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. 67 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 68 [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: 1-800-338-2550
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)
[X] on July 28, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
Registrant has previously elected to register pursuant to Rule 24f-2 an
indefinite number of shares of beneficial interest of the following series:
Stein Roe 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.
This amendment to the Registration Statement has also been signed by SR&F Base
Trust.
The prospectuses and statements of additional information relating to the series
of Stein Roe Funds Investment Trust designated Stein Roe Advisor Select Growth &
Income Fund, Stein Roe Balanced Fund, Stein Roe Growth Stock Fund, Stein Roe
Growth & Income Fund, Stein Roe Growth Investor Fund, Stein Roe International
Fund, Stein Roe Young Investor Fund, Stein Roe Asia Pacific Fund, and Stein Roe
Advisor Growth Investor Fund are not affected by the filing of this
Post-Effective Amendment No. 67.
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This communication shall not
constitute an offer to sell or the solicitation of an offer to buy or shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
--------------------------------------------------------------------------------
LIBERTY MIDCAP GROWTH FUND PROSPECTUS, AUGUST 1, 2000
--------------------------------------------------------------------------------
CLASS A, B AND C SHARES
Advised by Stein Roe & Farnham Incorporated
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
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C>
THE FUND 2
--------------------------------------------------------------------------------
Investment Goal................................................................2
Principal Investment Strategies................................................2
Principal Investment Risks.....................................................3
Performance History............................................................4
Your Expenses..................................................................5
YOUR ACCOUNT 6
--------------------------------------------------------------------------------
How to Buy Shares..............................................................6
Sales Charges..................................................................7
How to Exchange Shares.........................................................9
How to Sell Shares.............................................................9
Fund Policy on Trading of Fund Shares.........................................
Distribution and Service Fees.................................................10
Other Information About Your Account..........................................11
MANAGING THE FUND 14
--------------------------------------------------------------------------------
Investment Advisor............................................................14
Portfolio Manager.............................................................14
OTHER INVESTMENT
STRATEGIES AND RISKS 15
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 17
--------------------------------------------------------------------------------
</TABLE>
-----------------
NOTE FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
-----------------
<PAGE>
--------------------------------------------------------------------------------
THE FUND
--------------------------------------------------------------------------------
INVESTMENT GOAL
--------------------------------------------------------------------------------
The Fund seeks long-term growth.
PRINCIPAL INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
Under normal market conditions, the Fund invests at least 65% of its assets in
common stocks of midcap companies that the portfolio manager believes have
long-term growth potential. The Fund may also invest in small- and
large-capitalization companies. The Fund may invest up to 25% of its assets in
foreign stocks. To select investments for the Fund, the portfolio manager
considers midcap companies that show the potential to generate and sustain
long-term earnings growth at above average rates. The portfolio manager selects
companies based on his view of long-term rather than short-term earnings growth
prospects.
The portfolio manager may sell a portfolio holding if the security reaches the
portfolio manager's price target or if the company has a deterioration of
fundamentals such as failing to meet key operating benchmarks. The portfolio
manager may also sell a portfolio holding to fund redemptions.
Additional strategies that are not principal investment strategies and the risks
associated with them are described below under "Other Investment Strategies and
Risks."
DEFINING CAPITALIZATION. A company's market capitalization is simply its stock
price multiplied by the number of shares of stock it has issued and outstanding.
In the financial markets, companies generally are sorted into one of three
capitalization-based categories: large capitalization (large cap); medium
capitalization (mid cap) or small capitalization (small cap). In defining a
company's market capitalization, we use capitalization-based categories as they
are defined by Morningstar, Inc.
Morningstar ranks stocks as follows: the top 5% of the 5000 largest domestic
stocks in Morningstar's equity database are classified as large cap, the next
15% of the 5000 are classified as mid cap, and the remaining 80% (as well as
companies that fall outside the largest 5000) are classified as small cap. As of
June 30, 2000, large cap companies had market capitalizations greater than
$10.5 billion, mid cap companies had market capitalizations between $1.7 and
$10.5 billion, and small cap companies had market capitalizations less than
$1.7 billion. These amounts are subject to change.
---
2
<PAGE>
THE FUND
PRINCIPAL INVESTMENT RISKS
--------------------------------------------------------------------------------
The principal risks of investing in the Fund are described below. There are many
circumstances (including additional risks that are not described here) which
could prevent the Fund from achieving its investment goal. You may lose money by
investing in the Fund.
Management risk means that the advisor's stock selections and other investment
decisions might produce losses or cause the Fund to underperform when compared
to other funds with similar goals. Market risk means that security prices in a
market, sector or industry may move down. Downward movements will reduce the
value of your investment. Because of management and market risk, there is no
guarantee that the Fund will achieve its investment goal or perform favorably
compared with competing funds.
The securities issued by mid-capitalization companies may have more risk than
than those of larger companies. These securities may be more susceptible to
market downturns, and their prices could be more volatile.
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
Smaller companies are more likely than larger comapnies to
have limited product lines, operating histories, markets or financial
resources. They may depend heavily on a small management team. Stocks of
smaller companies may trade less frequently, may trade in smaller volumes
and may fluctuate more sharply in price than stocks of larger companies.
In addition, they may not be widely followed by the investment community,
which can lower the 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 and you can lose money by investing in the
Fund.
Information on other securities and risks appears under "Other Investment
Strategies and Risks."
---
3
<PAGE>
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR-YEAR TOTAL RETURNS show the Stein Roe Midcap Growth Fund's Class S
share performance for each of the last two complete calendar years. It includes
the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURN is a measure of the Stein Roe Midcap Growth Fund's
Class S share performance over the past one-year period and life of the Fund.
It includes the effects of Fund expenses.
The Fund's return is compared to the S&P 500 Index, an unmanaged broad-based
measure of market performance. Unlike the Fund, indices are not investments, do
not incur fees or expenses, and are not professionally managed. It is not
possible to invest directly in indices.
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from year to year by
illustrating the Fund's calendar year total returns for Stein Roe Midcap Growth
Fund Stein Roe Midcap Growth Fund Class S. The Fund did not have separate
classes of shares prior to August 1, 2000; on that date, the Fund's outstanding
shares were reclassified as Stein Roe Midcap Growth Fund Class S. The
performance table following the bar chart shows how the Fund's average annual
total returns for Stein Roe Midcap Growth Fund Class S compare with those of a
broad measure of market performance for 1 year and the life of the Fund. The
chart and table are intended to illustrate some of the risks of investing in
the Fund by showing the changes in the Fund's performance. All returns include
the reinvestment of dividends and distributions. Performance results include the
effect of expense reduction arrangements. If these arrangements were not in
place, then the performance results would have been lower. As with all mutual
funds, past performance does not predict the Fund's future performance.
--------------------------------------------------------------------------------
CALENDAR-YEAR TOTAL RETURNS (CLASS S)*
--------------------------------------------------------------------------------
[BAR GRAPH]
<TABLE>
<CAPTION>
<S> <C>
1998 15.24%
1999 42.73%
</TABLE>
The Fund's year-to-date total return through June 30, 2000 was 2.03%.
For period shown in bar chart:
Best quarter: 4th quarter 1999, +44.10%
Worst quarter: 3rd quarter 1998, -18.35%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1999*
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SINCE
INCEPTION
(JUNE 30,
1 YEAR 1997)
<S> <C> <C>
Midcap Growth, Class S (%) 42.73 26.57
-----------------------------------------------------------------------
S&P 500 Index (%) 21.03 24.26
</TABLE>
*Because Class A, B, and C shares have not commenced operations, the bar chart
and average annual total returns is shown for Stein Roe Midcap Growth Fund
Class S, the existing fund class.
---
4
<PAGE>
THE FUND
UNDERSTANDING EXPENSES
SHAREHOLDER FEES are paid directly by shareholders to the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management fees, 12b-1 fees and administrative costs including pricing and
custody services.
EXAMPLE EXPENSES helps you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. This example reflects expenses of the Fund.
It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% return for each year
- Fund operating expenses remain the same
- Assumes reinvestment of all dividends and distributions
- Assumes Class B shares convert to Class A shares after eight years
YOUR EXPENSES
--------------------------------------------------------------------------------
Expenses are one of several factors to consider before you invest in a mutual
fund. The tables below describe the fees and expenses you may pay when you buy,
hold and sell shares of the Fund.
--------------------------------------------------------------------------------
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum sales charge (load) on purchases
(as a percentage of the offering price) 5.75 0.00 0.00
------------------------------------------------------------------------------------
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price) 1.00(2) 5.00 1.00
------------------------------------------------------------------------------------
Redemption fee(3) (as a percentage of amount
redeemed, if applicable) None None None
</TABLE>
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)(3)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Management fee (%) 0.90 0.90 0.90
------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.35(4) 1.00 1.00
------------------------------------------------------------------------------------
Other expenses (%) (5) 0.55 0.55 0.55
------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 1.80 2.45 2.45
------------------------------------------------------------------------------------
Expense reimbursement (%) (6) (0.20) (0.20) (0.20)
------------------------------------------------------------------------------------
Net expenses (%) 1.60 2.25 2.25
</TABLE>
--------------------------------------------------------------------------------
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $728 $1,091 $1,476 $2,554
------------------------------------------------------------------------------------
Class B: sold all your shares at
the end of the period 728 1,044 1,488 2,586
did not sell your shares 228 744 1,288 2,586
------------------------------------------------------------------------------------
Class C: sold all your shares at the end
of the period 328 744 1,288 2,771
did not sell your shares 228 744 1,288 2,771
</TABLE>
(1) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
(4) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class A shares. As a result, the actual 12b-1 fee for Class A
shares would be 0.25% and the total annual fund operating expenses would be
1.50%. This arrangement may be terminated by the distributor at any time.
(5) Other expenses are based on the Fund's Stein Roe Midcap Growth Fund Class S.
(6) Stein Roe will reimburse the Fund if its ordinary operating expenses exceed
1.25%. The expense undertaking expires on January 31, 2001. A reimbursement
lowers the expense ratio and increases overall return to investors.
---
5
<PAGE>
--------------------------------------------------------------------------------
YOUR ACCOUNT
--------------------------------------------------------------------------------
INVESTMENT MINIMUMS(1)
<TABLE>
<CAPTION>
<S> <C>
Initial Investment................$1,000
Subsequent Investments............$ 50
Automatic Investment Plan*........$ 50
Retirement Plans*.................$ 25
</TABLE>
* The initial investment minimum of $1,000 is
waived on this plan.
The Fund reserves the right to change the investment minimums. The Fund also
reserves the right to refuse a purchase order for any reason, including if it
believes that doing so would be in the best interest of the Fund and its
shareholders
HOW TO BUY SHARES
--------------------------------------------------------------------------------
Your financial advisor can help you establish an appropriate investment
portfolio, buy shares and monitor your investments. When the Fund receives your
purchase request in "good form," your shares will be bought at the next
calculated public offering price. "Good form" means that you placed your order
with your brokerage firm or your payment has been received and your application
is complete, including all necessary signatures.
--------------------------------------------------------------------------------
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
<S> <C>
Through your Your financial advisor can help you establish your account and
financial advisor buy Fund shares on your behalf. Your financial advisor may
charge you fees for executing the purchase for you.
-------------------------------------------------------------------------------------
By check For new accounts, send a completed application and check made
(new account) payable to the Fund to the transfer agent, SteinRoe Services
Inc., c/o Liberty Funds Services, Inc., P.O. Box 1722, Boston,
MA 02105-1722.
-------------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your quarterly statement, or send a
letter of instruction, including your Fund name and account
number with a check made payable to the Fund to SteinRoe
Services Inc., c/o Liberty Funds Services, Inc., P.O. Box 1722,
Boston, MA 02105-1722.
-------------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares by exchanging
shares you own in one fund for shares of the same class of the
Fund at no additional cost. To exchange by telephone, call
1-800-422-3737.
-------------------------------------------------------------------------------------
By wire You may purchase shares by wiring money from your bank account
to your fund account. To wire funds to your fund account, call
1-800-422-3737 to obtain a control number and the wiring
instructions.
-------------------------------------------------------------------------------------
By electronic You may purchase shares by electronically transferring money
funds transfer from your bank account to your fund account by calling
1-800-422-3737. Your money may take up to two business days to
be invested. You must set up this feature prior to your
telephone request. Be sure to complete the appropriate section
of the application.
-------------------------------------------------------------------------------------
Automatic You can make monthly or quarterly investments automatically
investment plan from your bank account to your fund account. You can select a
pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by one fund
diversification into the same class of shares of another fund at no additional
sales charge. To invest your dividends in another fund, call
1-800-345-6611.
</TABLE>
---
6
<PAGE>
YOUR ACCOUNT
CHOOSING A SHARE CLASS
The Fund offers three classes of shares in this prospectus -- CLASS A, B and C.
Each share class has its own sales charge and expense structure. Determining
which share class is best for you depends on the dollar amount you are investing
and the number of years for which you are willing to invest. If your financial
advisor firm does not participate in the Class B discount program, purchases in
excess of $250,000 must be made only in Class A or Class C shares. Purchases
over $1 million or more can be made only in Class shares. Based on your personal
situation, your investment advisor can help you decide which class of shares
makes the most sense for you.
The Fund also offers Stein Roe Midcap Growth Fund Class S shares and Z shares,
which are available only to other investors through separate prospectuses.
Class Z shares are offered exclusively to certain institutional and other
investors.
SALES CHARGES
--------------------------------------------------------------------------------
You may be subject to an initial sales charge when you purchase or a contingent
deferred sales charge (CDSC) when you sell shares of the Fund. These sales
charges are described below. In some circumstances these sales charges are
waived, as described below and in the Statement of Additional Information.
CLASS A SHARES Your purchases of Class A shares generally are at the public
offering price. This price includes a sales charge that is based on the amount
of your investment. The sales charge is the commission paid to the financial
advisor firm on the sale of Class A shares. The sales charge you pay on
additional investments is based on the total amount of your purchase and the
current value of your account. The amount of the sales charge differs depending
on the amount you invest as shown in the table below.
--------------------------------------------------------------------------------
CLASS A SALES CHARGES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF PUBLIC
OFFERING
AS A % OF AS A % PRICE
THE PUBLIC OF NET RETAINED BY
OFFERING AMOUNT FINANCIAL
AMOUNT OF PURCHASE PRICE INVESTED ADVISOR FIRM
<S> <C> <C> <C>
Less than $50,000 5.75 6.10 5.00
--------------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
--------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
--------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
--------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
--------------------------------------------------------------------------------------
$1,000,000 or more(1) 0.00 0.00 0.00
</TABLE>
For Class A share purchases of $1 million or more, financial advisors receive a
commission from the distributor as follows:
--------------------------------------------------------------------------------
PURCHASES OVER $1 MILLION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT PURCHASED COMMISSION %
<S> <C>
First $3 million 1.00
--------------------------------------------------------------------------------------
Next $2 million 0.50
--------------------------------------------------------------------------------------
Over $5 million 0.25(2)
</TABLE>
(1) Class A shares bought without an initial sales charge in accounts
aggregating $1 million to $5 million at the time of purchase are subject to
a 1.00% CDSC if the shares are sold within 18 months of the time of
purchase. Subsequent Class A share purchases that bring your account value
above $1 million are subject to a 1.00% CDSC if redeemed within 18 months
of their purchase date. Purchases in accounts aggregating over $5 million
are subject to a 1.00% CDSC only to the extent that the sale of shares
within 18 months of purchase cause the value of the accounts to fall below
the $5 million level. The 18-month period begins on the first day of the
month following each purchase.
(2) Paid over 12 months but only to the extent the shares remain outstanding.
---
7
<PAGE>
YOUR ACCOUNT
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
Certain investments in Class A, B and C shares are subject to a CDSC. You will
pay the CDSC only on shares you sell within a certain amount of time after
purchase. The CDSC generally declines each year until there is no charge for
selling shares. The CDSC is applied to the NAV at the time of purchase or sale,
whichever is lower. For purposes of calculating the CDSC, the start of the
holding period is the month-end of the month in which the purchase is made.
Shares you purchase with reinvested dividends or capital gains are not subject
to a CDSC. When you place an order to sell shares, the Fund will automatically
sell first those shares not subject to a CDSC and then those shares subject to
the lowest CDSC amount. This policy helps reduce and possibly eliminate the
potential impact of the CDSC.
REDUCED SALES CHARGES FOR LARGER INVESTMENTS There are two ways for you to pay a
lower sales charge when purchasing Class A shares. The first is through Rights
of Accumulation. If the combined value of the Fund accounts maintained by you,
your spouse or your minor children reaches a discount level (according to the
chart on the previous page), your next purchase will receive the lower sales
charge. The second is by signing a Statement of Intent within 90 days of your
purchase. By doing so, you would be able to pay the lower sales charge on all
purchases by agreeing to invest a total of at least $50,000 within 13 months. If
your Statement of Intent purchases are not completed within 13 months, you will
be charged the applicable sales charge on the amount you had invested to that
date. In addition, certain investors may purchase shares at a reduced sales
charge or net asset value, which is the value of a Fund share excluding any
sales charges. See the Statement of Additional Information for a description of
these situations.
CLASS B SHARES Your purchases of Class B shares are at the Class B's net asset
value. Class B shares have no front-end sales charge, but carry a CDSC, that is
imposed only on shares sold prior to the completion of the periods shown in the
charts below. The CDSC generally declines each year and eventually disappears
over time. Class B shares automatically convert to Class A shares eight years
after purchase. The distributor pays the financial advisor firm an up-front
commission on sales of Class B shares as depicted below.
PURCHASES OF LESS THAN $250,000:
--------------------------------------------------------------------------------
CLASS B SALES CHARGES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
<S> <C>
Through the end of the first year 5.00
------------------------------------------------------------------------------------
Through the end of the second year 4.00
------------------------------------------------------------------------------------
Through the end of the third year 3.00
------------------------------------------------------------------------------------
Through the end of the fourth year 3.00
------------------------------------------------------------------------------------
Through the end of the fifth year 2.00
------------------------------------------------------------------------------------
Through the end of the sixth year 1.00
------------------------------------------------------------------------------------
Longer than six years 0.00
</TABLE>
Commission to financial advisors is 5.00%.
Automatic conversion to Class A shares is eight years after purchase.
You can pay a lower CDSC and reduce the holding period when making purchases of
Class B shares through a financial advisor firm which participates in the Class
B share discount program for larger purchases as described in the charts below.
Some financial advisor firms are not able to participate because their record
keeping or transaction processing systems are not designed to accommodate these
reductions. For non-participating firms, purchases of Class B shares must be
less than $250,000. Consult your financial advisor to see whether it
participates in the discount program for larger
---
8
<PAGE>
YOUR ACCOUNT
purchases. For participating firms, Rights of Accumulation apply, so that if the
combined value of the Fund accounts maintained by you, your spouse or your minor
children is at or above a discount level, your next purchase will receive the
lower CDSC and the applicable reduced holding period.
<TABLE>
<CAPTION>
PURCHASES OF $250,000 TO LESS THAN $500,000:
--------------------------------------------------------------------------------
HOLDING PERIOD AFTER PURCHASE AS % DEDUCTED WHEN
SHARES ARE SOLD
--------------------------------------------------------------------------------
<S> <C>
Through first year 3.00
--------------------------------------------------------------------------------
Through second year 2.00
--------------------------------------------------------------------------------
Through third year 1.00
--------------------------------------------------------------------------------
Longer than four years 0.00
--------------------------------------------------------------------------------
</TABLE>
Commission to financial advisor is 2.50%.
Automatic conversion to Class A shares is four years after purchase.
PURCHASES OF $500,000 TO LESS THAN $1 MILLION:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
HOLDING PERIOD AFTER PURCHASE CDSC AS % DEDUCTED WHEN
SHARES ARE SOLD
--------------------------------------------------------------------------------
<S> <C>
Through first year 3.00
--------------------------------------------------------------------------------
Through second year 2.00
--------------------------------------------------------------------------------
Through third year 1.00
--------------------------------------------------------------------------------
Longer than four years 0.00
--------------------------------------------------------------------------------
</TABLE>
Commission to financial advisors is 1.75%.
Automatic conversion to Class A shares after three years after purchase.
If you exchange into a fund participating in the Class B share discount program
or transfer your fund account from a financial advisor which does not
participate in the program to one who does, the exchanged or transferred shares
will retain the pre-existing CDSC but any additional purchases of Class B shares
which cause the exchanged or transferred account to exceed the applicable
discount level will receive the lower CDSC and the reduced holding period for
amounts in excess of the discount level. Your financial advisor will receive the
lower commission for purchases in excess of the applicable discount level. If
you exchange from a participating fund or transfer your account from a financial
advisor that does participate in the program into a fund or financial advisor
which does not, the exchanged or transferred shares will retain the pre-existing
CDSC but all additional purchases of Class B shares will be in accordance with
the higher CDSC and longer holding period of the non-participating fund or
financial advisor.
CLASS C SHARES Your purchases of Class C shares are at the Class C's net asset
value. Although Class C shares have no front-end sales charge, they carry a CDSC
of 1.00%
---
9
<PAGE>
YOUR ACCOUNT
that is applied to shares sold within the first year after they are purchased.
After holding shares for one year, you may sell them at any time without paying
a CDSC. The distributor pays the financial advisor firm an up-front commission
of 1.00% on sales of Class C shares.
--------------------------------------------------------------------------------
CLASS C SALES CHARGES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS AFTER PURCHASE % DEDUCTED WHEN SHARES ARE SOLD
<S> <C>
Through first year 1.00
--------------------------------------------------------------------------------------
Longer than one year 0.00
</TABLE>
HOW TO EXCHANGE SHARES
--------------------------------------------------------------------------------
You may exchange your shares for shares of the same share class of another fund
distributed by Liberty Funds Distributor, Inc. at net asset value. If your
shares are subject to a CDSC, you will not be charged a CDSC upon the exchange.
However, when you sell the shares acquired through the exchange, the shares sold
may be subject to a CDSC, depending upon when you originally purchased the
shares you exchanged. For purposes of computing the CDSC, the length of time you
have owned your shares will be computed from the date of your original purchase
and the applicable CDSC will be the CDSC of the original fund. Unless your
account is part of a tax-deferred retirement plan, an exchange is a taxable
event. Therefore, you may realize a gain or a loss for tax purposes. The Fund
may terminate your exchange privilege if the advisor determines that your
exchange activity is likely to adversely impact its ability to manage the Fund.
To exchange by telephone, call 1-800-422-3737.
HOW TO SELL SHARES
--------------------------------------------------------------------------------
Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of the Fund on any regular business day that the New
York Stock Exchange (NYSE) is open.
When the Fund receives your sales request in "good form," shares will be sold at
the next calculated price. In "good form" means that money used to purchase your
shares is fully collected. When selling shares by letter of instruction, "good
form" also means (i) your letter has complete instructions, the proper
signatures and signature guarantees, (ii) you have included any certificates for
shares to be sold, and (iii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries and
surviving joint owners, please call 1-800-345-6611. Retirement plan accounts
have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days
(usually on the next business day after your request is received in "good
form"). However, if you purchased your shares by check, the Fund may delay
sending the proceeds from the sale of your shares for up to 15 days after your
purchase to protect against checks that are returned. No interest will be paid
on uncashed redemption checks. Redemption proceeds
---
10
<PAGE>
YOUR ACCOUNT
may be paid in securities, rather than in cash, if the advisor determines that
it is in the best interest of the Fund.
---
11
<PAGE>
YOUR ACCOUNT
--------------------------------------------------------------------------------
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
<S> <C>
Through your You may call your financial advisor to place your sell order.
financial advisor To receive the current trading day's price, your financial
advisor firm must receive your request prior to the close
of the NYSE, usually 4:00 p.m. Eastern time.
-------------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares by exchanging from
the Fund into the same share class of another fund at no
additional cost. To exchange by telephone, call 1-800-422-3737.
-------------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares by telephone and
request that a check be sent to your address of record by
calling 1-800-422-3737, unless you have notified the Fund of an
address change within the previous 30 days. The dollar limit
for telephone sales is $100,000 in a 30-day period. You do not
need to set up this feature in advance of your call. Certain
restrictions apply to retirement accounts. For details, call
1-800-345-6611.
-------------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or stock power form
along with any certificates to be sold to the address below.
In your letter of instruction, note the Fund's name, share
class, account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter, and
signatures must be guaranteed by either a bank, a member firm
of a national stock exchange or another eligible guarantor
institution. Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners and
individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Liberty Funds Services,
Inc., P.O. Box 1722, Boston, MA 02105-1722.
-------------------------------------------------------------------------------------
By wire You may sell shares and request that the proceeds be
wired to your bank. You must set up this feature prior to
your telephone request. Be sure to complete the
appropriate section of the account application for this
feature.
-------------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage on a monthly, quarterly or semi-annual basis if your
account balance is at least $5,000 and have the proceeds
sent to you. This feature is not available if you hold
your shares in certificate form. Be sure to complete the
appropriate section of the account application for this
feature.
-------------------------------------------------------------------------------------
By electronic You may sell shares and request that the proceeds be
funds transfer electronically transferred to your bank. Proceeds may take up
to two business days to be received by your bank. You must
set up this feature prior to your request. Be sure to
complete the appropriate section of the account
application for this feature.
</TABLE>
FUND POLICY ON TRADING OF FUND SHARES
--------------------------------------------------------------------------------
The Fund does not permit short-term or excessive trading. Excessive purchases,
redemption, or exchanges of Fund shares disrupt portfolio management and drive
Fund expenses higher. In order to promote the best interests of the Fund, the
Fund reserves the right to reject any purchase order or exchange request,
particularly from market timers or investors who, in the advisor's opinion, have
a pattern or short-term of excessive trading or whose trading has been or may be
disruptive to the Fund. The Fund into which you would like to exchange also may
reject your request.
---
12
<PAGE>
YOUR ACCOUNT
DISTRIBUTION AND SERVICE FEES
--------------------------------------------------------------------------------
The Fund has adopted a plan under Rule 12b-1 that permits it to pay marketing
and other fees to support the sale and distribution of Class A, B and C shares
and the services provided to you by your financial advisor. These annual
distribution and service fees may equal up to 0.35% for Class A shares and 1.00%
for each of Class B and Class C shares and are paid out of the assets of these
classes. Over time, these fees will increase the cost of your shares and may
cost you more than paying other types of sales charges. Class B shares
automatically convert to Class A shares after a certain number of years,
depending on the program you purchased your shares under, eliminating a portion
of the distribution fee upon conversion.
OTHER INFORMATION ABOUT YOUR ACCOUNT
--------------------------------------------------------------------------------
HOW THE FUND'S SHARE PRICE IS DETERMINED The price of the Fund's shares is based
on its net asset value. The net asset value is determined at the close of
regular session trading on the NYSE, usually 4:00 p.m. Eastern time on each
business day that the NYSE is open (typically Monday through Friday).
When you request a transaction, it will be processed at the net asset value
(plus any applicable sales charge) next determined after your request is
received in good form by the Distributor. In most cases, in order to receive
that day's price, the Distributor must receive your order before that day's
transactions are processed. If you request a transaction through your financial
advisor's firm, the firm must receive your order by the close of trading on the
NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each
class's total net assets by the number of that class's shares outstanding. In
determining the net asset value, the Fund must determine the price of each
security in its portfolio at the close of each trading day. Because the Fund
holds securities that are traded on foreign exchanges, the value of the Fund's
securities may change on days when shareholders will not be able to buy or sell
Fund shares. This will affect the Fund's net asset value on the day it is next
determined. Securities for which market quotations are available are valued each
day at the current market value. However, where market quotations are
unavailable, or when the advisor believes that subsequent events have made them
unreliable, the Fund may use other data to determine the fair value of the
securities.
You can find the daily prices of some share classes for the Fund in most major
daily newspapers under the caption "Liberty." You can find daily prices for all
share classes by visiting the Fund's web site at www.libertyfunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of
depreciation in share value) you may be subject to an annual account fee of $10.
This fee is deducted from the account in June each year. Approximately 60 days
prior to the fee date, the Fund's transfer agent will send you written
notification of the upcoming fee. If you add money to your account and bring the
value above $1,000 prior to the fee date, the fee will not be deducted.
---
13
<PAGE>
YOUR ACCOUNT
UNDERSTANDING FUND DISTRIBUTIONS
The Fund earns income from the securities it holds. The Fund also may realize
capital gains and losses on sales of its securities. The Fund distributes
substantially all of its net investment income and capital gains to
shareholders. As a shareholder, you are entitled to a portion of the Fund's
income and capital gains based on the number of shares you own at the time these
distributions are declared.
SHARE CERTIFICATES Share certificates are not available for Class B and C
shares. Certificates will be issued for Class A shares only if requested. If you
decide to hold share certificates, you will not be able to sell your shares
until you have endorsed your certificates and returned them to the distributor.
DIVIDENDS, DISTRIBUTIONS, AND TAXES The Fund has the potential to make the
following distributions:
--------------------------------------------------------------------------------
TYPES OF DISTRIBUTIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Dividend income Represents interest and dividends earned from securities held
by the Fund
-------------------------------------------------------------------------------------
Capital gains Represents long-term capital gains on sales of securities held
for more than 12 months and short-term capital gains, which are
gains on sales of securities held by the Fund for a 12-month
period or less.
</TABLE>
DISTRIBUTION OPTIONS The Fund distributes dividends and any capital gains
(including short-term capital gains) at least annually. You can choose one of
the options listed in the table below for these distributions when you open your
account. To change your distribution option call 1-800-345-6611.
If you do not indicate on your application your preference for handling
distributions, the Fund will automatically reinvest all distributions in
additional shares of the Fund.
--------------------------------------------------------------------------------
DISTRIBUTION OPTIONS
--------------------------------------------------------------------------------
Reinvest all distributions in additional shares of your current fund
-------------------------------------------------------------------------------
Reinvest all distributions in shares of another fund
-------------------------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest capital gains(1)
-------------------------------------------------------------------------------
Receive all distributions in cash (with one of the following options)(1)
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds transfer
TAX CONSEQUENCES Regardless of whether you receive your distributions in cash or
reinvest them in additional Fund shares, all Fund distributions are subject to
federal income tax. Depending on the state where you live, distributions may
also be subject to state and local income taxes.
(1) Distributions of $10 or less will automatically be reinvested in additional
Fund shares. If you elect to receive distributions by check and the check
is returned as undeliverable, or if you do not cash a distribution check
within six months of the check date, the distribution will be reinvested in
additional shares of the Fund.
---
14
<PAGE>
YOUR ACCOUNT
In general, any distributions of dividends, interest and short-term capital
gains are taxable as ordinary income. Distributions of long-term capital gains
are generally taxable as such, regardless of how long you have held your Fund
shares. You will be provided with information each year regarding the ordinary
income and capital gains distributed to you for the previous year and any
portion of your distribution which is exempt from state and local taxes. Your
investment in the Fund may have additional personal tax implications. Please
consult your tax advisor on foreign, federal, state, local or other applicable
tax laws.
In addition to the dividends and capital gains distributions made by the Fund,
you may realize a capital gain or loss when selling and exchanging shares of the
Fund. Such transactions may be subject to federal, state, local income tax.
---
15
<PAGE>
--------------------------------------------------------------------------------
MANAGING THE FUND
--------------------------------------------------------------------------------
INVESTMENT ADVISOR
--------------------------------------------------------------------------------
Stein Roe & Farnham Incorporated (Stein Roe), located at One South Wacker Drive,
Suite 3500, Chicago, Illinois 60606, is the Fund's investment advisor. In its
duties as investment advisor, Stein Roe runs the Fund's day-to-day business,
including placing all orders for the purchase and sale of portfolio securities
for the Fund. Stein Roe has been an investment advisor since 1932. As of June
30, 2000, Stein Roe managed over [$29.7] billion in assets.
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 Fund. 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.
For the 1999 fiscal year, aggregate advisory fees paid to Stein Roe by the Fund
amounted to 0.90% of average daily net assets.
Stein Roe may use the services of AlphaTrade, Inc., an affiliated broker-dealer,
when buying or selling equity securities for the Fund, pursuant to procedures
adopted by the Board of Trustees.
PORTFOLIO MANAGER
--------------------------------------------------------------------------------
STEVE D. HAYWARD joined Stein Roe as a portfolio manager in November 1999. He
served as vice president, investments for M & I Investment Management from 1993
to 1999, where he managed the Marshall Mid-Cap Fund and Marshall Small-Cap
Growth Fund. Mr. Hayward earned a B.A. degree from North Park College and a
M.B.A. degree in finance from Loyola University. He has managed the Fund since
joining Stein Roe in November 1999.
---
16
<PAGE>
--------------------------------------------------------------------------------
OTHER INVESTMENT STRATEGIES AND RISKS
--------------------------------------------------------------------------------
UNDERSTANDING THE FUND'S OTHER INVESTMENT STRATEGIES AND RISKS
The Fund's primary investment strategies and risks are described under "The Fund
- Principal Investment Strategies" and "The Fund - Principal Investment Risks."
In seeking to meet its investment goal, the Fund may also invest in other
securities and use certain other investment techniques. These securities and
investment techniques offer opportunities and carry various risks.
The advisor may elect not to buy any of these securities or use any of these
techniques unless it believes that doing so will help the Fund achieve its
investment goal[s]. The Fund may not always achieve its investment goal.
Additional information about the Fund's securities and investment techniques, as
well as the Fund's fundamental and non-fundamental investment policies, is
contained in the Statement of Additional Information.
The Fund's primary investment strategies and their associated risks are
described above. This section describes other investments the Fund may make and
the risks associated with them. In seeking to achieve its goal, the Fund may
invest in various types of securities and engage in various investment
techniques which are not the principal focus of the Fund and therefore are not
described in this prospectus. These types of securities and investment practices
are identified and discussed in the Fund's Statement of Additional Information,
which you may obtain free of charge (see back cover). Approval by the Fund's
shareholders is not required to modify or change any of the Fund's investment
goal or investment strategies.
FUTURES
--------------------------------------------------------------------------------
The Fund uses futures to gain exposure to groups of stocks or individual
issuers. 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. Investments in futures are efficient since they typically
cost less than direct investments in the underlying securities. However, the
Fund can lose money if the portfolio manager does not correctly anticipate the
market movements of those underlying securities.
PORTFOLIO TURNOVER
--------------------------------------------------------------------------------
There are no limits on turnover. Turnover may vary significantly from year to
year. Stein Roe does not expect it to exceed 100% under normal conditions. The
Fund generally intends to purchase securities for long-term investment although,
to a limited extent, it may purchase securities 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 the Fund's return.
TEMPORARY DEFENSIVE POSITIONS
--------------------------------------------------------------------------------
When Stein Roe believes that a temporary defensive position is necessary, the
Fund may invest, without limit, in high-quality debt securities or hold assets
in cash and cash equivalents. Stein Roe is not required to take a temporary
defensive position, and market conditions may prevent such an action. The Fund
may not achieve its investment objective if the Fund takes a temporary defensive
position.
---
17
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
INTERFUND LENDING PROGRAM
--------------------------------------------------------------------------------
The Fund 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.
---
18
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the financial
performance of the Fund. Because the Class A, B and C shares have not commenced
operations, the Fund's Stein Roe Midcap Growth Fund Class S, the Fund's existing
class is shown. Information is shown for the Fund's Stein Roe Midcap Growth
Fund Class S for the last three fiscal years. The fiscal year runs from October
1 to September 30. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that you would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). The
information for 1999 has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, is
included in the annual report. Arthur Andersen LLP audited the Fund's financial
statements for the years 1997 and 1998. Information for the period ending March
31, 2000 is unaudited. You can request a free annual report by calling
1-800-426-3750.
--------------------------------------------------------------------------------
THE FUND(a)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Six months ended Years ended Period ended
March 31 September 30, September 30,
2000 1999 1998 1997(b)
Class S Class S Class S Class S
<S> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 12.51 10.41 10.77 10.00
---------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss (0.08) (0.10) (0.07) --
---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 8.47 2.20 (0.29) 0.77
on investments
---------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 8.39 2.10 (0.36) 0.77
---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS ($):
Net realized capital gains (0.22) -- -- --
---------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 20.68 12.51 10.41 10.77
---------------------------------------------------------------------------------------------------------------------------
Total return (%) (f) 67.88 20.17 (3.34) 7.70(g)
---------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of net expenses to
average net assets (c) 1.25(e) 1.25 1.25 1.25(e)
---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment loss (0.92)(e) (0.97)(d) (0.64) 0.02(e)
to average net assets (f)
---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) (a) 150(g) 133 75 3(g)
---------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000's) ($) 72,940 44,359 49,974 49,830
</TABLE>
(a) The name of the Fund was changed on May 6, 1999 from Stein Roe Growth
Opportunities Fund to Stein Roe Midcap Growth Fund.
(b) From commencement operations on June 30, 1997.
(c) If the Fund paid all of its expenses and there had been no reimbursement by
Stein Roe, this ratio would have been 1.43% for the year ended September 30,
1999, 1.44% for the year ended September 30, 1998, and 1.74% for the period
ended September 30, 1997.
(d) During the year ended September 30, 1999, the Fund experienced a one-time
reduction in its expenses of 0.11% as a result of expenses accured in a
prior period. The Fund's gross expenses ratio and net investment income
ratio disclosed in Note (c) reflects the actual rate at which expenses were
incurred throughout fiscal year 1999 without the reduction.
(e) Annualized
(f) Computed giving effect to Stein Roe's expense limitation undertaking.
(g) Not annualized.
---
19
<PAGE>
--------------------------------------------------------------------------------
NOTES
--------------------------------------------------------------------------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
---
20
<PAGE>
NOTES
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
---
21
<PAGE>
FOR MORE INFORMATION
--------------------------------------------------------------------------------
You can get more information about the Fund's investments in the Fund's
semi-annual and annual reports to shareholders. The annual report contains a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance over its last fiscal year.
You may wish to read the Statement of Additional Information for more
information on the Fund and the securities in which it invests. The Statement of
Additional Information is incorporated into this prospectus by reference, which
means that it is considered to be part of this prospectus.
You can get free copies of reports and the Statement of Additional Information,
request other information and discuss your questions about the Fund by writing
or calling the Fund's distributor at:
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.libertyfunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from
the SEC at www.sec.gov.
You can review and copy information about the Fund by visiting the following
location and you can obtain copies, upon payment of a duplicating fee, by
writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
INVESTMENT COMPANY ACT FILE NUMBER:
Liberty-Stein Roe Funds Investment Trust: 811-4978
- Liberty Midcap Growth Fund Class A, B, C
(formerly Stein Roe Midcap Growth Fund)
--------------------------------------------------------------------------------
[LIBERTY FUNDS LOGO]
ALL-STAR - COLONIAL - CRABBE HUSON - NEWPORT - STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (c)1999
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
www.libertyfunds.com
<PAGE>
--------------------------------------------------------------------------------
LIBERTY MIDCAP GROWTH FUND PROSPECTUS AUGUST 1, 2000
--------------------------------------------------------------------------------
CLASS Z SHARES
Advised by Stein Roe & Farnham Incorporated
The following eligible institutional investors may purchase Class Z shares: (i)
any retirement plan with aggregate assets of at least $5 million at the time of
purchase of Class Z shares and which purchases shares directly from Liberty
Funds Distributor, Inc., the Fund's distributor, or through a third-party
broker-dealer; (ii) any registered investment adviser purchasing shares for its
clients; (iii) any insurance company, trust company or bank purchasing shares
for its own account; (iv) any endowment, investment company or foundation; and
(v) any trustee of Liberty-Stein Roe Funds Investment Trust, any employee of
Stein Roe & Farnham Incorporated, or any of its affiliates, or any member of the
immediate family of any trustee or employee.
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.
TABLE OF CONTENTS
THE FUND 2
--------------------------------------------------------------------------------
Investment Goal ............................................................. 2
Principal Investment Strategies ............................................. 2
Principal Investment Risks .................................................. 3
Performance History ......................................................... 4
Your Expenses ............................................................... 5
YOUR ACCOUNT 6
--------------------------------------------------------------------------------
How to Buy Shares ........................................................... 6
How to Exchange Shares ...................................................... 7
How to Sell Shares .......................................................... 8
Fund Policy on Trading of Fund Shares........................................
Other Information About Your Account......................................... 9
MANAGING THE FUND 12
--------------------------------------------------------------------------------
Investment Advisor .......................................................... 12
Portfolio Manager ........................................................... 12
OTHER INVESTMENT
STRATEGIES AND RISKS 13
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 15
--------------------------------------------------------------------------------
-----------------
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
-----------------
<PAGE>
--------------------------------------------------------------------------------
THE FUND
--------------------------------------------------------------------------------
INVESTMENT GOAL
--------------------------------------------------------------------------------
The Fund seeks long-term growth.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
Under normal market conditions, the Fund invests at least 65% of its assets in
common stocks of midcap companies that the portfolio manager believes have
long-term growth potential. The Fund may also invest in small- and
large-capitalization companies. The Fund may invest up to 25% of its assets in
foreign stocks. To select investments for the Fund, the portfolio manager
considers midcap companies that show the potential to generate and sustain
long-term earnings growth at above-average rates. The portfolio manager selects
companies based on his view of long-term rather than short-term earnings growth
prospects.
The portfolio manager may sell a portfolio holding if the security reaches the
portfolio manager's price target or if the company has a deterioration of
fundamentals such as failing to meet key operating benchmarks. The portfolio
manager may also sell a portfolio holding to fund redemptions.
Additional strategies that are not principal investment strategies and the risks
associated with them are described below under "Other Investment Strategies and
Risks."
