for. You may
avoid this delay by purchasing shares by a federal funds wire.
We use procedures reasonably designed to confirm that telephone
instructions are genuine. These include recording the conversation,
testing the identity of the caller by asking for account information,
and sending prompt written confirmation of the transaction to the
shareholder of record. If these procedures are followed, the Fund and
its service providers will not be liable for any losses due to
unauthorized or fraudulent instructions.
If the amount you redeem is in excess of the lesser of (1) $250,000 or
(2) 1% of a Fund's net assets, 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.
Redemption Fee
The Funds charge a 1% redemption fee on sales of Fund shares that you
have held for less than 90 days. The fee is retained by the Fund for
the benefit of the remaining shareholders. The fee is waived for
shares purchased through certain retirement plans, including 401(k)
plans, 403(b) plans, 457 plans, Keough accounts, and Stein Roe Profit
Sharing and Money Purchase Pension Plans. The fee waiver may not apply
to shares purchased through an intermediary maintaining an omnibus
account with the Fund. Before purchasing shares, please check with
your account representative concerning the availability of the waiver.
The fee waiver does not apply to IRA and SEP-IRA accounts. The
redemption fee is intended to encourage long-term investment in the
Fund, to avoid transaction and other expenses caused by early
redemptions, and to facilitate portfolio management. The fee does not
benefit Stein Roe in any way. The Fund may modify the terms of,
terminate, or waive this fee at any time.
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. A 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 exchange "roundtrips" per
year. A roundtrip is an exchange out of a Fund into another Stein Roe
no-load fund and then back to that Fund.
Reporting to Shareholders
To reduce the volume of mail you receive, only one copy of certain
materials, such as 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
Each 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 a Fund
earns from dividends and interest paid on its investments, after
payment of the Fund's expenses.
A capital gain is the increase in value of a security that the Fund
holds. The gain is "unrealized" until the security is sold. Each
realized capital gain is either short term or long term depending on
whether the Fund held the security for one year or less or more than
one year, regardless of how long you have held your Fund shares.
When a Fund makes a distribution of income or capital gains, the
distribution is automatically invested in additional shares of that
Fund unless you elect on the account application to have distributions
paid by check.
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OPTIONS FOR RECEIVING DISTRIBUTION AND REDEMPTION PROCEEDS:
o by check
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o by electronic transfer into your bank account
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o a purchase of shares of another Stein Roe fund
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o a purchase of shares in a Stein Roe fund account of another person
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If you elect to receive distributions by check and a distribution
check is returned to a Fund as undeliverable, or if you do not present
a distribution check for payment within six months, we will change the
distribution option on your account and reinvest the proceeds of the
check in additional shares of that Fund. You will not receive any
interest on amounts represented by uncashed distribution or redemption
checks.
Tax Consequences
You are subject to federal income tax on both dividends and capital
gains distributions whether you elect to receive them in cash or
reinvest them in additional Fund shares. If a Fund declares a
distribution in December, but does not pay it until after December 31,
you will be taxed as if the distribution were paid in December. Stein
Roe will process your distributions and send you a statement for tax
purposes each year showing the source of distributions for the
preceding year.
<PAGE>
TRANSACTION TAX STATUS
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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
------------------------------------------ -------------------------------------
In addition to the dividends and capital gains distributions made by a
Fund, you may realize a capital gain or loss when selling and
exchanging Fund shares. Such transactions may be subject to federal
income tax.
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 adviser about the tax consequences of
an investment in a Fund.
<PAGE>
Other Investments and Risks
The first portion of this prospectus describes each Fund's principal
investment strategy and principal investment risks. In seeking to meet
its investment goals, a Fund also may invest in other securities and
use other investment techniques. A Fund may elect not to buy any of
these other securities or use any of these other investment
techniques. A Fund may not always achieve its investment goal.
This section describes other securities and techniques, and risks
associated with them. The Statement of Additional Information (SAI)
contains additional information about a Fund's securities and
investment techniques (including other securities and techniques) and
the risks associated with them. Such risks could cause you to lose
money by investing in a Fund or could cause a Fund's total return to
decrease. The SAI also contains a Fund's fundamental and
non-fundamental investment policies.
The Board of Trustees can change a Fund's investment objective without
shareholder approval.
Futures and Options
The Funds may use futures to gain exposure to groups of stocks or
individual issuers. The Funds may also use futures to invest cash
pending direct investments in stocks and to enhance their return. The
Funds may use options on securities to earn additional income or to
hedge against price erosion in the underlying security for the
intermediate term. A future is an agreement to buy or sell a specific
amount of a financial instrument or physical commodity for an
agreed-upon price at a certain time in the future. Futures and options
are efficient since they typically cost less than direct investments
in the underlying securities. However, the Funds can lose money if the
portfolio manager does not correctly anticipate the market movements
of those underlying securities.
Short Sales
The Funds may make short sales of securities. Short selling involves
the sale of borrowed securities. When a Fund thinks the price of a
stock will decline, it borrows the stock and then sells the borrowed
stock. When the Fund has to return the borrowed stock, it tries to buy
the stock at a lower price. If the Fund is successful, it has a
capital gain. If the Fund is unsuccessful and buys the stock at a
higher price than the price at which it sold the stock, the Fund has a
capital loss. A Fund's capital gains and losses may result in federal
income tax consequences to the Fund's shareholders. Short selling
involves certain risks. A Fund could have a loss if the borrowed
security increases in value and if the purchased security declines in
value.
Portfolio Turnover
There are no limits on turnover. Turnover may vary significantly from
year to year. Unibank does not expect it to exceed 100% under normal
conditions. The Funds generally intend to purchase securities for
long-term investment although, to a limited extent, they may purchase
securities (including securities purchased in initial public
offerings) in anticipation of relatively short-term price gains.
Portfolio turnover typically produces capital gains or losses
resulting in tax consequences for Fund investors. It also increases
transaction expenses, which reduce a Fund's return.
Temporary Defensive Positions
When Unibank believes that a temporary defensive position is
necessary, a Fund may invest, without limit, in high-quality debt
securities or hold assets in cash and cash equivalents. Unibank is not
required to take a temporary defensive position, and market conditions
may prevent such an action. A Fund may not achieve its investment
objective if it takes a temporary defensive position.
Interfund Lending Program
The Funds 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.
Purchase and Sale Decisions
Unibank's portfolio managers review holdings in terms of five key
elements:
Investment Alternatives. Unibank regularly monitors investment
holdings to ensure that the stocks selected reflect the most
attractive risk-return profiles for the portfolio. The portfolio
managers work to maintain a constant number of stocks in the
portfolio: one stock "in" usually results in one stock "out." New
stock ideas are introduced and discussed continuously as alternatives
to existing holdings.
Ability to Capitalize on a Theme. A company's ability to capitalize on
a theme is equally important in Unibank's buy and sell disciplines.
News indicating a significant change in a company's strategy or
management priorities leads to a review of the company by the
portfolio managers. Unibank also meets periodically with company
management to verify the portfolio managers' assessment of a company's
strategic direction and management's ability to maintain it. Should
further analysis lead to doubt as to a company's continued ability to
capitalize on a theme, Unibank may sell the security.
Theme Deterioration. If a theme deteriorates, all stocks previously
characterized as beneficiaries of that theme are reviewed. If no other
theme is shown to be driving an individual stock, Unibank will sell
the stock.
Price Capitalization. Price movements of individual stocks are
reviewed by the team on a weekly basis. Large price movements lead to
further review and analysis of the stock's risk-return profile and the
fundamentals of the underlying company. Negative indications from any
of these factors may lead to a sale.
Portfolio Optimization and Risk Control. The portfolio managers also
identify potential sell candidates through monthly risk-optimization
analysis. By evaluating the risk related to market expectations and
valuations against corresponding consensus risk and valuation
estimates developed by Unibank, the portfolio managers are able to
apply a robust analytic overlay in decisions to increase or decrease
holdings in the portfolio.
<PAGE>
The Funds' Management
Investment Adviser and Subadviser
Stein Roe & Farnham Incorporated (Stein Roe), One South Wacker Drive,
Chicago, IL 60606, is the investment adviser for the Funds and
receives an advisory fee from each Fund equal to 0.85% of the average
daily net asset value of each Fund. Stein Roe (and its predecessor)
has advised and managed mutual funds since 1949. Stein Roe's mutual
funds and institutional investment advisory businesses are part of a
larger business unit known as Liberty Funds Group (LFG) that includes
several separate legal entities. LFG includes certain affiliates of
Stein Roe, including Colonial Management Associates, Inc. (Colonial).
The LFG business unit is managed by a single management team. Colonial
and other LFG entities also share personnel, facilities, and systems
with Stein Roe that may be used in providing administrative or
operational services to the Funds. Colonial is a registered investment
adviser. Stein Roe also has a wealth management business that is not
part of LFG and is managed by a different team. Stein Roe and the
other entities that make up LFG are subsidiaries of Liberty Financial
Companies, Inc.
Unibank Securities, Inc., which does business in the U.S. as Unibank
Investment Management and is located at 13-15 West 54th Street, New
York, NY 10019, serves as the investment subadviser for the Funds and
manages the day-to-day investment operations of the Funds. Stein Roe
pays Unibank a subadvisory fee equal to 0.60% of the average daily net
asset value of each Fund. Unibank's investment decisions for each Fund
are made by an investment team. Unibank has advised and managed mutual
funds since 1994. Unibank offers a range of equity investment products
and services to institutional clients, including private and public
retirement funds, unions, endowments, foundations, and insurance
companies, as well as to mutual fund sponsors on a subadvisory basis.
Unibank is a direct, wholly-owned subsidiary of Unibank A/S, one of
Scandinavia's leading financial institutions. Unibank A/S is owned by
Unidanmark Group, which is held by the Nordic Baltic Holdings Group.
<PAGE>
For More Information
More information about the Funds' investments will be published in the Funds'
semi-annual and annual reports to shareholders. The annual report will contain a
discussion of the market conditions and investment strategies that significantly
affected the Funds' performance over their last fiscal year.
You may wish to read the Funds' Statement of Additional Information (SAI) for
more information on the Funds and the securities in which they invest. 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 Funds' semiannual and annual reports, latest
quarterly profile, or the SAI or to request other information about the Funds,
write or call:
Stein Roe Mutual Funds
One Financial Center
Boston, MA 02111
800-338-2550
www.steinroe.com
Information about the Funds (including the SAI) can be reviewed and copied at
the Public Reference Room of the Securities and Exchange Commission (SEC) in
Washington, D.C. Information on the Public Reference Room may be obtained by
calling the SEC at 202-942-8090. Reports and other information about the Funds
are available on the EDGAR database on the SEC's Internet site at
http://www.sec.gov. Copies of this information may be obtained, after paying a
duplicating fee, by electronic request at the following E-mail address:
[email protected] or by writing the SEC's Public Reference Section, Washington,
D.C. 20549-0102.
Investment Company Act file number of Liberty-Stein Roe Funds Investment Trust:
811-04978
LIBERTY FUNDS DISTRIBUTOR, INC.
<PAGE>
Statement of Additional Information Dated January 2, 2001
LIBERTY-STEIN ROE FUNDS INVESTMENT TRUST
One Financial Center, Boston, MA 02111-2621
800-338-2550
Stein Roe Global Thematic Equity Fund
Stein Roe European Thematic Equity Fund
This Statement of Additional Information ("SAI") is not a prospectus,
but provides additional information that should be read in conjunction with the
Funds' prospectus dated January 2, 2001, and any supplements thereto
("Prospectus"). The Prospectus may be obtained at no charge by telephoning
800-338-2550.