DEFINING CAPITALIZATION. A company's market capitalization is simply its stock
price multiplied by the number of shares of stock it has issued and outstanding.
In the financial markets, companies generally are sorted into one of three
capitalization-based categories: large capitalization (large cap); medium
capitalization (mid cap) or small capitalization (small cap). In defining a
company's market capitalization, we use capitalization-based categories as they
are defined by Morningstar, Inc.
Morningstar ranks stocks as follows: the top 5% of the 5000 largest domestic
stocks in Morningstar's equity database are classified as large cap, the next
15% of the 5000 are classified as mid cap, and the remaining 80% (as well as
companies that fall outside the largest 5000) are classified as small cap. As of
March 31, 2000, large cap companies had market capitalizations greater than
$11.413 billion, mid cap companies had market capitalizations between $1.769 and
$11.413 billion, and small cap companies had market capitalizations less than
$1.769 billion. These amounts are subject to change.
-----
2
<PAGE>
THE FUND
PRINCIPAL INVESTMENT RISKS
--------------------------------------------------------------------------------
The principal risks of investing in the Fund are described below. There are many
circumstances (including additional risks that are not described here) which
could prevent the Fund from achieving its investment goal. You may lose money by
investing in the Fund.
Management risk means that the advisor's stock selections and other investment
decisions might produce losses or cause the Fund to underperform when compared
to other funds with similar goals. Market risk means that security prices in a
market, sector or industry may move down. Downward movements will reduce the
value of your investment. Because of management and market risk, there is no
guarantee that the Fund will achieve its investment goal or perform favorably
compared with competing funds.
The securities issued by mid-capitalization companies may have more risk than
than those of larger companies. These securities may be more susceptible to
market downturns, and their prices could be more volatile.
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
Smaller companies are more likely than larger comapnies to
have limited product lines, operating histories, markets or financial
resources. They may depend heavily on a small management team. Stocks of
smaller companies may trade less frequently, may trade in smaller volumes
and may fluctuate more sharply in price than stocks of larger companies.
In addition, they may not be widely followed by the investment community,
which can lower the 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 and you can lose money by investing in the
Fund.
Information on other securities and risks appears under "Other Investment
Strategies and Risks."
-----
3
<PAGE>
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR-YEAR TOTAL RETURNS show the Fund's Class S share performance for each
of the last two complete calendar years. It includes the effects of Fund
expenses.
AVERAGE ANNUAL TOTAL RETURN is a measure of the Fund's Class S share performance
over the past one-year period and the life of the Fund. It includes the effects
of Fund expenses.
The Fund's return is compared to the S&P 500 Index, an unmanaged broad-based
measure of market performance. Unlike the Fund, indices are not investments, do
not incur fees or expenses, and are not professionally managed. It is not
possible to invest directly in indices.
================================================================================
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from year to year by
illustrating the Fund's calendar year total returns for its Stein Roe Midcap
Growth Fund Class S. The Fund did not have separate classes of shares prior to
August 1, 2000; on that date, the Fund's outstanding shares were reclassified
as Stein Roe Midcap Growth Fund Class S. The performance table following the
bar chart shows how the Fund's average annual total returns for Stein Roe
Midcap Growth Fund Class S compare with those of a broad measure of market
performance for 1 year and the life of the Fund. The chart and table are
intended to illustrate some of the risks of investing in the Fund by showing the
changes in the Fund's performance. All returns include the reinvestment of
dividends and distributions. Performance results include the effect of expense
reduction arrangements. If these arrangements were not in place, then the
performance results would have been lower. As with all mutual funds, past
performance does not predict the Fund's future performance.
--------------------------------------------------------------------------------
CALENDAR-YEAR TOTAL RETURNS (CLASS S)*
--------------------------------------------------------------------------------
[CHART]
1998.................... 15.24%
1999.................... 42.73%
For period shown in bar chart:
The Fund's year-to-date total return Best quarter: 4th quarter, +44.10%
through June 30, 2000 was 2.03%. Worst quarter: 3rd quarter, -18.35%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------------
SINCE
INCEPTION
(JUNE 30,
1 YEAR 1997)
Midcap Growth Fund, Class S (%) 42.73 26.57
----------------------------------------------------------------
S&P 500 Index (%) 21.03 24.26
* Because Class Z shares have not commenced operations, the bar chart and
average annual total returns are shown for Class S, the existing fund class.
----
4
<PAGE>
THE FUND
UNDERSTANDING EXPENSES
SHAREHOLDER FEES are paid directly by shareholders to the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management fees, 12b-1 fees, and administrative costs including pricing and
custody services.
EXAMPLE EXPENSES helps you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. This example reflects expenses of the Fund.
It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% return for each year
- Fund operating expenses remain the same
- Redemptions at the end of each time period
YOUR EXPENSES
--------------------------------------------------------------------------------
The table below describes the fees and expenses you may pay when you buy, hold
and sell shares of the Fund. Expenses are one of several factors to consider
before you invest in a mutual fund.
Maximum sales charge (load) on purchases
(as a percentage of the offering price) 0.00
--------------------------------------------------------------------------------
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price) 0.00
--------------------------------------------------------------------------------
Redemption fee (as a percentage of amount
redeemed, if applicable) (3)
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
--------------------------------------------------------------------------------
Management fee (%)(3) 0.90
--------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) None
--------------------------------------------------------------------------------
Other expenses (%) 0.55
--------------------------------------------------------------------------------
Total annual fund operating expenses (%) 1.45
--------------------------------------------------------------------------------
Expense reimbursement (%)(4) (0.20)
--------------------------------------------------------------------------------
Net expenses (%) 1.25
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
--------------------------------------------------------------------------------
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class Z $127 $439 $773 $1,718
(1) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
(3) Stein Roe will reimburse the Fund if its ordinary operating expenses exceed
1.25%. The expense undertaking expires on January 31, 2001. A reimbursement
lowers the expense ratio and increases overall return to investors.
----
5
<PAGE>
--------------------------------------------------------------------------------
YOUR ACCOUNT
--------------------------------------------------------------------------------
HOW TO BUY SHARES
--------------------------------------------------------------------------------
Your financial advisor can help you establish an appropriate investment
portfolio, buy shares and monitor your investments. When the Fund receives your
purchase request in "good form," your shares will be bought at the next
calculated NAV. In "good form" means that you placed your order with your
brokerage firm or your payment has been received and your application is
complete, including all necessary signatures.
SALES CHARGES
Your purchases of Class Z shares generally are at NAV, which is the value of a
Fund share excluding any sales charge, and are not subject to an initial sales
charge when you purchase or a contingent deferred sales charge when you sell
shares of the Fund. The following eligible institutional investors may purchase
Class Z shares: (i) any retirement plan with aggregate assets of at least $5
million at the time of purchase of Class Z shares and which purchases shares
directly from Liberty Funds Distributor, Inc., the Fund's distributor, or
through a third-party broker-dealer; (ii) any registered investment adviser
purchasing shares for its clients; (iii) any insurance company, trust company or
bank purchasing shares for its own account; (iv) any endowment, investment
company or foundation; and (v) any trustee of Liberty-Stein Roe Funds Investment
Trust, any employee of Stein Roe & Farnham Incorporated, or any of its
affiliates, or any member of the immediate family of any trustee or employee.
----
6
<PAGE>
YOUR ACCOUNT
--------------------------------------------------------------------------------
OUTLINED BELOW ARE VARIOUS OPTIONS FOR BUYING SHARES:
--------------------------------------------------------------------------------
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf.
--------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, SteinRoe
Services Inc., c/o Liberty Funds Services, Inc., P.O. Box
1722, Boston, MA 02105-1722.
--------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your quarterly statement, or
send a letter of instruction, including your Fund name
and account number with a check made payable to the Fund
to SteinRoe Services Inc., c/o Liberty Funds Services,
Inc., P.O. Box 1722, Boston, MA 02105-1722.
--------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares by
exchanging shares you own in one fund for shares of the
same class of the Fund at no additional cost. To exchange
by telephone, call 1-800-422-3737.
--------------------------------------------------------------------------------
By wire You may purchase shares by wiring money from your bank
account to your fund account. To wire funds to your fund
account, call 1-800-422-3737 to obtain a control number
and the wiring instructions.
--------------------------------------------------------------------------------
By electronic You may purchase shares by electronically transferring
funds transfer money from your bank account to your fund account by
calling 1-800-422-3737. Your money may take up to two
business days to be invested. You must set up this
feature prior to your telephone request. Be sure to
complete the appropriate section of the application.
--------------------------------------------------------------------------------
Automatic You can make monthly or quarterly investments
investment plan automatically from your bank account to your fund
account. You can select a pre-authorized amount to be
sent via electronic funds transfer. Be sure to complete
the appropriate section of the application for this
feature.
--------------------------------------------------------------------------------
By dividend dividend You may automatically invest dividends
distributed by one fund into the same class of shares of
another fund at no additional sales charge. To invest your
dividends in another fund, call 1-800-345-6611.
CHOOSING A SHARE CLASS The Fund offers one class of shares in this
prospectus--Class Z shares, which are available to institutional and other
investors at net asset value without a sales charge or 12b-1 fee. The Fund also
offers Classes A, B, C, and S shares through separate prospectuses.
HOW TO EXCHANGE SHARES
--------------------------------------------------------------------------------
You may exchange your shares for shares of the same share class of another fund
distributed by Liberty Funds Distributor, Inc. at the next-determined NAV.
Unless your account is part of a tax-deferred retirement plan, an exchange is a
taxable event. Therefore, you may realize a gain or a loss for tax purposes. The
Fund may terminate your exchange privilege if Stein Roe determines that your
exchange activity is likely to adversely impact its ability to manage the Fund.
To exchange by telephone, call 1-800-422-3737.
----
7
<PAGE>
YOUR ACCOUNT
HOW TO SELL SHARES
--------------------------------------------------------------------------------
Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of the Fund on any regular business day that the New
York Stock Exchange (NYSE) is open.
When the Fund receives your sales request in "good form," shares will be sold at
the next calculated price. In "good form" means that money used to purchase your
shares is fully collected. When selling shares by letter of instruction, "good
form" means (i) your letter has complete instructions, the proper signatures and
signature guarantees, (ii) you have included any certificates for shares to be
sold, and (iii) any other required documents are attached. For additional
documentation required for sales by corporations, agents, fiduciaries and
surviving joint owners, please call 1-800-345-6611. Retirement Plan accounts
have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days
(usually on the next business day after your request is received in good form).
However, if you purchased your shares by check, the Fund may delay the sale of
your shares for up to 15 days after your purchase to protect against checks that
are returned. No interest will be paid on uncashed redemption checks.
----
8
<PAGE>
YOUR ACCOUNT
--------------------------------------------------------------------------------
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
--------------------------------------------------------------------------------
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor firm must receive your request prior to
the close of the NYSE, usually 4:00 p.m. Eastern time.
--------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares by
exchanging from the Fund into the same share class of
another fund at no additional cost. To exchange by
telephone, call 1-800-422-3737.
--------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares by telephone
and request that a check be sent to your address of record
by calling 1-800-422-3737 unless you have notified the
Fund of an address change within the previous 30 days. The
dollar limit for telephone sales is $100,000 in a 30-day
period. You do not need to set up this feature in advance
of your call. Certain restrictions apply to retirement
accounts. For details, call 1-800-345-6611.
--------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or stock power
form along with any certificates to be sold to the address
below. In your letter of instruction, note your fund's
name, share class, account number, and the dollar value or
number of shares you wish to sell. All account owners must
sign the letter, and signatures must be guaranteed by
either a bank, a member firm of a national stock exchange
or another eligible guarantor institution. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account (IRA) owners. For details, call
1-800-345-6611.
Mail your letter of instruction to SteinRoe Services Inc.,
c/o Liberty Funds Services, Inc., P.O. Box 1722, Boston,
MA 02105-1722.
--------------------------------------------------------------------------------
By wire You may sell shares and request that the proceeds be wired
to your bank. You must set up this feature prior to your
telephone request. Be sure to complete the appropriate
section
of the account application for this feature.
--------------------------------------------------------------------------------
By electronic You may sell shares and request that the proceeds be
funds transfer electronically transferred to your bank. Proceeds may
take up to two business days to be received by your bank.
You must set up this feature prior to your request. Be
sure to complete the appropriate section of the account
application for this feature.
OTHER INFORMATION ABOUT YOUR ACCOUNT
--------------------------------------------------------------------------------
HOW THE FUND'S SHARE PRICE IS DETERMINED The price of the Fund's shares is based
on its NAV. The NAV is determined at the close of regular session trading on the
NYSE, usually 4:00 p.m. Eastern time on each business day that the NYSE is open
(typically Monday through Friday).
When you request a transaction, it will be processed at the NAV next determined
after your request is received in good form by the Distributor. In most cases,
in order to receive that day's price, the Distributor must receive your order
before that day's transactions are processed. If you request a transaction
through your financial advisor's firm, the firm must receive your order by the
close of trading on the NYSE to receive that day's price.
----
9
<PAGE>
YOUR ACCOUNT
To calculate NAV on a given day, we value each stock listed or traded on a stock
exchange at its latest sale price on that day. If there are no sales that day,
we value the security at the most recently quoted bid price. We value each
over-the-counter security or National Association of Securities Dealers
Automated Quotation (Nasdaq) security as of the last sale price for that day. We
value all other over-the-counter securities that have reliable quotes at the
latest quoted bid price.
We value long-term debt obligations and securities convertible into common stock
at fair value. Pricing services provide the Fund with the value of the
securities. When the price of a security is not available, including days when
we determine that the sale or bid price of the security does not reflect that
security's market value, we value the security at a fair value determined in
good faith under procedures established by the Board of Trustees.
We value a security at fair value when events have occurred after the last
available market price and before the close of the NYSE that materially affect
the security's price. 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.
The Fund's 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.
You can find the daily prices of some share classes for the Fund in most major
daily newspapers. You can find daily prices for all share classes by visiting
the Fund's web site at www.libertyfunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of
depreciation in share value), you may be subject to an annual account fee of
$10. This fee is deducted from the account in June each year. Approximately 60
days prior to the fee date, the Fund's transfer agent will send you written
notification of the upcoming fee. If you add money to your account and bring the
value above $1,000 prior to the fee date, the fee will not be deducted.
DIVIDENDS, DISTRIBUTIONS, AND TAXES The Fund has the potential to make the
following distributions:
----
10
<PAGE>
YOUR ACCOUNT
UNDERSTANDING FUND DISTRIBUTIONS
The Fund earns income from the securities it holds. The Fund also may experience
capital gains and losses on sales of the its securities. The Fund distributes
substantially all of its net investment income and capital gains to
shareholders. As a shareholder, you are entitled to a portion of the Fund's
income and capital gains based on the number of shares you own at the time these
distributions are declared.
--------------------------------------------------------------------------------
TYPES OF DISTRIBUTIONS
--------------------------------------------------------------------------------
Dividend income Represents interest and dividends earned from securities
held by the Fund
--------------------------------------------------------------------------------
Capital gains Represents long-term capital gains on sales of
securities held for more than 12 months and
short-term capital gains, which are gains on sales
of securities held by the Fund for a 12-month period
or less.
--------------------------------------------------------------------------------
DISTRIBUTION OPTIONS Income dividends are declared and paid quarterly. Any
capital gains are distributed at least annually. You can choose one of the
options listed in the table below for these distributions when you open your
account.(1) To change your distribution option call 1-800-345-6611.
--------------------------------------------------------------------------------
DISTRIBUTION OPTIONS
--------------------------------------------------------------------------------
Reinvest all distributions in additional shares of your current fund
--------------------------------------------------------------------------------
Reinvest all distributions in shares of another fund
--------------------------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest capital gains(2)
--------------------------------------------------------------------------------
Receive all distributions in cash (with one of the following options) (2):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds transfer
TAX CONSEQUENCES Regardless of whether you receive your distributions in cash or
reinvest them in additional Fund shares, all Fund distributions are subject to
federal income tax. Depending on the state where you live, distributions may
also be subject to state and local income taxes.
In general, any distributions of dividends, interest, and short-term capital
gains distributions are taxable as ordinary income. Distributions of long-term
capital gains are generally taxable as such, regardless of how long you have
held your Fund shares. You will be provided with information each year regarding
the ordinary income and capital gains distributed to you for the previous year
and any portion of your distribution which is exempt from state and local taxes.
Your investment in the Fund may have additional personal tax implications.
Please consult your tax advisor on federal, state, local or other applicable tax
laws.
In addition to the dividends and capital gains distributions made by the Fund,
you may realize a capital gain or loss when selling and exchanging shares of the
Fund. Such transactions may be subject to federal, state, local, and foreign
income tax.
(1) If you do not indicate on your application your preference for handling
distributions, the Fund will automatically reinvest all distributions in
additional shares of the Fund.
(2) Distributions of $10 or less will automatically be reinvested in additional
Fund shares. If you elect to receive distributions by check and the check
is returned as undeliverable, or if you do not cash a distribution check
within six months of the check date, the distribution will be reinvested in
additional shares of the Fund.
----
11
<PAGE>
--------------------------------------------------------------------------------
MANAGING THE FUND
--------------------------------------------------------------------------------
INVESTMENT ADVISOR
--------------------------------------------------------------------------------
Stein Roe & Farnham Incorporated (Stein Roe), located at One South Wacker Drive,
Suite 3500, Chicago, Illinois 60606, is the Fund's investment advisor. In its
duties as investment advisor, Stein Roe runs the Fund's day-to-day business,
including placing all orders for the purchase and sale of portfolio securities
for the Fund. Stein Roe has been an investment advisor since 1932. As of
September 30, 1999, Stein Roe managed over $29.7 billion in assets.
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 Fund. 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.
For the fiscal year ended September 30, 1999, the Fund paid 0.90% of average net
assets in fees to Stein Roe.
Stein Roe may use the services of AlphaTrade, Inc., an affiliated broker-dealer,
when buying or selling equity securities for the Fund, pursuant to procedures
adopted by the Board of Trustees.
PORTFOLIO MANAGER
--------------------------------------------------------------------------------
Steve D. Hayward joined Stein Roe as a portfolio manager in November 1999. He
served as vice president, investments for M & I Investment Management from 1993
to 1999, where he managed the Marshall Mid-Cap Fund and Marshall Small-Cap
Growth Fund. Mr. Hayward earned a B.A. degree from North Park College and a
M.B.A. degree in finance from Loyola University. He has managed the Fund since
November 1999.
----
12
<PAGE>
--------------------------------------------------------------------------------
OTHER INVESTMENT STRATEGIES AND RISKS
--------------------------------------------------------------------------------
The first portion of this prospectus describes the Fund's principal investment
strategy and principal investment risks. In seeking to meet its investment
goals, the Fund also may invest in other securities and use other investment
techniques. The Fund may elect not to buy any of these other securities or use
any of these other investment techniques. The 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 contains additional
information about the 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 the Fund or could cause the Fund's
total return to decrease. The Statement of Additional Information also contains
the Fund's fundamental and non-fundamental investment policies.
The Board of Trustees can change the Fund's investment objective without
shareholder approval.
FUTURES
--------------------------------------------------------------------------------
The Fund uses futures to gain exposure to groups of stocks or individual
issuers. 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. The Fund uses futures to invest cash pending direct
investments in stocks and to enhance its return. These investments are efficient
since they typically cost less than direct investments in the underlying
securities. However, the Fund can lose money if the portfolio manager does not
correctly anticipate the market movements of those underlying securities.
PORTFOLIO TURNOVER
--------------------------------------------------------------------------------
There are no limits on turnover. Turnover may vary significantly from year to
year. Stein Roe does not expect it to exceed 100% under normal conditions. The
Fund generally intends to purchase securities for long-term investment although,
to a limited extent, it may purchase securities 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 the Fund's return.
TEMPORARY DEFENSIVE POSITIONS
--------------------------------------------------------------------------------
When Stein Roe believes that a temporary defensive position is necessary, the
Fund may invest, without limit, in high-quality debt securities or hold assets
in cash and cash equivalents. Stein Roe is not required to take a temporary
defensive position, and market conditions may prevent such an action. The Fund
may not achieve its investment objective if it takes a temporary defensive
position.
----
13
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
INTERFUND LENDING PROGRAM
--------------------------------------------------------------------------------
The Fund 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.
----
14
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights tables is intended to help you understand the financial
performance of the Fund (formerly named Stein Roe Midcap Growth Fund).
Information is shown for the Fund's last three fiscal periods. The fiscal year
runs from October 1 to September 30. Certain information reflects financial
results for a single Fund share. The total returns in the table represent the
rate that you would have earned (or lost) on an investment in the Fund (assuming
reinvestment of all dividends and distributions). The information for 1999 has
been audited by PricewaterhouseCoopers LLP, independent accountants, whose
report, along with the Fund's financial statements, is included in the annual
report. Arthur Andersen LLP audited the Fund's financial statements for the
years 1997 and 1998. You can request a free annual report by calling
1-800-426-3750.
--------------------------------------------------------------------------------
THE FUND (a)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended Period ended
September 30, September 30,
1999 1998 1997
Class S Class S Class S
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.41 $ 10.77 $ 10.00
-------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (h) (1.10) (0.07) --
-------------------------------------------------------------------------------------------
Net gains(losses) on securities
(both realized and unrealized) 2.20 (0.29) 0.77
-------------------------------------------------------------------------------------------
TOTAL INCOME FROM INVESTMENT OPERATIONS 4.32 0.79 5.45
-------------------------------------------------------------------------------------------
Net asset value ,end of period $ 12.51 $ 10.41 $ 10.77
-------------------------------------------------------------------------------------------
Total return (f) 20.17% (3.34%) 7.70%(g)
-------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000 omitted) $44,359 $49,974 $49,830
-------------------------------------------------------------------------------------------
Ratio of net expenses to average net assets (c) 1.25% 1.25% 1.25%(e)
-------------------------------------------------------------------------------------------
Ratio of net investment income(loss) to
average net assets (f) (0.97%)(d) (0.64%) (0.02%)(e)
-------------------------------------------------------------------------------------------
Portfolio turnover rate 133% 75% 3%(g)
-------------------------------------------------------------------------------------------
</TABLE>
(a) The name of the Fund was changed on May 6, 1999 from Stein Roe Growth
Opportunities Fund to Stein Roe Midcap Growth Fund.
(b) From commencement of operations on June 30, 1997.
(c) If the Fund paid all of its expenses and there had been no reimbursement by
Stein Roe, this ratio would have been 1.54% for the year ended September
30, 1999, 1.44% for the year ended September 30, 1998, and 1.74% for the
period ended September 30, 1997.
(d) During the year ended September 30, 1999, the Fund experienced a one-time
reduction in its expenses of 0.11% as a result of expenses accrued in a
prior period. The Fund's gross expense ratio and net investment income
ratio disclosed above reflects the actual rate at which expenses were
incurred throughout the current fiscal year without the reduction.
(e) Annualized.
(f) Computed giving effect to Stein Roe's expense limitation undertaking.
(g) Not annualized.
(h) Per share data was calculated using average shares outstanding during the
period.
----
15
<PAGE>
--------------------------------------------------------------------------------
NOTES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
----
16
<PAGE>
NOTES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
----
17
<PAGE>
NOTES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
----
18
<PAGE>
NOTES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
----
19
<PAGE>
FOR MORE INFORMATION
--------------------------------------------------------------------------------
You can get more information about the Fund's investments in the Fund's
semi-annual and annual reports to shareholders. The annual report contains a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance over its last fiscal year.
You may wish to read the Statement of Additional Information for more
information on the Fund and the securities in which it invests. The Statement of
Additional Information is incorporated into this prospectus by reference, which
means that it is considered to be part of this prospectus.
You can get free copies of reports and the Statement of Additional Information,
request other information and discuss your questions about the Fund by writing
or calling the Fund's distributor at:
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.libertyfunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from
the SEC at www.sec.gov.
You can review and copy information about the Fund by visiting the following
location and you can obtain copies, upon payment of a duplicating fee, by
writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
INVESTMENT COMPANY ACT FILE NUMBER:
Liberty-Stein Roe Funds Investment Trust: 811-4978
- Liberty Midcap Growth Fund
- (formerly, Stein Roe Midcap Growth Fund)
--------------------------------------------------------------------------------
[LIBERTY FUNDS LOGO]
ALL-STAR - COLONIAL - CRABBE HUSON - NEWPORT - STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (c)1999
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
www.libertyfunds.com
<PAGE>
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This communication shall not
constitute an offer to sell or the solicitation of an offer to buy or shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
Statement of Additional Information Dated August 1, 2000
LIBERTY-STEIN ROE FUNDS INVESTMENT TRUST
One Financial Center, Boston, MA 02111
800-338-2550
Liberty Midcap Growth Fund
Class A, B, C, and Z Shares
This Statement of Additional Information ("SAI") is not a prospectus,
but provides additional information that should be read in conjunction with the
Fund's Class A, B and C prospectus and the Class Z prospectus both dated August
1, 2000, and any supplements thereto ("Prospectuses"). Financial statements,
which are contained in the Fund's September 30, 1999, Annual Report and March
31, 2000, Semi-annual Report, are incorporated by reference into this SAI. The
Prospectuses, Annual Report and Semi-annual Report may be obtained at no charge
by telephoning 800-338-2550.
TABLE OF CONTENTS
Page
General Information and History............................................2
Investment Policies........................................................3
Portfolio Investments and Strategies.......................................4
Investment Restrictions...................................................21
Additional Investment Considerations......................................23
Management................................................................24
Financial Statements......................................................29
Principal Shareholders....................................................29
Investment Advisory and Other Services....................................29
Distributor...............................................................31
Transfer Agent............................................................33
Purchases and Redemptions.................................................33
Custodian.................................................................44
Independent Accountants...................................................45
Portfolio Transactions....................................................45
Additional Income Tax Considerations......................................50
Investment Performance....................................................51
Appendix--Ratings.........................................................55
<PAGE>
GENERAL INFORMATION AND HISTORY
.........Liberty Midcap Growth Fund (the "Fund") is a series of Liberty-Stein
Roe Funds Investment Trust (the "Trust"). On February 1, 1996, the name of the
Trust was changed to separate "SteinRoe" into two words. The name of the Trust
was changed from "Stein Roe Investment Trust" to "Liberty-Stein Roe Funds
Investment Trust" on October 18, 1999.
.........Prior to July 14, 2000, the Fund was named "Stein Roe Midcap Growth
Fund". Prior to May 6, 1999, the Fund was named "Stein Roe Growth Opportunities
Fund". The Fund commenced operations on June 30, 1997.
.........The Fund offers five classes of shares--Classes A, B, C, Z, and Stein
Roe Midcap Growth Fund Class S. Prior to August 1, 2000, the Fund had a single
class of shares. On July 14, 2000, the outstanding shares of the Fund were
converted into Stein Roe Midcap Growth Fund Class S, and on August 1, 2000, the
Fund commenced offering Classes A, B, C and Z. This SAI describes Classes A, B,
C and Z of the Fund. A separate SAI relates to Stein Roe Midcap Growth Fund
Class S.
.........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, 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 (or class
thereof) 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.
.........Stein Roe & Farnham Incorporated ("Stein Roe") provides administrative
and accounting and recordkeeping services to the Fund.
INVESTMENT POLICIES
.........The Trust is an open-end management investment company. The Fund is
diversified, as that term is defined in the Investment Company Act of 1940.
.........The investment objectives and policies are described in the Prospectus
under The Fund. In pursuing its objective, the Fund may also employ the
investment techniques described under Portfolio Investments and Strategies in
this SAI. The investment objective is a nonfundamental policy and may be changed
by the Board of Trustees without the approval of a "majority of the outstanding
voting securities."1
<PAGE>
PORTFOLIO INVESTMENTS AND STRATEGIES
Debt Securities
.........In pursuing its investment objective, the 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
Fund's portfolio as well as on market conditions. A decline in the prevailing
levels of interest rates generally increases the value of debt securities, while
an increase in rates usually reduces the value of those securities.
.........The Fund may invest up to 35% of its net assets in debt securities, but
does not expect to invest more than 5% of its net assets in debt securities that
are rated below investment grade.
.........Securities in the fourth highest grade may possess speculative
characteristics, and changes in economic conditions are more likely to affect
the issuer's capacity to pay interest and repay principal. If the rating of a
security held by the Fund is lost or reduced below investment grade, the Fund is
not required to dispose of the security, but Stein Roe will consider that fact
in determining whether that Fund should continue to hold the security.
.........Securities that are rated below investment grade are considered
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal according to the terms of the obligation and therefore carry
greater investment risk, including the possibility of issuer default and
bankruptcy.
.........When Stein Roe determines that adverse market or economic conditions
exist and considers a temporary defensive position advisable, the Fund may
invest without limitation in high-quality fixed income securities or hold assets
in cash or cash equivalents.
Derivatives
.........Consistent with its objective, the Fund may invest in a broad array of
financial instruments and securities, including conventional exchange-traded and
non-exchange-traded options; futures contracts; futures options; securities
collateralized by underlying pools of mortgages or other receivables; floating
rate instruments; and other instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument or security is
"derived" from the performance of an underlying asset or a "benchmark" such as a
security index, an interest rate, or a currency.
.........Derivatives are most often used to manage investment risk or to create
an investment position indirectly because using them is more efficient or less
costly than direct investment that cannot be readily established directly due to
portfolio size, cash availability, or other factors. They also may be used in an
effort to enhance portfolio returns.
.........The successful use of Derivatives depends on Stein Roe's ability to
correctly predict changes in the levels and directions of movements in security
prices, interest rates and other market factors affecting the Derivative itself
or the value of the underlying asset or benchmark. In addition, correlations in
the performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter Derivatives may
not be as well regulated and may be less marketable than exchange-traded
Derivatives.
.........The Fund currently does not intend to invest more than 5% of its net
assets in any type of Derivative except for options, futures contracts, and
futures options. (See Options and Futures below.)
.........Some mortgage-backed debt securities are of the "modified pass-through
type," which means the interest and principal payments on mortgages in the pool
are "passed through" to investors. During periods of declining interest rates,
there is increased likelihood that mortgages will be prepaid, with a resulting
loss of the full-term benefit of any premium paid by the Fund on purchase of
such securities; in addition, the proceeds of prepayment would likely be
invested at lower interest rates.
.........Mortgage-backed securities provide either a pro rata interest in
underlying mortgages or an interest in collateralized mortgage obligations
("CMOs") that represent a right to interest and/or principal payments from an
underlying mortgage pool. CMOs are not guaranteed by either the U.S. Government
or by its agencies or instrumentalities, and are usually issued in multiple
classes each of which has different payment rights, prepayment risks, and yield
characteristics. Mortgage-backed securities involve the risk of prepayment on
the underlying mortgages at a faster or slower rate than the established
schedule. Prepayments generally increase with falling interest rates and
decrease with rising rates but they also are influenced by economic, social, and
market factors. If mortgages are prepaid during periods of declining interest
rates, there would be a resulting loss of the full-term benefit of any premium
paid by the Fund on purchase of the CMO, and the proceeds of prepayment would
likely be invested at lower interest rates.
.........Non-mortgage asset-backed securities usually have less prepayment risk
than mortgage-backed securities, but have the risk that the collateral will not
be available to support payments on the underlying loans that finance payments
on the securities themselves.
.........Floating rate instruments provide for periodic adjustments in coupon
interest rates that are automatically reset based on changes in amount and
direction of specified market interest rates. In addition, the adjusted duration
of some of these instruments may be materially shorter than their stated
maturities. To the extent such instruments are subject to lifetime or periodic
interest rate caps or floors, such instruments may experience greater price
volatility than debt instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and refers to the
approximate percentage change in price for a 100 basis point change in yield.
For example, if interest rates decrease by 100 basis points, a market price of a
security with an adjusted duration of 2 would increase by approximately 2%.
Convertible Securities
.........By investing in convertible securities, the Fund obtains the right to
benefit from the capital appreciation potential in the underlying stock upon
exercise of the conversion right, while earning higher current income than would
be available if the stock were purchased directly. In determining whether to
purchase a convertible, Stein Roe will consider substantially the same criteria
that would be considered in purchasing the underlying stock. While convertible
securities purchased by the Fund are frequently rated investment grade, the Fund
may purchase unrated securities or securities rated below investment grade if
the securities meet Stein Roe's other investment criteria. Convertible
securities rated below investment grade (a) tend to be more sensitive to
interest rate and economic changes, (b) may be obligations of issuers who are
less creditworthy than issuers of higher quality convertible securities, and (c)
may be more thinly traded due to such securities being less well known to
investors than investment grade convertible securities, common stock or
conventional debt securities. As a result, Stein Roe's own investment research
and analysis tend to be more important in the purchase of such securities than
other factors.
Foreign Securities
.........The Fund may invest up to 25% of its total assets in foreign
securities, which may entail a greater degree of risk (including risks relating
to exchange rate fluctuations, tax provisions, or expropriation of assets) than
investment in securities of domestic issuers. For this purpose, foreign
securities do not include American Depositary Receipts (ADRs) or securities
guaranteed by a United States person. ADRs are receipts typically issued by an
American bank or trust company evidencing ownership of the underlying
securities. The 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
does not intend to invest, nor during the past fiscal year has the Fund
invested, more than 5% of its net assets in unsponsored ADRs.
.........As of September 30, 1999, holdings of foreign companies, as a
percentage of net assets, were as follows: 2.2% (none in foreign securities and
2.2% in ADRs).
.........With respect to portfolio securities that are issued by foreign issuers
or denominated in foreign currencies, the Fund's investment performance is
affected by the strength or weakness of the U.S. dollar against these
currencies. For example, if the dollar falls in value relative to the Japanese
yen, the dollar value of a yen-denominated stock held in the portfolio will rise
even though the price of the stock remains unchanged. Conversely, if the dollar
rises in value relative to the yen, the dollar value of the yen-denominated
stock will fall. (See discussion of transaction hedging and portfolio hedging
under Currency Exchange Transactions.)
.........Investors should understand and consider carefully the risks involved
in foreign investing. Investing in foreign securities, positions which are
generally denominated in foreign currencies, and utilization of forward foreign
currency exchange contracts involve certain considerations comprising both risks
and opportunities not typically associated with investing in U.S. securities.
These considerations include: fluctuations in exchange rates of foreign
currencies; possible imposition of exchange control regulation or currency
restrictions that would prevent cash from being brought back to the United
States; less public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers, and issuers of
securities; lack of uniform accounting, auditing, and financial reporting
standards; lack of uniform settlement periods and trading practices; less
liquidity and frequently greater price volatility in foreign markets than in the
United States; possible imposition of foreign taxes; possible investment in
securities of companies in developing as well as developed countries; and
sometimes less advantageous legal, operational, and financial protections
applicable to foreign sub-custodial arrangements. These risks are greater for
emerging markets.
.........Although the Fund will try to invest in companies and governments of
countries having stable political environments, there is the possibility of
expropriation or confiscatory taxation, seizure or nationalization of foreign
bank deposits or other assets, establishment of exchange controls, the adoption
of foreign government restrictions, or other adverse political, social or
diplomatic developments that could affect investment in these nations.
.........Currency Exchange Transactions. Currency exchange transactions may be
conducted either on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market or through forward
currency exchange contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at a specified
future date (or within a specified time period) and price set at the time of the
contract. Forward contracts are usually entered into with banks and
broker-dealers, are not exchange traded, and are usually for less than one year,
but may be renewed.
.........The Fund's foreign currency exchange transactions are limited to
transaction and portfolio hedging involving either specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of forward
contracts with respect to specific receivables or payables of the Fund arising
in connection with the purchase and sale of its portfolio securities. Portfolio
hedging is the use of forward contracts with respect to portfolio security
positions denominated or quoted in a particular foreign currency. Portfolio
hedging allows the Fund to limit or reduce its exposure in a foreign currency by
entering into a forward contract to sell such foreign currency (or another
foreign currency that acts as a proxy for that currency) at a future date for a
price payable in U.S. dollars so that the value of the foreign-denominated
portfolio securities can be approximately matched by a foreign-denominated
liability. The 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 Fund may
hedge all or part of its foreign currency exposure through the use of a basket
of currencies or a proxy currency where such currencies or currency act as an
effective proxy for other currencies. In such a case, 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 in the Fund. The Fund may not
engage in "speculative" currency exchange transactions.
.........At the maturity of a forward contract to deliver a particular currency,
the 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 the 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 the 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 the 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.
Structured Notes
.........Structured Notes are Derivatives on which the amount of principal
repayment and or interest payments is based upon the movement of one or more
factors. These factors include, but are not limited to, currency exchange rates,
interest rates (such as the prime lending rate and the London Interbank Offered
rate ("LIBOR")), stock indices such as the S&P 500 Index and the price
fluctuations of a particular security. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. The use of Structured Notes allows the Fund to tailor
its investments to the specific risks and returns Stein Roe wishes to accept
while avoiding or reducing certain other risks.
Swaps, Caps, Floors and Collars
.........The Fund may enter into swaps and may purchase or sell related caps,
floors and collars. The Fund would enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a duration management
technique or to protect against any increase in the price of securities it
purchases at a later date. The Fund intends to use these techniques as hedges
and not as speculative investments and will not sell interest rate income stream
the Fund may be obligated to pay.
.........A swap agreement is generally individually negotiated and structured to
include exposure to a variety of different types of investments or market
factors. Depending on its structure, a swap agreement may increase or decrease
the Fund's exposure to changes in the value of an index of securities in which
the Fund might invest, the value of a particular security or group of
securities, or foreign currency values. Swap agreements can take many different
forms and are known by a variety of names. The Fund may enter into any form of
swap agreement if Stein Roe determines it is consistent with its investment
objective and policies.
.........A swap agreement tends to shift the Fund's investment exposure from one
type of investment to another. For example, if the Fund agrees to exchange
payments in dollars at a fixed rate for payments in a foreign currency the
amount of which is determined by movements of a foreign securities index, the
swap agreement would tend to increase exposure to foreign stock market movements
and foreign currencies. Depending on how it is used, a swap agreement may
increase or decrease the overall volatility of the Fund's investments and its
net asset value.
.........The performance of a swap agreement is determined by the change in the
specific currency, market index, security, or other factors that determine the
amounts of payments due to and from the Fund. If a swap agreement calls for
payments by the Fund, the Fund must be prepared to make such payments when due.
If the counterparty's creditworthiness declines, the value of a swap agreement
would be likely to decline, potentially resulting in a loss. The Fund will not
enter into any swap, cap, floor or collar transaction unless, at the time of
entering into such transaction, the unsecured long-term debt of the
counterparty, combined with any credit enhancements, is rated at least A by
Standard & Poor's or Moody's Investors Service, Inc. or has an equivalent rating
from a nationally recognized statistical rating organization or is determined to
be of equivalent credit quality by Stein Roe.
.........The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling the cap to the extent that a
specified index exceeds a predetermined interest rate or amount. The purchase of
a floor entitles the purchaser to receive payments on a notional principal
amount from the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a combination
of a cap and floor that preserves a certain return within a predetermined range
of interest rates or values.
.........At the time the Fund enters into swap arrangements or purchases or
sells caps, floors or collars, liquid assets of the Fund having a value at least
as great as the commitment underlying the obligations will be segregated on the
books of the Fund and held by the custodian throughout the period of the
obligation.
Lending of Portfolio Securities
.........Subject to restriction (5) under Investment Restrictions in this SAI,
the Fund may lend its portfolio securities to broker-dealers and banks. Any such
loan must be continuously secured by collateral in cash or cash equivalents
maintained on a current basis in an amount at least equal to the market value of
the securities loaned by the Fund. The Fund would continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned, and would also receive an additional return that may be in the form of a
fixed fee or a percentage of the collateral. The Fund would have the right to
call the loan and obtain the securities loaned at any time on notice of not more
than five business days. The Fund would not have the right to vote the
securities during the existence of the loan but would call the loan to permit
voting of the securities if, in Stein Roe's judgment, a material event requiring
a shareholder vote would otherwise occur before the loan was repaid. In the
event of bankruptcy or other default of the borrower, the Fund could experience
both delays in liquidating the loan collateral or recovering the loaned
securities and losses, including (a) possible decline in the value of the
collateral or in the value of the securities loaned during the period while the
Fund seeks to enforce its rights thereto, (b) possible subnormal levels of
income and lack of access to income during this period, and (c) expenses of
enforcing its rights. The Fund did not loan portfolio securities during the
fiscal year ended September 30, 1999 nor does it currently intend to loan more
than 5% of its net assets.
Repurchase Agreements
.........The Fund may invest in repurchase agreements, provided that it will not
invest more than 15% of net assets in repurchase agreements maturing in more
than seven days and any other illiquid securities. A repurchase agreement is a
sale of securities to the Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of bankruptcy of the
seller, the Fund could experience both losses and delays in liquidating its
collateral.
When-Issued and Delayed-Delivery Securities; Reverse Repurchase Agreements
.........The Fund may purchase securities on a when-issued or delayed-delivery
basis. Although the payment and interest terms of these securities are
established at the time the 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 Fund makes such commitments only with the intention
of actually acquiring the securities, but may sell the securities before
settlement date if Stein Roe deems it advisable for investment reasons. During
fiscal 1999, the Fund did not have commitments to purchase when-issued
securities in excess of 5% of its net assets, nor does it currently intend to do
so.
.........The Fund may enter into reverse repurchase agreements with banks and
securities dealers. A reverse repurchase agreement is a repurchase agreement in
which the 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. The
Fund did not enter into reverse repurchase agreements during the fiscal year
ended September 30, 1999.