TABLE OF CONTENTS
Page
General Information and History.....................
Investment Policies.................................
Portfolio Investments and Strategies................
Investment Restrictions.............................
Additional Investment Considerations................
Purchases and Redemptions...........................
Management..........................................
Codes of Ethics.....................................
Principal Shareholders..............................
Investment Advisory and Other Services..............
Distributor.........................................
Transfer Agent......................................
Custodian...........................................
Independent Accountants.............................
Portfolio Transactions..............................
Additional Income Tax Considerations................
Investment Performance..............................
Appendix--Ratings...................................
<PAGE>
GENERAL INFORMATION AND HISTORY
Stein Roe Global Thematic Equity Fund and Stein Roe European Thematic
Equity Fund (the "Funds," and each a "Fund"), the mutual funds described in this
SAI, are separate series of Liberty-Stein Roe Funds Investment Trust (the
"Trust"). The Funds commenced operations on January 2, 2001.
On February 1, 1996, the name of the Trust was changed to separate
"SteinRoe" into two words. The name of the Trust was changed on October 18,
1999, from "Stein Roe Investment Trust" to "Liberty-Stein Roe Funds Investment
Trust."
The Trust is a Massachusetts business trust organized under an Agreement
and Declaration of Trust ("Declaration of Trust") dated January 8, 1987, which
provides that each shareholder shall be deemed to have agreed to be bound by the
terms thereof. The Declaration of Trust may be amended by a vote of either the
Trust's shareholders or its trustees. The Trust may issue an unlimited number of
shares, in one or more series each with one or more classes of shares, 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 (or class thereof) is entitled to participate pro
rata in any dividends and other distributions declared by the Board on shares of
that series (or class thereof), and all shares of a series have equal rights in
the event of liquidation of that series (or class thereof). 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.
INVESTMENT POLICIES
The Trust is an open-end management investment company. The Funds are
diversified, as that term is defined in the Investment Company Act of 1940.
The investment objectives and policies of the Funds are described in the
Prospectus. In pursuing its objective, each Fund may employ the investment
techniques described in Portfolio Investments and Strategies in this SAI. Each
Fund's 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
PORTFOLIO INVESTMENTS AND STRATEGIES
Debt Securities
In pursuing its investment objective, a Fund may invest in debt securities
of corporate and governmental issuers. The risks inherent in debt securities
depend primarily on the term and quality of the obligations in 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 managers.
Securities in the fourth highest grade may possess speculative
characteristics, and changes in economic conditions are more likely to affect
the issuer's capacity to pay interest and repay principal. If the rating of a
security held by a Fund is lost or reduced below investment grade, the Fund is
not required to dispose of the security, but the portfolio managers will
consider that fact in determining whether the Fund should continue to hold the
security.
Securities that are rated below investment grade are considered
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal according to the terms of the obligation and therefore carry
greater investment risk, including the possibility of issuer default and
bankruptcy.
When the portfolio managers determine that adverse market or economic
conditions exist and consider a temporary defensive position advisable, the
Funds may invest without limitation in high-quality fixed income securities or
hold assets in cash or cash equivalents.
Derivatives
Consistent with its objective, a Fund may invest in a broad array of
financial instruments and securities, including conventional exchange-traded and
non-exchange-traded options; futures contracts; futures options; securities
collateralized by underlying pools of mortgages or other receivables; floating
rate instruments; and other instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument or security is
"derived" from the performance of an underlying asset or a "benchmark" such as a
security index, an interest rate, or a currency.
Derivatives are most often used to manage investment risk or to create an
investment position indirectly because using them is more efficient or less
costly than direct investment that cannot be readily established directly due to
portfolio size, cash availability, or other factors. They also may be used in an
effort to enhance portfolio returns.
The successful use of Derivatives depends on the portfolio managers'
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.
Each Fund 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 a Fund on purchase of such
securities; in addition, the proceeds of prepayment would likely be invested at
lower interest rates.
Mortgage-backed securities provide either a pro rata interest in underlying
mortgages or an interest in collateralized mortgage obligations ("CMOs") that
represent a right to interest and/or principal payments from an underlying
mortgage pool. CMOs are not guaranteed by either the U.S. Government or by its
agencies or instrumentalities, and are usually issued in multiple classes each
of which has different payment rights, prepayment risks, and yield
characteristics. Mortgage-backed securities involve the risk of prepayment on
the underlying mortgages at a faster or slower rate than the established
schedule. Prepayments generally increase with falling interest rates and
decrease with rising rates but they also are influenced by economic, social, and
market factors. If mortgages are pre-paid during periods of declining interest
rates, there would be a resulting loss of the full-term benefit of any premium
paid by a Fund on purchase of the CMO, and the proceeds of prepayment would
likely be invested at lower interest rates.
Non-mortgage asset-backed securities usually have less prepayment risk
than mortgage-backed securities, but have the risk that the collateral will not
be available to support payments on the underlying loans that finance payments
on the securities themselves.
Floating rate instruments provide for periodic adjustments in coupon
interest rates that are automatically reset based on changes in amount and
direction of specified market interest rates. In addition, the adjusted duration
of some of these instruments may be materially shorter than their stated
maturities. To the extent such instruments are subject to lifetime or periodic
interest rate caps or floors, such instruments may experience greater price
volatility than debt instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and refers to the
approximate percentage change in price for a 100 basis point change in yield.
For example, if interest rates decrease by 100 basis points, a market price of a
security with an adjusted duration of 2 would increase by approximately 2%.
Convertible Securities
By investing in convertible securities, a Fund obtains the right to
benefit from the capital appreciation potential in the underlying stock upon
exercise of the conversion right, while earning higher current income than would
be available if the stock were purchased directly. In determining whether to
purchase a convertible, the portfolio managers will consider substantially the
same criteria that would be considered in purchasing the underlying stock. While
convertible securities purchased by the Fund are frequently rated investment
grade, the Fund may purchase unrated securities or securities rated below
investment grade if the securities meet the portfolio managers' 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 managers' own
investment research and analysis tend to be more important in the purchase of
such securities than other factors.
Foreign Securities
Each Fund invests 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. A Fund may invest in
sponsored or unsponsored ADRs. In the case of an unsponsored ADR, the Fund is
likely to bear its proportionate share of the expenses of the depositary, and it
may have greater difficulty in receiving shareholder communications than it
would have with a sponsored ADR. The Fund may also purchase foreign securities
in the form of European Depositary Receipts (EDRs) or other securities
representing underlying shares of foreign issuers. Positions in these securities
are not necessarily denominated in the same currency as the common stocks into
which they may be converted. EDRs are European receipts evidencing a similar
arrangement. Generally, ADRs, in registered form, are designed for the U.S.
securities markets and EDRs, in bearer form, are designed for use in European
securities markets.
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 repatriated; less public
information with respect to issuers of securities; less governmental supervision
of stock exchanges, securities brokers, and issuers of securities; lack of
uniform accounting, auditing, and financial reporting standards; lack of uniform
settlement periods and trading practices; less liquidity and frequently greater
price volatility in foreign markets than in the United States; possible
imposition of foreign taxes; possible investment in securities of companies in
developing as well as developed countries; and sometimes less advantageous
legal, operational, and financial protections applicable to foreign
sub-custodial arrangements. These risks are greater for emerging markets.
Although the Funds will try to invest in companies and governments of
countries having stable political environments, there is the possibility of
expropriation or confiscatory taxation, seizure or nationalization of foreign
bank deposits or other assets, establishment of exchange controls, the adoption
of foreign government restrictions, or other adverse political, social or
diplomatic developments that could affect investment in these nations.
Currency Exchange Transactions. Currency exchange transactions may be
conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market or through forward
currency exchange contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at a specified
future date (or within a specified time period) and price set at the time of the
contract. Forward contracts are usually entered into with banks and
broker-dealers, are not exchange traded, and are usually for less than one year,
but may be renewed.
The Funds' foreign currency exchange transactions are limited to
transaction and portfolio hedging involving either specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of forward
contracts with respect to specific receivables or payables of a Fund arising in
connection with the purchase and sale of its portfolio securities. Portfolio
hedging is the use of forward contracts with respect to portfolio security
positions denominated or quoted in a particular foreign currency. Portfolio
hedging allows a Fund to limit or reduce its exposure in a foreign currency by
entering into a forward contract to sell such foreign currency (or another
foreign currency that acts as a proxy for that currency) at a future date for a
price payable in U.S. dollars so that the value of the foreign-denominated
portfolio securities can be approximately matched by a foreign-denominated
liability. A Fund may not engage in portfolio hedging with respect to the
currency of a particular country to an extent greater than the aggregate market
value (at the time of making such sale) of the securities held in its portfolio
denominated or quoted in that particular currency, except that 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 Fund may enter into a
forward contract where the amount of the foreign currency to be sold exceeds the
value of the securities denominated in such currency. The use of this basket
hedging technique may be more efficient and economical than entering into
separate forward contracts for each currency held by the Fund. The Funds may not
engage in "speculative" currency exchange transactions.
At the maturity of a forward contract to deliver a particular currency,
a Fund may either sell the portfolio security related to such contract and make
delivery of the currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual obligation to deliver
the currency by purchasing an offsetting contract with the same currency trader
obligating it to purchase on the same maturity date the same amount of the
currency.
It is impossible to forecast with absolute precision the market value
of portfolio securities at the expiration of a forward contract. Accordingly, it
may be necessary for a Fund to purchase additional currency on the spot market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of currency the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the currency.
Conversely, it may be necessary to sell on the spot market some of the currency
received upon the sale of the portfolio security if its market value exceeds the
amount of currency the Fund is obligated to deliver.
If a Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss to the extent that there has
been movement in forward contract prices. If the Fund engages in an offsetting
transaction, it may subsequently enter into a new forward contract to sell the
currency. Should forward prices decline during the period between the Fund's
entering into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the currency, the Fund
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell. A default on the contract would deprive the Fund of unrealized
profits or force the Fund to cover its commitments for purchase or sale of
currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for a Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to the Fund of
engaging in currency exchange transactions varies with such factors as the
currency involved, the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually conducted on a
principal basis, no fees or commissions are involved.
Synthetic Foreign Money Market Positions. The Funds may invest in money
market instruments denominated in foreign currencies. In addition to, or in lieu
of, such direct investment, a Fund may construct a synthetic foreign money
market position by (a) purchasing a money market instrument denominated in one
currency, 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 Stein Roe European Thematic Equity Fund will
invest at least 65% of total assets in foreign securities.
Eurodollar Instruments
The Funds 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 Funds might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed income instruments are linked.
Structured Notes
Structured Notes are Derivatives on which the amount of principal repayment
and or interest payments is based upon the movement of one or more factors.
These factors include, but are not limited to, currency exchange rates, interest
rates (such as the prime lending rate and the London Interbank Offered Rate
("LIBOR")), stock indices such as the S&P 500 Index and the price fluctuations
of a particular security. In some cases, the impact of the movements of these
factors may increase or decrease through the use of multipliers or deflators.
The use of Structured Notes allows a Fund to tailor its investments to the
specific risks and returns the portfolio managers wish to accept while avoiding
or reducing certain other risks.
Swaps, Caps, Floors and Collars
The Funds may enter into swaps and may purchase or sell related caps,
floors and collars. A Fund would enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a duration management
technique or to protect against any increase in the price of securities it
purchases at a later date. The Funds would use these techniques only as hedges
and not as speculative investments and will not sell any interest rate income
streams they may be obligated to pay.