.........At the time the 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"
.........The 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. The 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, the 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 the 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 Fund is able to enter into short sales. There is no limitation on the amount
of the 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. The Fund does
not currently expect that more than 5% of total assets would be involved in
short sales against the box.
Rule 144A Securities
.........The Fund may purchase securities that have been privately placed but
that are eligible for purchase and sale under Rule 144A under the Securities Act
of 1933. That Rule permits certain qualified institutional buyers, such as the
Fund, to trade in privately placed securities that have not been registered for
sale under the 1933 Act. Stein Roe, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the restriction of investing no more than 15% of
its net assets in illiquid securities. A determination of whether a Rule 144A
security is liquid or not is a question of fact. In making this determination,
Stein Roe will consider the trading markets for the specific security, taking
into account the unregistered nature of a Rule 144A security. In addition, Stein
Roe could consider the (1) frequency of trades and quotes, (2) number of dealers
and potential purchasers, (3) dealer undertakings to make a market, and (4)
nature of the security and of marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer). The liquidity of Rule 144A securities would be monitored and if, as a
result of changed conditions, it is determined that a Rule 144A security is no
longer liquid, the Fund's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that the Fund does not
invest more than 15% of its assets in illiquid securities. Investing in Rule
144A securities could have the effect of increasing the amount of the Fund's
assets invested in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities. The Fund does not expect to invest as
much as 5% of its total assets in Rule 144A securities that have not been deemed
to be liquid by Stein Roe.
Line of Credit
.........Subject to restriction (6) under Investment Restrictions in this SAI,
the 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 Fund may lend money to and borrow money from other mutual funds
advised by Stein Roe. The Fund will borrow through the program when borrowing is
necessary and appropriate and the costs are equal to or lower than the costs of
bank loans. Portfolio Turnover
.........Although the Fund does not purchase securities with a view to rapid
turnover, there are no limitations on the length of time that portfolio
securities must be held. Portfolio turnover can occur for a number of reasons
such as general conditions in the securities markets, more favorable investment
opportunities in other securities, or other factors relating to the desirability
of holding or changing a portfolio investment. Because of the Fund's flexibility
of investment and emphasis on growth of capital, they may have greater portfolio
turnover than that of mutual funds that have primary objectives of income or
maintenance of a balanced investment position. The future turnover rate may vary
greatly from year to year. A high rate of portfolio turnover in the Fund, if it
should occur, would result in increased transaction expenses, which must be
borne by the Fund. High portfolio turnover may also result in the realization of
capital gains or losses and, to the extent net short-term capital gains are
realized, any distributions resulting from such gains will be considered
ordinary income for federal income tax purposes.
Options on Securities and Indexes
.........The Fund may purchase and sell put options and call options on
securities, indexes or foreign currencies in standardized contracts traded on
recognized securities exchanges, boards of trade, or similar entities, or quoted
on Nasdaq. The Fund may purchase agreements, sometimes called cash puts, that
may accompany the purchase of a new issue of bonds from a dealer.
.........An option on a security (or index) is a contract that gives the
purchaser (holder) of the option, in return for a premium, the right to buy from
(call) or sell to (put) the seller (writer) of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option (normally not exceeding nine
months). The writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver the
underlying security or foreign currency upon payment of the exercise price or to
pay the exercise price upon delivery of the underlying security or foreign
currency. Upon exercise, the writer of an option on an index is obligated to pay
the difference between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An index is
designed to reflect specified facets of a particular financial or securities
market, a specific group of financial instruments or securities, or certain
economic indicators.)
.........The Fund will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the option
is "covered" if the Fund owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio.
.........If an option written by the 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 the 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 the Fund desires.
.........The 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 the Fund is an asset of the Fund,
valued initially at the premium paid for the option. The premium received for an
option written by the 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 the Fund
seeks to close out an option position. If the 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 the 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, the 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 the
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 Fund may use interest rate futures contracts, index futures
contracts, and foreign currency futures contracts. An interest rate, index or
foreign currency futures contract provides for the future sale by one party and
purchase by another party of a specified quantity of a financial instrument or
the cash value of an 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 Fund may purchase and write call and put futures options. Futures
options possess many of the same characteristics as options on securities,
indexes and foreign currencies (discussed above). A futures option gives the
holder the right, in return for the premium paid, to assume a long position
(call) or short position (put) in a futures contract at a specified exercise
price at any time during the period of the option. Upon exercise of a call
option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option, the
opposite is true. The Fund might, for example, use futures contracts to hedge
against or gain exposure to fluctuations in the general level of stock prices,
anticipated changes in interest rates or currency fluctuations that might
adversely affect either the value of the Fund's securities or the price of the
securities that the Fund intends to purchase. Although other techniques could be
used to reduce or increase that Fund's exposure to stock price, interest rate
and currency fluctuations, the Fund may be able to achieve its exposure more
effectively and perhaps at a lower cost by using futures contracts and futures
options.
.........The Fund will only enter into futures contracts and futures options
that are standardized and traded on an exchange, board of trade, or similar
entity, or quoted on an automated quotation system.
.........The success of any futures transaction depends on accurate predictions
of changes in the level and direction of stock prices, interest rates, currency
exchange rates and other factors. Should those predictions be incorrect, the
return might have been better had the transaction not been attempted; however,
in the absence of the ability to use futures contracts, Stein Roe might have
taken portfolio actions in anticipation of the same market movements with
similar investment results but, presumably, at greater transaction costs.
.........When a purchase or sale of a futures contract is made by the 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 the 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 the 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 Fund will mark-to-market its open futures positions.
.........The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
.........Although some futures contracts call for making or taking delivery of
the underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund realizes a
capital loss. Conversely, if an offsetting sale price is more than the original
purchase price, the Fund engaging in the transaction realizes a capital gain, or
if it is less, the Fund realizes a capital loss. The transaction costs must also
be included in these calculations.
Risks Associated with Futures
.........There are several risks associated with the use of futures contracts
and futures options. A purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract. In trying to
increase or reduce market exposure, there can be no guarantee that there will be
a correlation between price movements in the futures contract and in the
portfolio exposure sought. In addition, there are significant differences
between the securities and futures markets that could result in an imperfect
correlation between the markets, causing a given transaction not to achieve its
objectives. The degree of imperfection of correlation depends on circumstances
such as: variations in speculative market demand for futures, futures options
and the related securities, including technical influences in futures and
futures options trading and differences between the securities market and the
securities underlying the standard contracts available for trading. For example,
in the case of index futures contracts, the composition of the index, including
the issuers and the weighting of each issue, may differ from the composition of
the Fund's portfolio, and, in the case of interest rate futures contracts, the
interest rate levels, maturities, and creditworthiness of the issues underlying
the futures contract may differ from the financial instruments held in the
Fund's portfolio. A decision as to whether, when and how to use futures
contracts involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected stock price or interest rate trends.
.........Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. Stock index futures contracts are not normally subject to
such daily price change limitations.
.........There can be no assurance that a liquid market will exist at a time
when the 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 Fund may also use
those investment vehicles, provided the Board of Trustees determines that their
use is consistent with the Fund's investment objective.
.........The 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, the Fund must maintain with its custodian (or broker, if legally
permitted) cash or cash equivalents (including any margin) equal to the market
value of such contract. When writing a call option on a futures contract, the
Fund similarly will maintain with its custodian cash or cash equivalents
(including any margin) equal to the amount by which such option is in-the-money
until the option expires or is closed out by the Fund.
.........The Fund may not maintain open short positions in futures contracts,
call options written on futures contracts or call options written on indexes if,
in the aggregate, the market value of all such open positions exceeds the
current value of the securities in its portfolio, plus or minus unrealized gains
and losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the positions. For this
purpose, to the extent the Fund has written call options on specific securities
in its portfolio, the value of those securities will be deducted from the
current market value of the securities portfolio.
.........In order to comply with Commodity Futures Trading Commission Regulation
4.5 and thereby avoid being deemed a "commodity pool operator," the 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 the 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 the 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 the 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 the 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 the Fund delivers securities under a futures contract, the
Fund also realizes a capital gain or loss on those securities.
.........For federal income tax purposes, the 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 the 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 the Fund were to enter into a short index future, short index
futures option or short index option position and the Fund's portfolio were
deemed to "mimic" the performance of the index underlying such contract, the
option or futures contract position and the Fund's stock positions would be
deemed to be positions in a mixed straddle, subject to the above-mentioned loss
deferral rules.
.........In order for the 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 Fund distributes to shareholders annually any net capital gains
that have been recognized for federal income tax purposes (including year-end
mark-to-market gains) on options and futures transactions. Such distributions
are combined with distributions of capital gains realized on the Fund's other
investments, and shareholders are advised of the nature of the payments.
.........The Taxpayer Relief Act of 1997 (the "Act") imposed constructive sale
treatment for federal income tax purposes on certain hedging strategies with
respect to appreciated securities. Under these rules, taxpayers will recognize
gain, but not loss, with respect to securities if they enter into short sales of
"offsetting notional principal contracts" (as defined by the Act) or futures or
"forward contracts" (as defined by the Act) with respect to the same or
substantially identical property, or if they enter into such transactions and
then acquire the same or substantially identical property. These changes
generally apply to constructive sales after June 8, 1997. Furthermore, the
Secretary of the Treasury is authorized to promulgate regulations that will
treat as constructive sales certain transactions that have substantially the
same effect as short sales, offsetting notional principal contracts, and futures
or forward contracts to deliver the same or substantially similar property.
INVESTMENT RESTRICTIONS
.........The Fund operates under the following investment restrictions.
The Fund may not:
.........(1) with respect to 75% of its total assets, invest more than 5% of its
total assets, taken at market value at the time of a particular purchase, in the
securities of a single issuer, except for securities issued or guaranteed by the
U. S. Government or any of its agencies or instrumentalities or repurchase
agreements for such securities, and except that all or substantially all of the
assets of the Fund may be invested in another registered investment company
having the same investment objective and substantially similar investment
policies as the Fund;
.........(2) acquire more than 10%, taken at the time of a particular purchase,
of the outstanding voting securities of any one issuer, except that all or
substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund;
.........(3) act as an underwriter of securities, except insofar as it may be
deemed an underwriter for purposes of the Securities Act of 1933 on disposition
of securities acquired subject to legal or contractual restrictions on resale,
except that all or substantially all of the assets of the Fund may be invested
in another registered investment company having the same investment objective
and substantially similar investment policies as the Fund;
.........(4) purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate or interests therein), commodities, or commodity
contracts, except that it may enter into (a) futures and options on futures and
(b) forward contracts;
.........(5) make loans, although it may (a) lend portfolio securities and
participate in an interfund lending program with other Stein Roe Funds provided
that no such loan may be made if, as a result, the aggregate of such loans would
exceed 33 1/3% of the value of its total assets (taken at market value at the
time of such loans); (b) purchase money market instruments and enter into
repurchase agreements; and (c) acquire publicly distributed or privately placed
debt securities;
.........(6) borrow except that it may (a) borrow for nonleveraging, temporary
or emergency purposes, (b) engage in reverse repurchase agreements and make
other borrowings, provided that the combination of (a) and (b) shall not exceed
33 1/3% of the value of its total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage permitted by law,
and (c) enter into futures and options transactions; it may borrow from banks,
other Stein Roe Funds, and other persons to the extent permitted by applicable
law;
.........(7) invest in a security if more than 25% of its total assets (taken at
market value at the time of a particular purchase) would be invested in the
securities of issuers in any particular industry, except that this restriction
does not apply to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, and except that all or substantially all of the
assets of the Fund may be invested in another registered investment company
having the same investment objective and substantially similar investment
policies as the Fund; or
.........(8) issue any senior security except to the extent permitted under the
Investment Company Act of 1940.
.........The above restrictions are fundamental policies and may not be changed
without the approval of a "majority of the outstanding voting securities" as
defined above. The Fund is also subject to the following non-fundamental
restrictions and policies, which may be changed by the Board of Trustees. None
of the following restrictions shall prevent the Fund from investing all or
substantially all of its assets in another investment company having the same
investment objective and substantially the same investment policies as the Fund.
The Fund may not:
.........(a) invest in any of the following: (i) interests in oil, gas, or other
mineral leases or exploration or development programs (except readily marketable
securities, including but not limited to master limited partnership interests,
that may represent indirect interests in oil, gas, or other mineral exploration
or development programs); (ii) puts, calls, straddles, spreads, or any
combination thereof (except that it may enter into transactions in options,
futures, and options on futures); (iii) shares of other open-end investment
companies, except in connection with a merger, consolidation, acquisition, or
reorganization; and (iv) limited partnerships in real estate unless they are
readily marketable;
.........(b) invest in companies for the purpose of exercising control or
management;
.........(c) purchase more than 3% of the stock of another investment company or
purchase stock of other investment companies equal to more than 5% of its total
assets (valued at time of purchase) in the case of any one other investment
company and 10% of such assets (valued at time of purchase) in the case of all
other investment companies in the aggregate; any such purchases are to be made
in the open market where no profit to a sponsor or dealer results from the
purchase, other than the customary broker's commission, except for securities
acquired as part of a merger, consolidation or acquisition of assets;
.........(d) invest more than 5% of its net assets (valued at time of purchase)
in warrants, nor more than 2% of its net assets in warrants that are not listed
on the New York or American Stock Exchange;
.........(e) write an option on a security unless the option is issued by the
Options Clearing Corporation, an exchange, or similar entity;
.........(f) invest more than 25% of its total assets (valued at time of
purchase) in securities of foreign issuers (other than securities represented by
American Depositary Receipts (ADRs) or securities guaranteed by a U.S. person);
.........(g) purchase a put or call option if the aggregate premiums paid for
all put and call options exceed 20% of its net assets (less the amount by which
any such positions are in-the-money), excluding put and call options purchased
as closing transactions;
.........(h) purchase securities on margin (except for use of short-term credits
as are necessary for the clearance of transactions), or sell securities short
unless (i) it owns or has the right to obtain securities equivalent in kind and
amount to those sold short at no added cost or (ii) the securities sold are
"when issued" or "when distributed" securities which it expects to receive in a
recapitalization, reorganization, or other exchange for securities it
contemporaneously owns or has the right to obtain and provided that transactions
in options, futures, and options on futures are not treated as short sales;
.........(i) invest more than 5% of its total assets (taken at market value at
the time of a particular investment) in restricted securities, other than
securities eligible for resale pursuant to Rule 144A under the Securities Act of
1933;
.........(j) invest more than 15% of its net assets (taken at market value at
the time of a particular investment) in illiquid securities, including
repurchase agreements maturing in more than seven days.
ADDITIONAL INVESTMENT CONSIDERATIONS
.........Stein Roe seeks to provide superior long-term investment results
through a disciplined, research-intensive approach to investment selection and
prudent risk management. In working to take sensible risks and make intelligent
investments it has been guided by three primary objectives which it believes are
the foundation of a successful investment program. These objectives are
preservation of capital, limited volatility through managed risk, and consistent
above-average returns as appropriate for the particular client or managed
account. Because every investor's needs are different, Stein Roe mutual funds
are designed to accommodate different investment objectives, risk tolerance
levels, and time horizons. In selecting a mutual fund, investors should ask the
following questions:
What are my investment goals?
It is important to a choose the Fund that has investment objectives compatible
with your investment goals.
What is my investment time frame?
If you have a short investment time frame (e.g., less than three years), a
mutual fund that seeks to provide a stable share price, such as a money market
fund, or one that seeks capital preservation as one of its objectives may be
appropriate. If you have a longer investment time frame, you may seek to
maximize your investment returns by investing in a mutual fund that offers
greater yield or appreciation potential in exchange for greater investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks which will vary
depending on investment objective and security type. However, mutual funds seek
to reduce risk through professional investment management and portfolio
diversification.
.........In general, equity mutual funds emphasize long-term capital
appreciation and tend to have more volatile net asset values than bond or money
market mutual funds. Although there is no guarantee that they will be able to
maintain a stable net asset value of $1.00 per share, money market funds
emphasize safety of principal and liquidity, but tend to offer lower income
potential than bond funds. Bond funds tend to offer higher income potential than
money market funds but tend to have greater risk of principal and yield
volatility.
MANAGEMENT
.........The Board of Trustees of the Trust has overall management
responsibility for the Trust and the Fund. The following table sets forth
certain information with respect to the trustees and officers of the Trust:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Position(s) held Principal occupation(s)
Name, Age; Address with the Trust during past five years
David P. Brady, 35; Vice-President Senior vice president of Stein Roe
One South Wacker Drive since March 1998; vice president of Stein Roe
Chicago, IL 60606 (4) from Nov. 1995 to March 1998; portfolio manager for
Stein Roe since 1993
Daniel K. Cantor, 40; Vice-President Senior vice president of Stein Roe
1330 Avenue of the Americas,
New York, NY 10019 (4)
Kevin M. Carome, 43; One Executive Senior vice president, legal, Liberty Funds Group LLC
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, 31; 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
J. Kevin Connaughton, 35; 245 Vice-President; Controller of the Stein Roe Funds since May 2000;
Summer Street, Boston, MA 02210 Controller Controller and Chief Accounting Officer of the Liberty
(4) Funds since February 1998, Vice president of Colonial
Management Associates, Inc. ("CMA") since
February 1998; senior tax manager,
Coopers & Lybrand, LLP from April 1996
to January 1998; vice president, 440
Financial Group/First Data
Investor Services Group prior thereto
Nancy L. Conlin, 46; One Senior Vice President Secretary of the Stein Roe Funds since May 2000;
Financial Center, Boston, MA and Secretary Secretary of the Liberty Funds since April 1998
02111 (4) (formerly Assistant Secretary from July 1994 to April
1998); Director, Senior Vice President General
Counsel, Clerk and Secretary of Colonial Management
Associates, Inc. since April 1998
(formerly Vice President, Counsel,
Assistant Secretary and Assistant Clerk
from July 1994 to April 1998); Vice
President, General Counsel and
Secretary of Liberty Funds Group since
December 1998 (formerly Vice President, General
Counsel and Clerk of The Colonial Group
from April 1998 to December 1998
(formerly Assistant Clerk from July 1994
to April 1998)
Lindsay Cook, 47; 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, 33; 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, 46; One President Vice chairman of Stein Roe since Aug. 1998; chairman,
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, 35; Vice-President Senior portfolio manager of
One South Wacker Drive Stein Roe; senior vice president of Stein Roe
Chicago, IL 60606 (4) since April 1996; vice president of Stein Roe prior thereto
Douglas A. Hacker, 43; P.O. Box Trustee Senior vice president and chief financial officer of
66100, Chicago, IL 60666 (3) (4) UAL, Inc. (airline)
Loren A. Hansen, 51; Executive Vice-President Chief investment officer/equity of CMA since 1997;
One South Wacker rive, executive vice president of Stein Roe since Dec. 1995;
Chicago, IL 60606 (4) vice president of The Northern Trust (bank) prior thereto
Harvey B. Hirschhorn, 49; Vice-President Executive vice president, senior
One South Wacker Drive, portfolio manager, and chief economist and
Chicago, IL 60606 (4) investment strategist of Stein Roe;
director of research of Stein Roe, 1991 to 1995
Janet Langford Kelly, 41; 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, 37; 245 Summer Vice President Vice president and assistant controller of CMA
Street, Boston, MA 02210 (4)
Pamela A. McGrath, 46: 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, 45; One Vice President President of Liberty Funds Services, Inc.
Financial Center, Boston, MA
02111 (4)
Charles R. Nelson, 57; 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, 40; 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, 47; Executive Vice President 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, 62; Suite Trustee Managing director, William Blair Capital Partners
1300, 222 West Adams Street, (private equity fund)
Chicago, IL 60606 (3)(4)
</TABLE>
<PAGE>
(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 Trust 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 Fund's
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. The
following table sets forth compensation paid during the fiscal year ended
September 30, 1999 to each of the trustees:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Compensation from the Stein Roe
Fund Complex*
-----------------------------------
Aggregate Compensation Total Average Per
Name of Trustee from the Trust Compensation Series
------------------------------ ---------------------------------- ------------------- --------------
Thomas W. Butch** -0- -0- -0-
Lindsay Cook -0- -0- -0-
John A. Bacon Jr.** $25,500 $117,850 $2,562
William W. Boyd 22,450 104,100 2,263
Douglas A. Hacker 20,650 93,900 2,041
Janet Langford Kelly 22,450 103,400 2,248
Charles R. Nelson 22,450 103,900 2,259
Thomas C. Theobald 22,450 103,400 2,248
---------------
* At September 30, 1999, the Stein Roe Fund Complex consisted of 12
series of the Trust, one series of Liberty-Stein Roe Funds Trust, four
series of Liberty-Stein Roe Funds Municipal Trust, four series of
Liberty-Stein Roe Funds Income Trust, five series of Liberty-Stein Roe
Advisor Trust, five series of SteinRoe Variable Investment Trust, 12
portfolios 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.
** Mr. Butch served as a trustee until November 3, 1998; Mr. Bacon was
elected a trustee effective November 3, 1998.
</TABLE>
<PAGE>
FINANCIAL STATEMENTS
Please refer to the September 30, 1999 Financial Statements (management
discussion, statements of assets and liabilities and schedules of investments as
of September 30, 1999 and the statements of operations, changes in net assets,
financial highlights, and notes thereto) and the report of independent
accountants contained in the September 30, 1999 Annual Report and the unaudited
March 31, 2000 financial statements contained in the March 31, 2000 Semi-annual
Report. Those Financial Statements and the report of independent accountants are
incorporated herein by reference. The Annual Report may be obtained at no charge
by telephoning 800-338-2550.
PRINCIPAL SHAREHOLDERS
As of June 30, 2000, no person known by the Trust owned of record or
"beneficially" 5% or more of the outstanding shares of the Fund within the
definition of that term as contained in Rule 13d-3 under the Securities Exchange
Act of 1934.
---------------------------------------
INVESTMENT ADVISORY AND OTHER SERVICES
Stein Roe & Farnham Incorporated provides investment management
services and administrative services to the Fund. Stein Roe is a wholly owned
subsidiary of SteinRoe Services Inc. ("SSI"), the Fund's transfer agent, which
is a wholly owned subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which is a majority owned subsidiary of LFC 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 director of Stein Roe is C. Allen Merritt, Jr. Mr.
Merritt is Chief Operating Officer of Liberty Financial. The business
address of Mr. Merritt is 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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Type
-----------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Administrative ..15% up to $500, .125% next
$500, .10% next $500, .075% $ 76,658 $ 81,387 $17,260
thereafter
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Management .75% up to $500, .70% next
$500, .65% next $500, .60% 382,996 406,935 86,304
thereafter
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Reimbursement Expenses exceeding 1.25% $(94,290) $(103,242) $(55,876)
--------------------------------------------------------------------------------------------
</TABLE>
Stein Roe provides office space and executive and other personnel to
the Funds, and bears any sales or promotional expenses. The Fund pays all
expenses other than those paid by Stein Roe, including but not limited to
printing and postage charges, securities registration and custodian fees, and
expenses incidental to its organization.
The administrative agreement provides that Stein Roe shall reimburse
the Fund to the extent that total annual expenses of the Fund (including fees
paid to Stein Roe, but excluding taxes, interest, commissions and other normal
charges incident to the purchase and sale of portfolio securities, and expenses
of litigation to the extent permitted under applicable state law) exceed the
applicable limits prescribed by any state in which shares of the Fund are being
offered for sale to the public; provided, however, Stein Roe is not required to
reimburse the Fund an amount in excess of fees paid by the Fund under that
agreement for such year. In addition, in the interest of further limiting
expenses of the Fund, Stein Roe may voluntarily waive its fees and/or absorb
certain expenses, as described under The Funds--Your Expenses in the Prospectus.
Any such reimbursement will enhance the yield of such Fund.
Each management agreement provides that neither Stein Roe, nor any of
its directors, officers, stockholders (or partners of stockholders), agents, or
employees shall have any liability to the Trust or any shareholder of the Trust
for any error of judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance by Stein Roe of
its duties under the agreement, except for liability resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under the
agreement.
Any expenses that are attributable solely to the organization,
operation, or business of a series of the Trust are paid solely out of the
assets of that series. Any expenses incurred by the Trust that are not solely
attributable to a particular series are apportioned in such manner as Stein Roe
determines is fair and appropriate, unless otherwise specified by the Board of
Trustees.
Bookkeeping and Accounting Agreement
Pursuant to a separate agreement with the Trust, Stein Roe receives a
fee for performing certain bookkeeping and accounting services. For such
services, Stein Roe receives an annual fee of $25,000 per series plus .0025 of
1% of average net assets over $50 million. During the fiscal years ended
September 30, 1997, 1998 and 1999, Stein Roe received aggregate fees of
$315,067, $358,936 and $354,273, respectively, from the Trust for services
performed under this Agreement.
DISTRIBUTOR
Shares of the Funds are distributed by Liberty Funds Distributor, Inc.
(the "Distributor"), One Financial Center, Boston, MA 02111, an indirect
subsidiary of Liberty Financial, under a Distribution Agreement. 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 ("independent trustees"). The Distributor has no
obligation, as underwriter, to buy Fund shares, and purchases shares only upon
receipt of orders from authorized financial service firms or investors. 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.
12b-1 Plans, Contingent Deferred Sales Charges, and Conversion of Shares
The Trustees of the Trust have adopted a plan pursuant to Rule 12b-1
under the Investment Company Act of 1940 (the "Plan"). The Plan provides that,
as compensation for personal service and/or the maintenance of shareholder
accounts, the Distributor receives a service fee at an annual rate not to exceed
0.35% of net assets attributed to Class A shares or 0.25% of net assets
attributed to Class B and Class C shares. The Plan also provides that as
compensation for the promotion and distribution of shares of the Fund including
its expenses related to sale and promotion of Fund shares, the Distributor
receives from the Fund a fee at an annual rate not exceeding 0.10% of the
average net assets attributed to Class A shares, and 0.75% of the average net
assets attributed to each of its Class B and Class C shares. At this time, the
Distributor has voluntarily agreed to limit the Class A service and distribution
fee to 0.10% annually. The Distributor may terminate this voluntary limitation
without shareholder approval. Class B shares automatically convert to Class A
shares approximately eight years after the Class B shares are purchased. Class C
and Class Z shares do not convert. The Distributor generally pays this amount to
institutions that distribute Fund shares and provide services to the Funds and
their shareholders. Those institutions may use the payments for, among other
purposes, compensating employees engaged in sales and/or shareholder servicing.
The amount of fees paid by the Fund during any year may be more or less than the
cost of distribution or other services provided to the Fund. NASD rules limit
the amount of annual distribution fees that may be paid by a mutual fund and
impose a ceiling on the cumulative sales charges paid. The Trust's Plan complies
with those rules.
The Trustees believe that the Plan could be a significant factor in the
growth and retention of Fund assets resulting in a more advantageous expense
ratio and increased investment flexibility which could benefit each class of
shareholders. The Plan will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote of the
trustees, including the independent trustees. The Plan may not be amended to
increase the fee materially without approval by a vote of a majority of the
outstanding voting securities of the relevant class of shares and all material
amendments of the Plan must be approved by the trustees in the manner provided
in the foregoing sentence. The Plan may be terminated at any time by a vote of a
majority of the independent trustees or by a vote of a majority of the
outstanding voting securities of the relevant Class of shares.
The Fund offers five classes of shares (Class A, Class B, Class C,
Class Z, and Stein Roe Midcap Growth Fund Class S). The Fund may offer other
classes of shares in the future. Class Z and Stein Roe Midcap Growth Fund Class
S shares are offered at net asset value and are not subject to a Rule 12b-1 fee.
Class A shares are offered at net asset value plus a front-end sales charge to
be imposed at the time of purchase and are subject to a Rule 12b-1 fee. Class B
shares are offered at net asset value subject to a Rule 12b-1 fee and a
declining contingent deferred sales charge on redemptions made within six years
of purchase. Class C shares are offered at net asset value, subject to a Rule
12b-1 fee and a contingent deferred sales charge on redemptions made within one
year of purchase. The contingent deferred sales charges are described in the
Prospectus.
No contingent deferred sales charge will be imposed on shares derived
from reinvestment of distributions or amounts representing capital appreciation.
In determining the applicability and rate of any contingent deferred sales
charge, it will be assumed that a redemption is made first of shares
representing capital appreciation, next of shares representing reinvestment of
distributions, and finally of other shares held by the shareholder for the
longest time.
Eight years after the end of the month in which a Class B share is
purchased, such shares and a pro-rated portion of any shares issued on the
reinvestment of distributions will be automatically invested into Class A shares
of that Fund having an equal value, which are not subject to the distribution or
service fee.
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 fees from the Fund based on an annual rate of 0.22%
of average net assets of Stein Roe Midcap Growth Fund Class S shares and 0.236%
of Class A, B, C, and Z shares. The Trust believes the charges by SSI to the
Funds are comparable to those of other companies performing similar services.
(See Investment Advisory and Other Services.) Under a separate agreement, SSI
also provides certain investor accounting services to the Portfolios.
Some financial services firms ("FSF") or other intermediaries having
special selling arrangements with the Distributor, including certain bank trust
departments, wrap fee programs and retirement plan service providers
("Intermediaries") that maintain nominee accounts with the Funds for their
clients who are Fund shareholders, may be paid a fee from SSI for shareholder
servicing and accounting services they provide with respect to the underlying
Fund shares.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus under the
heading Your Account, and that information is incorporated herein by reference.
It is the responsibility of any investment dealers, banks, or other
institutions, including retirement plan service providers, through whom you
purchase or redeem shares to establish procedures insuring the prompt
transmission to the Trust of any order.
The Fund will accept unconditional orders for shares to be executed at
the public offering price based on the net asset value per share next determined
after the order is received in good order. The public offering price is the net
asset value plus the applicable sales charge, if any. In the case of orders for
purchase of shares placed through FSFs or Intermediaries, the public offering
price will be determined on the day the order is placed in good order, but only
if the FSF or Intermediary receives the order prior to the time at which shares
are valued and transmits it to the Fund before that day's transactions are
processed. If the FSF or Intermediary fails to transmit before the Fund
processes that day's transactions, the customer's entitlement to that day's
closing price must be settled between the customer and the FSF or Intermediary.
If the FSF or Intermediary receives the order after the time at which the Fund
values its shares, the price will be based on the net asset value determined as
of the close of the NYSE on the next day it is open. If funds for the purchase
of shares are sent directly to the Transfer Agent, they will be invested at the
public offering price next determined after receipt in good order. Payment for
shares of the Fund must be in U.S. dollars; if made by check, the check must be
drawn on a U.S. bank.
The Fund receives the entire net asset value of shares sold. For Class
A shares, which are subject to an initial sales charge, the Distributor's
commission is the sales charge shown in the Prospectus less any applicable FSF
or Intermediary discount. The FSF or Intermediary discount is the same for all
FSFs or Intermediaries, except that the Distributor retains the entire sales
charge on any sales made to a shareholder who does not specify an FSF or
Intermediary on the application, and except that the Distributor may from time
to time reallow additional amounts to all or certain FSFs or Intermediaries. The
Distributor generally retains 100% of any asset-based sales charge (distribution
fee) or contingent deferred sales charge. Such charges generally reimburse the
Distributor for any up-front and/or ongoing commissions paid to FSFs or
Intermediaries.
Checks presented for the purchase of Fund shares which are returned by
the purchaser's bank will subject the purchaser to a $15 service fee for each
check returned.
The Transfer Agent acts as the shareholder's agent whenever it receives
instructions to carry out a transaction on the shareholder's account. Upon
receipt of instructions that shares are to be purchased for a shareholder's
account, the designated FSF or Intermediary will receive the applicable sales
commission. Shareholders may change FSFs or Intermediaries at any time by
written notice to the Transfer Agent, provided the new FSF or Intermediary has a
sales agreement with the Distributor.
Determination of Net Asset Value
The net asset value per share for each Class is determined as of the
close of business (normally 3:00 p.m., Central time, or 4:00 p.m., Eastern time)
on days on which the New York Stock Exchange (the "NYSE") is open for trading,
except that certain classes of assets, such as index futures for which the
market close occurs shortly after regular trading on the NYSE will be priced at
the closing time of the markets on which they trade but in no event later than
5:00 p.m. The NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in January, the third Monday in February, Good
Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or Sunday, the NYSE will
be closed on the preceding Friday or the following Monday, respectively. Net
asset value will not be determined on days when the NYSE is closed unless, in
the judgment of the Board of Trustees, net asset value of the Fund should be
determined on any such day, in which case the determination will be made at 3:00
p.m., Central time.
The Fund may invest in securities that are listed primarily on foreign
exchanges that are open and allow trading on days on which the Funds do not
determine net asset value. This may significantly affect the net asset value of
the Fund's redeemable securities on days when an investor cannot redeem such
securities. Debt securities generally are valued by a pricing service which
determines valuations based upon market transactions for normal,
institutional-size trading units of similar securities. However, in
circumstances where such prices are not available or where Stein Roe deems it
appropriate to do so, an over-the-counter or exchange bid quotation is used.
Securities listed on an exchange or on Nasdaq are valued at the last sale price.
Listed securities for which there were no sales during the day and unlisted
securities generally are valued at the last quoted bid price. Options are valued
at the last sale price or in the absence of a sale, the mean between the last
quoted bid and offering prices. Short-term obligations with a maturity of 60
days or less are valued at amortized cost pursuant to procedures adopted by the
Board of Trustees. The values of foreign securities quoted in foreign currencies
are translated into U.S. dollars at the exchange rate for that day. Positions
for which market quotations are not readily available and other assets are
valued at fair value as determined in good faith under the direction of the
Board of Trustees.
Generally, trading in certain securities (such as foreign securities)
is substantially completed each day at various times prior to the close of the
NYSE. Trading on certain foreign securities markets may not take place on all
NYSE business days, and trading on some foreign securities markets takes place
on days that are not NYSE business days and on which net asset value is not
calculated. The values of these securities used in determining net asset value
are computed as of such times. Also, because of the amount of time required to
collect and process trading information as to large numbers of securities
issues, the values of certain securities (such as convertible bonds, U.S.
government securities, and tax-exempt securities) are determined based on market
quotations collected earlier in the day at the latest practicable time prior to
the close of the NYSE. Occasionally, events affecting the value of such
securities may occur between such time and the close of the NYSE which will not
be reflected in the computation of the net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities will be valued at their fair value following procedures approved by
the Board of Trustees.
The Trust intends to pay all redemptions in cash and is obligated to
redeem shares solely in cash up to the lesser of $250,000 or one percent of the
net assets of the Trust during any 90-day period for any one shareholder.
However, redemptions in excess of such limit may be paid wholly or partly by a
distribution in kind of securities. If redemptions were made in kind, the
redeeming shareholders might incur transaction costs in selling the securities
received in the redemptions.
Due to the relatively high cost of maintaining smaller accounts, the
Trust may deduct $10 (payable to the Transfer Agent) from accounts valued at
less than $1,000 unless the account value has dropped below $1,000 solely as a
result of share depreciation. An investor will be notified that the value of his
account is less than that minimum and allowed at least 60 days to bring the
value of the account up to at least $1,000 before the fee is deducted. The
Agreement and Declaration of Trust also authorizes the Trust to redeem shares
under certain other circumstances as may be specified by the Board of Trustees.
The Trust reserves the right to suspend or postpone redemptions of Fund
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 of the Fund not reasonably
practicable.
Special Purchase Programs/Investor Services
The following special purchase programs/investor services may be
changed or eliminated at any time.
Automatic Investment Plan. As a convenience to investors, shares of
most funds advised by Colonial, Newport Management, Inc., Crabbe Huson Group,
Inc. and Stein Roe may be purchased through the Automatic Investment Plan.
Preauthorized monthly bank drafts or electronic funds transgers for a fixed
amount at least $50 are used to purchase a fund's shares at the public offering
price next determined after the distributor receives the proceeds from the draft
(normally the 5th or the 20th of each month, or the next business day
thereafter). If your Automatic Investment Plan purchase is by electronic funds
transfer, you may request the Automatic Investment Plan purchase any day.
Further information and application forms are available from the distributor.
Automated Dollar Cost Averaging (Classes A, B, and C only). The
Automated Dollar Cost Averaging program allows you to exchange $100 or more on a
monthly basis from any mutual fund advised by Colonial, Newport Fund Management,
Inc., Crabbe Huson Group, Inc., and Stein Roe in which you have a current
balance of at least $5000 into the same class of shares of up to four other
funds. Complete the Automated Dollar Cost Averaging section of the Application.
The designated amount will be exchanged on the third Tuesday of each month.
There is no charge for exchanges made pursuant to the Automated Dollar Cost
Averaging program. Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. Your normal rights and privileges as a
shareholder remain in full force and effect. Thus you can buy any fund, exchange
between the same class of shares of funds written instruction or by telephone
exchange if you have so elected and withdraw amounts from any fund, subject to
the imposition of any applicable CDSC.
Any additional payments or exchanges into your fund will extend the time of the
Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal and income tax
purposes.
You may terminate your program, change the amount of the exchange (subject to
the $100 minimum) or change your selection of funds, by telephone or in writing;
if in writing to Liberty Funds Services, Inc., P.O.box 1722, Boston, MA
02105-1722.
You should consult your investment advisor to determine whether or not the
Automated Dollar Cost Averaging program is appropriate for you.
The Distributor offers several plans by which an investor may obtain reduced
initial or contingent deferred sales charges. These plans may be altered or
discontinued at any time. See " Programs for Reducing or Eliminating Sales
Charges" for more information.
Tax-Sheltered Retirement Plans (Classes A, B and C only). The
Distributor offers prototype tax-qualified plans, including Individual
Retirement Accounts (IRAs) and pension and profit-sharing plans for individuals,
corporations, employees and the self-employed. The minimum initial investment
for a retirement account is $25. Investor's Bank & Trust Company is the Trustee
of the prototype plans and charges a $18 annual fee. The annual fee will be
waived if your aggregated IRA (Traditional IRA, Roth IRA and Education IRA)
assets total $25,000 or more. This waiver will be based on the assets of record
when the fees are assessed in December. If you close your account during the
year, the Distributor will not aggregate the IRAs and you will be subject to
that year's annual fee per IRA regardless of total assets. Further Detailed
information concerning these retirement plans and copies of the retirement plans
are available from the Distributor.
Participants in other prototype retirement plans (other than IRAs) also
are charged a $10 annual fee unless the plan maintains an omnibus account with
the Transfer Agent. Participants in prototype plans offered by the Distributor
(other than IRAs) who liquidate the total value of their account will also be
charged a $15 close-out processing fee payable to the Transfer Agent. The fee is
in addition to any applicable CDSC. The fee will not apply if the participant
uses the proceeds to open an IRA Rollover account in any fund, or if the plan
maintains an omnibus account.
Consultation with a competent financial and tax advisor regarding these
plans and consideration of the suitability of Fund shares as an investment under
the Employee Retirement Income Security Act of 1974 or otherwise is recommended.
Telephone Address Change Services. By calling the Transfer Agent,
shareholders, beneficiaries or their FSF or Intermediary of record may change an
address on a recorded telephone line. Confirmations of address change will be
sent to both the old and the new addresses. Telephone redemption privileges are
suspended for 30 days after an address change is effected.
Cash Connection. Dividends and any other distributions, including
Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a
shareholder's bank account via electronic funds transfer. Shareholders wishing
to avail themselves of this electronic transfer procedure should complete the
appropriate sections of the Application.
Automatic Dividend Diversification. The automatic dividend
diversification reinvestment program (ADD) generally allows shareholders to have
all distributions from a fund automatically invested in the same class of shares
of another fund. An ADD account must in the same name as the shareholder's
existing open account with the particular Fund. Call for more information at
1-800-422-3737.
Programs for Reducing or Eliminating Sales Charges
Right of Accumulation and Statement of Intent (Class A shares only).
Reduced sales charges on Class A shares can be effected by combining a current
purchase with prior purchases of Class A, B, C, T, and Z shares of other funds
managed Colonial, Newport Fund Management, Inc., Crabbe Huson Group, Inc., and
Stein Roe or distributed by the Distributor (such funds hereinafter referred to
as "Liberty Funds"). The applicable sales charged is based on the combined total
of: (1) the current purchase and (2) the value at the public offering price at
the close of business on the previous day of all Liberty Fund's Class A shares
held by the shareholder (except shares of any Liberty money market fund, unless
such shares were acquired by exchange from Class A shares of another Liberty
Fund other than a money market fund and Class B, C, T and Z shares).
The Distributor must be promptly notified of each purchase which
entitles a shareholder to a reduced sales charge. Such reduced sales charge will
be applied upon confirmation of the shareholder's holdings by the Transfer
Agent. A Liberty Fund may terminate or amend this right of Accumulation.
Any person may qualify for reduced sales charges on purchase of Class A
shares made within a 13-month period pursuant to a Statement of Intent
("Statement"). A shareholder may include, as an accumulation credit toward the
completion of such Statement, the value of all Class A, B, C, S, T and Z shares
held by the shareholder on the date of the Statement in the Trust's Funds and
Liberty Funds (except shares of any Colonial money market fund, unless such
shares were acquired by exchange from Class A shares of another non-money market
Liberty Fund). The value is determined at the public offering price on the date
of the Statement. Purchases made through reinvestment of distributions do not
count toward satisfaction of the Statement.