A swap agreement is generally individually negotiated and structured to
include exposure to a variety of different types of investments or market
factors. Depending on its structure, a swap agreement may increase or decrease a
Fund's exposure to changes in the value of an index of securities in which the
Fund might invest, the value of a particular security or group of securities, or
foreign currency values. Swap agreements can take many different forms and are
known by a variety of names. A Fund may enter into any form of swap agreement if
the portfolio managers determine it is consistent with its investment objective
and policies.
A swap agreement tends to shift a Fund's investment exposure from one type
of investment to another. For example, if a Fund agrees to exchange payments in
dollars at a fixed rate for payments in a foreign currency the amount of which
is determined by movements of a foreign securities index, the swap agreement
would tend to increase exposure to foreign stock market movements and foreign
currencies. Depending on how it is used, a swap agreement may increase or
decrease the overall volatility of the Fund's investments and its net asset
value.
The performance of a swap agreement is determined by the change in the
specific currency, market index, security, or other factors that determine the
amounts of payments due to and from a Fund. If a swap agreement calls for
payments by the Fund, 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. A Fund will not enter into
any swap, cap, floor or collar transaction unless, at the time of entering into
such transaction, the unsecured long-term debt of the counterparty, combined
with any credit enhancements, is rated at least A by Standard & Poor's Ratings
Services 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 managers.
The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling the cap to the extent that a
specified index exceeds a predetermined interest rate or amount. The purchase of
a floor entitles the purchaser to receive payments on a notional principal
amount from the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a combination
of a cap and floor that preserves a certain return within a predetermined range
of interest rates or values.
At the time a Fund enters into swap arrangements or purchases or sells
caps, floors or collars, liquid assets of the Fund having a value at least as
great as the commitment underlying the obligations will be segregated on the
books of the Fund and held by the custodian throughout the period of the
obligation.
Lending of Portfolio Securities
Subject to restriction (5) under Investment Restrictions in this SAI, a
Fund may lend its portfolio securities to broker-dealers and banks. Any such
loan must be continuously secured by collateral in cash or cash equivalents
maintained on a current basis in an amount at least equal to the market value of
the securities loaned by the Fund. The Fund would continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned, and would also receive an additional return that may be in the form of a
fixed fee or a percentage of the collateral. The Fund would have the right to
call the loan and obtain the securities loaned at any time on notice of not more
than five business days. The Fund would not have the right to vote the
securities during the existence of the loan but would call the loan to permit
voting of the securities if, in the portfolio managers' judgment, a material
event requiring a shareholder vote would otherwise occur before the loan was
repaid. In the event of bankruptcy or other default of the borrower, the Fund
could experience both delays in liquidating the loan collateral or recovering
the loaned securities and losses, including (a) possible decline in the value of
the collateral or in the value of the securities loaned during the period while
the Fund seeks to enforce its rights thereto, (b) possible subnormal levels of
income and lack of access to income during this period, and (c) expenses of
enforcing its rights. The Funds do not currently intend to loan more than 5% of
their net assets.
Repurchase Agreements
A Fund may invest in repurchase agreements, provided that it will not
invest more than 15% of net assets in repurchase agreements maturing in more
than seven days and any other illiquid securities. A repurchase agreement is a
sale of securities to a Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of bankruptcy of the
seller, a Fund could experience both losses and delays in liquidating its
collateral.
When-Issued and Delayed-Delivery Securities; Reverse Repurchase Agreements
The Funds may purchase securities on a when-issued or delayed-delivery
basis. Although the payment and interest terms of these securities are
established at the time a Fund enters into the commitment, the securities may be
delivered and paid for a month or more after the date of purchase, when their
value may have changed. The Funds makes such commitments only with the intention
of actually acquiring the securities, but may sell the securities before
settlement date if the portfolio managers deem it advisable for investment
reasons. The Funds 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 Funds may enter into reverse repurchase agreements with banks and
securities dealers. A reverse repurchase agreement is a repurchase agreement in
which a Fund is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use of a reverse
repurchase agreement may be preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and transaction costs.
At the time a Fund enters into a binding obligation to purchase securities
on a when-issued basis or enters into a reverse repurchase agreement, liquid
assets (cash, U.S. Government securities or other "high-grade" debt obligations)
of the Fund having a value at least as great as the purchase price of the
securities to be purchased will be segregated on the books of the Fund and held
by the custodian throughout the period of the obligation. The use of these
investment strategies, as well as borrowing under a line of credit as described
below, may increase net asset value fluctuation.
Short Sales "Against the Box"
A Fund may sell securities short against the box; that is, enter into short
sales of securities that it currently owns or has the right to acquire through
the conversion or exchange of other securities that it owns at no additional
cost. A Fund may make short sales of securities only if at all times when a
short position is open it owns at least an equal amount of such securities or
securities convertible into or exchangeable for securities of the same issue as,
and equal in amount to, the securities sold short, at no additional cost.
In a short sale against the box, a Fund does not deliver from its portfolio
the securities sold. Instead, the Fund borrows the securities sold short from a
broker-dealer through which the short sale is executed, and the broker-dealer
delivers such securities, on behalf of the Fund, to the purchaser of such
securities. The Fund is required to pay to the broker-dealer the amount of any
dividends paid on shares sold short. Finally, to secure its obligation to
deliver to such broker-dealer the securities sold short, the Fund must deposit
and continuously maintain in a separate account with its custodian an equivalent
amount of the securities sold short or securities convertible into or
exchangeable for such securities at no additional cost. The Fund is said to have
a short position in the securities sold until it delivers to the broker-dealer
the securities sold. The Fund may close out a short position by purchasing on
the open market and delivering to the broker-dealer an equal amount of the
securities sold short, rather than by delivering portfolio securities.
Short sales may protect a Fund against the risk of losses in the value of
its portfolio securities because any unrealized losses with respect to such
portfolio securities should be wholly or partially offset by a corresponding
gain in the short position. However, any potential gains in such portfolio
securities should be wholly or partially offset by a corresponding loss in the
short position. The extent to which such gains or losses are offset will depend
upon the amount of securities sold short relative to the amount the Fund owns,
either directly or indirectly, and, in the case where the Fund owns convertible
securities, changes in the conversion premium.
Short sale transactions involve certain risks. If the price of the security
sold short increases between the time of the short sale and the time the Fund
replaces the borrowed security, the Fund will incur a loss, and if the price
declines during this period, the Fund will realize a short-term capital gain.
Any realized short-term capital gain will be decreased, and any incurred loss
increased, by the amount of transaction costs and any premium, dividend or
interest which the Fund may have to pay in connection with such short sale.
Certain provisions of the Internal Revenue Code may limit the degree to which
the Funds are able to enter into short sales. There is no limitation on the
amount of a Fund's assets that, in the aggregate, may be deposited as collateral
for the obligation to replace securities borrowed to effect short sales and
allocated to segregated accounts in connection with short sales.
Rule 144A Securities
The Funds 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
Funds, to trade in privately placed securities that have not been registered for
sale under the 1933 Act. The portfolio managers, 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 a Fund's net assets in illiquid securities. A determination of whether a Rule
144A security is liquid or not is a question of fact. In making this
determination, the portfolio managers will consider the trading markets for the
specific security, taking into account the unregistered nature of a Rule 144A
security. In addition, the portfolio managers 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 relevant Fund's
holdings of illiquid securities would be reviewed to determine what, if any,
steps are required to assure that the Fund does not invest more than 15% of its
assets in illiquid securities. Investing in Rule 144A securities could have the
effect of increasing the amount of a Fund's assets invested in illiquid
securities if qualified institutional buyers are unwilling to purchase such
securities. The Funds do not expect to invest as much as 5% of their respective
total assets in Rule 144A securities that have not been deemed to be liquid by
the portfolio managers.
Line of Credit
Subject to restriction (6) under Investment Restrictions in this SAI, each
Fund may establish and maintain a line of credit with a major bank in order to
permit borrowing on a temporary basis to meet share redemption requests in
circumstances in which temporary borrowing may be preferable to liquidation of
portfolio securities.
Interfund Borrowing and Lending Program
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Funds may lend money to and borrow money from other mutual funds
advised by Stein Roe. The Funds will borrow through the program when borrowing
is necessary and appropriate and the costs are equal to or lower than the costs
of bank loans.
Portfolio Turnover
Although the Funds do not purchase securities with a view to rapid
turnover, there are no limitations on the length of time that portfolio
securities must be held. 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 each Fund's
flexibility of investment and emphasis on growth of capital, it may have greater
portfolio turnover than that of mutual funds that have primary objectives of
income or maintenance of a balanced investment position. 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 relevant Fund. High portfolio turnover may also result in the
realization of capital gains or losses and, to the extent net short-term capital
gains are realized, any distributions resulting from such gains will be
considered ordinary income for federal income tax purposes.
Options on Securities and Indexes
The Funds 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 Funds 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 Funds will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the option
is "covered" if the Fund owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio.
If an option written by a Fund expires, the Fund realizes a capital gain
equal to the premium received at the time the option was written. If an option
purchased by a Fund expires, the Fund realizes a capital loss equal to the
premium paid.
Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security or index, exercise price, and expiration). There
can be no assurance, however, that a closing purchase or sale transaction can be
effected when a Fund desires.
A Fund will realize a capital gain from a closing purchase transaction if
the cost of the closing option is less than the premium received from writing
the option, or, if it is more, the Fund will realize a capital loss. If the
premium received from a closing sale transaction is more than the premium paid
to purchase the option, the Fund will realize a capital gain or, if it is less,
the Fund will realize a capital loss. The principal factors affecting the market
value of a put or a call option include supply and demand, interest rates, the
current market price of the underlying security or index in relation to the
exercise price of the option, the volatility of the underlying security or
index, and the time remaining until the expiration date.
A put or call option purchased by a Fund is an asset of the Fund, valued
initially at the premium paid for the option. The premium received for an option
written by a Fund is recorded as a deferred credit. The value of an option
purchased or written is marked-to-market daily and is valued at the closing
price on the exchange on which it is traded or, if not traded on an exchange or
no closing price is available, at the mean between the last bid and asked
prices.
Risks Associated with Options on Securities and Indexes. There are several
risks associated with transactions in options. For example, there are
significant differences between the securities markets, the currency markets,
and the options markets that could result in an imperfect correlation between
these markets, causing a given transaction not to achieve its objectives. A
decision as to whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be unsuccessful to
some degree because of market behavior or unexpected events.
There can be no assurance that a liquid market will exist when a Fund seeks
to close out an option position. If a Fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option would expire and become worthless. If
a Fund were unable to close out a covered call option that it had written on a
security, it would not be able to sell the underlying security until the option
expired. As the writer of a covered call option on a security, a Fund foregoes,
during the option's life, the opportunity to profit from increases in the market
value of the security covering the call option above the sum of the premium and
the exercise price of the call.
If trading were suspended in an option purchased or written by a Fund, the
Fund would not be able to close out the option. If restrictions on exercise were
imposed, the Fund might be unable to exercise an option it has purchased.
Futures Contracts and Options on Futures Contracts
The Funds 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 index2 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.
The Funds may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities,
indexes and foreign currencies (discussed above). A futures option gives the
holder the right, in return for the premium paid, to assume a long position
(call) or short position (put) in a futures contract at a specified exercise
price at any time during the period of the option. Upon exercise of a call
option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option, the
opposite is true. A Fund might, for example, use futures contracts to hedge
against or gain exposure to fluctuations in the general level of stock prices,
anticipated changes in interest rates or currency fluctuations that might
adversely affect either the value of the Fund's securities or the price of the
securities that the Fund intends to purchase. Although other techniques could be
used to reduce or increase the Fund's exposure to stock price, interest rate and
currency fluctuations, the Fund may be able to achieve its exposure more
effectively and perhaps at a lower cost by using futures contracts and futures
options.