During the term of a Statement, the Transfer Agent will hold shares in
escrow to secure payment of the higher sales charge applicable to Class A shares
actually purchased. Dividends and capital gains will be paid on all escrowed
shares and these shares will be released when the amount indicated has been
purchased. A Statement does not obligate the investor to buy or the Fund to sell
the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an
amount which would qualify for a further quantity discount, a retroactive price
adjustment will be made at the time of expiration of the Statement. The
resulting difference in offering price will purchase additional shares for the
shareholder's account at the then-current applicable offering price. As a part
of this adjustment, the FSF or Intermediary shall return to the Distributor the
excess commission previously paid during the 13-month period.
If the amount of the Statement is not purchased, the shareholder shall
remit to the Distributor an amount equal to the difference between the sales
charge paid and the sales charge that should have been paid. If the shareholder
fails within 20 days after a written request to pay such difference in sales
charge, the Transfer Agent will redeem that number of escrowed Class A shares
equal to such difference. The additional amount of FSF or Intermediary discount
from the applicable offering price shall be remitted to the shareholder's FSF or
Intermediary of record.
Additional information about and the terms of Statements of Intent are
available from your FSF or Intermediary or from the Transfer Agent at
1-800-345-6611.
Reinstatement Privilege. An investor who has redeemed Fund shares may,
upon request, reinstate within one year a portion or all of the proceeds of such
sale in shares of the same class of that Fund at the net asset value next
determined after the Transfer Agent receives a written reinstatement request and
payment. Any contingent deferred sales charge paid at the time of the redemption
will be credited to the shareholder upon reinstatement. The period between the
redemption and the reinstatement will not be counted in aging the reinstated
shares for purposes of calculating any contingent deferred sales charge or
conversion date. Investors who desire to exercise this privilege should contact
their FSF or Intermediary or the Distributor. Shareholders may exercise this
privilege an unlimited number of times. Exercise of this privilege does not
alter the federal income tax treatment of any capital gains realized on the
prior sale of Fund shares, but to the extent any such shares were sold at a
loss, some or all of the loss may be disallowed for tax purposes. Consult your
tax advisor.
Shareholders may reinvest all or a portion of a recent cash
distribution without a sales charge. A shareholder request must be received
within 30 calendar days of the distribution. A shareholder may exercise this
privilege only once. No charge is currently made for reinvestment.
Privileges of Adviser Employees, FSFs or Intermediaries (Class A shares
only). Class A shares may be sold at net asset value to the following
individuals whether currently employed or retired: Trustees of funds advised or
administered by Stein Roe or an affiliate of Stein Roe; directors, officers and
employees of Stein Roe or an affiliate of Stein Roe, including the Transfer
Agent and the Distributor; registered representatives and employees of FSFs or
Intermediaries (including their affiliates) that are parties to dealer
agreements or other sales arrangements with the Distributor; and such persons'
families and their beneficial accounts.
Sponsored Arrangements (Class A shares only). Class A shares may be
purchased at reduced or no sales charge pursuant to sponsored arrangements,
which include programs under which an organization makes recommendations to, or
permits group solicitation of, its employees, members or participants in
connection with the purchase of Fund shares on an individual basis. The amount
of the sales charge reduction will reflect the anticipated reduction in sales
expense associated with sponsored arrangements. The reduction in sales expense,
and therefore the reduction in sales charge, will vary depending on factors such
as the size and stability of the organization's group, the term of the
organization's existence and certain characteristics of the members of its
group. The Fund reserves the right to revise the terms of or to suspend or
discontinue sales pursuant to sponsored plans at any time.
Class A shares may also be purchased at reduced or no sales charge by
clients of dealers, brokers or registered investment advisers that have entered
into agreements with the Distributor pursuant to which the Fund is included as
an investment option in programs involving fee-based compensation arrangements.
Waiver of Contingent Deferred Sales Charges (Class A accounts in excess
of $1,000,000, and Classes B and C). Contingent deferred sales charges may be
waived on redemptions in the following situations with the proper documentation:
1. Death. Contingent deferred sales charges may be waived on redemptions within
one year following the death of (i) the sole shareholder on an individual
account, (ii) a joint tenant where the surviving joint tenant is the deceased's
spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act ("UGMA"),
Uniform Transfers to Minors Act ("UTMA") or other custodial account. If, upon
the occurrence of one of the foregoing, the account is transferred to an account
registered in the name of the deceased's estate, the contingent deferred sales
charge will be waived on any redemption from the estate account occurring within
one year after the death. If the shares are not redeemed within one year of the
death, they will remain subject to the applicable contingent deferred sales
charge, when redeemed from the transferee's account. If the account is
transferred to a new registration and then a redemption is requested, the
applicable contingent deferred sales charge will be charged.
2. Systematic Withdrawal Plan (SWP). Contingent deferred sales charges may be
waived on redemptions occurring pursuant to a monthly, quarterly or semiannual
SWP established with the Transfer Agent, to the extent the redemptions do not
exceed, on an annual basis, 12% of the account's value, so long as at the time
of the first SWP redemption the account had distributions reinvested for a
period at least equal to the period of the SWP (e.g., if it is a quarterly SWP,
distributions must have been reinvested at least for the three month period
prior to the first SWP redemption); otherwise contingent deferred sales charges
will be charged on SWP redemptions until this requirement is met; this
requirement does not apply to Class B or C accounts if the SWP is set up at the
time the account is established, and distributions are being reinvested. See
below under How to Sell Shares--Systematic Withdrawal Plan.
3. Disability. Contingent deferred sales charges may be waived on redemptions
occurring within one year after the sole shareholder on an individual account or
a joint tenant on a spousal joint tenant account becomes disabled (as defined in
Section 72(m)(7) of the Internal Revenue Code). To be eligible for such waiver,
(i) the disability must arise after the purchase of shares and (ii) the disabled
shareholder must have been under age 65 at the time of the initial determination
of disability. If the account is transferred to a new registration and then a
redemption is requested, the applicable contingent deferred sales charge will be
charged.
4. Death of a trustee. Contingent deferred sales charges may be waived on
redemptions occurring upon dissolution of a revocable living or grantor trust
following the death of the sole trustee where (i) the grantor of the trust is
the sole trustee and the sole life beneficiary, (ii) death occurs following the
purchase and (iii) the trust document provides for dissolution of the trust upon
the trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable contingent deferred
sales charge will be charged upon any subsequent redemption.
5. Returns on excess contributions. Contingent deferred sales charges may be
waived on redemptions required to return excess contributions made to retirement
plans or IRAs, so long as the FSF or Intermediary agrees to return the
applicable portion of any commission paid by the Distributor.
6. Qualified Retirement Plans. Contingent deferred sales charges may be waived
on redemptions required to make distributions from qualified retirement plans
following (i) normal retirement (as stated in the plan document) or (ii)
separation from service. For shares purchased in a prototype 401K plan after
September 1, 1997, contingent deferred sales charges will not be waived upon
separation from service except if such plan is held in an omnibus account.
Contingent deferred sales charges also will be waived on SWP redemptions made to
make required minimum distributions from qualified retirement plans that have
invested in the Fund for at least two years.
The contingent deferred sales charge also may be waived where the FSF
or Intermediary agrees to return all or an agreed upon portion of the commission
earned on the sale of the shares being redeemed.
How to Sell ("Redeem") Shares
Shares may be sold on any day the NYSE is open, either directly to the
Fund or through an FSF or Intermediary. Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, the Fund will delay
sending proceeds for 15 days from the date or purchase in order to protect the
Fund against financial losses and dilution in net asset value that might be
caused by dishonored purchase payment checks. To avoid delays in payment,
investors are advised to purchase shares unconditionally, such as by certified
check or other immediately available funds.
To sell shares directly to the Fund, send a signed letter of
instruction to the Transfer Agent. The sale price is the net asset value next
determined (less any applicable contingent deferred sales charge) after the Fund
or an FSF or Intermediary receives the request in proper form. Signatures must
be guaranteed by a bank, a member firm of a national stock exchange or another
eligible guarantor institution. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners and IRA holders.
Call the Transfer Agent for more information at (800) 345-6611.
FSFs and Intermediaries must receive requests before the time at which
Fund shares are valued to receive that day's price, are responsible for
furnishing all necessary documentation to the Transfer Agent and may charge for
this service.
Systematic Withdrawal Plan (Class A, B and C shares). If a
shareholder's account balance is at least $5,000, the shareholder may establish
a SWP. A specified dollar amount or percentage of the then-current net asset
value of the shareholder's investment in the Fund designated by the shareholder
will be paid monthly, quarterly or semiannually to a designated payee. The
amount or percentage the shareholder specifies generally may not, on an
annualized basis, exceed 12% of the value, as of the time the shareholder makes
the election of the shareholder's investment. Withdrawals from Class B and C
shares under a SWP will be treated as redemptions of shares purchased through
the reinvestment of Fund distributions, or, to the extent such shares in the
shareholder's account are insufficient to cover plan payments, as redemptions
from the earliest purchased Fund shares in the shareholder's account. No
contingent deferred sales charges apply to a redemption pursuant to a SWP of 12%
or less, even if, after giving effect to the redemption, the shareholder's
account balance is less than the shareholder's base amount. Qualified plan
participants who are required by Internal Revenue Code regulation to withdraw
more than 12%, on an annual basis, of the value of their Class B or C share
account may do so but will be subject to a contingent deferred sales charge
ranging from 1% to 5% of the excess over 12%. If a shareholder wishes to
participate in a SWP, the shareholder must elect to have all income dividends
and other distributions payable in Fund shares rather than in cash.
A shareholder or its FSF or Intermediary of record may establish a SWP
account by telephone on a recorded line. However, SWP checks will be payable
only to the shareholder and sent to the address of record. SWPs from retirement
accounts cannot be established by telephone.
Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of the Fund
(other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a
gain or loss for tax purposes, may involve the use of principal and may
eventually use up all of the shares in a shareholder's account.
The Fund may terminate a shareholder's SWP if the shareholder's account
balance falls below $5,000 due to any transfer or liquidation of shares other
than pursuant to the SWP. SWP payments will be terminated on receiving
satisfactory evidence of the death or incapacity of a shareholder. Until this
evidence is received, the Transfer Agent will not be liable for any payment made
in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who
participate in them is borne by the Funds as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs
or Intermediaries may not be able to participate in a SWP. If a shareholder's
Fund shares are held in "street name," the shareholder should consult his or her
FSF or Intermediary to determine whether he or she may participate in a SWP.
Telephone Redemptions. Telephone redemption privileges are described
in the Prospectus.
Non-Cash Redemptions. For redemptions of any single shareholder within
any 90-day period exceeding the lesser of $250,000 or 1% of the Fund's net asset
value, the Fund may make the payment or a portion of the payment with portfolio
securities held by the Fund instead of cash, in which case the redeeming
shareholder may incur brokerage and other costs in selling the securities
received.
How to Exchange Shares
With respect to Class A, Class B and Class C shares, exchanges at net
asset value may be made among shares of the same class of any other fund that is
a series of the Trust or of most Liberty Funds. With respect to Class A shares,
for a period of 90 days following the purchase of shares, exchanges at net asset
value may be made among Class A shares of Liberty Municipal Money Market Fund or
Liberty Government Money Market Fund (or its successor). Thereafter, exchanges
at net asset value may be made among Class A shares of any other fund that is a
series of the Trust or of most Liberty Funds. For more information on the
Liberty Funds, see your FSF or Intermediary or call (800) 345-6611.
With respect to Class Z shares, exchanges at net asset value may be
made among shares of the same class of any other fund that is a series of the
Trust. Shares may be exchanged on the basis of the net asset value per share at
the time of exchange and only one "round-trip" exchange of Class C shares may be
made per three-month period, measured from the date of the initial purchase.
Before exchanging into another fund, you should obtain the prospectus for the
fund in which you wish to invest and read it carefully. Prospectuses of Liberty
Funds are available by calling (800) 426-3750. Consult the Transfer Agent before
requesting an exchange.
By calling the Transfer Agent, shareholders or their FSF or
Intermediary of record may exchange among accounts with identical registrations,
provided that the shares are held on deposit. During periods of unusual market
changes and/or shareholder activity, shareholders may experience delays in
contacting the Transfer Agent by telephone to exercise the telephone exchange
privilege. Because an exchange involves a redemption and reinvestment in another
fund, completion of an exchange may be delayed under unusual circumstances, such
as if the Fund suspends repurchases or postpones payment for Fund shares being
exchanged in accordance with federal securities law. The Transfer Agent will
also make exchanges upon receipt of a written exchange request. If the
shareholder is a corporation, partnership, agent, or surviving joint owner, the
Transfer Agent will require customary additional documentation.
A loss to a shareholder may result from an unauthorized transaction
reasonably believed to have been authorized. No shareholder is obligated to use
the telephone to execute transactions.
In all cases, the shares to be exchanged must be registered on the
records of the Fund in the name of the shareholder desiring to exchange.
An exchange is a capital sale transaction for federal income tax
purposes. The exchange privilege may be revised, suspended or terminated at any
time.
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 U.S. are maintained in the
custody of the Bank or of other domestic banks or depositories. Portfolio
securities purchased outside of the U.S. are maintained in the custody of
foreign banks and trust companies that are members of the Bank's Global Custody
Network and foreign depositories ("foreign sub-custodians"). Each of the
domestic and foreign custodial institutions holding portfolio securities has
been approved by the Board of Trustees in accordance with regulations under the
Investment Company Act of 1940.
The Board of Trustees reviews, at least annually, whether it is in the
best interests of the Fund and their shareholders to maintain assets in each of
the countries in which the Fund invests with particular foreign sub-custodians
in such countries, pursuant to contracts between such respective foreign
sub-custodians and the Bank. The review includes an assessment of the risks of
holding assets in any such country (including risks of expropriation or
imposition of exchange controls), the operational capability and reliability of
each such foreign sub-custodian, and the impact of local laws on each such
custody arrangement. The Board of Trustees is aided in its review by the Bank,
which has assembled the network of foreign sub-custodians, as well as by Stein
Roe and counsel. However, with respect to foreign sub-custodians, there can be
no assurance that the Fund and the value of its shares will not be adversely
affected by acts of foreign governments, financial or operational difficulties
of the foreign sub-custodians, difficulties and costs of obtaining jurisdiction
over or enforcing judgments against the foreign sub-custodians, or application
of foreign law to the foreign sub-custodial arrangements. Accordingly, an
investor should recognize that the non-investment risks involved in holding
assets abroad are greater than those associated with investing in the United
States.
The Fund 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 Fund are PricewaterhouseCoopers
LLP, 160 Federal Street, Boston, MA 02110. The 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
Stein Roe places the orders for the purchase and sale of portfolio
securities and options and futures contracts for its clients, including private
clients and mutual fund clients ("Clients"). Stein Roe's overriding objective in
selecting brokers and dealers to effect portfolio transactions is to seek the
best combination of net price and execution. The best net price, giving effect
to brokerage commissions, if any, is an important factor in this decision;
however, a number of other judgmental factors may also enter into the decision.
These factors include Stein Roe's knowledge of negotiated commission rates
currently available and other current transaction costs; the nature of the
security being purchased or sold; the size of the transaction; the desired
timing of the transaction; the activity existing and expected in the market for
the particular security; confidentiality; the execution, clearance and
settlement capabilities of the broker or dealer selected and others considered;
Stein Roe's knowledge of the financial condition of the broker or dealer
selected and such other brokers and dealers; and Stein Roe's knowledge of actual
or apparent operation problems of any broker or dealer.
Recognizing the value of these factors, Stein Roe may cause a Client to
pay a brokerage commission in excess of that which another broker may have
charged for effecting the same transaction. Stein Roe has established internal
policies for the guidance of its trading personnel, specifying minimum and
maximum commissions to be paid for various types and sizes of transactions and
effected for Clients in those cases where Stein Roe has discretion to select the
broker or dealer by which the transaction is to be executed. Stein Roe has
discretion for all trades of the Funds. Transactions which vary from the
guidelines are subject to periodic supervisory review. These guidelines are
reviewed and periodically adjusted, and the general level of brokerage
commissions paid is periodically reviewed by Stein Roe. Evaluations of the
reasonableness of brokerage commissions, based on the factors described in the
preceding paragraph, are made by Stein Roe's trading personnel while effecting
portfolio transactions. The general level of brokerage commissions paid is
reviewed by Stein Roe, and reports are made annually to the Board of Trustees.
Stein Roe maintains and periodically updates a list of approved brokers
and dealers which, in Stein Roe's judgment, are generally capable of providing
best price and execution and are financially stable. Stein Roe's traders are
directed to use only brokers and dealers on the approved list, except in the
case of Client designations of brokers or dealers to effect transactions for
such Clients' accounts. Stein Roe generally posts certain Client information on
the "Alert" broker database system as a means of facilitating the trade
affirmation and settlement process.
It is Stein Roe's practice, when feasible, to aggregate for execution
as a single transaction orders for the purchase or sale of a particular security
for the accounts of several Clients, in order to seek a lower commission or more
advantageous net price. The benefit, if any, obtained as a result of such
aggregation generally is allocated pro rata among the accounts of Clients which
participated in the aggregated transaction. In some instances, this may involve
the use of an "average price" execution wherein a broker or dealer to which the
aggregated order has been given will execute the order in several separate
transactions during the course of a day at differing prices and, in such case,
each Client participating in the aggregated order will pay or receive the same
price and commission, which will be an average of the prices and commissions for
the several separate transactions executed by the broker or dealer.
Stein Roe sometimes makes use of an indirect electronic access to the
New York Stock Exchange's "SuperDOT" automated execution system, provided
through a NYSE member floor broker, W&D Securities, Inc., a subsidiary of
Jeffries & Co., Inc., particularly for the efficient execution of smaller orders
in NYSE listed equities. Stein Roe sometimes uses similar arrangements through
Billings & Co., Inc. and Driscoll & Co., Inc., floor broker members of the
Chicago Stock Exchange, for transactions to be executed on that exchange. In
using these arrangements, Stein Roe must instruct the floor broker to refer the
executed transaction to another brokerage firm for clearance and settlement, as
the floor brokers do not deal with the public. Transactions of this type
sometimes are referred to as "step-in" or "step-out" transactions. The brokerage
firm to which the executed transaction is referred may include, in the case of
transactions effected through W&D Securities, brokerage firms which provide
Stein Roe investment research or related services.
Stein Roe places certain trades for the Funds through its affiliate
AlphaTrade, Inc. ("ATI"). ATI is a wholly owned subsidiary of Colonial
Management Associates, Inc. ATI is a fully disclosed introducing broker that
limits its activities to electronic execution of transactions in listed equity
securities. The Funds pay ATI a commission for these transactions. The Funds
have adopted procedures consistent with Investment Company Act Rule 17e-1
governing such transactions. Certain of Stein Roe's officers also serve as
officers, directors and/or employees of ATI.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking best execution and such other
policies as the trustees of the Funds may determine, Stein Roe may consider
sales of shares of each of the Funds as a factor in the selection of
broker-dealers to execute such mutual fund securities transactions.
Investment Research Products and Services Furnished by Brokers and Dealers
Stein Roe engages in the long-standing practice in the money management
industry of acquiring research and brokerage products and services ("research
products") from broker-dealer firms in return directing trades for Client
accounts to those firms. In effect, Stein Roe is using the commission dollars
generated from these Client accounts to pay for these research products. The
money management industry uses the term "soft dollars" to refer to this industry
practice. Stein Roe may engage in soft dollar transactions on trades for those
Client accounts for which Stein Roe has the discretion to select the
broker-dealers.
The ability to direct brokerage for a Client account belongs to the
Client and not to Stein Roe. When a Client grants Stein Roe the discretion to
select broker-dealers for Client trades, Stein Roe has a duty to seek the best
combination of net price and execution. Stein Roe faces a potential conflict of
interest with this duty when it uses Client trades to obtain soft dollar
products. This conflict exists because Stein Roe is able to use the soft dollar
products in managing its Client accounts without paying cash ("hard dollars")
for the product. This reduces Stein Roe's expenses.
Moreover, under a provision of the federal securities laws applicable
to soft dollars, Stein Roe is not required to use the soft dollar product in
managing those accounts that generate the trade. Thus, the Client accounts that
generate the brokerage commission used to acquire the soft dollar product may
not benefit directly from that product. In effect, those accounts are cross
subsidizing Stein Roe's management of the other accounts that do benefit
directly from the product. This practice is explicitly sanctioned by a provision
of the Securities Exchange Act of 1934, which creates a "safe harbor" for soft
dollar transactions conducted in a specified manner. Although it is inherently
difficult, if not impossible, to document, Stein Roe believes that over time
most, if not all, Clients benefit from soft dollar products such that cross
subsidizations even out.
Stein Roe attempts to reduce or eliminate this conflict by directing
Client trades for soft dollar products only if Stein Roe concludes that the
broker-dealer supplying the product is capable of providing a combination of the
best net price and execution on the trade. As noted above, the best net price,
while significant, is one of a number of judgmental factors Stein Roe considers
in determining whether a particular broker is capable of providing the best net
price and execution. Stein Roe may cause a Client account to pay a brokerage
commission in a soft dollar trade in excess of that which another broker-dealer
might have charged for the same transaction.
Stein Roe acquires two types of soft dollar research products: (i)
proprietary research created by the broker-dealer firm executing the trade and
(ii) other products created by third parties that are supplied to Stein Roe
through the broker-dealer firm executing the trade.
Proprietary research consists primarily of traditional research
reports, recommendations and similar materials produced by the in house research
staffs of broker-dealer firms. This research includes evaluations and
recommendations of specific companies or industry groups, as well as analyses of
general economic and market conditions and trends, market data, contacts and
other related information and assistance. Stein Roe's research analysts
periodically rate the quality of proprietary research produced by various
broker-dealer firms. Based on these evaluations, Stein Roe develops target
levels of commission dollars on a firm-by-firm basis. Stein Roe attempts to
direct trades to each firm to meet these targets.
Stein Roe also uses soft dollars to acquire products created by third
parties that are supplied to Stein Roe through broker-dealers executing the
trade (or other broker-dealers who "step in" to a transaction and receive a
portion of the brokerage commission for the trade). These products include the
following:
o Database Services--comprehensive databases containing current and/or
historical information on companies and industries. Examples include
historical securities prices, earnings estimates, and SEC filings. These
services may include software tools that allow the user to search the
database or to prepare value-added analyses related to the investment
process (such as forecasts and models used in the portfolio management
process).
o Quotation/Trading/News Systems--products that provide real time market data
information, such as pricing of individual securities and information on
current trading, as well as a variety of news services.
o Economic Data/Forecasting Tools--various macro economic forecasting tools,
such as economic data and economic and political forecasts for various
countries or regions.
o Quantitative/Technical Analysis--software tools that assist in quantitative
and technical analysis of investment data.
o Fundamental Industry Analysis--industry-specific fundamental investment
research.
o Fixed Income Security Analysis--data and analytical tools that pertain
specifically to fixed income securities. These tools assist in creating
financial models, such as cash flow projections and interest rate
sensitivity analyses, that are relevant to fixed income securities.
o Other Specialized Tools--other specialized products, such as specialized
economic consulting analyses and attendance at investment oriented
conferences.
Many third-party products include computer software or on-line data
feeds. Certain products also include computer hardware necessary to use the
product.
Certain of these third party services may be available directly from
the vendor on a hard dollar basis. Others are available only through
broker-dealer firms for soft dollars. Stein Roe evaluates each product to
determine a cash ("hard dollars") value of the product to Stein Roe. Stein Roe
then on a product-by-product basis targets commission dollars in an amount equal
to a specified multiple of the hard dollar value to the broker-dealer that
supplies the product to Stein Roe. In general, these multiples range from 1.25
to 1.85 times the hard dollar value. Stein Roe attempts to direct trades to each
firm to meet these targets. (For example, if the multiple is 1.5:1.0, assuming a
hard dollar value of $10,000, Stein Roe will target to the broker-dealer
providing the product trades generating $15,000 in total commissions.)
The targets that Stein Roe establishes for both proprietary and for
third party research products typically will reflect discussions that Stein Roe
has with the broker-dealer providing the product regarding the level of
commissions it expects to receive for the product. However, these targets are
not binding commitments, and Stein Roe does not agree to direct a minimum amount
of commissions to any broker-dealer for soft dollar products. In setting these
targets, Stein Roe makes a determination that the value of the product is
reasonably commensurate with the cost of acquiring it. These targets are
established on a calendar year basis. Stein Roe will receive the product whether
or not commissions directed to the applicable broker-dealer are less than, equal
to or in excess of the target. Stein Roe generally will carry over target
shortages and excesses to the next year's target. Stein Roe believes that this
practice reduces the conflicts of interest associated with soft dollar
transactions, since Stein Roe can meet the non-binding expectations of
broker-dealers providing soft dollar products over flexible time periods. In the
case of third party products, the third party is paid by the broker-dealer and
not by Stein Roe. Stein Roe may enter into a contract with the third party
vendor to use the product. (For example, if the product includes software, Stein
Roe will enter into a license to use the software from the vendor.)
In certain cases, Stein Roe uses soft dollars to obtain products that
have both research and non-research purposes. Examples of non-research uses are
administrative and marketing functions. These are referred to as "mixed use"
products. As of the date of this SAI, Stein Roe acquires two mixed use products.
These are (i) a fixed income security data service and (ii) a mutual fund
performance ranking service. In each case, Stein Roe makes a good faith
evaluation of the research and non-research uses of these services. These
evaluations are based upon the time spent by Firm personnel for research and
non-research uses. Stein Roe pays the provider in cash ("hard dollars") for the
non-research portion of its use of these products.
Stein Roe may use research obtained from soft dollar trades in the
management of any of its discretionary accounts. Thus, consistent with industry
practice, Stein Roe does not require that the Client account that generates the
trade receive any benefit from the soft dollar product obtained through the
trade. As noted above, this may result in cross subsidization of soft dollar
products among Client accounts. As noted therein, this practice is explicitly
sanctioned by a provision of the Securities Exchange Act of 1934, which creates
a "safe harbor" for soft dollar transactions conducted in a specified manner.
In certain cases, Stein Roe will direct a trade to one broker-dealer
with the instruction that it execute the trade and pay over a portion of the
commission from the trade to another broker-dealer who provides Stein Roe with a
soft dollar research product. The broker-dealer executing the trade "steps out"
of a portion of the commission in favor of the other broker-dealer providing the
soft dollar product. Stein Roe may engage in step out transactions in order to
direct soft dollar commissions to a broker-dealer which provides research but
may not be able to provide best execution. Brokers who receive step out
commissions typically are brokers providing a third party soft dollar product
that is not available on a hard dollars basis. Stein Roe has not engaged in step
out transactions as a manner of compensating broker-dealers that sell shares of
investment companies managed by Stein Roe.
The table below shows information on brokerage commissions paid by the Fund :
<TABLE>
<CAPTION>
<S> <C>
----------------
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Total amount of brokerage commissions paid during fiscal year ended 9/30/99 $116,715
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Amount of commissions paid to brokers or dealers who supplied research services to
Stein Roe 77,167
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Total dollar amount involved in such transactions (000 omitted) 72,988
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Total amount of brokerage commissions paid during fiscal year ended 9/30/98 67,521
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Total amount of brokerage commissions paid during fiscal year ended 9/30/97 38,375
---------------------------------------------------------------------------------------------------------
</TABLE>
.........The Trust has arranged for its custodian to act as a soliciting dealer
to accept any fees available to the custodian as a soliciting dealer in
connection with any tender offer for portfolio securities. The custodian will
credit any such fees received against its custodial fees. In addition, the Board
of Trustees has reviewed the legal developments pertaining to and the
practicability of attempting to recapture underwriting discounts or selling
concessions when portfolio securities are purchased in underwritten offerings.
However, the Board has been advised by counsel that recapture by a mutual fund
currently is not permitted under the Rules of the Association of the National
Association of Securities Dealers.
During the last fiscal year, the Fund did not hold any securities issued
by one or more of its regular broker-dealers or the parent of such
broker-dealers that derive more than 15% of gross revenue from
securities-related activities.
ADDITIONAL INCOME TAX CONSIDERATIONS
The 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.
The Fund expects that less than 100% of its dividends will qualify for
the deduction for dividends received by corporate shareholders.
To the extent the Fund invests in foreign securities, it may be subject
to withholding and other taxes imposed by foreign countries. Tax treaties
between certain countries and the United States may reduce or eliminate such
taxes. Investors may be entitled to claim U.S. foreign tax credits with respect
to such taxes, subject to certain provisions and limitations contained in the
Code. Specifically, if more than 50% of the Fund's total assets at the close of
any fiscal year consist of stock or securities of foreign corporations, the Fund
may file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their pro rata
shares of foreign income taxes paid by the Fund even though not actually
received, (ii) treat such respective pro rata shares as foreign income taxes
paid by them, and (iii) deduct such pro rata shares in computing their taxable
incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their United States income taxes. Shareholders
who do not itemize deductions for federal income tax purposes will not, however,
be able to deduct their pro rata portion of foreign taxes paid by the Fund,
although such shareholders will be required to include their share of such taxes
in gross income. Shareholders who claim a foreign tax credit may be required to
treat a portion of dividends received from the Fund as separate category income
for purposes of computing the limitations on the foreign tax credit available to
such shareholders. Tax-exempt shareholders will not ordinarily benefit from this
election relating to foreign taxes. Each year, the Funds will notify
shareholders of the amount of (i) each shareholder's pro rata share of foreign
income taxes paid by the Fund and (ii) the portion of Fund dividends which
represents income from each foreign country, if the Fund qualifies to pass along
such credit.
INVESTMENT PERFORMANCE
The Fund may quote certain total return figures from time to time. A
"Total Return" on a per share basis is the amount of dividends distributed per
share plus or minus the change in the net asset value per share for a period. A
"Total Return Percentage" may be calculated by dividing the value of a share at
the end of a period by the value of the share at the beginning of the period and
subtracting one. For a given period, an "Average Annual Total Return" may be
computed by finding the average annual compounded rate that would equate a
hypothetical initial amount invested of $1,000 to the ending redeemable value.
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).
The total return performance as of September 30, 1999 was:*
Total Return
Percentage
1 year 20.17%
Life of Fund** 10.47
---------
*Performance information is based on Stein Roe Midcap Growth Fund
Class S. **Since inception on June 30, 1997.
Investment performance figures assume reinvestment of all dividends and
distributions and do not take into account any federal, state, or local income
taxes which shareholders must pay on a current basis. They are not necessarily
indicative of future results. The performance of the Fund is a result of
conditions in the securities markets, portfolio management, and operating
expenses. Although investment performance information is useful in reviewing the
Fund's performance and in providing some basis for comparison with other
investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods.
The Fund may note its mention or recognition in newspapers, magazines,
or other media from time to time. However, the Fund assumes no responsibility
for the accuracy of such data. Newspapers and magazines which might mention the
Fund include, but are not limited to, the following:
<PAGE>
1
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
<PAGE>
1
In advertising and sales literature, the Fund may compare its
performance with that of other mutual funds, indexes or averages of other mutual
funds, indexes of related financial assets or data, and other competing
investment and deposit products available from or through other financial
institutions. The composition of these indexes or averages differs from that of
the Fund. Comparison of the Fund to an alternative investment should be made
with consideration of differences in features and expected performance. All of
the indexes and averages noted below will be obtained from the indicated sources
or reporting services, which the Fund believes to be generally accurate. The
Fund may compare its performance to the Consumer Price Index (All Urban), a
widely recognized measure of inflation. The Fund's performance may be compared
to the following indexes or averages:
Dow-Jones Industrial Average New York Stock Exchange Composite Index
Standard & Poor's 500 Stock Index American Stock Exchange Composite Index
Standard & Poor's 400 Industrials Nasdaq Composite
Russell 2000 Index Nasdaq Industrials
Wilshire 5000
(These indexes are widely recognized (These indexes generally reflect
indicators of general U.S. stock market the performance of stocks traded
results.) in the indicated markets.)
In addition, the Fund may compare performance to the indicated
benchmarks:
------------------------------------------------------
Benchmark
------------------------------------------------------
------------------------------------------------------
Lipper Capital Appreciation Fund Average
------------------------------------------------------
------------------------------------------------------
Lipper Capital Appreciation Fund Index
------------------------------------------------------
------------------------------------------------------
Lipper Equity Fund Average
------------------------------------------------------
------------------------------------------------------
Lipper General Equity Fund Average
------------------------------------------------------
------------------------------------------------------
Morningstar Aggressive Growth Fund Average
------------------------------------------------------
------------------------------------------------------
Morningstar All Equity Funds Average
------------------------------------------------------
------------------------------------------------------
Morningstar Domestic Stock Average
------------------------------------------------------
------------------------------------------------------
Morningstar Equity Fund Average
------------------------------------------------------
------------------------------------------------------
Morningstar General Equity Average*
------------------------------------------------------
------------------------------------------------------
Value Line Index (Widely recognized indicator of performance of small-and medium
sized company stocks)
------------------------------------------------------
*Includes Morningstar Aggressive Growth, Growth,
Balanced, Equity Income, and Growth and Income
Averages.
Lipper Growth Fund Index reflects the net asset value weighted total
return of the largest thirty growth funds and thirty growth and income funds,
respectively, as calculated and published by Lipper. The Lipper and Morningstar
averages are unweighted averages of total return performance of mutual funds as
classified, calculated, and published by these independent services that monitor
the performance of mutual funds. The Fund may also use comparative performance
as computed in a ranking by Lipper or category averages and rankings provided by
another independent service. Should Lipper or another service reclassify the
Fund to a different category or develop (and place the Fund into) a new
category, the Fund may compare its performance or ranking with those of other
funds in the newly assigned category, as published by the service.
The Fund may also cite its rating, recognition, or other mention by
Morningstar or any other entity. Morningstar's rating system is based on
risk-adjusted total return performance and is expressed in a star-rating format.
The risk-adjusted number is computed by subtracting the 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 Fund may also use hypothetical returns to be used as an example in a
mix of asset allocation strategies. One such example is reflected in the chart
below, which shows the effect of tax deferral on a hypothetical investment. This
chart assumes that an investor invested $2,000 a year on January 1, for any
specified period, in both a Tax-Deferred Investment and a Taxable Investment,
that both investments earn either 6%, 8% or 10% compounded annually, and that
the investor withdrew the entire amount at the end of the period. (A tax rate of
39.6% is applied annually to the Taxable Investment and on the withdrawal of
earnings on the Tax-Deferred Investment.)
<TABLE>
<CAPTION>
Tax-Deferred Investment vs. Taxable Investment
<S> <C> <C> <C> <C> <C> <C>
Interest Rate 6% 8% 10% 6% 8% 10%
Compounding
Years Tax-Deferred Investment Taxable Investment
----- ----------------------- ------------------
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 150,484 82,067 97,780 117,014
20 62,943 75,543 91,947 59,362 68,109 78,351
15 41,684 47,304 54,099 40,358 44,675 49,514
10 24,797 26,820 29,098 24,453 26,165 28,006
5 11,178 11,613 12,072 11,141 11,546 11,965
1 2,072 2,096 2,121 2,072 2,096 2,121
</TABLE>
Dollar Cost Averaging. Dollar cost averaging is an investment strategy
that requires investing a fixed amount of money in Fund shares at set intervals.
This allows you to purchase more shares when prices are low and fewer shares
when prices are high. Over time, this tends to lower your average cost per
share. Like any investment strategy, dollar cost averaging can't guarantee a
profit or protect against losses in a steadily declining market. Dollar cost
averaging involves uninterrupted investing regardless of share price and
therefore may not be appropriate for every investor.
From time to time, the Fund may offer in its advertising and sales
literature to send an investment strategy guide, a tax guide, or other
supplemental information to investors and shareholders. It may also mention the
Stein Roe CounselorSM program and asset allocation and other investment
strategies.
APPENDIX--RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are general and
are not absolute standards of quality or guarantees as to the creditworthiness
of an issuer. Consequently, 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 ("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).
<PAGE>
<PAGE>
--------------------------------------------------------------------------------
LIBERTY DISCIPLINED STOCK FUND CLASS A PROSPECTUS, AUGUST 1, 2000
--------------------------------------------------------------------------------
STEIN ROE DISCIPLINED STOCK FUND
Advised by Stein Roe & Farnham Incorporated
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
--------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE FUND 2
--------------------------------------------------------------------------------
Investment Goal................................................................2
Principal Investment Strategies................................................2
Principal Investment Risks.....................................................3
Performance History............................................................4
Your Expenses..................................................................5
YOUR ACCOUNT 6
--------------------------------------------------------------------------------
How to Buy Shares..............................................................6
Sales Charges..................................................................7
How to Exchange Shares.........................................................9
How to Sell Shares.............................................................9
Fund Policy on Trading of Fund Shares..........................................
Distribution and Service Fees.................................................10
Other Information About Your Account..........................................11
MANAGING THE FUND 14
--------------------------------------------------------------------------------
Investment Advisor............................................................14
Portfolio Managers............................................................14
OTHER INVESTMENT
STRATEGIES AND RISKS 15
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 17
--------------------------------------------------------------------------------
</TABLE>
-----------------
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
-----------------
<PAGE>
--------------------------------------------------------------------------------
THE FUND
--------------------------------------------------------------------------------
INVESTMENT GOAL
--------------------------------------------------------------------------------
The Fund seeks long-term growth.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
The Fund invests all of its assets in SR&F Disciplined Stock Portfolio (the
"Portfolio") as part of a master fund/feeder fund structure. The Portfolio
invests primarily in common stocks of U.S. companies. The Portfolio emphasizes
companies with medium market capitalizations but may invest in companies of any
size including smaller capitalization companies. The Portfolio may also invest
up to 25% of its assets in foreign stocks. In selecting investments for the
Fund, the advisor uses a bottom-up, fundamental analysis to find well-managed
businesses selling at very attractive valuations. The advisor will generally
avoid growth stocks with very high relative price/earnings ratios and growth
rates.
The advisor may sell a portfolio holding if the security reaches the portfolio
managers' price target or if the company has a deterioration of fundamentals
such as failing to meet key operating benchmarks. The advisor may also sell a
portfolio holding to fund redemptions.
Additional strategies that are not principal investment strategies and the risks
associated with them are described below under "Other Investment Strategies and
Risks."
DEFINING CAPITALIZATION. A company's market capitalization is simply its stock
price multiplied by the number of shares of stock it has issued and outstanding.
In the financial markets, companies generally are sorted into one of three
capitalization-based categories: large capitalization (large cap); medium
capitalization (mid cap) or small capitalization (small cap). In defining a
company's market capitalization, we use capitalization-based categories as they
are defined by Morningstar, Inc.
Morningstar ranks stocks as follows: the top 5% of the 5000 largest domestic
stocks in Morningstar's equity database are classified as large cap, the next
15% of the 5000 are classified as mid cap, and the remaining 80% (as well as
companies that fall outside the largest 5000) are classified as small cap. As of
June 30, 2000, large cap companies had market capitalizations greater than
$10.5 billion, mid cap companies had market capitalizations between $1.7 and
$10.5 billion, and small cap companies had market capitalizations less than
$1.7 billion. These amounts are subject to change
---
2
<PAGE>
THE FUND
PRIMARY INVESTMENT RISKS
--------------------------------------------------------------------------------
The principal risks of investing in the Fund are described below. There are many
circumstances (including additional risks that are not described below) which
could prevent the Fund from achieving its investment goal. You may lose money by
investing in the Fund.
Management risk means that the advisor's stock selections and other investment
decisions might produce losses or cause the Fund to underperform when compared
to other funds with similar goals. Market risk means that security prices in a
market, sector or industry may move down. Downward movements will reduce the
value of your investment. Because of management and market risk, there is no
guarantee that the Fund will achieve its investment goal or perform favorably
compared with competing funds.
The securities issued by mid-capitalization companies may have more risk than
those of larger companies. These securities may be more susceptible to market
downturns, and their prices could be more volatile.
Smaller companies are more likely than larger companies to have limited product
lines, operating histories, markets or financial resources. They may depend
heavily on a small management team. Stocks of smaller companies may trade less
frequently, may trade in smaller volumes and may fluctuate more sharply in price
than stocks of larger companies. In addition, they may not be widely followed by
the investment community, which can lower the demand for their stock.
Value stocks are securities of companies that may have experienced adverse
business or industry developments or may be subject to special risks that have
caused the stocks to be out of favor and undervalued in the advisor's opinion.
If the advisor's assessment of a company's prospects is wrong, the price of its
stock may not approach the value the advisor has placed on it.
Foreign securities are subject to special risks. Foreign stock markets,
especially in countries with developing stock markets, can be extremely
volatile. The liquidity of foreign securities may be more limited than domestic
securities, which means that the Portfolio may at times be unable to sell them
at desirable prices. 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.
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.
---
3
<PAGE>
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR-YEAR TOTAL RETURNS show the Fund's Class S share performance for each
of the last ten complete calendar years. It includes the effects of Fund
expenses.
AVERAGE ANNUAL TOTAL RETURN is a measure of the Fund's Class S share performance
over the past one-year, five-year and ten-year periods. It includes the effects
of Fund expenses.
The Fund's return is compared to the S&P MidCap 400 Index, an unmanaged
broad-based measure of market performance. Unlike the Fund, indices are not
investments, do not incur fees or expenses, and are not professionally managed.
It is not possible to invest directly in indices.
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from year to year by
illustrating the Fund's calendar year total returns for its Class S shares. The
Fund did not have separate classes of shares prior to August 1, 2000; on that
date, the Fund's outstanding shares were reclassified as Class S shares. The
performance table following the bar chart shows how the Fund's average annual
total returns for Class S shares compare with those of a broad measure of market
performance for 1 year, 5 years and 10 years. The chart and table are intended
to illustrate some of the risks of investing in the Fund by showing the changes
in the Fund's performance. All returns include the reinvestment of dividends and
distributions. As with all mutual funds, past performance does not predict the
Fund's future performance.