The Funds 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 managers
might have taken portfolio actions in anticipation of the same market movements
with similar investment results but, presumably, at greater transaction costs.
When a purchase or sale of a futures contract is made by a Fund, the Fund
is required to deposit with its custodian (or broker, if legally permitted) a
specified amount of cash or U.S. Government securities or other securities
acceptable to the broker ("initial margin"). The margin required for a futures
contract is set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is in the nature of
a performance bond or good faith deposit on the futures contract, which is
returned to the Fund upon termination of the contract, assuming all contractual
obligations have been satisfied. The Fund expects to earn interest income on its
initial margin deposits. A futures contract held by a Fund is valued daily at
the official settlement price of the exchange on which it is traded. Each day
the Fund pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking-to-market." Variation margin paid or received by a Fund does not
represent a borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the futures
contract had expired at the close of the previous day. In computing daily net
asset value, the Funds will mark-to-market their open futures positions.
A Fund is also required to deposit and maintain margin with respect to put
and call options on futures contracts written by it. Such margin deposits will
vary depending on the nature of the underlying futures contract (and the related
initial margin requirements), the current market value of the option, and other
futures positions held by the Fund.
Although some futures contracts call for making or taking delivery of the
underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund realizes a
capital loss. Conversely, if an offsetting sale price is more than the original
purchase price, the Fund engaging in the transaction realizes a capital gain, or
if it is less, the Fund realizes a capital loss. The transaction costs must also
be included in these calculations.
Risks Associated with Futures
There are several risks associated with the use of futures contracts and
futures options. A purchase or sale of a futures contract may result in losses
in excess of the amount invested in the futures contract. In trying to increase
or reduce market exposure, there can be no guarantee that there will be a
correlation between price movements in the futures contract and in the portfolio
exposure sought. In addition, there are significant differences between the
securities and futures markets that could result in an imperfect correlation
between the markets, causing a given transaction not to achieve its objectives.
The degree of imperfection of correlation depends on circumstances such as:
variations in speculative market demand for futures, futures options and the
related securities, including technical influences in futures and futures
options trading and differences between the securities market and the securities
underlying the standard contracts available for trading. For example, in the
case of index futures contracts, the composition of the index, including the
issuers and the weighting of each issue, may differ from the composition of the
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 a
Fund seeks to close out a futures or futures option position. The Fund would be
exposed to possible loss on the position during the interval of inability to
close, and would continue to be required to meet margin requirements until the
position is closed. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.
Limitations on Options and Futures
If other options, futures contracts, or futures options of types other than
those described herein are traded in the future, the Funds may also use those
investment vehicles, provided the Board of Trustees determines that their use is
consistent with the relevant Fund's investment objective.
A Fund will not enter into a futures contract or purchase an option thereon
if, immediately thereafter, the initial margin deposits for futures contracts
held by the Fund plus premiums paid by it for open futures option positions,
less the amount by which any such positions are "in-the-money,"3 would exceed 5%
of the Fund's total assets.
When purchasing a futures contract or writing a put option on a futures
contract, a Fund must maintain with its custodian (or broker, if legally
permitted) cash or cash equivalents (including any margin) equal to the market
value of such contract. When writing a call option on a futures contract, a Fund
similarly will maintain with its custodian cash or cash equivalents (including
any margin) equal to the amount by which such option is in-the-money until the
option expires or is closed out by the Fund.
A Fund may not maintain open short positions in futures contracts, in call
options written on futures contracts or in call options written on indexes if,
in the aggregate, the market value of all such open positions exceeds the
current value of the securities in its portfolio, plus or minus unrealized gains
and losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the positions. For this
purpose, to the extent the Fund has written call options on specific securities
in its portfolio, the value of those securities will be deducted from the
current market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission Regulation 4.5
and thereby avoid being deemed a "commodity pool operator," each Fund will use
commodity futures or commodity options contracts solely for bona fide hedging
purposes within the meaning and intent of Regulation 1.3(z), or, with respect to
positions in commodity futures and commodity options contracts that do not come
within the meaning and intent of 1.3(z), the aggregate initial margin and
premiums required to establish such positions will not exceed 5% of the fair
market value of the assets of the Fund, after taking into account unrealized
profits and unrealized losses on any such contracts it has entered into [in the
case of an option that is in-the-money at the time of purchase, the in-the-money
amount (as defined in Section 190.01(x) of the Commission Regulations) may be
excluded in computing such 5%].
Taxation of Options and Futures
If a Fund exercises a call or put option that it holds, the premium paid
for the option is added to the cost basis of the security purchased (call) or
deducted from the proceeds of the security sold (put). For cash settlement
options and futures options exercised by the Fund, the difference between the
cash received at exercise and the premium paid is a capital gain or loss.
If a call or put option written by a Fund is exercised, the premium is
included in the proceeds of the sale of the underlying security (call) or
reduces the cost basis of the security purchased (put). For cash settlement
options and futures options written by the Fund, the difference between the cash
paid at exercise and the premium received is a capital gain or loss.
Entry into a closing purchase transaction will result in capital gain or
loss. If an option written by a Fund was in-the-money at the time it was written
and the security covering the option was held for more than the long-term
holding period prior to the writing of the option, any loss realized as a result
of a closing purchase transaction will be long-term. The holding period of the
securities covering an in-the-money option will not include the period of time
the option is outstanding.
If a Fund writes an equity call option4 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.
A futures contract held until delivery results in capital gain or loss
equal to the difference between the price at which the futures contract was
entered into and the settlement price on the earlier of delivery notice date or
expiration date. If a Fund delivers securities under a futures contract, the
Fund also realizes a capital gain or loss on those securities.
For federal income tax purposes, a Fund generally is required to recognize
as income for each taxable year its net unrealized gains and losses as of the
end of the year on futures, futures options and non-equity options positions
("year-end mark-to-market"). Generally, any gain or loss recognized with respect
to such positions (either by year-end mark-to-market or by actual closing of the
positions) is considered to be 60% long-term and 40% short-term, without regard
to the holding periods of the contracts. However, in the case of positions
classified as part of a "mixed straddle," the recognition of losses on certain
positions (including options, futures and futures options positions, the related
securities and certain successor positions thereto) may be deferred to a later
taxable year. Sale of futures contracts or writing of call options (or futures
call options) or buying put options (or futures put options) that are intended
to hedge against a change in the value of securities held by a Fund: (1) will
affect the holding period of the hedged securities; and (2) may cause unrealized
gain or loss on such securities to be recognized upon entry into the hedge.
If a Fund were to enter into a short index future, short index futures
option or short index option position and the Fund were deemed to "mimic" the
performance of the index underlying such contract, the option or futures
contract position and the Fund's stock positions would be deemed to be positions
in a mixed straddle, subject to the above-mentioned loss deferral rules.
In order for a Fund to continue to qualify for federal income tax treatment
as a regulated investment company, at least 90% of its gross income for a
taxable year must be derived from qualifying income; i.e., dividends, interest,
income derived from loans of securities, and gains from the sale of securities
or foreign currencies, or other income (including but not limited to gains from
options, futures, or forward contracts). Any net gain realized from futures (or
futures options) contracts will be considered gain from the sale of securities
and therefore be qualifying income for purposes of the 90% requirement.
The Funds distribute 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 a Fund's other
investments, and shareholders are advised of the nature of the payments.
The Taxpayer Relief Act of 1997 (the "Act") imposed constructive sale
treatment for federal income tax purposes on certain hedging strategies with
respect to appreciated securities. Under these rules, taxpayers will recognize
gain, but not loss, with respect to securities if they enter into short sales of
"offsetting notional principal contracts" (as defined by the Act) or futures or
"forward contracts" (as defined by the Act) with respect to the same or
substantially identical property, or if they enter into such transactions and
then acquire the same or substantially identical property. These changes
generally apply to constructive sales after June 8, 1997. Furthermore, the
Secretary of the Treasury is authorized to promulgate regulations that will
treat as constructive sales certain transactions that have substantially the
same effect as short sales, offsetting notional principal contracts, and futures
or forward contracts to deliver the same or substantially similar property.
INVESTMENT RESTRICTIONS
Fundamental Investment Policies
The Investment Company Act of 1940 (the "1940 Act") provides that a
"vote of a majority of the outstanding voting securities" means the affirmative
vote of the lesser of (1) more than 50% of the outstanding shares of a Fund, or
(2) 67% or more of the shares present at a meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. The
following fundamental investment policies cannot be changed without such a vote.
Each Fund may:
1. Borrow from banks, other affiliated funds and other entities to the extent
permitted by applicable law, provided that the Fund's borrowings 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;
2. Only own real estate acquired as the result of owning securities and not
more than 5% of total assets;
3. Purchase and sell futures contracts and related options so long as the
total initial margin and premiums on the contracts do not exceed 5% of its
total assets;
4. Not issue senior securities except as provided in paragraph 1 above and to
the extent permitted by the Act;
5. Underwrite securities issued by others only when disposing of portfolio
securities;
6. Make loans (a) through lending of securities, (b) through the purchase of
debt instruments or similar evidences of 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; and
7. Not concentrate more than 25% of its total assets in any one industry or
with respect to 75% of total assets purchase any security (other than
obligations of the U.S. government and cash items including receivables) if
as a result more than 5% of its total assets would then be invested in
securities of a single issuer or purchase the voting securities of an
issuer if, as a result of such purchases, the Fund would own more than 10%
of the outstanding voting shares of such issuer.
Total assets and net assets are determined at current value for purposes of
compliance with investment restrictions and policies. All percentage limitations
will apply at the time of investment and are not violated unless an excess or
deficiency occurs as a result of such investment. For the purpose of the 1940
Act's diversification requirement, an issuer is the entity whose revenues
support the security.
Other Investment Policies
As non-fundamental investment policies which may be changed without a
shareholder vote, each Fund may not:
1. Purchase securities on margin, but it may receive short-term credit to
clear securities transactions and may make initial or maintenance margin
deposits in connection with futures transactions;
2. Have a short securities position, unless the Fund owns, or owns rights
(exercisable without payment) to acquire, an equal amount of such
securities; and
3. Invest more than 15% of its net assets in illiquid assets.
Notwithstanding the investment policies and restrictions of each Fund, the
Fund may invest all or a portion of its investable assets in investment
companies with substantially the same investment objective, policies and
restrictions as the Fund.
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 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.
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 relevant Fund. The Intermediary is required to
segregate any orders received on a business day after the close of regular
session trading on the New York Stock Exchange and transmit those orders
separately for execution at the net asset value next determined after that
business day.
Some Intermediaries that maintain nominee accounts with the Funds for their
clients for whom they hold Fund shares charge an annual fee of up to 0.35% of
the average net assets held in such accounts for accounting, servicing, and
distribution services they provide with respect to the underlying Fund shares.
Stein Roe and the Funds' transfer agent share in the expense of these fees, and
Stein Roe pays all sales and promotional expenses.