--------------------------------------------------------------------------------
CALENDAR-YEAR TOTAL RETURNS (CLASS S)*
--------------------------------------------------------------------------------
[BAR GRAPH]
<TABLE>
<CAPTION>
<S> <C>
1990 (5.81)%
1991 34.04%
1992 14.05%
1993 20.42%
1994 (3.35)%
1995 18.73%
1996 18.81%
1997 25.94%
1998 (11.25)%
1999 10.51%
</TABLE>
The Fund's year-to-date total return through June 30, 2000 was 5.87%.
For period shown in bar chart:
Best quarter: 2nd quarter 1999, +20.87%
Worst quarter: 3rd quarter 1998, -18.13 %
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1999*
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
Disciplined Stock Fund Class S (%) 10.51 11.74 11.31
----------------------------------------------------------------------------------
S&P MidCap 400 Index (%) 14.72 23.05 17.32
</TABLE>
* Because Class A shares have not commenced operations, the bar chart and
annual total returns are shown for Class S shares, the existing fund class.
---
4
<PAGE>
THE FUND
UNDERSTANDING EXPENSES
SHAREHOLDER FEES are paid directly by shareholders to the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management fees, 12b-1 fees and administrative costs including pricing and
custody services.
EXAMPLE EXPENSES helps you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. This example reflects expenses of the Fund.
It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% return for each year
- Fund operating expenses remain the same
- Assumes reinvestment of all dividends and distributions.
YOUR EXPENSES
--------------------------------------------------------------------------------
Expenses are one of several factors to consider before you invest in a mutual
fund. The tables below describe the fees and expenses you may pay when you buy,
hold and sell shares of the Fund.
--------------------------------------------------------------------------------
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
<S> <C>
Maximum sales charge (load) on purchases
(as a percentage of the offering price) 5.75
--------------------------------------------------------------
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price) 1.00(2)
--------------------------------------------------------------
Redemption fee(3) (as a percentage of amount None
redeemed, if applicable)
</TABLE>
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
<S> <C>
Management fee (%) 0.87
--------------------------------------------------------------
Distribution and service (12b-1) fees (%) (4) 0.35
--------------------------------------------------------------
Other expenses (%) (5) 0.29
--------------------------------------------------------------
Total annual fund operating expenses (%) 1.51
</TABLE>
--------------------------------------------------------------------------------
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $720 $1,025 $1,351 $2,273
</TABLE>
(1) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
(4) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class A shares. As a result, the actual 12b-1 fee for Class A
would be 0.25% and the total annual Fund operating expenses would be 1.44%.
(5) Other expenses are based on the Fund's Class S shares.
---
5
<PAGE>
--------------------------------------------------------------------------------
YOUR ACCOUNT
--------------------------------------------------------------------------------
INVESTMENT MINIMUMS(1)
<TABLE>
<CAPTION>
<S> <C>
Initial Investment................$1,000
Subsequent Investments............$ 50
Automatic Investment Plan*........$ 50
Retirement Plans*.................$ 25
</TABLE>
* The initial investment minimum of $1,000 is
waived on this plan.
The Fund reserves the right to change the investment minimums. The Fund also
reserves the right to refuse a purchase order for any reason, including if it
believes that doing so would be in the best interest of the Fund and its
shareholders.
HOW TO BUY SHARES
--------------------------------------------------------------------------------
Your financial advisor can help you establish an appropriate investment
portfolio, buy shares and monitor your investments. When the Fund receives your
purchase request in "good form," your shares will be bought at the next
calculated public offering price. "Good form" means that you placed your order
with your brokerage firm or your payment has been received and your application
is complete, including all necessary signatures. The Fund also offers Class S
shares through a separate prospectus.
--------------------------------------------------------------------------------
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
<S> <C>
Through your Your financial advisor can help you establish your account and
financial advisor buy Fund shares on your behalf. Your financial advisor may
charge you fees for executing the purchase.
-------------------------------------------------------------------------------------
By check For new accounts, send a completed application and check made
(new account) payable to the Fund to the transfer agent, SteinRoe Services
Inc., c/o Liberty Funds Services, Inc., P.O. Box 1722, Boston,
MA 02105-1722.
-------------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your quarterly statement, or send a
letter of instruction, including your Fund name and account
number with a check made payable to the Fund to SteinRoe
Services Inc., c/o Liberty Funds Services, Inc., P.O. Box 1722,
Boston, MA 02105-1722.
-------------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares by exchanging
shares you own in one fund for shares of the same class of the
Fund at no additional cost. To exchange by telephone, call
1-800-422-3737.
-------------------------------------------------------------------------------------
By wire You may purchase shares by wiring money from your bank account
to your fund account. To wire funds to your fund account, call
1-800-422-3737 to obtain a control number and the wiring
instructions.
-------------------------------------------------------------------------------------
By electronic funds You may purchase shares by electronically transferring money
transfer from your bank account to your fund account by calling
1-800-422-3737. Your money may take up to two business days to
be invested. You must set up this feature prior to your
telephone request. Be sure to complete the appropriate section
of the application.
-------------------------------------------------------------------------------------
Automatic You can make monthly or quarterly investments automatically
investment plan from your bank account to your fund account. You can select a
pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by one fund
diversification into the same class of shares of another fund at no additional
sales charge. To invest your dividends in another fund, call
1-800-345-6611.
</TABLE>
---
6
<PAGE>
YOUR ACCOUNT
SALES CHARGES
--------------------------------------------------------------------------------
You may be subject to an initial sales charge when you purchase or a contingent
deferred sales charge (CDSC) when you sell shares of the Fund. These sales
charges are described below. In some circumstances these sales charges are
waived, as described below and in the Statement of Additional Information.
CLASS A SHARES Your purchases of Class A shares generally are at the public
offering price. This price includes a sales charge that is based on the amount
of your investment. The sales charge is the commission paid to the financial
advisor firm on the sale of Class A shares. The sales charge you pay on
additional investments is based on the total amount of your purchase and the
current value of your account. The amount of the sales charge differs depending
on the amount you invest as shown in the table below.
--------------------------------------------------------------------------------
CLASS A SALES CHARGES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF PUBLIC
OFFERING
AS A % OF AS A % PRICE
THE PUBLIC OF NET RETAINED BY
OFFERING AMOUNT FINANCIAL
AMOUNT OF PURCHASE PRICE INVESTED ADVISOR FIRM
<S> <C> <C> <C>
Less than $50,000 5.75 6.10 5.00
-------------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
-------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
-------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
-------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
-------------------------------------------------------------------------------------
$1,000,000 or more(1) 0.00 0.00 0.00
</TABLE>
For Class A share purchases of $1 million or more, financial advisors receive a
commission from Liberty Funds Distributor, Inc. (Distributor) as follows:
--------------------------------------------------------------------------------
PURCHASES OVER $1 MILLION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT PURCHASED COMMISSION %
<S> <C>
First $3 million 1.00
--------------------------------------------------------------------------------
Next $2 million 0.50
--------------------------------------------------------------------------------
Over $5 million 0.25(2)
</TABLE>
(1) Class A shares bought without an initial sales charge in accounts
aggregating between $1 million and $5 million at the time of purchase may
be subject to a 1% CDSC if the shares are sold within 12 months of the time
of purchase. Subsequent Class A share purchases that bring your account
value above $1 million are subject to a 1% CDSC if redeemed within 18
months of their purchase date. Purchases in accounts aggregating over $5
million are subject to a 1.00% CDSC only to the extent that the sale of
shares within 12 months of purchase causes the value of the accounts to
fall below the $5 million level. The 12-month period begins on the first
day of the month.
(2) Paid over 12 months but only to the extent the shares remain outstanding.
---
7
<PAGE>
YOUR ACCOUNT
REDUCED SALES CHARGES FOR LARGER INVESTMENTS There are two ways for you to pay a
lower sales charge when purchasing Class A shares. The first is through Rights
of Accumulation. If the combined value of the Fund accounts maintained by you,
your spouse or your minor children reaches a discount level (according to the
chart on the previous page), your next purchase will receive the lower sales
charge. The second is by signing a Statement of Intent within 90 days of your
purchase. By doing so, you would be able to pay the lower sales charge on all
purchases by agreeing to invest a total of at least $50,000 within 13 months. If
your Statement of Intent purchases are not completed within 13 months, you will
be charged the applicable sales charge on the amount you had invested to that
date. In addition, certain investors may purchase shares at a reduced sales
charge or NAV, which is the value of a Fund share excluding any sales charges.
See the Statement of Additional Information for a description of these
situations.
HOW TO EXCHANGE SHARES
--------------------------------------------------------------------------------
You may exchange your shares for shares of the same share class of another fund
distributed by Liberty Funds Distributor, Inc. at the next-determined NAV. If
your shares are subject to a CDSC, you will not be charged a CDSC upon the
exchange. However, when you sell the shares acquired through the exchange, the
shares sold may be subject to a CDSC, depending upon when you originally
purchased the shares you exchanged. For purposes of computing the CDSC, the
length of time you have owned your shares will be computed from the date of your
original purchase and the applicable CDSC will be the CDSC of the original Fund.
Unless your account is part of a tax-deferred retirement plan, an exchange is a
taxable event. Therefore, you may realize a gain or a loss for tax purposes. The
Fund may terminate your exchange privilege if Stein Roe determines that your
exchange activity is likely to adversely impact its ability to manage the Fund.
To exchange by telephone, call 1-800-422-3737.
HOW TO SELL SHARES
--------------------------------------------------------------------------------
Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of the Fund on any regular business day that the New
York Stock Exchange (NYSE) is open.
When the Fund receives your sales request in "good form," shares will be sold at
the next calculated price. In "good form" means that money used to purchase your
shares is fully collected. When selling shares by letter of instruction, "good
form" means (i) your letter has complete instructions, the proper signatures and
signature guarantees, (ii) you have included any certificates for shares to be
sold, and (iii) any other required documents are attached. For additional
documentation required for sales by corporations, agents, fiduciaries and
surviving joint owners, please call 1-800-345-6611. Retirement Plan accounts
have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days
(usually on the next business day after your request is received in good form).
However, if you purchased your shares by check, the Fund may delay the sale of
your shares for up to 15
---
8
<PAGE>
days after your purchase to protect against checks that are returned. No
interest will be paid on uncashed redemption checks.
------------------------------------------------------------------------------
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
<S> <C>
Through your You may call your financial advisor to place your sell order.
financial advisor To receive the current trading day's price, your financial
advisor firm must receive your request prior to the close
of the NYSE, usually 4:00 p.m. Eastern time.
-------------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares by exchanging from
the Fund into the same share class of another fund at no
additional cost. To exchange by telephone, call 1-800-422-3737.
-------------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares by telephone and
request that a check be sent to your address of record by
calling 1-800-422-3737 unless you have notified the Fund of an
address change within the previous 30 days. The dollar limit
for telephone sales is $100,000 in a 30-day period. You do not
need to set up this feature in advance of your call. Certain
restrictions apply to retirement accounts. For details, call
1-800-345-6611.
-------------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or stock power form
along with any certificates to be sold to the address below.
In your letter of instruction, note your fund's name, share
class, account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter, and
signatures must be guaranteed by either a bank, a member firm
of a national stock exchange or another eligible guarantor
institution. Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners and
individual retirement account (IRA) owners. For details, call
1-800-345-6611.
Mail your letter of instruction to SteinRoe Services Inc., c/o
Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA
02105-1722.
-------------------------------------------------------------------------------------
By wire You may sell shares and request that the proceeds be wired to
your bank. You must set up this feature prior to your telephone
request. Be sure to complete the appropriate section of the
account application for this feature.
-------------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage on a monthly, quarterly or semi-annual basis if your
account balance is at least $5,000 and have the proceeds
sent to you. This feature is not available if you hold
your shares in certificate form. Be sure to complete the
appropriate section of the account application for this
feature.
-------------------------------------------------------------------------------------
By electronic You may sell shares and request that the proceeds be
funds transfer electronically transferred to your bank. Proceeds may take up
to two business days to be received by your bank. You must
set up this feature prior to your request. Be sure to
complete the appropriate section of the account
application for this feature.
</TABLE>
FUND POLICY ON TRADING OF FUND SHARES
--------------------------------------------------------------------------------
The Fund does not permit short-term or excessive trading. Excessive purchases,
redemption, or exchanges of Fund shares disrupt portfolio management and drive
Fund expenses higher. In order to promote the best interests of the Fund, the
Fund reserves the right to reject any purchase order or exchange request,
particularly from market timers or investors who, in the advisor's opinion, have
a pattern or short-term of excessive trading or whose trading has been or may be
disruptive to the Fund. The Fund into which you would like to exchange also may
reject your request.
---
9
<PAGE>
YOUR ACCOUNT
DISTRIBUTION AND SERVICE FEES
--------------------------------------------------------------------------------
The Fund has adopted a plan under Rule 12b-1 that permits it to pay marketing
and other fees to support the sale and distribution of Class A shares and the
services provided to you by your financial advisor. The annual distribution and
service fees may equal up to 0.35% for Class A shares and are paid out of the
assets of the class. Over time, these fees will increase the cost of your shares
and may cost you more than paying other types of sales charges.
---
10
<PAGE>
YOUR ACCOUNT
OTHER INFORMATION ABOUT YOUR ACCOUNT
--------------------------------------------------------------------------------
HOW THE FUND'S SHARE PRICE IS DETERMINED The price of the Fund's shares is based
on its net asset value. The net asset value is determined at the close of
regular session trading on the NYSE, usually 4:00 p.m. Eastern time on each
business day that the NYSE is open (typically Monday through Friday).
When you request a transaction, it will be processed at the net asset value,
(plus any applicable sales charge) next determined after your request is
received in "good form" by the distributor. In most cases, in order to receive
that day's price, the distributor must receive your order before that day's
transactions are processed. If you request a transaction through your financial
advisor firm, the firm must receive your order by the close of trading on the
NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing the
class's total net assets by the number of the class's shares outstanding. In
determining the net asset value, the Fund must determine the price of each
security in its portfolio at the close of each trading day. Because the Fund
holds securities that are traded on foreign exchanges, the value of the Fund's
securities may change on days when shareholders will not be able to buy or sell
Fund shares. This will affect the Fund's net asset value on the day it is next
determined. Securities for which market quotations are available are valued each
day at the current market value. However, where market quotations are
unavailable, or when the advisor believes that subsequent events have made them
unreliable, the Fund may use other data to determine the fair value of the
securities.
You can find the daily prices of some share classes for the Fund in most major
daily newspapers under the caption "Liberty." You can find daily prices for all
share classes by visiting the Fund's web site at www.libertyfunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of
depreciation in share value), you may be subject to an annual account fee of
$10. This fee is deducted from the account in June each year. Approximately 60
days prior to the fee date, the Fund's transfer agent will send you written
notification of the upcoming fee. If you add money to your account and bring the
value above $1,000 prior to the fee date, the fee will not be deducted.
---
11
<PAGE>
YOUR ACCOUNT
UNDERSTANDING FUND DISTRIBUTIONS
The Fund earns income from the securities it holds. The Fund also may realize
capital gains and losses on sales of its securities. The Fund distributes
substantially all of its net investment income and capital gains to
shareholders. As a shareholder, you are entitled to a portion of the Fund's
income and capital gains based on the number of shares you own at the time these
distributions are declared.
SHARE CERTIFICATES Certificates will be issued for Class A shares only if
requested. If you decide to hold share certificates, you will not be able to
sell your shares until you have endorsed your certificates and returned them to
the Distributor.
DIVIDENDS, DISTRIBUTIONS, AND TAXES The Fund has the potential to make the
following distributions:
--------------------------------------------------------------------------------
TYPES OF DISTRIBUTIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Dividend income Represents interest and dividends earned from securities held
by the Fund
-------------------------------------------------------------------------------------
Capital gains Represents long-term capital gains on sales of securities held
for more than 12 months and short-term capital gains, which are
gains on sales of securities held by the Fund for a 12-month
period or less.
</TABLE>
DISTRIBUTION OPTIONS The Fund distributes dividends and any capital gains
(including short-term capital gains) at least annually. You can choose one of
the options listed in the table below for these distributions when you open your
account. To change your distribution option call 1-800-345-6611.
If you do not indicate on your application your preference for handling
distributions, the Fund will automatically reinvest all distributions in
additional shares of the Fund
--------------------------------------------------------------------------------
DISTRIBUTION OPTIONS
--------------------------------------------------------------------------------
Reinvest all distributions in additional shares of your current fund
-------------------------------------------------------------------------------
Reinvest all distributions in shares of another fund
-------------------------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest capital gains(1)
-------------------------------------------------------------------------------
Receive all distributions in cash (with one of the following options)(1):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds transfer
TAX CONSEQUENCES Regardless of whether you receive your distributions in cash or
reinvest them in additional Fund shares, all Fund distributions are subject to
federal income tax. Depending on the state where you live, distributions may
also be subject to state and local income taxes.
(1) Distributions of $10 or less will automatically be reinvested in additional
Fund shares. If you elect to receive distributions by check and the check
is returned as undeliverable, or if you do not cash a distribution check
within six months of the check date, the distribution will be reinvested in
additional shares of the Fund.
---
12
<PAGE>
YOUR ACCOUNT
In general, any distributions of dividends, interest and short-term capital
gains distributions are taxable as ordinary income. Distributions of long-term
capital gains are generally taxable as such, regardless of how long you have
held your Fund shares. You will be provided with information each year regarding
the ordinary income and capital gains distributed to you for the previous year
and any portion of your distribution which is exempt from state and local taxes.
Your investment in the Fund may have additional personal tax implications.
Please consult your tax advisor on federal, state, local or other applicable tax
laws.
In addition to the dividends and capital gains distributions made by the Fund,
you may realize a capital gain or loss when selling and exchanging shares of the
Fund. Such transactions may be subject to federal, state, local and foreign
income tax.
----
13
<PAGE>
--------------------------------------------------------------------------------
MANAGING THE FUNDS
--------------------------------------------------------------------------------
INVESTMENT ADVISOR
--------------------------------------------------------------------------------
Stein Roe & Farnham Incorporated (Stein Roe), located at One South Wacker Drive,
Suite 3500, Chicago, Illinois 60606, is the Fund's investment advisor. In its
duties as investment advisor, Stein Roe runs the Fund's day-to-day business,
including placing all orders for the purchase and sale of portfolio securities
for the Portfolio. Stein Roe has been an investment advisor since 1932. As of
June 30, 2000, Stein Roe managed over [$29.7] billion in assets.
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 Fund. 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.
For the fiscal year ended September 30, 1999, the Fund paid 0.87% of average net
assets in fees to Stein Roe.
Stein Roe may use the services of AlphaTrade, Inc., an affiliated broker-dealer,
when buying or selling equity securities for the Portfolio, pursuant to
procedures adopted by the Board of Trustees.
PORTFOLIO MANAGERS
--------------------------------------------------------------------------------
DANIEL K. CANTOR joined Stein Roe in 1985 as an equity analyst and served as an
advisor to Stein Roe Private Capital Management from 1992 to 1995. Mr. Cantor is
a senior vice president. A chartered financial analyst, he received a B.A.
degree from the University of Rochester and an M.B.A. degree from the Wharton
School of the University of Pennsylvania. He has managed the Fund and Portfolio
since May 1999.
JEFFREY C. KINZEL joined Stein Roe in 1991. He has served as a senior equity
analyst and core portfolio team member for Stein Roe in addition to his
portfolio management responsibilities. He is a senior vice president of Stein
Roe. A certified financial analyst, he holds a bachelor's degree from
Northwestern University, a law degree from the University of Michigan, and a
master's degree in business administration from the Wharton School of the
University of Pennsylvania. He has co-managed the Fund since November 1999.
---
14
<PAGE>
--------------------------------------------------------------------------------
OTHER INVESTMENT STRATEGIES AND RISKS
--------------------------------------------------------------------------------
UNDERSTANDING THE FUND'S OTHER INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment strategies and risks are described under "The
Fund - Principal Investment Strategies" and "The Fund - Principal Investment
Risks." In seeking to meet its investment goal, the Fund may also invest in
other securities and use certain other investment techniques. These securities
and investment techniques offer opportunities and carry various risks.
The advisor may elect not to buy any of these securities or use any of these
techniques unless it believes that doing so will help the Fund achieve its
investment goal. The Fund may not always achieve its investment goal.
Additional information about the Fund's securities and investment techniques, as
well as the Fund's fundamental and non-fundamental investment policies, is
contained in the Statement of Additional Information.
The Fund's principal investment strategies and their associated risks are
described above. This section describes other investments the Fund may make and
the risks associated with them. In seeking to achieve its investment goals, the
Fund may invest in various types of securities and engage in various investment
techniques which are not the principal focus of the Fund and therefore are not
described in this prospectus. These types of securities and investment practices
are identified and discussed in the Fund's Statement of Additional Information,
which you may obtain free of charge (see back cover). Approval by the Fund's
shareholders is not required to modify or change any of the Fund's investment
goal or investment strategies.
PORTFOLIO TURNOVER
--------------------------------------------------------------------------------
There are no limits on turnover. Turnover may vary significantly from year to
year. Stein Roe does not expect it to exceed 150% under normal conditions. The
Fund generally intends to purchase securities for long-term investment although,
to a limited extent, it may purchase securities 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 the Fund's return.
TEMPORARY DEFENSIVE POSITIONS
--------------------------------------------------------------------------------
When Stein Roe believes that a temporary defensive position is necessary, the
Fund may invest, without limit, in high-quality debt securities or hold assets
in cash and cash equivalents. Stein Roe is not required to take a temporary
defensive position, and market conditions may prevent such an action. The Fund
may not achieve its investment objective if it takes a temporary defensive
position.
INTERFUND LENDING PROGRAM
--------------------------------------------------------------------------------
The Fund may lend money to and borrow money from other funds advised by Stein
Roe. It 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.
MASTER/FEEDER STRUCTURE
--------------------------------------------------------------------------------
Unlike mutual funds that directly acquire and manage their own portfolio of
securities, the Fund is a "feeder" fund in a "master/feeder" structure. This
means that the Fund invests its assets in a larger "master" portfolio of
securities, which has investment objectives and policies substantially identical
to those of the Fund. The investment performance of the Fund depends upon the
investment performance of the Portfolio.
---
15
<PAGE>
If the investment policies of the Portfolio and the Fund became inconsistent,
the Board of Trustees of the Fund can decide what actions to take. Actions the
Board of Trustees may recommend include withdrawal of the Fund's assets from the
Portfolio. For more information on the master/feeder fund structure, see the
Statement of Additional Information.
---
16
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the financial
performance of the Fund. Because Class A shares have not commenced operations,
the Fund's Class S shares, the Fund's existing class is shown. Information is
shown for the Fund's last five fiscal years. The fiscal year runs from October 1
to September 30. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that you would
have earned (or lost) on an investment in the Fund (assuming reinvestment of all
dividends and distributions). The information for 1999 has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report, along with
the Fund's financial statements, is included in the annual report. Arthur
Andersen LLP audited the Fund's financial statements for the years 1995 through
1998. The information for the period ending March 31, 2000 is unaudited. You can
request a free annual report by calling 1-800-426-3750.
--------------------------------------------------------------------------------
THE FUND(a)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Six months ended
March 31, Years ended September 30,
2000 1999 1998 1997 1996 1995
Class S Class S Class S Class S Class S
<S> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period ($) 22.61 24.48 33.79 27.39 25.26 23.54
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($)
Net investment income (loss) (a) 0.05 0.17 0.07 (0.06) 0.01 0.13
------------------------------------------------------------------------------------------------------------------------------------
Net gains(losses) on securities
(both realized and unrealized) 1.55 2.64 (6.06) 8.57 4.14 3.05
------------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 1.60 2.81 (5.99) 8.51 4.15 3.18
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends (from net investment income) (0.11) (0.11) -- -- (0.11) (0.15)
------------------------------------------------------------------------------------------------------------------------------------
Distributions (from capital gains) (5.00) (4.57) (3.32) (2.11) (1.91) (1.31)
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (5.11) (4.68) (3.32) (2.11) (2.02) (1.46)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $19.10 $22.61 $24.48 $33.79 $27.39 $25.26
------------------------------------------------------------------------------------------------------------------------------------
Total return 9.53%(e) 13.57% (19.17)% 33.67% 17.89% 14.60%
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000
omitted) ) $518,318 $593,526 $911,650 $1,327,578 $1,158,498 $1,201,469
------------------------------------------------------------------------------------------------------------------------------------
Ratio of net expenses to
average net assets 1.22%(d) 1.16%(b) 1.13% 1.14% 1.18% 1.02%
------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets 0.53%(d) 0.63%(b) 0.21% (0.17%) 0.03% 0.56%
------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate N/A N/A N/A 7%(c) 32%(c) 41%(c)
</TABLE>
(a) Per share data was calculated using average shares outstanding during the
year.
(b) During the year ended September 30, 1999,the Fund experienced a one-time
reduction in its expenses of nine basis points as a result of expenses
accrued in a prior period. The Fund's ratio disclosed above reflect the
actual rate at which expenses were incurred throughout the current fiscal
year without the reduction.
(c) Prior to commencement of operations of the Portfolio.
(d) Annualized
(e) Not annualized
---
17
<PAGE>
--------------------------------------------------------------------------------
NOTES
--------------------------------------------------------------------------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
---
18
<PAGE>
NOTES
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
---
19
<PAGE>
FOR MORE INFORMATION
--------------------------------------------------------------------------------
You can get more information about the Fund's investments in the Fund's
semi-annual and annual reports to shareholders. The annual report contains a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance over its last fiscal year.
You may wish to read the Statement of Additional Information for more
information on the Fund and the securities in which it invests. The Statement of
Additional Information is incorporated into this prospectus by reference, which
means that it is considered to be part of this prospectus.
You can get free copies of reports and the Statement of Additional Information,
request other information and discuss your questions about the Fund by writing
or calling the Fund's distributor at:
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.libertyfunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from
the SEC at www.sec.gov.
You can review and copy information about the Fund by visiting the following
location and you can obtain copies, upon payment of a duplicating fee, by
writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
INVESTMENT COMPANY ACT FILE NUMBER:
Liberty-Stein Roe Funds Investment Trust: 811-4978
- Stein Roe Disciplined Stock Fund
--------------------------------------------------------------------------------
[LIBERTY FUNDS LOGO]
ALL-STAR - COLONIAL - CRABBE HUSON - NEWPORT - STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (c)1999
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
www.libertyfunds.com
<PAGE>
<PAGE>
<PAGE>
--------------------------------------------------------------------------------
LIBERTY LARGE COMPANY FOCUS FUND CLASS A PROSPECTUS, AUGUST 1, 2000
--------------------------------------------------------------------------------
STEIN ROE LARGE COMPANY FOCUS FUND
Advised by Stein Roe & Farnham Incorporated
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
TABLE OF CONTENTS
THE FUND 2
--------------------------------------------------------------------------------
Investment Goal.............................................................. 2
Principal Investment Strategies.............................................. 2
Principal Investment Risks .................................................. 3
Performance History ......................................................... 4
Your Expenses................................................................ 5
YOUR ACCOUNT 6
--------------------------------------------------------------------------------
How to Buy Shares ........................................................... 6
Sales Charges ............................................................... 7
How to Exchange Shares....................................................... 9
How to Sell Shares .......................................................... 9
Fund Policy on Trading of Fund Shares........................................
Distribution and Service Fees ............................................... 10
Other Information About Your Account......................................... 11
MANAGING THE FUND 14
--------------------------------------------------------------------------------
Investment Advisor........................................................... 14
Portfolio Manager............................................................ 14
OTHER INVESTMENT
STRATEGIES AND RISKS 15
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 17
--------------------------------------------------------------------------------
-----------------
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
-----------------
<PAGE>
--------------------------------------------------------------------------------
THE FUND
--------------------------------------------------------------------------------
INVESTMENT GOALS
--------------------------------------------------------------------------------
The Fund seeks long-term growth.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
The Fund invests primarily in a limited number of large capitalization companies
that the portfolio manager believes have above-average growth potential. As a
"focus" fund, under normal conditions, the Fund will primarily hold between
15-25 common stocks. To select investments for the Fund, the portfolio manager
considers companies that are dominant in their particular industries or markets
that can generate consistent earnings growth. The portfolio manager selects
investments across many sectors. Since the Fund is "non-diversified," the
percentage of assets that it may invest in any one issuer is not limited. The
Fund may invest up to 25% of its assets in foreign stocks.
The portfolio manager may sell a portfolio holding if the security reaches the
portfolio manager's price target or if the company has a deterioration of
fundamentals such as failing to meet key operating benchmarks. The portfolio
manager may also sell a portfolio holding to fund redemptions.
Additional strategies that are not principal investment strategies and the risks
associated with them are described below under "Other Investment Strategies and
Risks."
DEFINING CAPITALIZATION. A company's market capitalization is simply its stock
price multiplied by the number of shares of stock it has issued and outstanding.
In the financial markets, companies generally are sorted into one of three
capitalization-based categories: large capitalization (large cap); medium
capitalization (mid cap) or small capitalization (small cap). In defining a
company's market capitalization, we use capitalization-based categories as they
are defined by Morningstar, Inc.
Morningstar ranks stocks as follows: the top 5% of the 5000 largest domestic
stocks in Morningstar's equity database are classified as large cap, the next
15% of the 5000 are classified as mid cap, and the remaining 80% (as well as
companies that fall outside the largest 5000) are classified as small cap. As of
June 30, 2000, large cap companies had market capitalizations greater than
$10.5 billion, mid cap companies had market capitalizations between $1.7 and
$10.5 billion, and small cap companies had market capitalizations less than
$1.7 billion. These amounts are subject to change
---
2
<PAGE>
THE FUND
PRINCIPAL INVESTMENT RISKS
--------------------------------------------------------------------------------
The principal risks of investing in the Fund are described below. There are many
circumstances (including additional risks that are not described below) which
could prevent the Fund from achieving its investment goal. You may lose money by
investing in the Fund.
Management risk means that the advisor's stock selections and other investment
decisions might produce losses or cause the Fund to underperform when compared
to other funds with similar goals. Market risk means that security prices in a
market, sector or industry may move down. Downward movements will reduce the
value of your investment. Because of management and market risk, there is no
guarantee that the Fund will achieve its investment goal or perform favorably
compared with competing funds.
The Fund invests in a limited number of stocks and it owns a higher
concentration in a single stock than a "diversified" Fund. As a result, a single
stock's increase or decrease in value may have a greater impact on the Fund's
net asset value and cause the Fund's net asset value to fluctuate more than the
net asset value of diversified growth funds.
Foreign securities are subject to special risks. Foreign stock markets,
especially in countries with developing stock markets, can be extremely
volatile. The liquidity of foreign securities may be more limited than domestic
securities, which means that the Portfolio may at times be unable to sell them
at desirable prices. 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.
An investment in the Fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency. It
is not a complete investment program and you can lose money by investing in the
Fund.
Information on other securities and risks appears under "Other Investment
Strategies and Risks."
---
3
<PAGE>
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR-YEAR TOTAL RETURNS show the Fund's Class S share performance for the
last complete calendar year. It includes the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURN is a measure of the Fund's Class S share performance
over the past one-year period and the life of the Fund. It includes the effects
of Fund expenses.
The Fund's return is compared to the S&P 500 Index, an unmanaged broad-based
measure of market performance. Unlike the Fund, indices are not investments, do
not incur fees or expenses, and are not professionally managed. It is not
possible to invest directly in indices.
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from year to year by
illustrating the Fund's calendar year total returns for its Class S shares. The
Fund did not have separate classes of shares prior to August 1, 2000; on that
date, the Fund's outstanding shares were reclassified as Class S shares. The
performance table following the bar chart shows how the Fund's average annual
total returns for Class S shares compare with those of a broad measure of market
performance for 1 year and the life of the Fund. The chart and table are
intended to illustrate some of the risks of investing in the Fund by showing the
changes in the Fund's performance. All returns include the reinvestment of
dividends and distributions. As with all mutual funds, past performance does not
predict the Fund's future performance.
--------------------------------------------------------------------------------
CALENDAR-YEAR TOTAL RETURNS (CLASS S)*
--------------------------------------------------------------------------------
[CHART]
1999...................................................... 37.99%
For period shown in bar chart:
The Fund's year-to-date total return
through June 30, 2000 was 1.03%. Best quarter: 4th quarter 1999, +20.90
Worst quarter: 3rd quarter 1990, -12.87%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 1999*
--------------------------------------------------------------------------------
SINCE
INCEPTION
(JUNE 26,
1 YEAR 1998)**
Large Company Focus Fund, Class S (%) 37.99 26.36
-------------------------------------- --------------- --------------
S&P 500 Index (%) 21.03 20.46
* Because Class A shares have not commenced operations, the bar chart and
annual total return are shown for Class S, existing Fund class.
** Since inception performance for the S&P 500 Index is from June 30, 1998 to
December 31, 1999.
---
4
<PAGE>
THE FUND
UNDERSTANDING EXPENSES
SHAREHOLDER FEES are paid directly by shareholders to the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management fees, 12b-1 fees and administrative costs including pricing and
custody services.
EXAMPLE EXPENSES helps you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. This example reflects expenses of the Fund.
It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% return for each year
- Fund operating expenses remain the same
YOUR EXPENSES
--------------------------------------------------------------------------------
Expenses are one of several factors to consider before you invest in a mutual
fund. The tables below describe the fees and expenses you may pay when you buy,
hold and sell shares of the Fund.
--------------------------------------------------------------------------------
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
--------------------------------------------------------------------------------
CLASS A
Maximum sales charge (load) on purchases
(as a percentage of the offering price) 5.75
--------------------------------------------------- -----------
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price) 1.00(2)
--------------------------------------------------- -----------
Redemption fee(3) (as a percentage of amount None
redeemed, if applicable)
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
--------------------------------------------------------------------------------
CLASS A
Management fee (%) 0.90
--------------------------------------------------- -----------
Distribution and service (12b-1) fees (%) (4) 0.35
--------------------------------------------------- -----------
Other expenses (%) (5) 0.71
--------------------------------------------------- -----------
Total annual fund operating expenses (%) 1.96
--------------------------------------------------- -----------
Expense reimbursement (%) 6) (0.11)
--------------------------------------------------- -----------
Net expenses (%) 1.85
--------------------------------------------------------------------------------
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
--------------------------------------------------------------------------------
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $752 $1,145 $1,562 $2,721
(1) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(2) This charge applies only to certain Class A shares bought without an initial
sales charge that are sold within 18 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
(4) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class A shares. As a result, the actual 12b-1 fee for Class A
would be 0.25% and the total annual Fund operating expenses would be 1.75%.
(5) Other expenses are based on the Fund's Class S shares.
(6) Stein Roe will reimburse the Fund if its ordinary operating expenses exceed
1.50% of annual average net assets. The expense undertaking expires on
January 31, 2001. After reimbursement, management fees will be 0.79%. A
reimbursement lowers the expense ratio and increases overall return to
investors.
---
5
<PAGE>
--------------------------------------------------------------------------------
YOUR ACCOUNT
--------------------------------------------------------------------------------
INVESTMENT MINIMUMS
Initial Investment .................... $1,000
Subsequent Investments................. $50
Automatic Investment Plan* ............ $50
Retirement Plans*...................... $25
* The initial investment of $1,000 is waived on this plan.
The Fund reserves the right to change the investment minimums. The Fund also
reserves the right to refuse a purchase order for any reason, including if it
believes that doing so would be in the best interest of the Fund and its
shareholders.
HOW TO BUY SHARES
--------------------------------------------------------------------------------
Your financial advisor can help you establish an appropriate investment
portfolio, buy shares and monitor your investments. When the Fund receives your
purchase request in "good form," your shares will be bought at the next
calculated public offering price. In "good form" means that you placed your
order with your brokerage firm or your payment has been received and your
application is complete, including all necessary signatures. The Fund also
offers Class S shares through a separate prospectus.
--------------------------------------------------------------------------------
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
<S> <C>
Through your Your financial advisor can help you establish your account and
financial advisor buy Fund shares on your behalf. Your financial advisor may
charge you fees for executing the purchase for you.
-------------------- -----------------------------------------------------------------
By check For new accounts, send a completed application and check made
(new account) payable to the Fund to the transfer agent, SteinRoe Services
Inc., c/o Liberty Funds Services, Inc., P.O. Box 1722, Boston,
MA 02105-1722.
-------------------- -----------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your quarterly statement, or send a
letter of instruction, including your Fund name and account
number with a check made payable to the Fund to SteinRoe
Services Inc., c/o Liberty Funds Services, Inc., P.O. Box 1722,
Boston, MA 02105-1722.
-------------------- -----------------------------------------------------------------
By exchange You or your financial advisor may acquire shares
by exchanging shares you own in one fund for shares of the
same class of the Fund at no additional cost. To exchange
by telephone, call 1-800-422-3737.
-------------------- -----------------------------------------------------------------
By wire You may purchase shares by wiring money from your
bank account to your fund account. To wire funds to your
fund account, call 1-800-422-3737 to obtain a control
number and the wiring instructions.
-------------------- -----------------------------------------------------------------
By electronic You may purchase shares by electronically transferring money
funds transfer from your bank account to your fund account by calling
1-800-422-3737. Your money may take up to two business days to
be invested. You must set up this feature prior to your
telephone request. Be sure to complete the appropriate section
of the application.
-------------------- -----------------------------------------------------------------
Automatic You can make monthly or quarterly investments automatically
investment plan from your bank account to your fund account. You can select a
pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------- -----------------------------------------------------------------
By dividend You may automatically invest dividends distributed by one fund
diversification into the same class of shares of another fund at no additional
sales charge. To invest your dividends in another fund, call
1-800-345-6611.
</TABLE>
---
6
<PAGE>
YOUR ACCOUNT
SALES CHARGES
--------------------------------------------------------------------------------
You may be subject to an initial sales charge when you purchase or a contingent
deferred sales charge (CDSC) when you sell shares of the Fund. These sales
charges are described below. In some circumstances these sales charges are
waived, as described below and in the Statement of Additional Information.
CLASS A SHARES Your purchases of Class A shares generally are at the public
offering price. This price includes a sales charge that is based on the amount
of your investment. The sales charge is the commission paid to the financial
advisor firm on the sale of Class A shares. The sales charge you pay on
additional investments is based on the total amount of your purchase and the
current value of your account. The amount of the sales charge differs depending
on the amount you invest as shown in the table below.
--------------------------------------------------------------------------------
CLASS A SALES CHARGES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF PUBLIC
OFFERING
AS A % OF AS A % PRICE
THE PUBLIC OF NET RETAINED BY
OFFERING AMOUNT FINANCIAL
AMOUNT OF PURCHASE PRICE INVESTED ADVISOR FIRM
<S> <C> <C> <C>
Less than $50,000 5.75 6.10 5.00
------------------------------------------- -------------- ------------- --------------
$50,000 to less than $100,000 4.50 4.71 3.75
------------------------------------------- -------------- ------------- --------------
$100,000 to less than $250,000 3.50 3.63 2.75
------------------------------------------- -------------- ------------- --------------
$250,000 to less than $500,000 2.50 2.56 2.00
------------------------------------------- -------------- ------------- --------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
------------------------------------------- -------------- ------------- --------------
$1,000,000 or more(1) 0.00 0.00 0.00
</TABLE>
For Class A share purchases of $1 million or more, financial advisors receive a
commission from Liberty Funds Distributor, Inc. (Distributor) as follows:
--------------------------------------------------------------------------------
PURCHASES OVER $1 MILLION
--------------------------------------------------------------------------------
AMOUNT PURCHASED COMMISSION %
--------------------------------------------------------------------------------
First $3 million 1.00
--------------------------------------------------------------------------------
Next $2 million 0.50
--------------------------------------------------------------------------------
Over $5 million 0.25(2)
(1) Class A shares bought without an initial sales charge in accounts
aggregating between $1 million and $5 million at the time of purchase may be
subject to a 1% CDSC if the shares are sold within 12 months of the time of
purchase. Subsequent Class A share purchases that bring your account value
above $1 million are subject to a 1% CDSC if redeemed within 18 months of
their purchase date. Purchases in accounts aggregating over $5 million are
subject to a 1.00% CDSC only to the extent that the sale of shares within
12 months of purchase causes the value of the accounts to fall below the
$5 million level. The 12-month period begins on the first day of the month.
(2) Paid over 12 months but only to the extent the shares remain outstanding.
---
7
<PAGE>
YOUR ACCOUNT
REDUCED SALES CHARGES FOR LARGER INVESTMENTS There are two ways for you to pay a
lower sales charge when purchasing Class A shares. The first is through Rights
of Accumulation. If the combined value of the Fund accounts maintained by you,
your spouse or your minor children reaches a discount level (according to the
chart on the previous page), your next purchase will receive the lower sales
charge. The second is by signing a Statement of Intent within 90 days of your
purchase. By doing so, you would be able to pay the lower sales charge on all
purchases by agreeing to invest a total of at least $50,000 within 13 months. If
your Statement of Intent purchases are not completed within 13 months, you will
be charged the applicable sales charge on the amount you had invested to that
date. In addition, certain investors may purchase shares at a reduced sales
charge or NAV, which is the value of a Fund share excluding any sales charges.
See the Statement of Additional Information for a description of these
situations.
HOW TO EXCHANGE SHARES
--------------------------------------------------------------------------------
You may exchange your shares for shares of the same share class of another fund
distributed by Liberty Funds Distributor, Inc. at the next-determined net asset
value. If your shares are subject to a CDSC, you will not be charged a CDSC upon
the exchange. However, when you sell the shares acquired through the exchange,
the shares sold may be subject to a CDSC, depending upon when you originally
purchased the shares you exchanged. For purposes of computing the CDSC, the
length of time you have owned your shares will be computed from the date of your
original purchase and the applicable CDSC will be the CDSC of the original Fund.
Unless your account is part of a tax-deferred retirement plan, an exchange is a
taxable event. Therefore, you may realize a gain or a loss for tax purposes. The
Fund may terminate your exchange privilege if Stein Roe determines that your
exchange activity is likely to adversely impact its ability to manage the Fund.
To exchange by telephone, call 1-800-422-3737.
HOW TO SELL SHARES
--------------------------------------------------------------------------------
Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of the Fund on any regular business day that the New
York Stock Exchange (NYSE) is open.
When the Fund receives your sales request in "good form," shares will be sold at
the next calculated price. In "good form" means that money used to purchase your
shares is fully collected. When selling shares by letter of instruction, "good
form" means (i) your letter has complete instructions, the proper signatures and
signature guarantees, (ii) you have included any certificates for shares to be
sold, and (iii) any other required documents are attached. For additional
documentation required for sales by corporations, agents, fiduciaries and
surviving joint owners, please call 1-800-345-6611. Retirement Plan accounts
have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days
(usually on the next business day after your request is received in good form).
However, if you purchased your shares by check, the Fund may delay the sale of
your shares for up to 15
---
8
<PAGE>
days after your purchase to protect against checks that are returned. No
interest will be paid on uncashed redemption checks.
--------------------------------------------------------------------------------
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
<S> <C>
Through your You may call your financial advisor to place your sell order.
financial advisor To receive the current trading day's price, your financial
advisor firm must receive your request prior to the close
of the NYSE, usually 4:00 p.m. Eastern time.
-------------------- -----------------------------------------------------------------
By exchange You or your financial advisor may sell shares by
exchanging from the Fund into the same share class of
another fund at no additional cost. To exchange by
telephone, call 1-800-422-3737.
-------------------- -----------------------------------------------------------------
By telephone You or your financial advisor may sell shares by telephone and
request that a check be sent to your address of record by
calling 1-800-422-3737 unless you have notified the Fund of an
address change within the previous 30 days. The dollar limit
for telephone sales is $100,000 in a 30-day period. You do not
need to set up this feature in advance of your call. Certain
restrictions apply to retirement accounts. For details, call
1-800-345-6611.
-------------------- -----------------------------------------------------------------
By mail You may send a signed letter of instruction or stock power form
along with any certificates to be sold to the address below.
In your letter of instruction, note your fund's name, share
class, account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter, and
signatures must be guaranteed by either a bank, a member firm
of a national stock exchange or another eligible guarantor
institution. Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners and
individual retirement account (IRA) owners. For details, call
1-800-345-6611.
Mail your letter of instruction to SteinRoe Services Inc., c/o
Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA
02105-1722.
-------------------- -----------------------------------------------------------------
By wire You may sell shares and request that the proceeds be
wired to your bank. You must set up this feature prior to
your telephone request. Be sure to complete the
appropriate section of the account application for this
feature.
-------------------- -----------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage on a monthly, quarterly or semi-annual basis if your
account balance is at least $5,000 and have the proceeds
sent to you. This feature is not available if you hold
your shares in certificate form. Be sure to complete the
appropriate section of the account application for this
feature.
-------------------- -----------------------------------------------------------------
By electronic You may sell shares and request that the proceeds be
funds transfer electronically transferred to your bank. Proceeds may take up
to two business days to be received by your bank. You must
set up this feature prior to your request. Be sure to
complete the appropriate section of the account
application for this feature.
</TABLE>
FUND POLICY ON TRADING OF FUND SHARES
--------------------------------------------------------------------------------
The Fund does not permit short-term or excessive trading. Excessive purchases,
redemption, or exchanges of Fund shares disrupt portfolio management and drive
Fund expenses higher. In order to promote the best interests of the Fund, the
Fund reserves the right to reject any purchase order or exchange request,
particularly from market timers or investors who, in the advisor's opinion, have
a pattern or short-term of excessive trading or whose trading has been or may be
disruptive to the Fund. The Fund into which you would like to exchange also may
reject your request.
---
9
<PAGE>
YOUR ACCOUNT
DISTRIBUTION AND SERVICE FEES
--------------------------------------------------------------------------------
The Fund has adopted a plan under Rule 12b-1 that permits it to pay marketing
and other fees to support the sale and distribution of Class A shares and the
services provided to you by your financial advisor. These annual distribution
and service fees may equal up to 0.35% for Class A shares and are paid out of
the assets of the class. Over time, these fees will increase the cost of your
shares and may cost you more than paying other types of sales charges.
OTHER INFORMATION ABOUT YOUR ACCOUNT
--------------------------------------------------------------------------------
HOW THE FUND'S SHARE PRICE IS DETERMINED The price of the Fund's shares is based
on its net asset value. The net asset value is determined at the close of
regular session trading on the NYSE, usually 4:00 p.m. Eastern time on each
business day that the NYSE is open (typically Monday through Friday).
When you request a transaction, it will be processed at the net asset value,
(plus any applicable sales charge) next determined after your request is
received in "good form" by the distributor. In most cases, in order to receive
that day's price, the distributor must receive your order before that day's
transactions are processed. If you request a transaction through your financial
advisor firm, the firm must receive your order by the close of trading on the
NYSE to receive that day's price.
The Fund determines its net asset value for Class A shares by dividing the
class's total net assets by the number of the class's shares outstanding. In
determining the net asset value, the Fund must determine the price of each
security in its portfolio at the close of each trading day. Because the Fund
holds securities that are traded on foreign exchanges, the value of the Fund's
securities may change on days when shareholders will not be able to buy or sell
Fund shares. This will affect the Fund's net asset value on the day it is next
determined. Securities for which market quotations are available are valued each
day at the current market value. However, where market quotations are
unavailable, or when the advisor believes that subsequent events have made them
unreliable, the Fund may use other data to determine the fair value of the
securities.
You can find the daily prices of some share classes for the Fund in most major
daily newspapers under the caption "Liberty." You can find daily prices for all
share classes by visiting the Fund's web site at www.libertyfunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of
depreciation in share value), you may be subject to an annual account fee of
$10. This fee is deducted from the account in June each year. Approximately 60
days prior to the fee date, the Fund's transfer agent will send you written
notification of the upcoming fee. If you add money to your account and bring the
value above $1,000 prior to the fee date, the fee will not be deducted.
---
10
<PAGE>
YOUR ACCOUNT
UNDERSTANDING FUND DISTRIBUTIONS
The Fund earns income from the securities it holds. The Fund also may realize
capital gains and losses on sales of its securities. The Fund distributes
substantially all of its net investment income and capital gains to
shareholders. As a shareholder, you are entitled to a portion of the Fund's
income and capital gains based on the number of shares you own at the time these
distributions are declared.
SHARE CERTIFICATES Certificates will be issued for Class A shares only if
requested. If you decide to hold share certificates, you will not be able to
sell your shares until you have endorsed your certificates and returned them to
the Distributor.
DIVIDENDS, DISTRIBUTIONS, AND TAXES The Fund has the potential to make the
following distributions:
--------------------------------------------------------------------------------
TYPES OF DISTRIBUTIONS
--------------------------------------------------------------------------------
Dividend income Represents interest and dividends earned from securities
held by the Fund
-------------------- ----------------------------------------------------------
Capital gains Represents long-term capital gains on sales of
securities held for more than 12 months and short-term
capital gains, which are gains on sales of securities held
by the Fund for a 12-month period or less.
DISTRIBUTION OPTIONS The Fund distributes dividends and any capital gains
(including short-term capital gains) at least annually. You can choose one of
the options listed in the table below for these distributions when you open your
account. To change your distribution option call 1-800-345-6611.
If you do not indicate on your application your preference for handling
distributions, the Fund will automatically reinvest all distributions in
additional shares of the Fund
--------------------------------------------------------------------------------
DISTRIBUTION OPTIONS
--------------------------------------------------------------------------------
Reinvest all distributions in additional shares of your current fund
--------------------------------------------------------------------------------
Reinvest all distributions in shares of another fund
--------------------------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest capital gains(1)
--------------------------------------------------------------------------------
Receive all distributions in cash (with one of the following options) (1)
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds transfer
TAX CONSEQUENCES Regardless of whether you receive your distributions in cash or
reinvest them in additional Fund shares, all Fund distributions are subject to
federal income tax. Depending on the state where you live, distributions may
also be subject to state and local income taxes.
(1) Distributions of $10 or less will automatically be reinvested in additional
Fund shares. If you elect to receive distributions by check and the check is
returned as undeliverable, or if you do not cash a distribution check within
six months of the check date, the distribution will be reinvested in
additional shares of the Fund.
---
11
<PAGE>
YOUR ACCOUNT
In general, any distributions of dividends, interest and short-term capital
gains distributions are taxable as ordinary income. Distributions of long-term
capital gains are generally taxable as such, regardless of how long you have
held your Fund shares. You will be provided with information each year regarding
the ordinary income and capital gains distributed to you for the previous year
and any portion of your distribution which is exempt from state and local taxes.
Your investment in the Fund may have additional personal tax implications.
Please consult your tax advisor on federal, state, local or other applicable tax
laws.
In addition to the dividends and capital gains distributions made by the Fund,
you may realize a capital gain or loss when selling and exchanging shares of the
Fund. Such transactions may be subject to federal, state, local and foreign
income tax.
---
12
<PAGE>
--------------------------------------------------------------------------------
MANAGING THE FUNDS
--------------------------------------------------------------------------------
INVESTMENT ADVISOR
--------------------------------------------------------------------------------
Stein Roe & Farnham Incorporated (Stein Roe), located at One South Wacker Drive,
Suite 3500, Chicago, Illinois 60606, is the Fund's investment advisor. In its
duties as investment advisor, Stein Roe runs the Fund's day-to-day business,
including placing all orders for the purchase and sale of portfolio securities
for the Portfolio. Stein Roe has been an investment advisor since 1932. As of
June 30, 2000, Stein Roe managed over [$29.7] billion in assets.
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 Fund. 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.
For the fiscal year ended September 30, 1999, the Fund paid 0.90% of average net
assets in fees to Stein Roe.
Stein Roe may use the services of AlphaTrade, Inc., an affiliated broker-dealer,
when buying or selling equity securities for the Portfolio, pursuant to
procedures adopted by the Board of Trustees.
PORTFOLIO MANAGER
--------------------------------------------------------------------------------
David P. Brady joined Stein Roe in 1993. He was an associate portfolio manager
of Disciplined Stock Fund until 1995, and is currently a senior vice president.
He holds a B.S. degree in finance, graduating Magna Cum Laude from the
University of Arizona, and an M.B.A. degree from the University of Chicago. He
has managed the Fund since June 1998.
---
13
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
--------------------------------------------------------------------------------
OTHER INVESTMENT STRATEGIES AND RISKS
--------------------------------------------------------------------------------
UNDERSTANDING THE FUND'S OTHER INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment strategies and risks are described under "The
Fund - Principal Investment Strategies" and "The Fund - Principal Investment
Risks." In seeking to meet its investment goal, the Fund may also invest in
other securities and use certain other investment techniques. These securities
and investment techniques offer opportunities and carry various risks.
The advisor may elect not to buy any of these securities or use any of these
techniques unless it believes that doing so will help the Fund achieve its
investment goal. The Fund may not always achieve its investment goal.
Additional information about the Fund's securities and investment techniques, as
well as the Fund's fundamental and non-fundamental investment policies, is
contained in the Statement of Additional Information.
The Fund's principal investment strategies and their associated risks are
described above. This section describes other investments the Fund may make and
the risks associated with them. In seeking to achieve its investment goals, the
Fund may invest in various types of securities and engage in various investment
techniques which are not the principal focus of the Fund and therefore are not
described in this prospectus. These types of securities and investment practices
are identified and discussed in the Fund's Statement of Additional Information,
which you may obtain free of charge (see back cover). Approval by the Fund's
shareholders is not required to modify or change any of the Fund's investment
goal or investment strategies.
initial public offerings
The Fund may invest a portion of its assets in certain types of equity
securities including securities offered during a company's initial public
offering (IPO). An IPO is the sale of a company's securities to the public for
the first time. The market price of a security the Fund buys in an IPO may
change substantially from the price the Fund paid, soon after the IPO ends. In
the short term, this price change may significantly increase or decrease the
Fund's total return, and therefore its performance history, after an IPO
investment. This is especially so when the Fund's assets are small. However,
should the Fund's assets increase, the results of an IPO investment will not
cause the Fund's performance history to change as much. Although companies can
be any size or age at the time of their IPO, they are often smaller in size and
have a limited operating history which could create greater market volatility
for the securities. The Advisor intends to limit the Fund's IPO investments to
issuers whose secu rities the Fund already owns, or issuers which the Advisor
has specially researched before the IPO. The Fund does not intend to invest more
than 5% of its assets in IPO's and does not intend to buy them for the purpose
of immediately selling (also known as flipping) the security after its public
offering.
PORTFOLIO TURNOVER
--------------------------------------------------------------------------------
There are no limits on turnover. Turnover may vary significantly from year to
year. Stein Roe does not expect it to exceed 100% under normal conditions. The
Fund generally intends to purchase securities for long-term investment although,
to a limited extent, it may purchase securities 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 the Fund's return.
TEMPORARY DEFENSIVE POSITIONS
--------------------------------------------------------------------------------
When Stein Roe believes that a temporary defensive position is necessary, the
Fund may invest, without limit, in high-quality debt securities or hold assets
in cash and cash equivalents. Stein Roe is not required to take a temporary
defensive position, and market conditions may prevent such an action. The Fund
may not achieve its investment objective if it takes a temporary defensive
position.
INTERFUND LENDING PROGRAM
--------------------------------------------------------------------------------
The Fund may lend money to and borrow money from other funds advised by Stein
Roe. It 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.
---
14
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the financial
performance of the Fund. Because Class A shares have not commenced operations,
the Fund's Class S shares, the Fund's existing class is shown. Information is
shown for the Fund's last two fiscal periods. The fiscal year runs from October
1 to September 30. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that you would
have earned (or lost) on an investment in the Fund (assuming reinvestment of all
dividends and distributions). The information for 1999 has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report, along with
the Fund's financial statements, is included in the annual report. Arthur
Andersen LLP audited the Fund's financial statements for 1998. The information
for the period ending March 31, 2000 is unaudited. You can request a free annual
report by calling 1-800-426-3750.
--------------------------------------------------------------------------------
THE FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Six months ended Year ended Period ended
March 31 September 30 September 30
2000 1999 1998(a)
Class S Class S Class S
<S> <C> <C> <C>
Net asset value -
Beginning of period ($) 11.78 8.73 10.00
-----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS($):
Net investment loss (b) (0.04) (0.05) --
-----------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 2.89 3.10 (1.27)
-----------------------------------------------------------------------------------------
Total from Investment Operations 2.85 3.05 (1.27)
-----------------------------------------------------------------------------------------
DISTRIBUTIONS($):
Net realized capital gains (0.64) -- --
-----------------------------------------------------------------------------------------
Net asset value -
End of period ($) 13.99 11.78 8.73
-----------------------------------------------------------------------------------------
Total return (%) 24.55(f) 35.05 (12.70)(d)(f)
-----------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA(%):
Ratio of net expenses to average
net assets(b) 1.36(e) 1.49 1.50(c)(e)
-----------------------------------------------------------------------------------------
Ratio of net investment loss to
average net assets(c) (0.61)(e) (0.47) (0.12)(d)(e)
-----------------------------------------------------------------------------------------
Portfolio turnover rate(%)(a) 57(f) 68 21(f)
-----------------------------------------------------------------------------------------
Net assets at end of period
(000's)($) 71,069 59,647 44,716
</TABLE>
(a) From commencement of operations on June 26, 1998.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) If the Fund paid all of its expenses and there had been no reimbursement by
Stein Roe, this ratio would have been 1.61% for the period ended
September 30, 1998.
(d) Computed giving effect to the advisor's expense limitation undertaking.
(e) Annualized.
(f) Not annualized.
---
15
<PAGE>
--------------------------------------------------------------------------------
NOTES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
---
16
<PAGE>
--------------------------------------------------------------------------------
NOTES
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
---
17
<PAGE>
FOR MORE INFORMATION
--------------------------------------------------------------------------------
You can get more information about the Fund's investments in the Fund's
semi-annual and annual reports to shareholders. The annual report contains a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance over its last fiscal year.
You may wish to read the Statement of Additional Information for more
information on the Fund and the securities in which it invests. The Statement of
Additional Information is incorporated into this prospectus by reference, which
means that it is considered to be part of this prospectus.
You can get free copies of reports and the Statement of Additional Information,
request other information and discuss your questions about the Fund by writing
or calling the Fund's distributor at:
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.libertyfunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from
the SEC at www.sec.gov.
You can review and copy information about the Fund by visiting the following
location and you can obtain copies, upon payment of a duplicating fee, by
writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
INVESTMENT COMPANY ACT FILE NUMBER:
Liberty-Stein Roe Funds Investment Trust: 811-4978
- Stein Roe Large Company Focus Fund
--------------------------------------------------------------------------------
[LIBERTY FUNDS LOGO]
ALL-STAR - COLONIAL - CRABBE HUSON - NEWPORT - STEIN ROE ADVISOR
Liberty Funds Distributor, Inc.(C)1999
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
www.libertyfunds.com
<PAGE>
<PAGE>
--------------------------------------------------------------------------------
LIBERTY CAPITAL OPPORTUNITIES FUND CLASS A PROSPECTUS, AUGUST 1, 2000
--------------------------------------------------------------------------------
STEIN ROE CAPITAL OPPORTUNITIES FUND
Advised by Stein Roe & Farnham Incorporated
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
--------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
THE FUND 2
--------------------------------------------------------------------------------
Investment Goal................................................................2
Principal Investment Strategies................................................2
Principal Investment Risks.....................................................3
Performance History............................................................4
Your Expenses..................................................................5
YOUR ACCOUNT 6
--------------------------------------------------------------------------------
How to Buy Shares..............................................................6
Sales Charges..................................................................7
How to Exchange Shares.........................................................9
How to Sell Shares.............................................................9
Fund Policy on Trading Fund Shares............................................
Distribution and Service Fees.................................................10
Other Information About Your Account..........................................11
MANAGING THE FUND 14
--------------------------------------------------------------------------------
Investment Advisor............................................................14
Portfolio Managers............................................................14
OTHER INVESTMENT
STRATEGIES AND RISKS 15
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 17
--------------------------------------------------------------------------------
</TABLE>
---------------------------
Not FDIC May Lose Value
-----------------
Insured No Bank Guarantee
---------------------------
<PAGE>
--------------------------------------------------------------------------------
THE FUND
--------------------------------------------------------------------------------
INVESTMENT GOAL
--------------------------------------------------------------------------------
The Fund seeks long-term growth.
PRINCIPAL INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
The Fund invests primarily in the common stocks of aggressive growth companies.
An aggressive growth company has the ability to increase its earnings at an
above-average rate. To select stocks for the Fund, the managers concentrate on
stocks of small and midcapitalization companies which they believe have
opportunities for growth. The Fund may invest up to 25% of its assets in foreign
stocks.
The portfolio managers may sell a portfolio holding if the security reaches the
portfolio manager's price target or if the company has a deterioration of
fundamentals such as failing to meet key operating benchmarks. The portfolio
managers may also sell a portfolio holding to fund redemptions.
Additional strategies that are not principal investment strategies and the risks
associated with them are described below under "Other Investment Strategies and
Risks."
DEFINING CAPITALIZATION. A company's market capitalization is simply its stock
price multiplied by the number of shares of stock it has issued and outstanding.
In the financial markets, companies generally are sorted into one of three
capitalization-based categories: large capitalization (large cap); medium
capitalization (mid cap) or small capitalization (small cap). In defining a
company's market capitalization, we use capitalization-based categories as they
are defined by Morningstar, Inc.
Morningstar ranks stocks as follows: the top 5% of the 5000 largest domestic
stocks in Morningstar's equity database are classified as large cap, the next
15% of the 5000 are classified as mid cap, and the remaining 80% (as well as
companies that fall outside the largest 5000) are classified as small cap. As of
June 30, 2000, large cap companies had market capitalizations greater than
$10.5 billion, mid cap companies had market capitalizations between $1.7 and
$10.5 billion, and small cap companies had market capitalizations less than
$1.7 billion. These amounts are subject to change
PRINCIPAL INVESTMENT RISKS
--------------------------------------------------------------------------------
The principal risks of investing in the Fund are described below. There are many
circumstances (including additional risks that are not described below) which
could prevent the Fund from achieving its investment goal. You may lose money by
investing in the Fund.
Management risk means that the advisor's stock selections and other investment
decisions might produce losses or cause the Fund to underperform when compared
to other funds with similar goals. Market risk means that security prices in a
market, sector or industry may move down. Downward movements will reduce the
value of your investment. Because of management and market risk, there is no
guarantee that the Fund will achieve its investment goal or perform favorably
compared with competing funds.
---
2
<PAGE>
THE FUND
Small companies are more likely than larger companies to have limited product
lines, operating histories, market or financial resources. They depend largely
on a small management team. Stocks of small companies may trade less frequently,
in smaller volumes, and fluctuate more sharply in price than larger companies.
In addition, they may not be widely followed by the investment community, which
can lower the demand for their stock.
The securities issued by mid-capitalization companies may have more risk than
larger companies. These securities may be more susceptable to market downturns,
and their prices could be more volatile.
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 and capital
gains available to distribute to shareholders. Other risks include: possible
delays in settlement of transactions or the notification of income; 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.
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.
---
3
<PAGE>
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR-YEAR TOTAL RETURNS show the Fund's Class S share performance for each
of the last ten complete calendar years. It includes the effects of Fund
expenses.
AVERAGE ANNUAL TOTAL RETURN is a measure of the Fund's Class S share performance
over the past one-year, five-year and ten-year periods. It includes the effects
of Fund expenses.
The Fund's return is compared to the S&P MidCap 400 Index, an unmanaged
broad-based measure of market performance. Unlike the Fund, indices are not
investments, do not incur fees or expenses, and are not professionally managed.
It is not possible to invest directly in indices.
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from year to year by
illustrating the Fund's calendar year total returns for its Class S shares. The
Fund did not have separate classes of shares prior to August 1, 2000; on that
date, the Fund's outstanding shares were reclassified as Class S shares. The
performance table following the bar chart shows how the Fund's average annual
total returns for Class S shares compare with those of a broad measure of market
performance for 1 year, 5 years and 10 years. The chart and table are intended
to illustrate some of the risks of investing in the Fund by showing the changes
in the Fund's performance. All returns include the reinvestment of dividends and
distributions. As with all mutual funds, past performance does not predict the
Fund's future performance.
--------------------------------------------------------------------------------
CALENDAR-YEAR TOTAL RETURNS (CLASS S)*
--------------------------------------------------------------------------------
[BAR GRAPH]
<TABLE>
<CAPTION>
<S> <C>
1990 -29.09%
1991 62.79%
1992 2.43%
1993 27.52%
1994 0.00%
1995 50.77%
1996 20.39%
1997 6.15%
1998 -1.61%
1999 40.33%
</TABLE>
The Fund's year-to-date total return through June 30, 2000 was 7.30%.
For period shown in bar chart:
Best quarter: 4th quarter 1999, +43.85%
Worst quarter: 3rd quarter 1990, -33.14%
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 1999*
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1 year 5 years 10 years
<S> <C> <C> <C>
Capital Opportunities Fund, Class S
(%) 40.33 21.61 14.90
----------------------------------------------------------------------------------
S&P MidCap 400 Index (%) 14.72 23.05 17.32
</TABLE>
* Because Class A shares have not commenced operations, the bar chart and
annual total returns are shown for Class S shares, the existing fund class.
---
4
<PAGE>
THE FUND
UNDERSTANDING EXPENSES
SHAREHOLDER FEES are paid directly by shareholders to the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management fees, 12b-1 fees and administrative costs including pricing and
custody services.
EXAMPLE EXPENSES helps you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. This example reflects expenses of the Fund.
It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% return for each year
- Fund operating expenses remain the same
- Assumes reinvestment of all dividends and distributions.
YOUR EXPENSES
--------------------------------------------------------------------------------
Expenses are one of several factors to consider before you invest in a mutual
fund. The tables below describe the fees and expenses you may pay when you buy,
hold and sell shares of the Fund.
--------------------------------------------------------------------------------
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
<S> <C>
Maximum sales charge (load) on purchases
(as a percentage of the offering price) 5.75
--------------------------------------------------------------
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price) 1.00(2)
--------------------------------------------------------------
Redemption fee(3) (as a percentage of amount None
redeemed, if applicable)
</TABLE>
--------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
<S> <C>
Management fee (%) 0.89
--------------------------------------------------------------
Distribution and service (12b-1) fees (%) (4) 0.35
--------------------------------------------------------------
Other expenses (%) (5) 0.30
--------------------------------------------------------------
Total annual Fund operating expenses(%) 1.54
</TABLE>
--------------------------------------------------------------------------------
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Class A $723 $1,033 $1,366 $2,304
</TABLE>
(1) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
(4) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class A shares. As a result, the actual 12b-1 fee for Class A
would be 0.25% and the total annual Fund operating expenses would be 1.44%.
(5) Other expenses are based on the Fund's Class S shares
---
5
<PAGE>
--------------------------------------------------------------------------------
YOUR ACCOUNT
--------------------------------------------------------------------------------
INVESTMENT MINIMUMS
<TABLE>
<CAPTION>
<S> <C>
Initial Investment................$1,000
Subsequent Investments............$50
Automatic Investment Plan*........$50
Retirement Plans*.................$25
</TABLE>
* The initial investment minimum of $1,000 is waived on this plan.
The Fund reserves the right to change the investment minimums. The Fund also
reserves the right to refuse a purchase order for any reason, including if it
believes that doing so would be in the best interest of the Fund and its
shareholders.
HOW TO BUY SHARES
--------------------------------------------------------------------------------
Your financial advisor can help you establish an appropriate investment
portfolio, buy shares and monitor your investments. When the Fund receives your
purchase request in "good form," your shares will be bought at the next
calculated public offering price. "Good form" means that you placed your order
with your brokerage firm or your payment has been received and your application
is complete, including all necessary signatures. The Fund also offers Class S
shares through a separate prospectus.
--------------------------------------------------------------------------------
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
<S> <C>
Through your Your financial advisor can help you establish your account and
financial advisor buy Fund shares on your behalf. Your financial advisor may
charge you fees for executing the purchase for you.
-------------------------------------------------------------------------------------
By check For new accounts, send a completed application and check made
(new account) payable to the Fund to the transfer agent, SteinRoe Services
Inc., c/o Liberty Funds Services, Inc., P.O. Box 1722, Boston,
MA 02105-1722.
-------------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your quarterly statement, or send a
letter of instruction, including your Fund name and account
number with a check made payable to the Fund to SteinRoe
Services Inc., c/o Liberty Funds Services, Inc., P.O. Box 1722,
Boston, MA 02105-1722.
-------------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares by exchanging
shares you own in one fund for shares of the same class of the
Fund at no additional cost. To exchange by telephone, call
1-800-422-3737.
-------------------------------------------------------------------------------------
By wire You may purchase shares by wiring money from your bank account
to your fund account. To wire funds to your fund account, call
1-800-422-3737 to obtain a control number and the wiring
instructions.
-------------------------------------------------------------------------------------
By electronic funds You may purchase shares by electronically transferring money
transfer from your bank account to your fund account by calling
1-800-422-3737. Your money may take up to two business days to
be invested. You must set up this feature prior to your
telephone request. Be sure to complete the appropriate section
of the application.
-------------------------------------------------------------------------------------
Automatic You can make monthly or quarterly investments automatically
investment plan from your bank account to your fund account. You can select a
pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by one fund
diversification into the same class of shares of another fund at no additional
sales charge. To invest your dividends in another fund, call
1-800-345-6611.
</TABLE>
---
6
<PAGE>
YOUR ACCOUNT
SALES CHARGES
--------------------------------------------------------------------------------
You may be subject to an initial sales charge when you purchase or a contingent
deferred sales charge (CDSC) when you sell shares of the Fund. These sales
charges are described below. In some circumstances these sales charges are
waived, as described below and in the Statement of Additional Information.
CLASS A SHARES Your purchases of Class A shares generally are at the public
offering price. This price includes a sales charge that is based on the amount
of your investment. The sales charge is the commission paid to the financial
advisor firm on the sale of Class A shares. The sales charge you pay on
additional investments is based on the total amount of your purchase and the
current value of your account. The amount of the sales charge differs depending
on the amount you invest as shown in the table below.
--------------------------------------------------------------------------------
CLASS A SALES CHARGES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
% OF PUBLIC
OFFERING
AS A % OF AS A % PRICE
THE PUBLIC OF NET RETAINED BY
OFFERING AMOUNT FINANCIAL
AMOUNT OF PURCHASE PRICE INVESTED ADVISOR FIRM
<S> <C> <C> <C>
Less than $50,000 5.75 6.10 5.00
-------------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
-------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
-------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
-------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
-------------------------------------------------------------------------------------
$1,000,000 or more(1) 0.00 0.00 0.00
</TABLE>
For Class A share purchases of $1 million or more, financial advisors receive a
commission from Liberty Funds Distributor, Inc. (Distributor) as follows:
--------------------------------------------------------------------------------
PURCHASES OVER $1 MILLION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT PURCHASED COMMISSION %
<S> <C>
First $3 million 1.00
--------------------------------------------------------------------------------
Next $2 million 0.50
--------------------------------------------------------------------------------
Over $5 million 0.25(2)
</TABLE>
(1) Class A shares bought without an initial sales charge in accounts
aggregating between $1 million and $5 million at the time of purchase may
be subject to a 1% CDSC if the shares are sold within 12 months of the time
of purchase. Subsequent Class A share purchases that bring your account
value above $1 million are subject to a 1% CDSC if redeemed within 18
months of their purchase date. Purchases in accounts aggregating over $5
million are subject to a 1.00% CDSC only to the extent that the sale of
shares within 12 months of purchase causes the value of the accounts to
fall below the $5 million level. The 12-month period begins on the first
day of the month.
(2) Paid over 12 months but only to the extent the shares remain outstanding.
---
7
<PAGE>
YOUR ACCOUNT
REDUCED SALES CHARGES FOR LARGER INVESTMENTS There are two ways for you to pay a
lower sales charge when purchasing Class A shares. The first is through Rights
of Accumulation. If the combined value of the Fund accounts maintained by you,
your spouse or your minor children reaches a discount level (according to the
chart on the previous page), your next purchase will receive the lower sales
charge. The second is by signing a Statement of Intent within 90 days of your
purchase. By doing so, you would be able to pay the lower sales charge on all
purchases by agreeing to invest a total of at least $50,000 within 13 months. If
your Statement of Intent purchases are not completed within 13 months, you will
be charged the applicable sales charge on the amount you had invested to that
date. In addition, certain investors may purchase shares at a reduced sales
charge or NAV, which is the value of a Fund share excluding any sales charges.
See the Statement of Additional Information for a description of these
situations.
HOW TO EXCHANGE SHARES
--------------------------------------------------------------------------------
You may exchange your shares for shares of the same share class of another fund
distributed by Liberty Funds Distributor, Inc. at the next-determined NAV. If
your shares are subject to a CDSC, you will not be charged a CDSC upon the
exchange. However, when you sell the shares acquired through the exchange, the
shares sold may be subject to a CDSC, depending upon when you originally
purchased the shares you exchanged. For purposes of computing the CDSC, the
length of time you have owned your shares will be computed from the date of your
original purchase and the applicable CDSC will be the CDSC of the original Fund.
Unless your account is part of a tax-deferred retirement plan, an exchange is a
taxable event. Therefore, you may realize a gain or a loss for tax purposes. The
Fund may terminate your exchange privilege if Stein Roe determines that your
exchange activity is likely to adversely impact its ability to manage the Fund.
To exchange by telephone, call 1-800-422-3737.
HOW TO SELL SHARES
--------------------------------------------------------------------------------
Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of the Fund on any regular business day that the New
York Stock Exchange (NYSE) is open.
When the Fund receives your sales request in "good form," shares will be sold at
the next calculated price. In "good form" means that money used to purchase your
shares is fully collected. When selling shares by letter of instruction, "good
form" means (i) your letter has complete instructions, the proper signatures and
signature guarantees, (ii) you have included any certificates for shares to be
sold, and (iii) any other required documents are attached. For additional
documentation required for sales by corporations, agents, fiduciaries and
surviving joint owners, please call 1-800-345-6611. Retirement Plan accounts
have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days
(usually on the next business day after your request is received in good form).
However, if you purchased your shares by check, the Fund may delay the sale of
your shares for up to 15
---
8
<PAGE>
YOUR ACCOUNT
days after your purchase to protect against checks that are returned. No
interest will be paid on uncashed redemption checks.
--------------------------------------------------------------------------------
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
<S> <C>
Through your You may call your financial advisor to place your sell order.
financial advisor To receive the current trading day's price, your financial
advisor firm must receive your request prior to the close
of the NYSE, usually 4:00 p.m. Eastern time.
-------------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares by exchanging from
the Fund into the same share class of another fund at no
additional cost. To exchange by telephone, call 1-800-422-3737.
-------------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares by telephone and
request that a check be sent to your address of record by
calling 1-800-422-3737 unless you have notified the Fund of an
address change within the previous 30 days. The dollar limit
for telephone sales is $100,000 in a 30-day period. You do not
need to set up this feature in advance of your call. Certain
restrictions apply to retirement accounts. For details, call
1-800-345-6611.
-------------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or stock power form
along with any certificates to be sold to the address below.
In your letter of instruction, note your fund's name, share
class, account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter, and
signatures must be guaranteed by either a bank, a member firm
of a national stock exchange or another eligible guarantor
institution. Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners and
individual retirement account (IRA) owners. For details, call
1-800-345-6611.
Mail your letter of instruction to SteinRoe Services Inc., c/o
Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA
02105-1722.
-------------------------------------------------------------------------------------
By wire You may sell shares and request that the proceeds be wired to
your bank. You must set up this feature prior to your telephone
request. Be sure to complete the appropriate section of the
account application for this feature.
-------------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage on a monthly, quarterly or semi-annual basis if your
account balance is at least $5,000 and have the proceeds
sent to you. This feature is not available if you hold
your shares in certificate form. Be sure to complete the
appropriate section of the account application for this
feature.
-------------------------------------------------------------------------------------
By electronic You may sell shares and request that the proceeds be
funds transfer electronically transferred to your bank. Proceeds may take up
to two business days to be received by your bank. You must
set up this feature prior to your request. Be sure to
complete the appropriate section of the account
application for this feature.
</TABLE>
FUND POLICY ON TRADING OF FUND SHARES
--------------------------------------------------------------------------------
The Fund does not permit short-term or excessive trading. Excessive purchases,
redemption, or exchanges of Fund shares disrupt portfolio management and drive
Fund expenses higher. In order to promote the best interests of the Fund, the
Fund reserves the right to reject any purchase order or exchange request,
particularly from market timers or investors who, in the advisor's opinion, have
a pattern or short-term of excessive trading or whose trading has been or may be
disruptive to the Fund. The Fund into which you would like to exchange also may
reject your request.
---
9
<PAGE>
YOUR ACCOUNT
DISTRIBUTION AND SERVICE FEES
--------------------------------------------------------------------------------
The Fund has adopted a plan under Rule 12b-1 that permits it to pay marketing
and other fees to support the sale and distribution of Class A shares and the
services provided to you by your financial advisor. The annual distribution and
service fees may equal up to 0.35% for Class A shares and are paid out of the
assets of the class. Over time, these fees will increase the cost of your shares
and may cost you more than paying other types of sales charges.
OTHER INFORMATION ABOUT YOUR ACCOUNT
--------------------------------------------------------------------------------
HOW THE FUND'S SHARE PRICE IS DETERMINED The price of the Fund's shares is based
on its net asset value. The net asset value is determined at the close of
regular session trading on the NYSE, usually 4:00 p.m. Eastern time on each
business day that the NYSE is open (typically Monday through Friday).
When you request a transaction, it will be processed at the net asset value,
(plus any applicable sales charge) next determined after your request is
received in "good form" by the distributor. In most cases, in order to receive
that day's price, the distributor must receive your order before that day's
transactions are processed. If you request a transaction through your financial
advisor firm, the firm must receive your order by the close of trading on the
NYSE to receive that day's price.
The Fund determines its net asset value for Class A shares by dividing the
class's total net assets by the number of the class's shares outstanding. In
determining the net asset value, the Fund must determine the price of each
security in its portfolio at the close of each trading day. Because the Fund
holds securities that are traded on foreign exchanges, the value of the Fund's
securities may change on days when shareholders will not be able to buy or sell
Fund shares. This will affect the Fund's net asset value on the day it is next
determined. Securities for which market quotations are available are valued each
day at the current market value. However, where market quotations are
unavailable, or when the advisor believes that subsequent events have made them
unreliable, the Fund may use other data to determine the fair value of the
securities.
You can find the daily prices of some share classes for the Fund in most major
daily newspapers under the caption "Liberty." You can find daily prices for all
share classes by visiting the Fund's web site at www.libertyfunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of
depreciation in share value), you may be subject to an annual account fee of
$10. This fee is deducted from the account in June each year. Approximately 60
days prior to the fee date, the Fund's transfer agent will send you written
notification of the upcoming fee. If you add money to your account and bring the
value above $1,000 prior to the fee date, the fee will not be deducted.
---
10
<PAGE>
YOUR ACCOUNT
UNDERSTANDING FUND DISTRIBUTIONS
The Fund earns income from the securities it holds. The Fund also may realize
capital gains and losses on sales of its securities. The Fund distributes
substantially all of its net investment income and capital gains to
shareholders. As a shareholder, you are entitled to a portion of the Fund's
income and capital gains based on the number of shares you own at the time these
distributions are declared.
SHARE CERTIFICATES Certificates will be issued for Class A shares only if
requested. If you decide to hold share certificates, you will not be able to
sell your shares until you have endorsed your certificates and returned them to
the Distributor.
DIVIDENDS, DISTRIBUTIONS, AND TAXES The Fund has the potential to make the
following distributions:
--------------------------------------------------------------------------------
TYPES OF DISTRIBUTION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Dividend income Represents interest and dividends earned from securities held
by the Fund
-------------------------------------------------------------------------------------
Capital gains Represents long-term capital gains on sales of securities held
for more than 12 months and short-term capital gains, which are
gains on sales of securities held by the Fund for a 12-month
period or less.
</TABLE>
DISTRIBUTION OPTIONS The Fund distributes dividends and any capital gains
(including short-term capital gains) at least annually. You can choose one of
the options listed in the table below for these distributions when you open your
account. To change your distribution option call 1-800-345-6611.
If you do not indicate on your application your preference for handling
distributions, the Fund will automatically reinvest all distributions in
additional shares of the Fund.
--------------------------------------------------------------------------------
DISTRIBUTION OPTIONS
--------------------------------------------------------------------------------
Reinvest all distributions in additional shares of your current fund
-------------------------------------------------------------------------------
Reinvest all distributions in shares of another fund
-------------------------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest capital gains(1)
-------------------------------------------------------------------------------
Receive all distributions in cash (with one of the following options)(1):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds transfer
TAX CONSEQUENCES Regardless of whether you receive your distributions in cash or
reinvest them in additional Fund shares, all Fund distributions are subject to
federal income tax. Depending on the state where you live, distributions may
also be subject to state and local income taxes.
(1) Distributions of $10 or less will automatically be reinvested in additional
Fund shares. If you elect to receive distributions by check and the check
is returned as undeliverable, or if you do not cash a distribution check
within six months of the check date, the distribution will be reinvested in
additional shares of the Fund.
---
11
<PAGE>
YOUR ACCOUNT
In general, any distributions of dividends, interest and short-term capital
gains distributions are taxable as ordinary income. Distributions of long-term
capital gains are generally taxable as such, regardless of how long you have
held your Fund shares. You will be provided with information each year regarding
the ordinary income and capital gains distributed to you for the previous year
and any portion of your distribution which is exempt from state and local taxes.
Your investment in the Fund may have additional personal tax implications.
Please consult your tax advisor on federal, state, local or other applicable tax
laws.
In addition to the dividends and capital gains distributions made by the Fund,
you may realize a capital gain or loss when selling and exchanging shares of the
Fund. Such transactions may be subject to federal, state, local and foreign
income tax.
---
12
<PAGE>
--------------------------------------------------------------------------------
MANAGING THE FUND
--------------------------------------------------------------------------------
INVESTMENT ADVISOR
--------------------------------------------------------------------------------
Stein Roe & Farnham Incorporated (Stein Roe), located at One South Wacker Drive,
Suite 3500, Chicago, Illinois 60606, is the Fund's investment advisor. In its
duties as investment advisor, Stein Roe runs the Fund's day-to-day business,
including placing all orders for the purchase and sale of portfolio securities
for the Fund. Stein Roe has been an investment advisor since 1932.
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 Fund. 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.