Net Asset Value
The net asset value of the Funds 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 4 p.m., Eastern 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. The Trust retains the
right, subject to the Rule 18f-1 notice described below, to alter this policy to
provide for redemptions in whole or in part by a distribution in kind of
securities held by the Fund in lieu of cash. If redemptions were made in kind,
the redeeming shareholders might incur transaction costs in selling the
securities received in the redemptions. The Trust filed a Notification of
Election pursuant to Rule 18f-1 under the Investment Company Act of 1940 with
the Securities and Exchange Commission which commits each Fund to pay in cash
all requests for redemptions by any shareholder, limited in amount with respect
to each shareholder during any 90-day period to the lesser of $250,000 or 1% of
the net asset value of the Fund at the beginning of such period.
The Trust reserves the right to suspend or postpone redemptions of shares
during any period when: (a) trading on the NYSE is restricted, as determined by
the Securities and Exchange Commission, or the NYSE is closed for other than
customary weekend and holiday closings; (b) the Securities and Exchange
Commission has by order permitted such suspension; or (c) an emergency, as
determined by the Securities and Exchange Commission, exists, making disposal of
portfolio securities or valuation of net assets not reasonably practicable.
You may not cancel or revoke your redemption order once instructions have
been received and accepted. The Trust cannot accept a redemption request that
specifies a particular date or price for redemption or any special conditions.
Please call 800-338-2550 if you have any questions about requirements for a
redemption before submitting your request. The Trust reserves the right to
require a properly completed application before making payment for shares
redeemed.
The Trust will generally mail payment for shares redeemed within seven days
after proper instructions are received. However, the Trust normally intends to
pay proceeds of a Telephone Redemption paid by wire on the next business day. If
you attempt to redeem shares within 15 days after they have been purchased by
check or electronic transfer, the Trust will delay payment of the redemption
proceeds to you until it can verify that payment for the purchase of those
shares has been (or will be) collected. To reduce such delays, the Trust
recommends that your purchase be made by federal funds wire through your bank.
Generally, you may not use any Special Redemption Privilege to redeem
shares purchased by check (other than certified or cashiers' checks) or
electronic transfer until 15 days after their date of purchase. The Trust
reserves the right at any time without prior notice to suspend, limit, modify,
or terminate any Privilege or its use in any manner by any person or class.
Neither the Trust, its transfer agent, nor their respective officers,
trustees, directors, employees, or agents will be responsible for the
authenticity of instructions provided under the Privileges, nor for any loss,
liability, cost or expense for acting upon instructions furnished thereunder if
they reasonably believe that such instructions are genuine. The Funds employ
procedures reasonably designed to confirm that instructions communicated by
telephone under any Special Redemption Privilege or the Special Electronic
Transfer Redemption Privilege are genuine. Use of any Special Redemption
Privilege or the Special Electronic Transfer Redemption Privilege authorizes the
relevant 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 a Fund does not follow
reasonable procedures for protecting shareholders against loss on telephone
transactions, it may be liable for any losses due to unauthorized or fraudulent
instructions.
Shares in any account you maintain with a Fund or any of the other Stein
Roe Funds may be redeemed to the extent necessary to reimburse any Stein Roe
Fund for any loss you cause it to sustain (such as loss from an uncollected
check or electronic transfer for the purchase of shares, or any liability under
the Internal Revenue Code provisions on backup withholding).
The Trust reserves the right to suspend or terminate, at any time and
without prior notice, the use of the Telephone Exchange Privilege by any person
or class of persons. The Trust believes that use of the Telephone Exchange
Privilege by investors utilizing market-timing strategies adversely affects the
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 a Fund may refuse requests for
Telephone Exchanges in excess of four round-trips (a round-trip being the
exchange out of a Fund into another no-load Stein Roe Fund, and then back to 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 4 p.m., Eastern 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 Funds. 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, Age; Address with the Trust during past five years
<S> <C> <C>
William D. Andrews, 53; One South Executive Vice-President Executive vice president of Stein Roe
Wacker Drive, Chicago, IL 60606
(4)
John A. Bacon Jr., 73; 4N640 Trustee Private investor
Honey Hill Road, Box 296, Wayne,
IL 60184 (3)(4)
Christine Balzano, 35; Vice-President Senior vice president of Liberty Funds Services, Inc.;
245 Summer Street, Boston, MA formerly vice president and assistant vice president
02210
William W. Boyd, 73; Trustee Chairman and director of Sterling Plumbing (manufacturer
2900 Golf Road, Rolling Meadows, of plumbing products)
IL 60008 (2)(3)(4)
David P. Brady, 36; Vice-President Senior vice president of Stein Roe since March 1998;
One South Wacker Drive, Chicago, vice president of Stein Roe from Nov. 1995 to March
IL 60606 (4) 1998; portfolio manager for Stein Roe since 1993
Daniel K. Cantor, 41; Vice-President Senior vice president of Stein Roe
1330 Avenue of the Americas, New
York, NY 10019 (4)
Kevin M. Carome, 44; Executive Senior vice president, legal, Liberty Funds Group LLC
One Financial Center, Boston, MA Vice-President; (an affiliate of Stein Roe) since Jan. 1999; general
02111 (4) Assistant Secretary 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
Denise E. Chasmer, 32; Vice President Employee of Liberty Funds Services, Inc. and assistant
12100 East Iliff Avenue vice president of Stein Roe since November 1999; manager
Aurora, CO 80014 (4) with Scudder Kemper Investments from October 1995 to
November 1999; assistant manager with Scudder Kemper
prior thereto
Lindsay Cook, 48; 600 Atlantic Trustee Executive vice president of Liberty Financial Companies,
Avenue, Boston, MA 02210 (1)(2)(4) Inc. since March 1997; senior vice president prior
thereto
William M. Garrison, 34; One Vice-President Vice president of Stein Roe since Feb. 1998; associate
South Wacker Drive, Chicago, IL portfolio manager for Stein Roe since August 1994
60606 (4)
Stephen E. Gibson, 47; President Vice chairman of Stein Roe since Aug. 1998; chairman,
One Financial Center, Boston, MA CEO, president and director of Liberty Funds Group since
02111 (4) Dec. 1998; chairman of the Colonial Group from July 1998
to Dec. 1998; president of the Colonial Group from Dec.
1996 to Dec. 1998; chairman of Colonial Management
Associates, Inc. since Dec. 1998; CEO, president and
director of Colonial Management Associates since July
1996; managing director of Putnam Financial Services
from June 1992 through June 1996
Erik P. Gustafson, 36; Vice-President Senior portfolio manager of Stein Roe; senior vice
One South Wacker Drive, Chicago, president of Stein Roe since April 1996; vice president
IL 60606 (4) of Stein Roe prior thereto
Douglas A. Hacker, 44; Trustee Senior vice president and chief financial officer of
P.O. Box 66100, Chicago, IL UAL, Inc. (airline)
60666 (3) (4)
Loren A. Hansen, 52; Executive Vice-President Chief investment officer/equity of CMA
One South Wacker Drive, Chicago, since 1997; executive vice president of Stein Roe since Dec. 1995;
IL 60606 (4) vice president of The Northern Trust (bank) prior thereto
Harvey B. Hirschhorn, 50; Vice-President Executive vice president, senior portfolio manager,
One South Wacker Drive, and chief economist and investment strategist of Stein Roe;
Chicago, IL 60606 (4) director of research of Stein Roe, 1991 to 1995
Janet Langford Kelly, 42; One Trustee Executive vice president-corporate development, general
Kellogg Square, Battle Creek, MI counsel and secretary of Kellogg Company since Sept.
49016 (3)(4) 1999; senior vice president, secretary and general
counsel of Sara Lee Corporation (branded, packaged,
consumer-products manufacturer) from 1995 to Aug. 1999;
partner of Sidley & Austin (law firm) prior thereto
Gail D. Knudsen, 39; Vice President Vice president and assistant controller of CMA
245 Summer Street, Boston, MA
02210 (4)
Pamela A. McGrath, 47: One Senior Vice President Treasurer of the Stein Roe Funds since May 2000;
Financial Center, Boston, MA and Treasurer Treasurer and Chief Financial Officer of the Liberty
02111 (4) Funds and Liberty All-Star Funds since April 2000;
Treasurer, Chief Financial Officer and Vice President of the
Liberty Funds Group since December 1999; Chief Financial
Officer, Treasurer and Senior Vice President of Colonial
Management Associates since December 1999; Senior Vice
President and Director of Offshore Accounting for Putnam
Investments, Inc., from May 1998 to October 1999; Managing
Director of Scudder Kemper Investments from October, 1984 to
December 1997.
Mary D. McKenzie, 46; Vice President President of Liberty Funds Services, Inc.
One Financial Center, Boston, MA
02111 (4)
Charles R. Nelson, 58; Department Trustee Van Voorhis Professor of Political Economy, Department
of Economics, University of of Economics of the University of Washington
Washington, Seattle, WA 98195
(3)(4)
Nicholas S. Norton, 41; 12100 Vice President Senior vice president of Liberty Funds Services, Inc.
East Iliff Avenue, Aurora, CO since Aug. 1999; vice president of Scudder Kemper, Inc.
80014 (4) from May 1994 to Aug. 1999
Joseph R. Palombo, 48; Trustee Executive Vice President of the Stein Roe Funds since
One Financial Center, Boston, MA May 2000; Vice President of the Liberty Funds since
02111 (4) April 1999; Executive Vice President and Director of
Colonial Management Associates since April 1999; Executive
Vice President and Chief Administrative Officer of the
Liberty Funds Group since April 1999; Chief Operating
Officer, Putnam Mutual Funds from 1994 to 1998.
Thomas C. Theobald, 63; Suite Trustee Managing director, William Blair Capital Partners
1300, 222 West Adams Street, (private equity fund)
Chicago, IL 60606 (3)(4)
</TABLE>
----------------------
(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.
Certain of the trustees and officers of the Funds are trustees or officers
of other investment companies managed by Stein Roe; and some of the officers are
also officers of Liberty Funds Distributor, Inc., the Funds' distributor.
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. It is
estimated that the Trustees will receive the amounts set forth below for the
fiscal year ending October 31, 2001. For the calendar year ended December 31,
1999, the Trustees received the compensation set forth below for serving as
Trustees:
<TABLE>
<CAPTION>
Aggregate Estimated
Aggregate Estimated Compensation from the Total Compensation from
Compensation from the European Thematic the Fund Complex Paid
Global Thematic Equity Fund for the to the Trustees for the
Equity Fund for the Fiscal Year Ending Calendar Year Ended
Fiscal Year Ending October 31, 2001* December 31, 1999**
Trustee October 31, 2001* ----------------- -------------------
------- -----------------
<S> <C> <C> <C>
Lindsay Cook -0- -0- -0-
John A. Bacon Jr. $[ ] $[ ] $103,450
William W. Boyd [ ] [ ] 109,950
Douglas A. Hacker [ ] [ ] 93,950
Janet Langford Kelly [ ] [ ] 103,450
Charles R. Nelson [ ] [ ] 108,050
Thomas C. Theobald [ ] [ ] 103,450
</TABLE>
--------------
* Since neither Fund has completed its first full fiscal year,
compensation is estimated based upon payments to be made and upon
estimates relative Fund net assets.
** At December 31, 1999, the Stein Roe Fund Complex consisted of four
series of the Trust, one series of Liberty-Stein Roe Funds Trust, four
series of Liberty-Stein Roe Funds Municipal Trust, 12 series of
Liberty-Stein Roe Funds Investment Trust, five series of Liberty-Stein
Roe Advisor Trust, five series of SteinRoe Variable Investment Trust,
12 Portfolio of SR&F Base Trust, Liberty-Stein Roe Advisor Floating
Rate Fund, Liberty-Stein Roe Institutional Floating Rate Income Fund,
and Stein Roe Floating Rate Limited Liability Company.
CODES OF ETHICS
The Funds, Stein Roe, Unibank and the Distributor have adopted codes of
ethics pursuant to the requirements of the 1940 Act. The codes of ethics permit
personnel subject to the codes to invest in securities, including securities
that may be purchased or held by the Funds.
PRINCIPAL SHAREHOLDERS
As of the date of this SAI, the Funds had no outstanding shares.
INVESTMENT ADVISORY AND OTHER SERVICES
Investment Adviser
Stein Roe & Farnham Incorporated provides investment management services
and administrative services to the Funds. Stein Roe is a wholly owned subsidiary
of SteinRoe Services Inc. ("SSI"), the Funds' transfer agent, which is a wholly
owned subsidiary of Liberty Financial Companies, Inc. ("Liberty Financial"),
which is a majority owned subsidiary of Liberty Management Corporation, which is
a wholly owned subsidiary of Liberty Corporate Holdings, Inc., which is a wholly
owned subsidiary of LFC Holdings, Inc., which is a wholly owned subsidiary of
Liberty Mutual Equity Corporation, which is a wholly owned subsidiary of Liberty
Mutual Insurance Company. Liberty Mutual Insurance Company is a mutual insurance
company, principally in the property/casualty insurance field, organized under
the laws of Massachusetts in 1912.
The sole director of Stein Roe is C. Allen Merritt, Jr. Mr. Merritt is
Chief Operating Officer of Liberty Financial. His business address is Federal
Reserve Plaza, 600 Atlantic Avenue, Boston, MA 02210.
Stein Roe CounselorSM is a professional investment advisory service offered
by Stein Roe to Fund shareholders. Stein Roe CounselorSM is designed to help
shareholders construct Fund investment portfolios to suit their individual
needs. Based on information shareholders provide about their financial goals and
objectives in response to a questionnaire, Stein Roe's investment professionals
create customized portfolio recommendations. Shareholders participating in Stein
Roe CounselorSM are free to self direct their investments while considering
Stein Roe's recommendations. In addition to reviewing shareholders' goals and
objectives periodically and updating portfolio recommendations to reflect any
changes, Stein Roe provides shareholders participating in these programs with
dedicated representatives. Other distinctive services include specially designed
account statements with portfolio performance and transaction data, asset
allocation planning tools, newsletters, customized website content, and regular
investment, economic and market updates. A $50,000 minimum investment is
required to participate in the program.
In return for its services, Stein Roe is entitled to receive a monthly
administrative fee and a monthly management 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:
-------------------------------------------------------------------------------
Current Rates (as
a % of average net
assets)
Funds Type
---------------------------------------
-------------------------------------------------------------------------------
Management Fee 0.85%
Global Thematic Equity Fund and
European Thematic Equity Fund
---------------------------------------
---------------------------------------
Administrative Fee 0.15%
-------------------------------------------------------------------------------
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, Stein Roe may waive its fees and/or absorb certain expenses for the
Fund. Any such reimbursement will enhance the yield of the Fund.
The management agreement provides that neither Stein Roe, nor any of its
directors, officers, stockholders (or partners of stockholders), agents, or
employees shall have any liability to the Trust or any shareholder of the Trust
for any error of judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance by Stein Roe of
its duties under the agreement, except for liability resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under the
agreement.
Any expenses that are attributable solely to the organization, operation,
or business of a series of the Trust are paid solely out of the assets of that
series. Any expenses incurred by the Trust that are not solely attributable to a
particular series are apportioned in such manner as Stein Roe determines is fair
and appropriate, unless otherwise specified by the Board of Trustees.
Investment Subadviser
Unibank Securities, Inc. ("Unibank"), doing business as Unibank Investment
Management in the United States, serves as the Funds' investment subadviser,
with day-to-day responsibility for managing each Fund's investment portfolio.
Unibank is located at 13-15 West 54th Street, New York, NY 10019. Unibank offers
a range of equity investment products and services to institutional clients,
including private and public retirement funds, unions, endowments, foundations,
and insurance companies, as well as to mutual fund sponsors on a subadvisory
basis. Unibank is a direct wholly-owned subsidiary of Unibank A/S, one of
Scandinavia's leading financial institutions, which in turn is a direct
wholly-owned subsidiary of Unidanmark A/S, which in turn is a direct
wholly-owned subsidiary of Nordic Baltic Holding AB. The principal executive
offices of Unibank A/S are located at Torvegade 2 DK-1786 Copenhagen V.,
Denmark. The principal executive offices of Unidanmark A/S are located at
Strandgrade 3 DK-1786 Copenhagen V., Denmark. The principal executive offices of
Nordic Baltic Holding AB are located at Hamngatan 10, SE-105 71 Stockholm,
Sweden.
Under the subadvisory agreement with Stein Roe and the Trust, on behalf of
each Fund, Unibank, under the supervision of the Board of Trustees of the Fund
and Stein Roe, manages the investment of the assets of the Fund in accordance
with the investment objectives, policies and limitations of the Fund; places
purchase and sale orders for portfolio transactions for the Fund; evaluates such
economic, statistical and financial information and undertakes such investment
research as it shall deem advisable; employs professional portfolio managers to
provide research services to the Fund; and reports results to the Board of
Trustees. For the services rendered by Unibank under the subadvisory agreement,
Stein Roe pays Unibank a monthly fee at the annual rate of 0.60% of the average
daily net asset value of each Fund. Any liability of Unibank to the Trust, the
Funds and/or Fund shareholders is limited to situations involving Unibank's own
willful misfeasance, bad faith or gross negligence in the performance of its
duties. In addition to the services provided by Unibank to the Funds, Unibank
also provides subadvisory and other services and facilities to other investment
companies.
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 the Fund. For
services provided to the Trust, Stein Roe receives an annual fee of $25,000 per
series plus .0025 of 1% of average net assets over $50 million.
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 Colonial Management Associates,
Inc., which is an indirect subsidiary of Liberty Financial. The Distribution
Agreement continues in effect from year to year, provided such continuance is
approved annually (i) by a majority of the trustees or by a majority of the
outstanding voting securities of the Trust, and (ii) by a majority of the
trustees who are not parties to the Agreement or interested persons of any such
party. The Trust has agreed to pay all expenses in connection with registration
of its shares with the Securities and Exchange Commission and auditing and
filing fees in connection with registration of its shares under the various
state blue sky laws and assumes the cost of preparation of prospectuses and
other expenses.
As agent, the Distributor offers shares of the Funds 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 Funds. The Distributor offers the
Funds' shares only on a best-efforts basis.
TRANSFER AGENT
SteinRoe Services Inc. ("SSI"), One South Wacker Drive, Chicago, IL 60606,
is the agent of the Trust for the transfer of shares, disbursement of dividends,
and maintenance of shareholder accounting records. For performing these
services, SSI receives from the Funds a fee based on an annual rate of 0.22 of
1% of the Funds' average net assets. The Trust believes the charges by SSI to
the Funds are comparable to those of other companies performing similar
services. (See Investment Advisory and Other Services.) Under a separate
agreement, SSI also provides certain investor accounting services to the
Portfolio.
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225 Franklin Street,
Boston, MA 02101, is the custodian for the 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 United States are maintained in the
custody of the Bank or of other domestic banks or depositories. Portfolio
securities purchased outside of the United States 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 Funds and their shareholders to maintain assets in each of
the countries in which the Funds invest 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 Funds and the value of their shares will not be adversely
affected by acts of foreign governments, financial or operational difficulties
of the foreign sub-custodians, difficulties and costs of obtaining jurisdiction
over or enforcing judgments against the foreign sub-custodians, or application
of foreign law to the foreign sub-custodial arrangements. Accordingly, an
investor should recognize that the non-investment risks involved in holding
assets abroad are greater than those associated with investing in the United
States.
The Funds may invest in obligations of the Bank and may purchase or sell
securities from or to the Bank.
INDEPENDENT ACCOUNTANTS
The independent accountants for the Funds are PricewaterhouseCoopers LLP,
160 Federal Street, Boston, MA 02110. The independent accountants audit and
report on the annual financial statements and provide tax return preparation
services and assistance and consultation in connection with the review of
various SEC filings.
PORTFOLIO TRANSACTIONS
Transactions on stock exchanges and other agency transactions for the
accounts of the Funds involve the payment by the Funds of negotiated brokerage
commissions. Such commissions vary among different brokers. A particular broker
may charge different commissions according to such factors as the difficulty and
size of the transaction. There is generally no stated commission in the case of
securities traded in the over-the-counter markets, but the price paid by the
Funds usually includes an undisclosed dealer commission, markup or markdown. In
underwritten offerings, the price paid by the Funds includes a disclosed, fixed
commission or discount retained by the underwriter or dealer.
In addition to selecting portfolio investments for the Funds, Unibank
Selects brokers or dealers to execute securities purchases and sales for the
Funds' accounts. Unibank selects only brokers or dealers which it believes are
financially responsible, will provide efficient and effective services in
executing, clearing and settling an order and will charge commission rates
which, when combined with the quality of the foregoing services, will produce
best price and execution for the transaction. This does not necessarily mean
that the lowest available brokerage commission will be paid. However, the
commissions are believed to be competitive with generally prevailing rates.
Unibank uses its best efforts to obtain information as to the general level of
commission rates being charged by the brokerage community from time to time and
evaluates the overall reasonableness of brokerage commissions paid on
transactions by reference to such data. In making such evaluation, all factors
affecting liquidity and execution of the order, as well as the amount of the
capital commitment by the broker in connection with the order, are taken into
account.
Unibank's receipt of research services from brokers may sometimes be a
factor in its selection of a broker that it believes will provide best price and
execution for a transaction. These research services include not only a wide
variety of reports on such matters as economic and political developments,
industries, companies, securities, portfolio strategy, account performance,
daily prices of securities, stock and bond market conditions and projections,
asset allocation and portfolio structure, but also meetings with management
representatives of issuers and with other analysts and specialists. Although it
is in many cases not possible to assign an exact dollar value to these services,
they may, to the extent used, tend to reduce Unibank's expenses. Such services
may be used by Unibank in managing other client accounts and in some cases may
not be used with respect to the Funds. Receipt of services or products other
than research from brokers is not a factor in the selection of brokers.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution,
purchases of shares of a Fund by customers of broker-dealers may be considered
as a factor in the selection of broker-dealers to execute the Funds' securities
transactions.
Unibank may cause a Fund to pay a broker-dealer that provides brokerage and
research services to Unibank an amount of commission for effecting a securities
transaction for that Fund in excess of the amount another broker-dealer would
have charged for effecting that transaction. Unibank must determine in good
faith that such greater commission is reasonable in relation to the value of the
brokerage and research services provided by the executing broker-dealer viewed
in terms of that particular transaction or Unibank's overall responsibilities to
the Fund and its other clients. Unibank's authority to cause a Fund to pay
greater commissions is also subject to such policies as the Trustees of the
Trust may adopt from time to time.
Transactions in unlisted securities are carried out through broker-dealers
who make the primary market for such securities unless, in the judgment of
Unibank, a more favorable price can be obtained by carrying out such
transactions through other brokers or dealers.
ADDITIONAL INCOME TAX CONSIDERATIONS
Each Fund intends to qualify under Subchapter M of the Internal Revenue
Code and to comply with the special provisions of the Internal Revenue Code that
relieve it of federal income tax to the extent of its net investment income and
capital gains currently distributed to shareholders.
Because dividend and capital gains distributions reduce net asset value, a
shareholder who purchases shares shortly before a record date will, in effect,
receive a return of a portion of his investment in such distribution. The
distribution would nonetheless be taxable to him, even if the net asset value of
shares were reduced below his cost. However, for federal income tax purposes the
shareholder's original cost would continue as his tax basis.