For the fiscal year ended September 30, 1999, the Fund paid 0.89% of average net
assets in fees to Stein Roe.
Stein Roe may use the services of AlphaTrade, Inc., an affiliated broker-dealer,
when buying or selling equity securities for the Fund, pursuant to procedures
adopted by the Board of Trustees.
PORTFOLIO MANAGERS
--------------------------------------------------------------------------------
Steve D. Hayward joined Stein Roe as a portfolio manager in November 1999. He
served as vice president, investments for M & I Investment Management from 1993
to 1999, where he managed the Marshall Mid-Cap Fund and Marshall Small-Cap
Growth Fund. Mr. Hayward earned a B.A. degree from North Park College and a
M.B.A. degree in finance from Loyola University. He has managed the Fund since
joining Stein Roe in November 1999.
David P. Brady joined Stein Roe in 1993. He was an associate portfolio manager
of Disciplined Stock Fund until 1995, and is currently a senior vice president.
He holds a B.S. degree in finance, graduating Magna Cum Laude from the
University of Arizona, and an M.B.A. degree from the University of Chicago. He
has managed the Fund since May 1999.
---
13
<PAGE>
--------------------------------------------------------------------------------
OTHER INVESTMENT STRATEGIES AND RISKS
--------------------------------------------------------------------------------
UNDERSTANDING THE FUND'S OTHER INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment strategies and risks are described under "The
Fund - Principal Investment Strategies" and "The Fund - Principal Investment
Risks." In seeking to meet its investment goal, the Fund may also invest in
other securities and use certain other investment techniques. These securities
and investment techniques offer opportunities and carry various risks.
The advisor may elect not to buy any of these securities or use any of these
techniques unless it believes that doing so will help the Fund achieve its
investment goal. The Fund may not always achieve its investment goal.
Additional information about the Fund's securities and investment techniques, as
well as the Fund's fundamental and non-fundamental investment policies, is
contained in the Statement of Additional Information.
The Fund's principal investment strategies and their associated risks are
described above. This section describes other investments the Fund may make and
the risks associated with them. In seeking to achieve its investment goals, the
Fund may invest in various types of securities and engage in various investment
techniques which are not the principal focus of the Fund and therefore are not
described in this prospectus. These types of securities and investment practices
are identified and discussed in the Fund's Statement of Additional Information,
which you may obtain free of charge (see back cover). Approval by the Fund's
shareholders is not required to modify or change any of the Fund's investment
goal or investment strategies.
PORTFOLIO TURNOVER
--------------------------------------------------------------------------------
There are no limits on turnover. Turnover may vary significantly from year to
year. Stein Roe does not expect it to exceed 150% under normal conditions. The
Fund generally intends to purchase securities for long-term investment although,
to a limited extent, it may purchase securities 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 the Fund's return.
TEMPORARY DEFENSIVE POSITIONS
--------------------------------------------------------------------------------
When Stein Roe believes that a temporary defensive position is necessary, the
Fund may invest, without limit, in high-quality debt securities or hold assets
in cash and cash equivalents. Stein Roe is not required to take a temporary
defensive position, and market conditions may prevent such an action. The Fund
may not achieve its investment objective if it takes a temporary defensive
position.
INTERFUND LENDING PROGRAM
--------------------------------------------------------------------------------
The Fund may lend money to and borrow money from other funds advised by Stein
Roe. It 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.
---
14
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the financial
performance of the Fund. Because Class A shares have not commenced operations,
the Fund's Class S shares, the Fund's existing class is shown. Information is
shown for the Fund's last five fiscal years. The fiscal year runs from October 1
to September 30. Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that you would
have earned (or lost) on an investment in the Fund (assuming reinvestment of all
dividends and distributions). The information for 1999 which is unaudited) has
been audited by PricewaterhouseCoopers LLP, independent accountants, whose
report, along with the Fund's financial statements, is included in the annual
report. Arthur Andersen LLP audited the financial statements for years 1995
through 1998. The information for the period ending March 31, 2000 is unaudited.
You can request a free annual report by calling 1-800-426-3750.
--------------------------------------------------------------------------------
THE FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Six months ended
March 31, Years ended September 30,
2000 1999 1998 1997 1996 1995(a)
Class S Class S Class S Class S Class S
<S> <C> <C> <C> <C> <C> <C>
Net asset value --
Beginning of period $28.64 $25.25 $29.10 $31.04 $21.69 $15.79
------------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($)
Net investment income (loss) (b) (0.17) (0.17) (0.25) (0.17) (0.06) 0.01
------------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities
(both realized and unrealized) 18.50 3.56 (3.60) (1.77) 10.41 5.91
------------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 18.33 03.39 (3.85) (1.94) 10.35 5.92
------------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends (from net investment income) -- -- -- -- (0.01) (0.02)
------------------------------------------------------------------------------------------------------------------------------------
Distributions (from capital gains) (3.99) -- -- -- (0.99) --
------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (3.99) -- -- -- (1.00) (0.02)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period $42.98 $28.64 $25.25 $29.10 $31.04 $21.69
------------------------------------------------------------------------------------------------------------------------------------
Total return (b) 69.12%(e) 13.43% (13.23)% (6.25)% 49.55% 37.46%
------------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000
omitted) 635,418 $411,347 $681,133 $1,110,642 $1,684,538 $242,381
------------------------------------------------------------------------------------------------------------------------------------
Ratio of net expenses to average net
assets 1.19(d) 1.19%(c) 1.20% 1.17% 1.22% 1.05%
------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (0.93)%(d) (0.72)%(c) (0.72)% (0.69)% (0.40)% 0.08%
------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 78%(e) 88% 47% 35% 22% 60%
</TABLE>
(a) All per share amounts reflect a two-for-one stock split effective August
25, 1995.
(b) Per share date was calculated using average shares outstanding during the
period.
(c) During the year ended September 30, 1999, the Fund experienced a one-time
reduction in its expenses of 0.12% as a result of expenses accrued in a
prior period. The Fund's ratios disclosed above reflect the actual rate at
which expenses were incurred throughout the current fiscal year without the
reductions.
(d) Annualized
(e) Not annualized
---
15
<PAGE>
--------------------------------------------------------------------------------
NOTES
--------------------------------------------------------------------------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
---
16
<PAGE>
NOTES
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
---
17
<PAGE>
NOTES
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
---
18
<PAGE>
FOR MORE INFORMATION
--------------------------------------------------------------------------------
You can get more information about the Fund's investments in the Fund's
semi-annual and annual reports to shareholders. The annual report contains a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance over its last fiscal year.
You may wish to read the Statement of Additional Information for more
information on the Fund and the securities in which it invests. The Statement of
Additional Information is incorporated into this prospectus by reference, which
means that it is considered to be part of this prospectus.
You can get free copies of reports and the Statement of Additional Information,
request other information and discuss your questions about the Fund by writing
or calling the Fund's distributor at:
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.libertyfunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from
the SEC at www.sec.gov.
You can review and copy information about the Fund by visiting the following
location and you can obtain copies, upon payment of a duplicating fee, by
writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
INVESTMENT COMPANY ACT FILE NUMBER:
Liberty-Stein Roe Funds Investment Trust: 811-4978
- Stein Roe Capital Opportunities Fund
--------------------------------------------------------------------------------
[LIBERTY FUNDS LOGO]
ALL-STAR - COLONIAL - CRABBE HUSON - NEWPORT - STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (c)1999
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
www.libertyfunds.com
<PAGE>
<PAGE>
LIBERTY SMALL COMPANY GROWTH FUND CLASS A PROSPECTUS, AUGUST 1, 2000
STEIN ROE SMALL COMPANY GROWTH FUND
Advised by Stein Roe & Farnham Incorporated
TABLE OF CONTENTS
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
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE FUND ...............................2
-----------------------------------------
Investment Goal.........................2
Principal Investment Strategies.........2
Principal Investment Risks..............3
Performance History.....................4
Your Expenses...........................5
YOUR ACCOUNT 6
-----------------------------------------
How to Buy Shares.......................6
Sales Charges...........................7
How to Exchange Shares..................9
How to Sell Shares......................9
Fund Policy on Trading Fund Shares
Distribution and Service Fees..........10
Other Information About Your Account...11
MANAGING THE FUND .....................14
-----------------------------------------
Investment Advisor.....................14
Portfolio Manager......................14
-----------------------------------------
OTHER INVESTMENT
STRATEGIES AND RISKS 15
-----------------------------------------
FINANCIAL HIGHLIGHTS ..................17
-----------------------------------------
</TABLE>
<PAGE>
THE FUND
INVESTMENT GOAL
--------------------------------------------------------------------------------
The Fund seeks long-term growth.
PRIMARY INVESTMENT STRATEGIES
--------------------------------------------------------------------------------
Under normal market conditions, the Fund invests at least 65% of its assets in
common stocks of small-cap companies. The Fund may invest in new issuers during
periods when new issues are being brought to market. The Fund may also invest in
midcap companies. The Fund invests in companies that compete within large and
growing markets and that have the ability to grow their market share. To find
companies with these growth characteristics, the portfolio manager seeks out
companies that are -- or, in the portfolio manager's judgment, have the
potential to be -- a market share leader within their respective industry. He
also looks for companies with strong management teams that participate in the
ownership of the companies.
The portfolio manager may sell a portfolio holding if the security reaches the
portfolio manager's price target or if the company has a deterioration of
fundamentals such as failing to meet key operating benchmarks. The portfolio
manager may also sell a portfolio holding to fund redemptions.
Additional strategies that are not principal investment strategies and the risks
associated with them are described below under "Other Investment Strategies and
Risks."
DEFINING CAPITALIZATION. A company's market capitalization is simply its stock
price multiplied by the number of shares of stock it has issued and outstanding.
In the financial markets, companies generally are sorted into one of three
capitalization-based categories: large capitalization (large cap); medium
capitalization (mid cap) or small capitalization (small cap). In defining a
company's market capitalization, we use capitalization-based categories as they
are defined by Morningstar, Inc.
Morningstar ranks stocks as follows: the top 5% of the 5000 largest domestic
stocks in Morningstar's equity database are classified as large cap, the next
15% of the 5000 are classified as mid cap, and the remaining 80% (as well as
companies that fall outside the largest 5000) are classified as small cap. As of
June 30, 2000, large cap companies had market capitalizations greater than
$10.5 billion, mid cap companies had market capitalizations between $1.7 and
$10.5 billion, and small cap companies had market capitalizations less than
$1.7 billion. These amounts are subject to change
2
<PAGE>
THE FUND
PRINCIPAL INVESTMENT RISKS
--------------------------------------------------------------------------------
The principal risks of investing in the Fund are described below. There are many
circumstances (including additional risks that are not described below) which
could prevent the Fund from achieving its investment goal. You may lose money by
investing in the Fund.
Management risk means that the advisor's stock selections and other investment
decisions might produce losses or cause the Fund to underperform when compared
to other funds with similar goals. Market risk means that security prices in a
market, sector or industry may move down. Downward movements will reduce the
value of your investment. Because of management and market risk, there is no
guarantee that the Fund will achieve its investment goal or perform favorably
compared with competing funds.
The securities issued by mid-capitalization companies may have more risk than
than those of larger companies. These securities may be more susceptible to
market downturns, and their prices could be more volatile.
Smaller companies are more likely than larger comapnies to
have limited product lines, operating histories, markets or financial
resources. They may depend heavily on a small management team. Stocks of
smaller companies may trade less frequently, may trade in smaller volumes
and may fluctuate more sharply in price than stocks of larger companies.
In addition, they may not be widely followed by the investment community,
which can lower the 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.
Information on other securities and risks appears under "Other Investment
Strategies and Risks."
3
<PAGE>
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR-YEAR TOTAL RETURNS show the Fund's Class S share performance for each
of the last three complete calendar years. It includes the effects of Fund
expenses.
AVERAGE ANNUAL TOTAL RETURN is a measure of the Fund's Class S share performance
over the past one-year period and the life of the Fund. It includes the effects
of Fund expenses.
The Fund's return is compared to the S&P SmallCap 600 Index, an unmanaged
broad-based measure of market performance. Unlike the Fund, indices are not
investments, do not incur fees or expenses, and are not professionally managed.
It is not possible to invest directly in indices.
PERFORMANCE HISTORY
--------------------------------------------------------------------------------
The bar chart below shows changes in the Fund's performance from year to year by
illustrating the Fund's calendar year total returns for its Class S shares. The
Fund did not have separate classes of shares prior to August 1, 2000; on that
date, the Fund's outstanding shares were reclassified as Class S shares. The
performance table following the bar chart shows how the Fund's average annual
total returns for Class S shares compare with those of a broad measure of market
performance for 1 year and the life of the Fund. The chart and table are
intended to illustrate some of the risks of investing in the Fund by showing the
changes in the Fund's performance. All returns include the reinvestment of
dividends and distributions. As with all mutual funds, past performance does not
predict the Fund's future performance.
CALENDAR-YEAR TOTAL RETURNS * (CLASS S)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19.93% 7.85% 50.91%
</TABLE>
The Fund's year-to-date total return through
June 30, 2000 was -6.13%.
For period shown in bar chart:
Best quarter: 4th quarter 1999, +36.33%
Worst quarter: 3rd quarter 1998, -19.32%
4
<PAGE>
THE FUND
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 1999*
<TABLE>
<CAPTION>
SINCE
INCEPTION
(MARCH 25,
1 YEAR 1996)
-------------------------------------- --------------- --------------
<S> <C> <C>
Small Company Growth Fund, Class S
(%)* 50.91 24.06
-------------------------------------- --------------- --------------
S&P SmallCap 600 Index (%)** 12.41 13.33
-------------------------------------- --------------- --------------
</TABLE>
* On February 2, 1999, the Colonial Aggressive Growth Fund (Predecessor Fund)
was reorganized into the Fund. The Predecessor Fund had multiple classes of
shares consisting of Class A, Class B, and Class C shares. The performance
information contained in the chart and total returns prior to February 2,
1999 are based on the historical returns of the Predecessor Fund's Class A
shares, which unlike the Fund had a 0.25% 12b-1 fee. This chart does not
reflect the sales load of the Predecessor Fund's Class A shares.
Performance information after February 2, 1999 is based on the historical
returns for the Fund's Class S shares.
**Since inception performance is from March 31, 2000 to December 31, 2000.
5
<PAGE>
THE FUND
UNDERSTANDING EXPENSES
SHAREHOLDER FEES are paid directly by shareholders to the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are deducted from the Fund. They include
management fees, 12b-1 fees, and administrative costs including pricing and
custody services.
EXAMPLE EXPENSES helps you compare the cost of investing in the Fund to the cost
of investing in other mutual funds. This example reflects expenses of both the
Fund. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% return for each year
- Fund operating expenses remain
the same
- Assumes reinvestment of all dividends and distributions.
YOUR EXPENSES
--------------------------------------------------------------------------------
Expenses are one of several factors to consider before you invest in a mutual
fund. The tables below describe the fees and expenses you may pay when you buy,
hold and sell shares of the Fund.
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
CLASS A
<S> <C>
Maximum sales charge (load) on purchases
(as a percentage of the offering price) 5.75
--------------------------------------------------- -----------
Maximum deferred sales charge (load)
(as a percentage of the lower of purchase
price or redemption price) 1.00(2)
--------------------------------------------------- -----------
Redemption fee(3) (as a percentage of amount
redeemed, if applicable) None
</TABLE>
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
<TABLE>
<CAPTION>
CLASS A
<S> <C>
Management fee (%) 1.00
--------------------------------------------------- -----------
Distribution and service (12b-1) fees (%) (4) 0.35
--------------------------------------------------- -----------
Other expenses (%) (5) 2.73
--------------------------------------------------- -----------
Total annual Fund operating expenses(%) 4.08
--------------------------------------------------- -----------
Expense reimbursement(%) (6) 2.23
--------------------------------------------------- -----------
Net expenses(%) 1.85
</TABLE>
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
<TABLE>
<CAPTION>
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A $752 $1,553 $2,368 $4,473
</TABLE>
(1) A $10 annual fee is deducted from accounts of less than $1,000 and paid to
the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
(3) Management fees reflect increases effective February 1999. In addition, the
Predecessor Fund's 12b-1 fee of 0.25% and load of 5.75% were eliminated
effective February 1999.
(4) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class A shares. As a result, the actual 12b-1 fee for Class A
would be 0.25% and the total annual Fund operating expenses would be 1.75%.
(5) Other expenses are based on the Fund's Class S shares.
(6) Stein Roe will reimburse the Fund if its annual ordinary operating expenses
exceed 1.50% of average daily net assets. This commitment expires on
January 31, 2001. After reimbursement, management fees will be 0.0% and
other expenses will be 1.50%. A reimbursement lowers the expense ratio and
increases overall return to investors.
6
<PAGE>
YOUR ACCOUNT
INVESTMENT MINIMUMS
<TABLE>
<S> <C>
Initial Investment.............$1,000
Subsequent Investments............$50
Automatic Investment Plan*........$50
Retirement Plans*.................$25
</TABLE>
* The initial investment of $1,000 is waived on this plan.
The Fund reserves the right to change the investment minimums. The Fund also
reserves the right to refuse a purchase order for any reason, including if it
believes that doing so would be in the best interest of the Fund and its
shareholders.
HOW TO BUY SHARES
--------------------------------------------------------------------------------
Your financial advisor can help you establish an appropriate investment
portfolio, buy shares and monitor your investments. When the Fund receives your
purchase request in "good form," your shares will be bought at the next
calculated public offering price. In "good form" means that you placed your
order with your brokerage firm or your payment has been received and your
application is complete, including all necessary signatures. The Fund also
offers Class S shares through a separate prospectus.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
<S> <C>
Through your Your financial advisor can help you establish your account and
financial advisor buy Fund shares on your behalf. Your financial advisor may
charge you fees for executing the purchase for you.
-------------------- -----------------------------------------------------------------
By check For new accounts, send a completed application and check made
(new account) payable to the Fund to the transfer agent, SteinRoe Services
Inc., c/o Liberty Funds Services, Inc., P.O. Box 1722, Boston,
MA 02105-1722.
-------------------- -----------------------------------------------------------------
By check
(existing account) For existing accounts, fill out and return the additional
investment stub included in your quarterly statement, or send a
letter of instruction, including your Fund name and account
number with a check made payable to the Fund to SteinRoe Services
Inc., c/o Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA
02105-1722.
-------------------- -----------------------------------------------------------------
By exchange You or your financial advisor may acquire shares by exchanging
shares you own in one fund for shares of the same class of the
Fund at no additional cost. To exchange by telephone, call
1-800-422-3737.
-------------------- -----------------------------------------------------------------
By wire You may purchase shares by wiring money from your bank account
to your fund account. To wire funds to your fund account, call
1-800-422-3737 to obtain a control number and the wiring
instructions.
-------------------- -----------------------------------------------------------------
By electronic
funds transfer You may purchase shares by electronically transferring money from
your bank account to your fund account by calling 1-800-422-3737.
Your money may take up to two business days to be invested. You
must set up this feature prior to your telephone request. Be sure
to complete the appropriate section of the application.
-------------------- -----------------------------------------------------------------
Automatic You can make monthly or quarterly investments automatically
investment plan from your bank account to your fund account. You can select a
pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
-------------------- -----------------------------------------------------------------
By dividend You may automatically invest dividends distributed by one fund
diversification into the same class of shares of another fund at no additional
sales charge. To invest your dividends in another fund, call
1-800-345-6611.
</TABLE>
7
<PAGE>
YOUR ACCOUNT
SALES CHARGES
--------------------------------------------------------------------------------
You may be subject to an initial sales charge when you purchase or a contingent
deferred sales charge (CDSC) when you sell shares of the Fund. These sales
charges are described below. In some circumstances these sales charges are
waived, as described below and in the Statement of Additional Information.
CLASS A SHARES Your purchases of Class A shares generally are at the public
offering price. This price includes a sales charge that is based on the amount
of your investment. The sales charge is the commission paid to the financial
advisor firm on the sale of Class A shares. The sales charge you pay on
additional investments is based on the total amount of your purchase and the
current value of your account. The amount of the sales charge differs depending
on the amount you invest as shown in the table below.
CLASS A SALES CHARGES
<TABLE>
<CAPTION>
% OF PUBLIC
OFFERING
AS A % OF AS A % PRICE
THE PUBLIC OF NET RETAINED BY
OFFERING AMOUNT FINANCIAL
AMOUNT OF PURCHASE PRICE INVESTED ADVISOR FIRM
<S> <C> <C> <C>
Less than $50,000 5.75 6.10 5.00
------------------------------------------- -------------- ------------- --------------
$50,000 to less than $100,000 4.50 4.71 3.75
------------------------------------------- -------------- ------------- --------------
$100,000 to less than $250,000 3.50 3.63 2.75
------------------------------------------- -------------- ------------- --------------
$250,000 to less than $500,000 2.50 2.56 2.00
------------------------------------------- -------------- ------------- --------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
------------------------------------------- -------------- ------------- --------------
$1,000,000 or more(1) 0.00 0.00 0.00
</TABLE>
For Class A share purchases of $1 million or more, financial advisors receive a
commission from Liberty Funds Distributor, Inc. (Distributor) as follows:
PURCHASES OVER $1 MILLION
<TABLE>
<CAPTION>
AMOUNT PURCHASED COMMISSION %
<S> <C>
First $3 million 1.00
-------------------------------------------- ------------------------------------------
Next $2 million 0.50
-------------------------------------------- ------------------------------------------
Over $5 million 0.25(2)
</TABLE>
(1) Class A shares bought without an initial sales charge in accounts
aggregating between $1 million and $5 million at the time of purchase may
be subject to a 1% CDSC if the shares are sold within 12 months of the time
of purchase.
Subsequent Class A share purchases that bring your account value above $1
million are subject to a 1% CDSC if redeemed within 18 months of their
purchase date. Purchases in accounts aggregating over $5 million are
subject to a 1.00% CDSC only to the extent that the sale of shares within
12 months of purchase causes the value of the accounts to fall below the $5
million level. The 12-month period begins on the first day of the month.
(2) Paid over 12 months but only to the extent the shares remain outstanding.
8
<PAGE>
YOUR ACCOUNT
REDUCED SALES CHARGES FOR LARGER INVESTMENTS There are two ways for you to pay a
lower sales charge when purchasing Class A shares. The first is through Rights
of Accumulation. If the combined value of the Fund accounts maintained by you,
your spouse or your minor children reaches a discount level (according to the
chart on the previous page), your next purchase will receive the lower sales
charge. The second is by signing a Statement of Intent within 90 days of your
purchase. By doing so, you would be able to pay the lower sales charge on all
purchases by agreeing to invest a total of at least $50,000 within 13 months. If
your Statement of Intent purchases are not completed within 13 months, you will
be charged the applicable sales charge on the amount you had invested to that
date. In addition, certain investors may purchase shares at a reduced sales
charge or NAV, which is the value of a Fund share excluding any sales charges.
See the Statement of Additional Information for a description of these
situations.
HOW TO EXCHANGE SHARES
You may exchange your shares for shares of the same share class of another fund
distributed by Liberty Funds Distributor, Inc. at the next-determined NAV. If
your shares are subject to a CDSC, you will not be charged a CDSC upon the
exchange. However, when you sell the shares acquired through the exchange, the
shares sold may be subject to a CDSC, depending upon when you originally
purchased the shares you exchanged. For purposes of computing the CDSC, the
length of time you have owned your shares will be computed from the date of your
original purchase and the applicable CDSC will be the CDSC of the original Fund.
Unless your account is part of a tax-deferred retirement plan, an exchange is a
taxable event. Therefore, you may realize a gain or a loss for tax purposes. The
Fund may terminate your exchange privilege if Stein Roe determines that your
exchange activity is likely to adversely impact its ability to manage the Fund.
To exchange by telephone, call 1-800-422-3737.
HOW TO SELL SHARES
Your financial advisor can help you determine if and when you should sell your
shares. You may sell shares of the Fund on any regular business day that the New
York Stock Exchange (NYSE) is open.
When the Fund receives your sales request in "good form," shares will be sold at
the next calculated price. "Good form" means that money used to purchase your
shares is fully collected. When selling shares by letter of instruction, "good
form" means (i) your letter has complete instructions, the proper signatures and
signature guarantees, (ii) you have included any certificates for shares to be
sold, and (iii) any other required documents are attached. For additional
documentation required for sales by corporations, agents, fiduciaries and
surviving joint owners, please call 1-800-345-6611. Retirement Plan accounts
have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days
(usually on the next business day after your request is received in good form).
However, if you purchased your shares by check, the Fund may delay the sale of
your shares for up to 15
9
<PAGE>
YOUR ACCOUNT
days after your purchase to protect against checks that are returned. No
interest will be paid on uncashed redemption checks.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
<TABLE>
<CAPTION>
METHOD INSTRUCTIONS
<S> <C>
Through your You may call your financial advisor to place your sell order.
financial advisor To receive the current trading day's price, your financial
advisor firm must receive your request prior to the close
of the NYSE, usually 4:00 p.m. Eastern time.
By exchange You or your financial advisor may sell shares by
exchanging from the Fund into the same share class of
another fund at no additional cost. To exchange by
telephone, call 1-800-422-3737.
By telephone You or your financial advisor may sell shares by telephone and
request that a check be sent to your address of record by
calling 1-800-422-3737 unless you have notified the Fund of an
address change within the previous 30 days. The dollar limit
for telephone sales is $100,000 in a 30-day period. You do not
need to set up this feature in advance of your call. Certain
restrictions apply to retirement accounts. For details, call
1-800-345-6611.
By mail You may send a signed letter of instruction or stock power form
along with any certificates to be sold to the address below.
In your letter of instruction, note your fund's name, share
class, account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter, and
signatures must be guaranteed by either a bank, a member firm
of a national stock exchange or another eligible guarantor
institution. Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners and
individual retirement account (IRA) owners. For details, call
1-800-345-6611.
Mail your letter of instruction to SteinRoe Services Inc., c/o
Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA
02105-1722.
By wire You may sell shares and request that the proceeds be
wired to your bank. You must set up this feature prior to
your telephone request. Be sure to complete the
appropriate section of the account application for this
feature.
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage on a monthly, quarterly or semi-annual basis if your
account balance is at least $5,000 and have the proceeds
sent to you. This feature is not available if you hold
your shares in certificate form. Be sure to complete the
appropriate section of the account application for this
feature.
By electronic You may sell shares and request that the proceeds be
funds transfer electronically transferred to your bank. Proceeds may take up
to two business days to be received by your bank. You must
set up this feature prior to your request. Be sure to
complete the appropriate section of the account
application for this feature.
</TABLE>
FUND POLICY ON TRADING OF FUND SHARES
The Fund does not permit short-term or excessive trading. Excessive purchases,
redemption, or exchanges of Fund shares disrupt portfolio management and drive
Fund expenses higher. In order to promote the best interests of the Fund, the
Fund reserves the right to reject any purchase order or exchange request,
particularly from market timers or investors who, in the advisor's opinion, have
a pattern or short-term of excessive trading or whose trading has been or may be
disruptive to the Fund. The Fund into which you would like to exchange also may
reject your request.
10
<PAGE>
YOUR ACCOUNT
DISTRIBUTION AND SERVICE FEES
The Fund has adopted a plan under Rule 12b-1 that permits it to pay marketing
and other fees to support the sale and distribution of Class A shares and the
services provided to you by your financial advisor. These annual distribution
and service fees may equal up to 0.35% for Class A shares and are paid out of
the assets of the class. Over time, these fees will increase the cost of your
shares and may cost you more than paying other types of sales charges.
OTHER INFORMATION ABOUT YOUR ACCOUNT
HOW THE FUND'S SHARE PRICE IS DETERMINED The price of the Fund's shares is based
on its net asset value. The net asset value is determined at the close of
regular session trading on the NYSE, usually 4:00 p.m. Eastern time on each
business day that the NYSE is open (typically Monday through Friday).
When you request a transaction, it will be processed at the net asset value,
(plus any applicable sales charge) next determined after your request is
received in "good form" by the distributor. In most cases, in order to receive
that day's price, the distributor must receive your order before that day's
transactions are processed. If you request a transaction through your financial
advisor firm, the firm must receive your order by the close of trading on the
NYSE to receive that day's price.
The Fund determines its net asset value for Class A shares by dividing the
class's total net assets by the number of the class's shares outstanding. In
determining the net asset value, the Fund must determine the price of each
security in its portfolio at the close of each trading day. Because the Fund
holds securities that are traded on foreign exchanges, the value of the Fund's
securities may change on days when shareholders will not be able to buy or sell
Fund shares. This will affect the Fund's net asset value on the day it is next
determined. Securities for which market quotations are available are valued each
day at the current market value. However, where market quotations are
unavailable, or when the advisor believes that subsequent events have made them
unreliable, the Fund may use other data to determine the fair value of the
securities.
You can find the daily prices of some share classes for the Fund in most major
daily newspapers under the caption "Liberty." You can find daily prices for all
share classes by visiting the Fund's web site at www.libertyfunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of
depreciation in share value), you may be subject to an annual account fee of
$10. This fee is deducted from the account in June each year. Approximately 60
days prior to the fee date, the Fund's transfer agent will send you written
notification of the upcoming fee. If you add money to your account and bring the
value above $1,000 prior to the fee date, the fee will not be deducted.
11
<PAGE>
YOUR ACCOUNT
SHARE CERTIFICATES Certificates will be issued for Class A shares only if
requested. If you decide to hold share certificates, you will not be able to
sell your shares until you have endorsed your certificates and returned them to
the Distributor.
DIVIDENDS, DISTRIBUTIONS, AND TAXES The Fund has the potential to make the
following distributions:
TYPES OF DISTRIBUTIONS
<TABLE>
<S> <C>
Dividend income Represents interest and dividends earned from securities held
by the Fund
Capital gains Represents long-term capital gains on sales of securities held
for more than 12 months and short-term capital gains, which are
gains on sales of securities held by the Fund for a 12-month
period or less.
</TABLE>
DISTRIBUTION OPTIONS Income dividends are declared and paid quarterly. Any
capital gains are distributed at least annually. You can choose one of the
options listed in the table below for these distributions when you open your
account. To change your distribution option call 1-800-345-6611.
If you do not indicate on your application your preference for handling
distributions, the Fund will automatically reinvest all distributions in
additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your current fund
Reinvest all distributions in shares of another fund
Receive dividends in cash (see options below) and reinvest capital gains(1)
Receive all distributions in cash (with one of the following options) (1)
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds transfer
TAX CONSEQUENCES Regardless of whether you receive your distributions in cash or
reinvest them in additional Fund shares, all Fund distributions are subject to
federal income tax. Depending on the state where you live, distributions may
also be subject to state and local income taxes.
(2) Distributions of $10 or less will automatically be reinvested in
additional Fund shares. If you elect to receive distributions by check
and the check is returned as undeliverable, or if you do not cash a
distribution check within six months of the check date, the
distribution will be reinvested in additional shares of the Fund.
12
<PAGE>
YOUR ACCOUNT
In general, any distributions of dividends, interest and short-term capital
gains distributions are taxable as ordinary income. Distributions of long-term
capital gains are generally taxable as such, regardless of how long you have
held your Fund shares. You will be provided with information each year regarding
the ordinary income and capital gains distributed to you for the previous year
and any portion of your distribution which is exempt from state and local taxes.
Your investment in the Fund may have additional personal tax implications.
Please consult your tax advisor on federal, state, local or other applicable tax
laws.
In addition to the dividends and capital gains distributions made by the Fund,
you may realize a capital gain or loss when selling and exchanging shares of the
Fund. Such transactions may be subject to federal, state, local and foreign
income tax.
13
<PAGE>
MANAGING THE FUNDS
INVESTMENT ADVISOR
Stein Roe & Farnham Incorporated (Stein Roe), located at One South Wacker Drive,
Suite 3500, Chicago, Illinois 60606, is the Fund's investment advisor. In its
duties as investment advisor, Stein Roe runs the Fund's day-to-day business,
including placing all orders for the purchase and sale of portfolio securities
for the Fund. Stein Roe has been an investment advisor since 1932.
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 Fund. 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.
For the fiscal year ended September 30, 1999, the Fund paid 1.00% of average net
assets in fees to Stein Roe.
Stein Roe may use the services of AlphaTrade, Inc., an affiliated broker-dealer,
when buying or selling equity securities for the Fund, pursuant to procedures
adopted by the Board of Trustees.
PORTFOLIO MANAGER
WILLIAM M. GARRISON has been employed by Stein Roe since 1989 as an equity
research analyst and is a vice president. He earned an A.B. degree from
Princeton University and an M.B.A. degree from the University of Chicago. He has
managed the Fund since September 1998.
14
<PAGE>
OTHER INVESTMENT STRATEGIES AND RISKS
UNDERSTANDING THE FUND'S OTHER INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment strategies and risks are described under "The
Fund Principal Investment Strategies" and "The Fund - Principal Investment
Risks." In seeking to meet its investment goal, the Fund may also invest in
other securities and use certain other investment techniques. These securities
and investment techniques offer opportunities and carry various risks.
The advisor may elect not to buy any of these securities or use any of these
techniques unless it believes that doing so will help the Fund achieve its
investment goal. The Fund may not always achieve its investment goal.
Additional information about the Fund's securities and investment techniques, as
well as the Fund's fundamental and non-fundamental investment policies, is
contained in the Statement of Additional Information.
OTHER INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment strategies and their associated risks are
described above. This section describes other investments the Fund may make and
the risks associated with them. In seeking to achieve its investment goals, the
Fund may invest in various types of securities and engage in various investment
techniques which are not the principal focus of the Fund and therefore are not
described in this prospectus. These types of securities and investment practices
are identified and discussed in the Fund's Statement of Additional Information,
which you may obtain free of charge (see back cover). Approval by the Fund's
shareholders is not required to modify or change any of the Fund's investment
goal or investment strategies.
SHORT SALES
The Fund may make short sales of securities. Short selling involves the sale of
borrowed securities. When the Fund thinks the price of a stock will decline, it
borrows the stock and then sells the borrowed stock. When the Fund has to return
the borrowed stock, it tries to buy the stock at a lower price. If the Fund is
successful, it has a capital gain. If the Fund is unsuccessful and buys the
stock at a higher price than the price at which it sold the stock, the Fund has
a capital loss. The Fund's capital gains and losses may result in federal income
tax consequences to the Fund's shareholders. Short selling involves certain
risks. The Fund could have a loss if the borrowed security increases in value
and if the purchased security declines in value.
PORTFOLIO TURNOVER
There are no limits on turnover. Turnover may vary significantly from year to
year. Stein Roe does not expect it to exceed 150% under normal conditions. The
Fund generally intends to purchase securities for long-term investment although,
to a limited extent, it may purchase securities 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 the Fund's return.
TEMPORARY DEFENSIVE POSITIONS
When Stein Roe believes that a temporary defensive position is necessary, the
Fund may invest, without limit, in high-quality debt securities or hold assets
in cash and cash equivalents. Stein Roe is not required to take a temporary
defensive position, and market conditions may prevent such an action. The Fund
may not achieve its investment objective if it takes a temporary defensive
position.
INTERFUND LENDING PROGRAM
The Fund may lend money to and borrow money from other funds advised by Stein
Roe. It 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.
15
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the financial
performance of the Fund. Because Class A shares have not commenced operations,
the Fund's Class S shares, the existing class is shown. Information is shown for
the Fund's last five fiscal years. The fiscal year ran from July 1 to June 30
through June 30, 1999 when it was changed to September 30. Information through
June 30, 1998 has been derived from the financial statements of Colonial
Aggressive Growth Fund (Predecessor Fund). Certain information reflects
financial results for a single Class A share of the Predecessor Fund outstanding
throughout the period from March 31, 1996 through June 30, 1998. The total
returns in the table represent the rate that you would have earned (or lost) on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). The information for all periods has been audited by
PricewaterhouseCoopers LLP, independent accountants, whose report, along with
the Fund's financial statements, is included in the annual report. The
information for the period ending March 31, 2000 is unaudited. You can request
a free annual report by calling 1-800-426-3750.
THE FUND
<TABLE>
<CAPTION>
(Unaudited)
Six months ended Period ended Period ended
March 31, September 30, Years ended June 30, September 30,
2000 1999(i) 1999 1998 1997 1996(b)
Class S Class S Class S Class S Class S
<S> <C> <C> <C> <C> <C> <C>
Net asset value--
Beginning of period ($) 13.50 12.790 14.390 12.650 11.300 10.110
---------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss (a)(g) (0.08) (0.031) (0.094) (0.143) (0.114) (0.016)
---------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 9.61 0.741 0.194 2.783 1.484 1.206
---------------------------------------------------------------------------------
Total from Investment Operations 9.53 0.710 0.100 2.640 1.370 1.190
=================================================================================
LESS DISTRIBUTIONS ($):
Net investment income -- -- -- -- (0.005) --
---------------------------------------------------------------------------------
Net realized capital gains (1.01) -- (1.700) (0.900) (0.015) --
---------------------------------------------------------------------------------
Total Distributions (1.01) -- (1.700) (0.900) (0.020) --
=================================================================================
Net asset value--
End of period ($) 22.02 $13.500 $12.790 $14.390 $12.650 $11.300
---------------------------------------------------------------------------------
Total return (%) (c)(d) 74.23(e) 5.55%(e) 1.71% 21.56% 12.14% 11.77%(e)
=================================================================================
RATIOS/SUPPLEMENTAL DATA (%):
Ratio of net expenses to
average net assets (h) 1.50(f) 1.50%(f) 1.52% 1.55% 1.55% 1.55%(f)
---------------------------------------------------------------------------------
Fees and expenses borne by
the investment advisor(h) -- 2.23%(f) 2.53% 2.21% 2.57% 1.38%(f)
---------------------------------------------------------------------------------
Ratio of net investment loss
to average net assets (h) (0.92)(f) (0.93%)(f) (0.78%) (1.04%) (0.99%) (0.58%)(f)
---------------------------------------------------------------------------------
Portfolio turnover rate (%) 77(e) 27%(e) 105% 70% 54% 0%(e)
---------------------------------------------------------------------------------
Net assets at end of period (000's) ($) 29,503 $9,913 $9,293 $3,867 $3,185 $2,826
</TABLE>
16
<PAGE>
FINANCIAL HIGHLIGHTS
(a) Net of fees and expenses waived or borne by the investment adviser
which amounted to $0.073 for the period ended 9/30/99, $0.305, $0.301,
$0.297, respectively, for the years ended 6/30/99, 6/30/98, 6/30/97 and
$0.038 for period ended 6/30/96.
(b) The Predecessor Fund commenced operations on March 25, 1996. The
activity shown is from the effective date of registration (March 31,
1996) with the Securities and Exchange Commission.
(c) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(d) Had the investment adviser not waived or reimbursed a portion of
expenses, total return would have been reduced.
(e) Not annualized.
(f) Annualized.
(g) Per share data was calculated using average shares outstanding during
the period.
(h) The benefit derived from custody credits and directed brokerage
arrangements had no impact.
(i) The Fund changed its fiscal year end from June 30 to September 30.
Information presented is for the period July 1, 1999 through September
30, 1999.
17
<PAGE>
NOTES
18
<PAGE>
NOTES
19
<PAGE>
FOR MORE INFORMATION
You can get more information about the Fund's investments in the Fund's
semi-annual and annual reports to shareholders. The annual report contains a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance over its last fiscal year.
You may wish to read the Statement of Additional Information for more
information on the Fund and the securities in which it invests. The Statement of
Additional Information is incorporated into this prospectus by reference, which
means that it is considered to be part of this prospectus.
You can get free copies of reports and the Statement of Additional Information,
request other information and discuss your questions about the Fund by writing
or calling the Fund's distributor at:
Liberty Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.libertyfunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from
the SEC at www.sec.gov.
You can review and copy information about the Fund by visiting the following
location and you can obtain copies, upon payment of a duplicating fee, by
writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-6009
Information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
INVESTMENT COMPANY ACT FILE NUMBER:
Liberty-Stein Roe Funds Investment Trust: 811-4978
- Stein Roe Small Company Growth Fund
[LIBERTY FUNDS LOGO]
<PAGE>
A registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This communication shall not
constitute an offer to sell or the solicitation of an offer to buy or shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
Statement of Additional Information Dated August 1, 2000
LIBERTY-STEIN ROE FUNDS INVESTMENT TRUST
One Financial Center, Boston, MA 02111
800-338-2550
Stein Roe Capital Opportunities Fund-
Liberty Capital Opportunities Fund Class A
Stein Roe Disciplined Stock Fund-
Liberty Disciplined Stock Fund Class A
Stein Roe Large Company Focus Fund-
Liberty Large Company Focus Fund Class A
Stein Roe Small Company Growth Fund-
Liberty Small Company Growth Fund Class A
(each a Fund, collectively, the "Funds")
This Statement of Additional Information ("SAI") is not a prospectus,
but provides additional information that should be read in conjunction with each
Fund's Class A prospectus dated August 1, 2000, and any supplements thereto
("Prospectuses"). Financial statements, which are contained in the Funds'
September 30, 1999 Annual Report, and the March 31, 2000, Semi-annual Report are
incorporated by reference into this SAI. The Prospectuses, Annual Report and
Semi-annual Report may be obtained at no charge by telephoning 800-338-2550.