Each Fund expects that less than 100% of its dividends will qualify for the
deduction for dividends received by corporate shareholders.
Each 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 a 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 U.S. 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
a 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 a 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, each
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. Each Fund may purchase the securities
of certain foreign investment funds or trusts called passive foreign investment
companies ("PFICs"). In addition to bearing their proportionate share of Fund
expenses (management fees and operating expenses), shareholders will also
indirectly bear similar expenses of PFICs. Capital gains on the sale of PFIC
holdings will be deemed to be ordinary income regardless of how long the Fund
holds its investment. In addition, the Fund may be subject to corporate income
tax and an interest charge on certain dividends and capital gains earned from
PFICs, regardless of whether such income and gains are distributed to
shareholders.
In accordance with tax regulations, each Fund 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
Either 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.
Average Annual Total Return is computed as follows: ERV = P(1+T)n
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).
Investment performance figures assume reinvestment of all dividends and
distributions and do not take into account any federal, state, or local income
taxes which shareholders must pay on a current basis. They are not necessarily
indicative of future results. The performance of a Fund is a result of
conditions in the securities markets, portfolio management, and operating
expenses. Although investment performance information is useful in reviewing a
Fund's performance and in providing some basis for comparison with other
investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods.
Each Fund may note its mention or recognition in newspapers, magazines, or
other media from time to time. However, the Funds assume no responsibility for
the accuracy of such data. Newspapers and magazines which might mention the
Funds include, but are not limited to, the following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Atlantic Monthly
Associated Press
Barron's
Bloomberg
Boston Globe
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Investment Advisor
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World
Forbes
Fortune
Fund Action
Fund Marketing Alert
Gourmet
Individual Investor
Investment Dealers' Digest
Investment News
Investor's Business Daily
Kiplinger's
Personal Finance Magazine
Knight-Ridder
Lipper Analytical Services
Los Angeles Times
Louis Rukeyser's Wall Street
Money
Money on Line
Morningstar
Mutual Fund Market News
Mutual Fund News Service
Mutual Funds Magazine
Newsday
Newsweek
New York Daily News
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
Reuters
The San Francisco Chronicle
Securities Industry Daily
Smart Money
Smithsonian
Strategic Insight
Street.com
Time
Travel & Leisure
USA Today
U.S. News & World Report
Value Line
The Wall Street Journal
The Washington Post
Working Women
Worth
Your Money
In advertising and sales literature, each 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 each Fund.
Comparison of a Fund to an alternative investment should be made with
consideration of differences in features and expected performance. All of the
indexes and averages noted below will be obtained from the indicated sources or
reporting services, which the Funds believe to be generally accurate. Each Fund
may compare its performance to the Consumer Price Index (All Urban), a widely
recognized measure of inflation. Each Fund's performance may be compared to the
following indexes or averages:
<TABLE>
<CAPTION>
<S> <C>
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 recognized (These indexes generally reflect the performance of
indicators of general U.S. stock market stocks traded in the indicated markets.)
results.)
</TABLE>
In addition, each 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 Funds may also use comparative performance
as computed in a ranking by Lipper or category averages and rankings provided by
another independent service. Should Lipper or another service reclassify a Fund
to a different category or develop (and place a Fund into) a new category, the
Fund may compare its performance or ranking with those of other funds in the
newly assigned category, as published by the service.
A Fund may also cite its rating, recognition, or other mention by
Morningstar or any other entity. Morningstar's rating system is based on
risk-adjusted total return performance and is expressed in a star-rating format.
The risk-adjusted number is computed by subtracting a fund's risk score (which
is a function of the fund's monthly returns less the 3-month T-bill return) from
its load-adjusted total return score. This numerical score is then translated
into rating categories, with the top 10% labeled five star, the next 22.5%
labeled four star, the next 35% labeled three star, the next 22.5% labeled two
star, and the bottom 10% one star. A high rating reflects either above-average
returns or below-average risk, or both.
Of course, past performance is not indicative of future results.
----------------
To illustrate the historical returns on various types of financial assets,
the Funds may use historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or obtains)
very long-term (since 1926) total return data (including, for example, total
return indexes, total return percentages, average annual total returns and
standard deviations of such returns) for the following asset types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
---------------------
The Funds 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 6% 8% 10% 6% 8% 10%
Compounding
Years Tax-Deferred Investment Taxable Investment
----- ----------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 150,484 82,067 97,780 117,014
20 62,943 75,543 91,947 59,362 68,109 78,351
15 41,684 47,304 54,099 40,358 44,675 49,514
10 24,797 26,820 29,098 24,453 26,165 28,006
5 11,178 11,613 12,072 11,141 11,546 11,965
1 2,072 2,096 2,121 2,072 2,096 2,121
</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 cannot guarantee a profit or
protect against losses in a steadily declining market. Dollar cost averaging
involves uninterrupted investing regardless of share price and therefore may not
be appropriate for every investor.
From time to time, a Fund may offer in its advertising and sales literature
to send an investment strategy guide, a tax guide, or other supplemental
information to investors and shareholders. It may also mention the Stein Roe
CounselorSM and the Stein Roe Personal CounselorSM programs and asset allocation
and other investment strategies.
<PAGE>
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 Ratings Services ("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.
-----------------------
--------
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.
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.
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.
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).
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) Amended and Restated Agreement and Declaration of Trust
as amended on 7/28/2000. (Exhibit (a) to PEA #68)*
(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.)*
(3) Amendment to By-Laws dated February 8, 2000.
(4) Amendment to By-Laws dated September 28, 2000.
(c) None.
(d)(1) Management Agreement between Registrant and Stein Roe &
Farnham Incorporated dated 8/15/95, as amended.#
(2) Form of Sub-Advisory Agreement among the Registrant, Stein Roe & Farnham
Incorporated and Unibank Securities, Inc. relating to the Stein Roe
European Thematic Equity Fund series.
(3) Form of Sub-Advisory Agreement among the Registrant, Stein Roe & Farnham
Incorporated and Unibank Securities, Inc. relating to the Stein Roe
Global Thematic Equity Fund series.
(e)(1) Underwriting Agreement between Registrant and Liberty
Funds Distributor, Inc. dated 8/4/99, as amended.#
(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 dated 3/3/87, as amended.#
(h)(1) Restated Transfer Agency Agreement between Registrant and
SteinRoe Services Inc. dated 8/1/95 as amended.#
(2) Accounting and Bookkeeping Agreement between Registrant
and Stein Roe & Farnham Incorporated dated 8/3/99 as amended.#
(3) Administrative Agreement between Registrant and Stein Roe &
Farnham Incorporated 8/15/95, as amended.#
(4) Sub-Transfer Agent Agreement with Liberty Funds Services,
Inc. (formerly named Colonial Investors Service Center)
dated 7/3/96, as amended.#
(i)(1) Opinions and consents of Ropes & Gray. (Exhibit 10(a) to PEA #34).*
(2) Opinion and consent of Bell, Boyd & Lloyd LLC with respect
to Stein Roe European Thematic Equity Fund.#
(3) Opinion and consent of Bell, Boyd & Lloyd LLC with respect
to Stein Roe Global Thematic Equity Fund.#
(j) Consent of Morningstar, Inc. (Exhibit 11(b) to PEA #34).*
(k) None.
(l) Inapplicable.
(m) Rule 12b-1 Plan.#
(n) Inapplicable.
(o) Rule 18f-3 Plan. (Exhibit (n) to PEA #62.)*
(p) Code of Ethics of Stein Roe & Farnham Incorporated and Liberty Funds
Distributor, Inc. - filed in Part C, Item 23 of Post-Effective Amendment
No. 27 to the Registration Statement of Liberty Funds Trust V, (File Nos.
33-12109 and 811-5030), filed with the Commission on or about
August 31, 2000, and is hereby incorporated and made a part of
this Registration Statement
Power of attorney for John A. Bacon, Jr., William W. Boyd, Lindsay Cook Douglas
A. Hacker, Janet Langford Kelly, Charles R. Nelson and Thomas C. Theobald (PEA
#67)*
---------
*Incorporated by reference.
#To be filed by Amendment.
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 and Other 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 Stein Roe & Farnham Incorporated, 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.
Stein Roe & Farnham Incorporated ("Stein Roe"), the investment 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. Stein Roe 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 Stein Roe, 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 Stein Roe also serve and have during the past
two years served in various capacities as officers, directors, or trustees of
SSI, of Colonial Management Associates, Inc. (which is a subsidiary of Liberty
Financial Companies, Inc.), and of the Registrant and other investment companies
managed by SteinRoe. (The listed entities are located at One South Wacker Drive,
Chicago, Illinois 60606, except for Colonial Management Associates, Inc., each
Trust and Stein Roe Floating Rate Limited Liability Company, which are located
at One Financial Center, Boston, MA 02111, and SteinRoe Variable Investment
Trust and Liberty Variable Investment Trust, which are located at Federal
Reserve Plaza, Boston, MA 02210.) A list of such capacities is given below.
POSITION FORMERLY
HELD WITHIN
CURRENT POSITION PAST TWO YEARS
------------------- --------------
STEINROE SERVICES INC.
Kevin M. Carome Assistant Clerk
Kenneth J. Kozanda Vice President; Treasurer
C. Allen Merritt, Jr. Director; Vice President
COLONIAL MANAGEMENT ASSOCIATES, INC.
Ophelia L. Barsketis Senior Vice President
Kevin M. Carome Senior Vice President
William M. Garrison Vice President
Stephen E. Gibson Chairman, President and
Chief Executive Officer
Loren A. Hansen Senior Vice President
Clare M. Hounsell Vice President
Deborah A. Jansen Senior Vice President
North T. Jersild Vice President
Joseph R. Palombo Executive Vice President
Yvonne T. Shields Vice President
SR&F BASE TRUST
William D. Andrews Executive Vice-President
Christine Balzano Vice President
David P. Brady Vice President
Daniel K. Cantor Vice President
Kevin M. Carome Executive Vice President Vice President; Secy.
Denise Chasmer Vice President
Stephen E. Gibson President
Erik P. Gustafson Vice President
Loren A. Hansen Executive Vice-President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Gail Knudsen Vice President
Stephen F. Lockman Vice President
Pamela A. McGrath Senior Vice President;Treasurer
Mary D. McKenzie Vice President
Jane M. Naeseth Vice-President
Maureen G. Newman Vice-President
Nicholas S. Norton Vice President
Joseph R. Palombo Trustee Executive Vice President
Veronica M. Wallace Vice-President
LIBERTY-STEIN ROE FUNDS INCOME TRUST; LIBERTY-STEIN ROE FUNDS
INSTITUTIONAL TRUST; AND LIBERTY-STEIN ROE FUNDS TRUST
William D. Andrews Executive Vice President
Christine Balzano Vice President
Kevin M. Carome Executive Vice President Vice President;Secy.
Stephen E. Gibson President
Loren A. Hansen Executive Vice President
Michael T. Kennedy Vice President
Gail Knudsen Vice President
Stephen F. Lockman Vice President
Pamela A. McGrath Sr. Vice President; Treasurer
Mary D. McKenzie Vice President
Jane M. Naeseth Vice President
Nicholas S. Norton Vice President
Joseph R. Palombo Trustee Executive Vice President
LIBERTY-STEIN ROE FUNDS INVESTMENT TRUST
William D. Andrews Executive Vice President
Christine Balzano Vice President
David P. Brady Vice President
Daniel K. Cantor Vice President
Kevin M. Carome Executive Vice President Vice President;Secy.
William M. Garrison Vice President
Stephen E. Gibson President
Erik P. Gustafson Vice President
Loren A. Hansen Executive Vice President
Harvey B. Hirschhorn Vice President
Gail Knudsen Vice President
Pamela A. McGrath Sr. Vice President; Treasurer
Mary D. McKenzie Vice President
Nicholas S. Norton Vice President
Joseph R. Palombo Trustee Executive Vice President
LIBERTY-STEIN ROE ADVISOR TRUST
William D. Andrews Executive Vice President
Christine Balzano Vice President
David P. Brady Vice President
Daniel K. Cantor Vice President
Kevin M. Carome Executive Vice President Vice President;Secy.
Stephen E. Gibson President
Erik P. Gustafson Vice President
Loren A. Hansen Executive Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Gail Knudsen Vice President
Stephen F. Lockman Vice President
Pamela A. McGrath Sr. Vice President; Treasurer
Mary D. McKenzie Vice President
Maureen G. Newman Vice President
Nicholas S. Norton Vice President
Joseph R. Palombo Trustee Executive Vice President
LIBERTY-STEIN ROE FUNDS MUNICIPAL TRUST
William D. Andrews Executive Vice President
Christine Balzano Vice President
Kevin M. Carome Executive Vice President Vice President;Secy.
Stephen E. Gibson President
Loren A. Hansen Executive Vice President
Brian M. Hartford Vice President
Gail Knudsen Vice President
William C. Loring Vice President
Pamela A. McGrath Sr. Vice President; Treasurer
Mary D. McKenzie Vice President
Maureen G. Newman Vice President
Nicholas S. Norton Vice President
Joseph R. Palombo Trustee Executive Vice President
Veronica M. Wallace Vice President
STEINROE VARIABLE INVESTMENT TRUST
William D. Andrews Executive Vice President
Christine Balzano Vice President
Kevin M. Carome Executive Vice President Vice President;Secy.
William M. Garrison Vice President
Stephen E. Gibson President
Erik P. Gustafson Vice President
Loren A. Hansen Executive Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Gail Knudsen Vice President
Pamela A. McGrath Sr. Vice President; Treasurer
Mary D. McKenzie Vice President
Jane M. Naeseth Vice President
Nicholas S. Norton Vice President
William M. Wadden IV Vice President
Joseph R. Palombo Trustee Executive Vice President
William M. Wadden IV Vice President
LIBERTY-STEIN ROE ADVISOR FLOATING RATE FUND AND LIBERTY-STEIN ROE
INSTITUTIONAL FLOATING RATE INCOME FUND
William D. Andrews Executive Vice President
Christine Balzano Vice President
Kevin M. Carome Executive Vice President Vice President;Secy.
Stephen E. Gibson President
Brian W. Good Vice President
James R. Fellows Vice President
Loren A. Hansen Executive Vice President
Gail Knudsen Vice President
Pamela A. McGrath Sr. Vice President; Treasurer
Mary D. McKenzie Vice President
Joseph R. Palombo Trustee Executive Vice President
STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY
William D. Andrews Executive Vice President
Christine Balzano Vice President
Kevin M. Carome Executive Vice President Vice President;Secy.
Stephen E. Gibson President
Brian W. Good Vice President
James R. Fellows Vice President
Loren A. Hansen Executive Vice President
Nicholas S. Norton Vice President
Joseph R. Palombo Manager Executive 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., acts as underwriter to
Liberty Funds Trust I, Liberty Funds Trust II, Liberty Funds Trust III, Liberty
Funds Trust IV, Liberty Funds Trust V, Liberty Funds Trust VI, Liberty Funds
Trust VII, Liberty Funds Trust IX, Liberty-Stein Roe Funds Investment Trust,
Liberty-Stein Roe Funds Income Trust, Liberty-Stein Roe Funds Municipal Trust,
Liberty-Stein Roe Advisor Trust, Liberty-Stein Roe Funds Institutional Trust,
Liberty-Stein Roe Funds Trust, Liberty-Stein Roe Advisor Floating Rate Fund,
Liberty-Stein Roe Institutional Floating Rate Income Fund, and SteinRoe Variable
Investment Trust. The table below lists the directors and officers of Liberty
Funds Distributor, Inc.
<PAGE>
Position and Offices Positions and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
-------------------- --------------------- -------------
Anderson, Judith Vice President None
Babbitt, Debra Vice President
& Compliance Officer None
Bartlett, John Managing Director None
Bertrand, Thomas Vice President None
Blakeslee, James Senior Vice President None
Bozek, James Senior Vice President None
Brown, Beth Vice President None
Burtman, Tracy Vice President None
Campbell, Patrick Vice President None
Carroll, Sean Vice President None
Claiborne, Doug Vice President None
Chrzanowski, Daniel Vice President None
Conley, Brook Vice President None
Clapp, Elizabeth A. Managing Director None
Costello, Matthew Vice President None
Couto, Scott Vice President None
Davey, Cynthia Senior Vice President None
Desilets, Marian H. Vice President None
Devaney, James Senior Vice President None
DiMaio, Steve Vice President None
Downey, Christopher Vice President None
Dupree, Robert Vice President None
Emerson, Kim P. Senior Vice President None
Evans, C. Frazier Managing Director None
Evitts, Stephen Vice President None
Feldman, David Managing Director None
Feloney, Joseph Vice President None
Fifield, Robert Vice President None
Fisher, James Vice President None
Fragasso, Philip Managing Director None
Gerokoulis, Stephen A. Senior Vice President None
Gibson, Stephen E. Director; Chairman of Board None
Goldberg, Matthew Senior Vice President None
Gupta, Neeti Vice President None
Geunard, Brian Vice President None
Grace, Anthony Vice President None
Gubala, Jeffrey Vice President None
Harrington, Tom Senior Vice President None
Hodgkins, Joseph Senior Vice President None
Huennekens, James Vice President None
Hussey, Robert Senior Vice President None
Iudice, Jr., Philip Treasurer and CFO None
Ives, Curt Vice President None
Jones, Cynthia Vice President None
Jones, Jonathan Vice President None
Kelley, Terry M. Vice President None
Kelson, David W. Senior Vice President None
Lewis, Blair Vice President None
Libutti, Chris Vice President None
Lynch, Andrew Managing Director None
Lynn, Jerry Vice President None
Martin, John Senior Vice President None
Martin, Peter Vice President None
McCombs, Gregory Senior Vice President None
McKenzie, Mary Vice President None
Menchin, Catherine Senior Vice President None
Miller, Anthony Vice President None
Moberly, Ann R. Senior Vice President None
Morse, Jonathan Vice President None
Nickodemus, Paul Vice President None
O'Shea, Kevin Managing Director None
Palombo, Joseph R. Director Trustee
Piken, Keith Vice President None
Place, Jeffrey Managing Director None
Powell, Douglas Vice President None
Predmore, Tracy Vice President None
Quirk, Frank Vice President None
Raftery-Arpino, Linda Senior Vice President None
Ratto, Gregory 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 Senior Vice President None
Schulman, David Senior Vice President None
Scully-Power, Adam Vice President None
Shea, Terence Vice President None
Sideropoulos, Lou Vice President None
Sinatra, Peter Vice President None
Smith, Darren Vice President None
Soester, Trisha Vice President None
Studer, Eric Vice President None
Sweeney, Maureen Vice President None
Tambone, James Chief Executive Officer None
Tasiopoulos, Lou President None
Torrisi, Susan Vice President None
Vail, Norman Vice President None
VanEtten, Keith H. Senior Vice President None
Warfield, James Vice President None
Wess, Valerie Senior Vice President None
Young, Deborah Vice President None
Zarker, Cynthia E. Senior Vice President None
---------
* The address of Ms. Riegel 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 Financial Center, Boston, MA 02111. 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 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 Financial Center, Boston, MA 02111. 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.
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes Kevin M. Carome, Suzan M. Barron, William J. Ballou,
Russell L. Kane, Vincent P. Pietropaolo, Ellen Harrington, Tracy S. DiRienzo,
Pamela A. McGrath, Cameron S. Avery and Stacy H. Winick individually, as my true
and lawful attorney, with full power to each of them to sign for me and in my
name, any and all registration statements and any and all amendments to the
registration statements filed under the Securities Act of 1933 or the Investment
Company Act of 1940 with the Securities and Exchange Commission for the purpose
of complying with such registration requirements in my capacity as a trustee or
officer of Liberty-Stein Roe Funds Investment Trust, Liberty-Stein Roe Funds
Income Trust, Liberty-Stein Roe Funds Institutional Trust, Liberty-Stein Roe
Funds Trust, Liberty-Stein Roe Funds Municipal Trust, Liberty-Stein Roe Funds
Advisor Trust, SR&F Base Trust, Stein Roe Variable Investment Trust, Liberty
Floating Rate Fund, Liberty-Stein Roe Institutional Floating Rate Income Fund,
and Stein Roe Floating Rate Limited Liability Company (together "Liberty-Stein
Roe Funds"). This Power of Attorney authorizes the above individuals to sign my
name and will remain in full force and effect until specifically rescinded by
me.
I specifically permit this Power of Attorney to be filed, as an exhibit to a
registration statement or amendment to a registration statement of any or all
Liberty-Stein Roe Funds with the Securities and Exchange Commission and I
request that this Power of Attorney then constitutes authority to sign
additional amendments and registration statements by virtue of its incorporation
by reference into the registration statements and amendments for the
Liberty-Stein Roe Funds.
In witness, I have signed this Power of Attorney on this 17th day of October,
2000.
JOSEPH R. PALOMBO
Joseph R. Palombo
<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 Boston and Commonwealth of
Massachusetts on the 19th day of October, 2000.
LIBERTY-STEIN ROE FUNDS
INVESTMENT TRUST
By STEPHEN E. GIBSON
Stephen E. Gibson
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
------------------------ ------------------- --------------
STEPHEN E. GIBSON President October 19, 2000
Stephen E. Gibson
Principal Executive Officer
PAMELA A MCGRATH Treasurer October 19, 2000
Pamela A. McGrath
Principal Financial and
Accounting Officer
JOHN A. BACON JR.* Trustee October 19, 2000
John A. Bacon Jr.
WILLIAM W. BOYD* Trustee October 19, 2000
William W. Boyd
LINDSAY COOK* Trustee October 19, 2000
Lindsay Cook
DOUGLAS A. HACKER* Trustee October 19, 2000
Douglas A. Hacker
JANET LANGFORD KELLY* Trustee October 19, 2000
Janet Langford Kelly
CHARLES R. NELSON* Trustee October 19, 2000
Charles R. Nelson
JOSEPH R. PALOMBO* Trustee October 19, 2000
Joseph R. Palombo
THOMAS C. THEOBALD* Trustee October 19, 2000
Thomas C. Theobald
*RUSSELL L. KANE
Russell L. Kane
Attorney-in-fact for each Trustee
<PAGE>
EXHIBIT INDEX
(b)(3) Amendment to By-Laws dated February 8, 2000.
(b)(4) Amendment to By-Laws dated September 28, 2000.
(d)(2) Form of Sub-Advisory Agreement among the Registrant, Stein Roe & Farnham
Incorporated and Unibank Securities, Inc. relating to the Stein Roe
European Thematic Equity Fund series.
(d)(3) Form of Sub-Advisory Agreement among the Registrant, Stein Roe & Farnham
Incorporated and Unibank Securities, Inc. relating to the Stein Roe
Global Thematic Equity Fund series.