TABLE OF CONTENTS
Page
General Information and History...........................................2
Investment Policies.......................................................4
Portfolio Investments and Strategies......................................4
Investment Restrictions..................................................22
Additional Investment Considerations.....................................24
Management...............................................................25
Financial Statements.....................................................30
Principal Shareholders...................................................31
Investment Advisory and Other Services...................................31
Distributor..............................................................33
Transfer Agent...........................................................35
Purchases and Redemptions................................................35
Custodian................................................................46
Independent Accountants..................................................46
Portfolio Transactions...................................................47
Additional Income Tax Considerations.....................................52
Investment Performance...................................................53
Master Fund/Feeder Fund: Structure and Risk Factors......................58
Appendix--Ratings........................................................60
<PAGE>
GENERAL INFORMATION AND HISTORY
.........The Funds described in this SAI are each a series of Liberty-Stein
Roe Funds Investment Trust (the "Trust"). The Funds.and the dates they
commenced operations are:
<TABLE>
<CAPTION>
<S> <C> <C>
------------------------------------------------------------------------------------------------ ---------------------
Fund Commencement date
------------------------------------------------------------------------------------------------ ---------------------
------------------------------------------------------------------------------------------------ ---------------------
Stein Roe Capital Opportunities Fund ("Capital Opportunities Fund") 6/10/63
------------------------------------------------------------------------------------------------ ---------------------
------------------------------------------------------------------------------------------------ ---------------------
Stein Roe Disciplined Stock Fund ("Disciplined Stock Fund")* 5/22/68
------------------------------------------------------------------------------------------------ ---------------------
------------------------------------------------------------------------------------------------ ---------------------
Stein Roe Large Company Focus Fund ("Large Company Focus Fund") 6/26/98
------------------------------------------------------------------------------------------------ ---------------------
------------------------------------------------------------------------------------------------ ---------------------
Stein Roe Small Company Growth Fund ("Small Company Growth Fund") 2/2/99
------------------------------------------------------------------------------------------------ ---------------------
</TABLE>
*Prior to May 6, 1999, Stein Roe Disciplined Stock Fund was named Stein Roe
Special Fund.
........On February 1, 1996, the name of the Trust was changed to separate
"SteinRoe" into two words. The name of the Trust was changed from "Stein Roe
Investment Trust" to "Liberty-Stein Roe Funds Investment Trust" on October 18,
1999.
.........Each Fund offers two classes of shares--Classes A and S. Prior to
August 1, 2000, each Fund had a single class of shares. On July 14, 2000, the
outstanding shares of each Fund were converted into Class S. On August 1, 2000,
the Funds commenced offering Class A shares. This SAI describes Class A
shares of the Funds. A separate SAI relates to Class S.
.........The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated Jan. 8,
1987, which provides that each shareholder shall be deemed to have agreed
to be bound by the terms thereof. The Declaration of Trust may be amended by
a vote of either the Trust's shareholders or its trustees. The Trust may
issue an unlimited number of shares, in one or more series, each with one
or more classes, 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 (or class
thereof) 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.
Special Considerations Regarding Master Fund/Feeder Fund Structure
(Disciplined Stock Fund only)
.........Rather than invest in securities directly, the Disciplined Stock
Fund seeks to achieve its objective by pooling its assets with those of other
investment companies for investment in a master fund have the identical
investment objective and substantially the same investment policies as its
feeder funds. The purpose of such an arrangement is to achieve greater
operational efficiencies and reduce costs. The Disciplined Stock Fund has
invested all of its assets in a separate master fund, SR&F Disciplined Stock
Portfolio (the "Portfolio"), a series of SR&F Base Trust. The Portfolio
commenced operations on February 3, 1997.
.........For more information, please refer to Master Fund/Feeder Fund:
Structure and Risk Factors. Capital Opportunities Fund, Large Company Focus
Fund and Small Company Growth Fund may convert into feeder funds at some time
in the future.
.........Stein Roe & Farnham Incorporated ("Stein Roe") provides administrative
and accounting and recordkeeping services to the Funds and the Portfolio and
provides investment management services to the Funds and the Portfolio.
INVESTMENT POLICIES
.........The Trust and SR&F Base Trust are open-end management investment
companies. Each Fund is diversified, (as defined in the Investment Company
Act of 1940), except Large Company Focus Fund, which is non-diversified.
.........The investment objectives and policies are described in the Prospectus
under The Funds. In pursuing their objectives, each Fund and the Portfolio
may also employ the investment techniques described under Portfolio
Investments and Strategies in this SAI. Each investment objective is a
nonfundamental 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
.........Unless otherwise noted, for purposes of discussion under Portfolio
Investments and Strategies, the term "Fund" refers to each Fund and the
Portfolio.
Debt Securities
.........In pursuing its investment objective, the 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
Fund's portfolio as well as on market conditions. A decline in the prevailing
levels of interest rates generally increases the value of debt securities,
while an increase in rates usually reduces the value of those securities.
.........Investments in debt securities by the Fund are limited to those that
are within the four highest grades (generally referred to as "investment grade")
assigned by a nationally recognized statistical rating organization or, if
unrated, deemed to be of comparable quality by Stein Roe. The Fund may invest up
to 35% of its net assets in debt securities, but does not expect to invest more
than 5% of its net assets in debt securities that are rated below investment
grade. The Fund also does not have a current intention to invest more than 5% of
its total assets in investment grade debt securities.
.........Securities in the fourth highest grade may possess speculative
characteristics, and changes in economic conditions are more likely to affect
the issuer's capacity to pay interest and repay principal. If the rating of a
security held by the Fund is lost or reduced below investment grade, the Fund is
not required to dispose of the security, but Stein Roe will consider that fact
in determining whether that Fund should continue to hold the security.
.........Securities that are rated below investment grade are considered
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal according to the terms of the obligation and therefore carry
greater investment risk, including the possibility of issuer default and
bankruptcy.
.........When Stein Roe determines that adverse market or economic conditions
exist and considers a temporary defensive position advisable, the Fund may
invest without limitation in high-quality fixed income securities or hold assets
in cash or cash equivalents.
Derivatives
.........Consistent with its objective, the Fund may invest in a broad array of
financial instruments and securities, including conventional exchange-traded and
non-exchange-traded options; futures contracts; futures options; securities
collateralized by underlying pools of mortgages or other receivables; floating
rate instruments; and other instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument or security is
"derived" from the performance of an underlying asset or a "benchmark" such as a
security index, an interest rate, or a currency.
.........Derivatives are most often used to manage investment risk or to create
an investment position indirectly because using them is more efficient or
less costly than direct investment that cannot be readily established
directly due to portfolio size, cash availability, or other factors.
They also may be used in an effort to enhance portfolio returns.
.........The successful use of Derivatives depends on Stein Roe's ability to
correctly predict changes in the levels and directions of movements in
security prices, interest rates and other market factors affecting the
Derivative itself or the value of the underlying asset or benchmark. In
addition, correlations in the performance of an underlying asset to a
Derivative may not be well established. Finally, privately negotiated and
over-the-counter Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives.
.........The Fund currently does not intend to invest more than 5% of its net
assets in any type of Derivative except for options, futures contracts, and
futures options. (See Options and Futures below.)
.........Some mortgage-backed debt securities are of the "modified pass-through
type," which means the interest and principal payments on mortgages in the pool
are "passed through" to investors. During periods of declining interest rates,
there is increased likelihood that mortgages will be prepaid, with a resulting
loss of the full-term benefit of any premium paid by the Fund on purchase of
such securities; in addition, the proceeds of prepayment would likely be
invested at lower interest rates.
.........Mortgage-backed securities provide either a pro rata interest in
underlying mortgages or an interest in collateralized mortgage obligations
("CMOs") that represent a right to interest and/or principal payments from an
underlying mortgage pool. CMOs are not guaranteed by either the U.S.
Government or by its agencies or instrumentalities, and are usually issued in
multiple classes each of which has different payment rights, prepayment risks,
and yield characteristics. Mortgage-backed securities involve the risk of
prepayment on the underlying mortgages at a faster or slower rate than the
established schedule. Prepayments generally increase with falling interest
rates and decrease with rising rates but they also are influenced by economic,
social, and market factors. If mortgages are prepaid during periods of
declining interest rates, there would be a resulting loss of the full-term
benefit of any premium paid by the Fund on purchase of the CMO, and the proceeds
of prepayment would likely be invested at lower interest rates.
.........Non-mortgage asset-backed securities usually have less prepayment risk
than mortgage-backed securities, but have the risk that the collateral will not
be available to support payments on the underlying loans that finance payments
on the securities themselves.
.........Floating rate instruments provide for periodic adjustments in coupon
interest rates that are automatically reset based on changes in amount and
direction of specified market interest rates. In addition, the adjusted
duration of some of these instruments may be materially shorter than their
stated maturities. To the extent such instruments are subject to lifetime or
periodic interest rate caps or floors, such instruments may experience greater
price volatility than debt instruments without such features. Adjusted duration
is an inverse relationship between market price and interest rates and refers
to the approximate percentage change in price for a 100 basis point change in
yield. For example, if interest rates decrease by 100 basis points, a
market price of a security with an adjusted duration of 2 would increase by
approximately 2%.
Convertible Securities
.........By investing in convertible securities, the Fund obtains the right to
benefit from the capital appreciation potential in the underlying stock upon
exercise of the conversion right, while earning higher current income than would
be available if the stock were purchased directly. In determining whether to
purchase a convertible, Stein Roe will consider substantially the same criteria
that would be considered in purchasing the underlying stock. While convertible
securities purchased by the Fund are frequently rated investment grade, the Fund
may purchase unrated securities or securities rated below investment grade if
the securities meet Stein Roe's other investment criteria. Convertible
securities rated below investment grade (a) tend to be more sensitive to
interest rate and economic changes, (b) may be obligations of issuers who are
less creditworthy than issuers of higher quality convertible securities, and (c)
may be more thinly traded due to such securities being less well known to
investors than investment grade convertible securities, common stock or
conventional debt securities. As a result, Stein Roe's own investment research
and analysis tend to be more important in the purchase of such securities than
other factors.
Foreign Securities
.........The Fund may invest up to 25% of its total assets in foreign
securities, which may entail a greater degree of risk (including risks
relating to exchange rate fluctuations, tax provisions, or expropriation of
assets) than investment in securities of domestic issuers. For this purpose,
foreign securities do not include American Depositary Receipts (ADRs) or
securities guaranteed by a United States person. ADRs are receipts typically
issued by an American bank or trust company evidencing ownership of the
underlying securities. The 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. No Fund intends to invest, nor during the past fiscal year has any Fund
invested, more than 5% of its net assets in unsponsored ADRs.
.........As of Sept. 30, 1999, holdings of foreign companies, as a percentage
of net assets, were as follows: Capital Opportunities Fund, 1.4% (none in
foreign securities and 1.4% in ADRs); Disciplined Stock Fund, 3.7% (none in
foreign securities and 3.7% in ADRs and ADSs); Large Company Focus Fund, 5.3%
(none in foreign securities and 5.3% in ADRs) Small Company Growth Fund,
1.2% (none in foreign securities and 1.2% in ADRs).
.........With respect to portfolio securities that are issued by foreign
issuers or denominated in foreign currencies, the Fund's
investment performance is affected by the strength or weakness of the U.S.
dollar against these currencies. For example, if the
dollar falls in value relative to the Japanese yen, the dollar value of a
yen-denominated stock held in the portfolio will rise even
though the price of the stock remains unchanged. Conversely,
if the dollar rises in value relative to the yen, the dollar value of
the yen-denominated stock will fall. (See discussion of transaction
hedging and portfolio hedging under Currency Exchange
Transactions.)
.........Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities,
positions which are generally denominated in foreign currencies, and
utilization of forward foreign currency exchange contracts involve certain
considerations comprising both risks and opportunities not typically
associated with investing in U.S. securities. These considerations include:
fluctuations in exchange rates of foreign currencies; possible imposition
of exchange control regulation or currency restrictions that would prevent
cash from being brought back to the United States; less public information
with respect to issuers of securities; less governmental supervision of stock
exchanges, securities brokers, and issuers of securities; lack of uniform
accounting, auditing, and financial reporting standards; lack of uniform
settlement periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United States; possible
imposition of foreign taxes; possible investment in securities of companies
in developing as well as developed countries; and sometimes less advantageous
legal, operational, and financial protections applicable to foreign
sub-custodial arrangements. These risks are greater for emerging markets.
.........Although the Funds will try to invest in companies and governments of
countries having stable political environments, there is the possibility of
expropriation or confiscatory taxation, seizure or nationalization of foreign
bank deposits or other assets, establishment of exchange controls, the adoption
of foreign government restrictions, or other adverse political, social or
diplomatic developments that could affect investment in these nations.
.........Currency Exchange Transactions. Currency exchange transactions may
be conducted either on a spot (i.e., cash) basis at the spot rate for
purchasing or selling currency prevailing in the foreign exchange market or
through forward currency exchange contracts ("forward contracts"). Forward
contracts are contractual agreements to purchase or sell a specified currency
at a specified future date (or within a specified time period) and price set at
the time of the contract. Forward contracts are usually entered into with
banks and broker-dealers, are not exchange traded, and are usually for less
than one year, but may be renewed.
.........The Fund's foreign currency exchange transactions are limited to
transaction and portfolio hedging involving either specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of forward
contracts with respect to specific receivables or payables of the Fund arising
in connection with the purchase and sale of its portfolio securities.Portfolio
hedging is the use of forward contracts with respect to portfolio security
positions denominated or quoted in a particular foreign currency.
Portfolio hedging allows the Fund to limit or reduce its exposure in a foreign
currency by entering into a forward contract to sell
such foreign currency (or another foreign currency that acts as a proxy for
that currency) at a future date for a price payable in U.S. dollars so that
the value of the foreign-denominated portfolio securities can be approximately
matched by a foreign-denominated liability. The 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 Fund may hedge all or part of its
foreign currency exposure through the use of a basket of currencies or a proxy
currency where such currencies or currency act as an effective proxy for other
currencies. In such a case, 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 in the Fund. The Fund may not
engage in "speculative" currency exchange transactions.
.........At the maturity of a forward contract to deliver a particular currency,
the 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 the 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 the 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 the 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.
Structured Notes
.........Structured Notes are Derivatives on which the amount of principal
repayment and or interest payments is based upon the movement of one or more
factors. These factors include, but are not limited to, currency exchange
rates, interest rates (such as the prime lending rate and the London
Interbank Offered rate ("LIBOR")), stock indices such as the S&P 500 Index
and the price fluctuations of a particular security. In some cases, the
impact of the movements of these factors may increase or decrease through the
use of multipliers or deflators. The use of Structured Notes allows the Fund
to tailor its investments to the specific risks and returns Stein Roe wishes
to accept while avoiding or reducing certain other risks.
Swaps, Caps, Floors and Collars
.........The Fund may enter into swaps and may purchase or sell related caps,
floors and collars. The Fund would enter into these transactions primarily to
preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a duration management
technique or to protect against any increase in the price of securities it
purchases at a later date. The Fund intends to use these techniques as hedges
and not as speculative investments and will not sell interest rate income stream
the Fund may be obligated to pay.
.........A swap agreement is generally individually negotiated and structured
to include exposure to a variety of different types of investments or market
factors. Depending on its structure, a swap agreement may increase or decrease
the Fund's exposure to changes in the value of an index of securities in which
the Fund might invest, the value of a particular security or group of
securities, or foreign currency values. Swap agreements can take many
different forms and are known by a variety of names. The Fund may enter into
any form of swap agreement if Stein Roe determines it is consistent with its
investment objective and policies.
.........A swap agreement tends to shift the Fund's investment exposure from
one type of investment to another. For example, if the Fund agrees to
exchange payments in dollars at a fixed rate for payments in a foreign currency
the amount of which is determined by movements of a foreign securities index,
the swap agreement would tend to increase exposure to foreign stock market
movements and foreign currencies. Depending on how it is used, a swap
agreement may increase or decrease the overall volatility of the Fund's
investments and its net asset value.
.........The performance of a swap agreement is determined by the change in the
specific currency, market index, security, or other factors that determine
the amounts of payments due to and from the Fund. If a swap agreement calls
for payments by the Fund, the Fund must be prepared to make such payments when
due. If the counterparty's creditworthiness declines, the value of a swap
agreement would be likely to decline, potentially resulting in a loss. The
Fund will not enter into any swap, cap, floor or collar transaction unless, at
the time of entering into such transaction, the unsecured long-term debt of
the counterparty, combined with any credit enhancements, is rated at least A
by Standard & Poor's or Moody's Investors Service, Inc. or has an
equivalent rating from a nationally recognized statistical rating organization
or is determined to be of equivalent credit quality by Stein Roe.
.........The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling the cap to the extent that a
specified index exceeds a predetermined interest rate or amount. The purchase of
a floor entitles the purchaser to receive payments on a notional principal
amount from the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a combination
of a cap and floor that preserves a certain return within a predetermined range
of interest rates or values.
.........At the time the Fund enters into swap arrangements or purchases or
sells caps, floors or collars, liquid assets of the Fund having a value at least
as great as the commitment underlying the obligations will be segregated on the
books of the Fund and held by the custodian throughout the period of the
obligation.
Lending of Portfolio Securities
.........Subject to restriction (5) under Investment Restrictions in
this SAI, the Fund may lend its portfolio securities to broker-dealers and
banks. Any such loan must be continuously secured by collateral in cash or
cash equivalents maintained on a current basis in an amount at least equal
to the market value of the securities loaned by the Fund. The Fund would
continue to receive the equivalent of the interest or dividends paid by the
issuer on the securities loaned, and would also receive an additional return
that may be in the form of a fixed fee or a percentage of the collateral.
The Fund would have the right to call the loan and obtain the securities
loaned at any time on notice of not more than five business days. The Fund
would not have the right to vote the securities during the existence of the
loan but would call the loan to permit voting of the securities if, in Stein
Roe's judgment, a material event requiring a shareholder vote would otherwise
occur before the loan was repaid. In the event of bankruptcy or other default
of the borrower, the Fund could experience both delays in liquidating the
loan collateral or recovering the loaned securities and losses, including (a)
possible decline in the value of the collateral or in the value of the
securities loaned during the period while the Fund seeks to enforce its rights
thereto, (b) possible subnormal levels of income and lack of access to income
during this period, and (c) expenses of enforcing its rights. No Fund loaned
portfolio securities during the fiscal year ended Sept. 30, 1999 nor does it
currently intend to loan more than 5% of its net assets.
Repurchase Agreements
.........The Fund may invest in repurchase agreements, provided that it will not
invest more than 15% of net assets in repurchase agreements maturing in more
than seven days and any other illiquid securities. A repurchase agreement is a
sale of securities to the Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of bankruptcy of the
seller, the Fund could experience both losses and delays in liquidating its
collateral.
When-Issued and Delayed-Delivery Securities; Reverse Repurchase Agreements
.........The Fund may purchase securities on a when-issued or
delayed-delivery basis. Although the payment and interest terms of these
securities are established at the time the 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 Fund make such commitments
only with the intention of actually acquiring the securities, but may sell
the securities before settlement date if Stein Roe deems it advisable for
investment reasons. During fiscal 1999, the Fund did not have commitments to
purchase when-issued securities in excess of 5% of its net assets, nor does
it currently intend to do so.
.........The Fund may enter into reverse repurchase agreements with banks and
securities dealers. A reverse repurchase agreement is a repurchase agreement
in which the Fund is the seller of, rather than the investor in, securities
and agrees to repurchase them at an agreed-upon time and price. Use of a
reverse repurchase agreement may be preferable to a regular sale and later
repurchase of securities because it avoids certain market risks and transaction
costs. No Fund entered into reverse repurchase agreements during the fiscal
year ended Sept. 30, 1999.
.........At the time the 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"
.........The 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. The 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, the 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 the 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 Fund is able to enter into short sales. There
is no limitation on the amount of the 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. No Fund currently expects that more than 5% of
total assets would be involved in short sales against the box.
Rule 144A Securities
.........The Fund may purchase securities that have been privately placed but
that are eligible for purchase and sale under Rule 144A under the Securities Act
of 1933. That Rule permits certain qualified institutional buyers, such as the
Fund, to trade in privately placed securities that have not been registered for
sale under the 1933 Act. Stein Roe, under the supervision of the Board of
Trustees, will consider whether securities purchased under Rule 144A are
illiquid and thus subject to the restriction of investing no more than 15% of
its net assets in illiquid securities. A determination of whether a Rule 144A
security is liquid or not is a question of fact. In making this determination,
Stein Roe will consider the trading markets for the specific security, taking
into account the unregistered nature of a Rule 144A security. In addition, Stein
Roe could consider the (1) frequency of trades and quotes, (2) number of dealers
and potential purchasers, (3) dealer undertakings to make a market, and (4)
nature of the security and of marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer). The liquidity of Rule 144A securities would be monitored and if, as a
result of changed conditions, it is determined that a Rule 144A security is no
longer liquid, the Fund's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that the Fund does not
invest more than 15% of its assets in illiquid securities. Investing in Rule
144A securities could have the effect of increasing the amount of the Fund's
assets invested in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities. No Fund expects to invest as much as 5%
of its total assets in Rule 144A securities that have not been deemed to be
liquid by Stein Roe.
Line of Credit
.........Subject to restriction (6) under Investment Restrictions in this SAI,
the 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 Fund may lend money to and borrow money from other mutual funds
advised by Stein Roe. The Fund will borrow through the program when borrowing
is necessary and appropriate and the costs are equal to or lower than the
costs of bank loans.
Portfolio Turnover
.........Although the Funds do not purchase securities with a view to rapid
turnover, there are no limitations on the length of time that portfolio
securities must be held. Portfolio turnover can occur for a number of reasons
such as general conditions in the securities markets, more favorable investment
opportunities in other securities, or other factors relating to the desirability
of holding or changing a portfolio investment. Because of the Fund's flexibility
of investment and emphasis on growth of capital, they may have greater portfolio
turnover than that of mutual funds that have primary objectives of income or
maintenance of a balanced investment position. The future turnover rate may vary
greatly from year to year. A high rate of portfolio turnover in the Fund, if it
should occur, would result in increased transaction expenses, which must be
borne by that Fund. High portfolio turnover may also result in the realization
of capital gains or losses and, to the extent net short-term capital gains are
realized, any distributions resulting from such gains will be considered
ordinary income for federal income tax purposes.
Options on Securities and Indexes
.........The Fund may purchase and sell put options and call options on
securities, indexes or foreign currencies in standardized contracts traded on
recognized securities exchanges, boards of trade, or similar entities, or quoted
on Nasdaq. The Fund may purchase agreements, sometimes called cash puts, that
may accompany the purchase of a new issue of bonds from a dealer.
.........An option on a security (or index) is a contract that gives the
purchaser (holder) of the option, in return for a premium, the right to buy from
(call) or sell to (put) the seller (writer) of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option (normally not exceeding nine
months). The writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver the
underlying security or foreign currency upon payment of the exercise price or to
pay the exercise price upon delivery of the underlying security or foreign
currency. Upon exercise, the writer of an option on an index is obligated to pay
the difference between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An index is
designed to reflect specified facets of a particular financial or securities
market, a specific group of financial instruments or securities, or certain
economic indicators.)
.........The Fund will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the option
is "covered" if the Fund owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio.
.........If an option written by the 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 the 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 the Fund desires.
.........The 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 the Fund is an asset of the Fund,
valued initially at the premium paid for the option. The premium received
for an option written by the 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 the Fund
seeks to close out an option position. If the 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 the 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, the 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
the 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 Fund may use interest rate futures contracts, index futures
contracts, and foreign currency futures contracts. An interest rate, index
or foreign currency futures contract provides for the future sale by one
party and purchase by another party of a specified quantity of a financial
instrument or the cash value of an 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 Fund may purchase and write call and put futures options.
Futures options possess many of the same characteristics as
options on securities, indexes and foreign currencies (discussed above).
A futures option gives the holder the right, in return for the premium paid,
to assume a long position (call) or short position (put) in a futures contract
at a specified exercise price at any time during the period of the option.
Upon exercise of a call option, the holder acquires a long position in the
futures contract and the writer is assigned the opposite short position.
In the case of a put option, the opposite is true. The Fund might, for
example, use futures contracts to hedge against or gain exposure to
fluctuations in the general level of stock prices, anticipated changes in
interest rates or currency fluctuations that might adversely affect either
the value of the Fund's securities or the price of the securities that the
Fund intends to purchase. Although other techniques could be used to
reduce or increase that Fund's exposure to stock price, interest rate and
currency fluctuations, the Fund may be able to achieve its exposure more
effectively and perhaps at a lower cost by using futures contracts and futures
options.
.........The Fund will only enter into futures contracts and futures options
that are standardized and traded on an exchange, board of trade, or similar
entity, or quoted on an automated quotation system.
.........The success of any futures transaction depends on accurate predictions
of changes in the level and direction of stock prices, interest rates, currency
exchange rates and other factors. Should those predictions be incorrect, the
return might have been better had the transaction not been attempted; however,
in the absence of the ability to use futures contracts, Stein Roe might have
taken portfolio actions in anticipation of the same market movements with
similar investment results but, presumably, at greater transaction costs.
.........When a purchase or sale of a futures contract is made by the 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 the 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 the 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 Fund will
mark-to-market its open futures positions.
.........The Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.
.........Although some futures contracts call for making or taking delivery of
the underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund realizes a
capital loss. Conversely, if an offsetting sale price is more than the original
purchase price, the Fund engaging in the transaction realizes a capital gain, or
if it is less, the Fund realizes a capital loss. The transaction costs must also
be included in these calculations.
Risks Associated with Futures
.........There are several risks associated with the use of futures contracts
and futures options. A purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract. In trying to
increase or reduce market exposure, there can be no guarantee that there will be
a correlation between price movements in the futures contract and in the
portfolio exposure sought. In addition, there are significant differences
between the securities and futures markets that could result in an imperfect
correlation between the markets, causing a given transaction not to achieve its
objectives. The degree of imperfection of correlation depends on circumstances
such as: variations in speculative market demand for futures, futures options
and the related securities, including technical influences in futures and
futures options trading and differences between the securities market and the
securities underlying the standard contracts available for trading. For example,
in the case of index futures contracts, the composition of the index, including
the issuers and the weighting of each issue, may differ from the composition of
the Fund's portfolio, and, in the case of interest rate futures contracts, the
interest rate levels, maturities, and creditworthiness of the issues underlying
the futures contract may differ from the financial instruments held in the
Fund's portfolio. A decision as to whether, when and how to use futures
contracts involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected stock price or interest rate trends.
.........Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. Stock index futures contracts are not normally subject to
such daily price change limitations.
.........There can be no assurance that a liquid market will exist at a time
when the 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 Fund may also use
those investment vehicles, provided the Board of Trustees determines that their
use is consistent with the Fund's investment objective.
.........The Fund will not enter into a futures contract or purchase an option
thereon if, immediately thereafter, the initial margin deposits for futures
contracts held by that Fund plus premiums paid by it for open futures option
positions, less the amount by which any such positions are "in-the-money,"3
would exceed 5% of the Fund's total assets.
.........When purchasing a futures contract or writing a put option on a futures
contract, the Fund must maintain with its custodian (or broker, if legally
permitted) cash or cash equivalents (including any margin) equal to the market
value of such contract. When writing a call option on a futures contract, the
Fund similarly will maintain with its custodian cash or cash equivalents
(including any margin) equal to the amount by which such option is in-the-money
until the option expires or is closed out by the Fund.
.........The Fund may not maintain open short positions in futures contracts,
call options written on futures contracts or call options written on indexes if,
in the aggregate, the market value of all such open positions exceeds the
current value of the securities in its portfolio, plus or minus unrealized gains
and losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the positions. For this
purpose, to the extent the Fund has written call options on specific securities
in its portfolio, the value of those securities will be deducted from the
current market value of the securities portfolio.
.........In order to comply with Commodity Futures Trading Commission Regulation
4.5 and thereby avoid being deemed a "commodity pool operator," the 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 the 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 the 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 the 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 the 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 the Fund delivers securities under a futures contract, the
Fund also realizes a capital gain or loss on those securities.
.........For federal income tax purposes, the 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 the 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 the Fund were to enter into a short index future, short index
futures option or short index option position and the Fund's portfolio were
deemed to "mimic" the performance of the index underlying such contract, the
option or futures contract position and the Fund's stock positions would be
deemed to be positions in a mixed straddle, subject to the above-mentioned loss
deferral rules.
.........In order for the 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 Fund distributes to shareholders annually any net capital gains
that have been recognized for federal income tax purposes (including year-end
mark-to-market gains) on options and futures transactions. Such distributions
are combined with distributions of capital gains realized on the Fund's other
investments, and shareholders are advised of the nature of the payments.
.........The Taxpayer Relief Act of 1997 (the "Act") imposed constructive sale
treatment for federal income tax purposes on certain hedging strategies with
respect to appreciated securities. Under these rules, taxpayers will recognize
gain, but not loss, with respect to securities if they enter into short sales of
"offsetting notional principal contracts" (as defined by the Act) or futures or
"forward contracts" (as defined by the Act) with respect to the same or
substantially identical property, or if they enter into such transactions and
then acquire the same or substantially identical property. These changes
generally apply to constructive sales after June 8, 1997. Furthermore, the
Secretary of the Treasury is authorized to promulgate regulations that will
treat as constructive sales certain transactions that have substantially the
same effect as short sales, offsetting notional principal contracts, and futures
or forward contracts to deliver the same or substantially similar property.
<PAGE>
INVESTMENT RESTRICTIONS
.........The Funds and the Portfolio operate under the following investment
restrictions. No Fund or the Portfolio may:
.........
.........(1) with respect to 75% of its total assets, invest more than 5% of its
total assets, taken at market value at the time of a particular purchase, in the
securities of a single issuer, except for securities issued or guaranteed by the
U. S. Government or any of its agencies or instrumentalities or repurchase
agreements for such securities, and except that all or substantially all of the
assets of the Fund may be invested in another registered investment company
having the same investment objective and substantially similar investment
policies as the Fund;
.........(2) acquire more than 10%, taken at the time of a particular purchase,
of the outstanding voting securities of any one issuer, except that all or
substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objective and
substantially similar investment policies as the Fund;
.........(3) act as an underwriter of securities, except insofar as it may be
deemed an underwriter for purposes of the Securities Act of 1933 on disposition
of securities acquired subject to legal or contractual restrictions on resale,
except that all or substantially all of the assets of the Fund may be invested
in another registered investment company having the same investment objective
and substantially similar investment policies as the Fund;
.........(4) purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate or interests therein), commodities, or commodity
contracts, except that it may enter into (a) futures and options on futures and
(b) forward contracts;
.........(5) make loans, although it may (a) lend portfolio securities and
participate in an interfund lending program with other Stein Roe Funds and
Portfolios provided that no such loan may be made if, as a result, the aggregate
of such loans would exceed 33 1/3% of the value of its total assets (taken at
market value at the time of such loans); (b) purchase money market instruments
and enter into repurchase agreements; and (c) acquire publicly distributed or
privately placed debt securities;
.........(6) borrow except that it may (a) borrow for nonleveraging, temporary
or emergency purposes, (b) engage in reverse repurchase agreements and make
other borrowings, provided that the combination of (a) and (b) shall not exceed
33 1/3% of the value of its total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage permitted by law,
and (c) enter into futures and options transactions; it may borrow from banks,
other Stein Roe Funds and Portfolios, and other persons to the extent permitted
by applicable law;
.........(7) invest in a security if more than 25% of its total assets (taken at
market value at the time of a particular purchase) would be invested in the
securities of issuers in any particular industry, except that this restriction
does not apply to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, and except that all or substantially all of the
assets of the Fund may be invested in another registered investment company
having the same investment objective and substantially similar investment
policies as the Fund; or
.........(8) issue any senior security except to the extent permitted under the
Investment Company Act of 1940.
.........The above restrictions (other than bracketed portions thereof and,
in the case of Disciplined Stock Fund and Disciplined Stock Portfolio, other
than 1 and 2) are fundamental policies and may not be changed without the
approval of a "majority of the outstanding voting securities" as defined above.
Each Fund and, in the case of Disciplined Stock Fund and Disciplined Stock
Portfolio, together with restrictions 1 and 2 above, is also subject to the
following non-fundamental restrictions and policies, which may be changed
by the Board of Trustees. None of the following restrictions shall prevent
a Fund from investing all or substantially all of its assets in another
investment company having the same investment objective and substantially
the same investment policies as the Fund. No Fund or Portfolio may:
.........(a) invest in any of the following: (i) interests in oil, gas, or
other mineral leases or exploration or development programs (except readily
marketable securities, including but not limited to master limited partnership
interests, that may represent indirect interests in oil, gas, or other mineral
exploration or development programs); (ii) puts, calls, straddles, spreads,
or any combination thereof (except that it may enter into transactions in
options, futures, and options on futures); (iii) shares of other open-end
investment companies, except in connection with a merger, consolidation,
acquisition, or reorganization; and (iv) limited partnerships in real estate
unless they are readily marketable;
.........(b) invest in companies for the purpose of exercising control or
management;
.........(c) purchase more than 3% of the stock of another investment company or
purchase stock of other investment companies equal to more than 5% of its total
assets (valued at time of purchase) in the case of any one other investment
company and 10% of such assets (valued at time of purchase) in the case of all
other investment companies in the aggregate; any such purchases are to be made
in the open market where no profit to a sponsor or dealer results from the
purchase, other than the customary broker's commission, except for securities
acquired as part of a merger, consolidation or acquisition of assets;
.........(d) invest more than 5% of its net assets (valued at time of purchase)
in warrants, nor more than 2% of its net assets in warrants that are not
listed on the New York or American Stock Exchange;
.........(e) write an option on a security unless the option is issued by the
Options Clearing Corporation, an exchange, or similar entity;
.........(f) invest more than 25% of its total assets (valued at time of
purchase) in securities of foreign issuers (other than securities
represented by American Depositary Receipts (ADRs) or securities guaranteed by
a U.S. person);
.........(g) purchase a put or call option if the aggregate premiums paid for
all put and call options exceed 20% of its net assets (less the amount by which
any such positions are in-the-money), excluding put and call options purchased
as closing transactions;
.........(h) [Small Company Growth Fund only] purchase securities on margin
(except for use of short-term credits as are necessary for the clearance of
transactions); [all other Funds and Portfolio] purchase securities on margin
(except for use of short-term credits as are necessary for the clearance of
transactions), or sell securities short unless (i) it owns or has the right to
obtain securities equivalent in kind and amount to those sold short at no added
cost or (ii) the securities sold are "when issued" or "when distributed"
securities which it expects to receive in a recapitalization, reorganization, or
other exchange for securities it contemporaneously owns or has the right to
obtain and provided that transactions in options, futures, and options on
futures are not treated as short sales;
.........(i) invest more than 5% of its total assets (taken at market value at
the time of a particular investment) in restricted securities, other than
securities eligible for resale pursuant to Rule 144A under the Securities Act
of 1933;
.........(j) invest more than 15% of its net assets (taken at market value
at the time of a particular investment) in illiquid securities, including
repurchase agreements maturing in more than seven days.
ADDITIONAL INVESTMENT CONSIDERATIONS
.........Stein Roe seeks to provide superior long-term investment results
through a disciplined, research-intensive approach to investment selection
and prudent risk management. In working to take sensible risks and make
intelligent investments it has been guided by three primary objectives which
it believes are the foundation of a successful investment program. These
objectives are preservation of capital, limited volatility through managed
risk, and consistent above-average returns as appropriate for the particular
client or managed account. Because every investor's needs are different,
Stein Roe mutual funds are designed to accommodate different investment
objectives, risk tolerance levels, and time horizons. In selecting a mutual
fund, investors should ask the following questions:
What are my investment goals?
It is important to a choose the Fund that has investment objectives compatible
with your investment goals.
What is my investment time frame?
If you have a short investment time frame (e.g., less than three years), a
mutual fund that seeks to provide a stable share price, such as a money market
fund, or one that seeks capital preservation as one of its objectives may be
appropriate. If you have a longer investment time frame, you may seek to
maximize your investment returns by investing in a mutual fund that offers
greater yield or appreciation potential in exchange for greater investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks which will vary
depending on investment objective and security type. However, mutual funds seek
to reduce risk through professional investment management and portfolio
diversification.
.........In general, equity mutual funds emphasize long-term capital
appreciation and tend to have more volatile net asset values than bond or money
market mutual funds. Although there is no guarantee that they will be able to
maintain a stable net asset value of $1.00 per share, money market funds
emphasize safety of principal and liquidity, but tend to offer lower income
potential than bond funds. Bond funds tend to offer higher income potential than
money market funds but tend to have greater risk of principal and yield
volatility.
MANAGEMENT
.......The Board of Trustees of the Trust has overall management responsibility
for the Trust and the Fund. The following table sets forth certain information
with respect to the trustees and officers of the Trust:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Position(s) held Principal occupation(s)
Name, Age; Address with the Trust during past five years
William D. Andrews, 52; Executive Vice-President Executive vice president of Stein Roe
One South Wacker Drive,
Chicago, IL 60606 (4)
(4)
John A. Bacon Jr., 72; Trustee Private investor
4N640Honey Hill Road, Box 296
Wayne, IL 60184 (3)(4)
Christine Balzano, 34; Vice-President Senior vice president of Liberty Funds Services, Inc.;
245 Summer Street, formerly vice president and assistant vice president
Boston, MA 02210
William W. Boyd, 72; Trustee Chairman and director of Sterling Plumbing (manufacturer
2900 Golf Road, of plumbing products)
Rolling Meadows, IL 60008(2)(3)(4)
David P. Brady, 35; Vice-President Senior vice president of Stein Roe
One South Wacker Drive since March 1998; vice president of Stein Roe
Chicago, IL 60606 from Nov. 1995 to March (4) 1998;
portfolio manager for Stein Roe since 1993
Daniel K. Cantor, 40; Vice-President Senior vice president of Stein Roe
1330 Avenue of the Americas,
New York, NY
10019 (4)
Kevin M. Carome, 43; One Executive Senior vice president, legal, Liberty Funds Group LLC
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, 31; 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
J. Kevin Connaughton, 35; Vice-President; Controller of the Stein Roe Funds since May 2000;
245 Summer Street, Controller Controller and Chief Accounting Officer of the Liberty
Boston, MA 02210(4) Funds since February 1998, Vice president of Colonial
Management Associates, Inc. ("CMA") since
February 1998; senior tax manager, Coopers & Lybrand,
LLP from April 1996 to January 1998; vice president, 440
Financial Group/First Data Investor Services Group prior thereto
Nancy L. Conlin, 46; Senior Vice President Secretary of the Stein Roe Funds since May 2000;
One Financial Center and Secretary Secretary of the Liberty Funds since April 1998
Boston, MA 02111 (4) (formerly Assistant Secretary from July 1994 to April
1998); Director, Senior Vice President General
Counsel, Clerk and Secretary of Colonial Management
Associates, Inc. since April 1998 (formerly Vice
President, Counsel, Assistant Secretary
and Assistant Clerk from July 1994 to
April 1998); Vice President, General
Counsel and Secretary of Liberty
Funds Group since December 1998 (formerly Vice
President, General Counsel and Clerk of
The Colonial Group from April 1998 to
December 1998 (formerly Assistant Clerk from July 1994
to April 1998)
Lindsay Cook, 47; Trustee Executive vice president of Liberty Financial Companies,
600 Atlantic Avenue, Inc. since March 1997; senior vice president prior thereto
Boston, MA 02210 (1)(2)(4)
William M. Garrison, 33; Vice-President Vice president of Stein Roe since Feb. 1998; associate
One South Wacker Drive, portfolio manager for Stein Roe since August 1994
Chicago, IL 60606 (4)
Stephen E. Gibson, 46; President Vice chairman of Stein Roe since Aug. 1998; chairman,
One Financial Center, CEO, president and director of Liberty Funds Group since
Boston, MA 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, 35; Vice-President Senior portfolio manager of Stein Roe; senior
One South Wacker Drive vice president of Stein Roe since April 1996;
Chicago, IL 60606 vice president (4) of Stein Roe prior thereto
PM: Investment, Advisor, Base,
SRVIT
Douglas A. Hacker, 43; Trustee Senior vice president and chief financial officer of
P.O. Box 66100, UAL, Inc. (airline)
Chicago, IL 60666 (3) (4)
Loren A. Hansen, 51; Executive Vice-President Chief investment officer/equity of CMA since 1997;
One South Wacker Drive executive vice president of Stein Roe since Dec. 1995;
Chicago, IL 60606(4) vice president of The Northern Trust (bank) prior thereto
Harvey B. Hirschhorn, 49; Vice-President Executive vice president, senior portfolio manager,
One South Wacker Drive Chicago, chief economist and investment strategist of Stein Roe;
Chicago, IL 60606 (4) director of research of Stein Roe, 1991 to 1995
Janet Langford Kelly, 41; Trustee Executive vice president-corporate development, general
One Kellogg Square, counsel and secretary of Kellogg Company since Sept.
Battle Creek, MI 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, 37; 245 Summer Vice President Vice president and assistant controller of CMA
Street, Boston, MA 02210 (4)
Pamela A. McGrath, 46: Senior Vice President Treasurer of the Stein Roe Funds since May 2000;
One Financial Center, and Treasurer Treasurer and Chief Financial Officer of the Liberty
Boston, MA02111 (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, 45; One Vice President President of Liberty Funds Services, Inc.
Financial Center, Boston, MA
02111 (4)
Charles R. Nelson, 57; 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, 40; 12100 Vice President Senior vice president of Liberty Funds Services, Inc.
12100 East Iliff Avenue, since Aug. 1999; vice president of Scudder Kemper, Inc.
Aurora, CO 80014 (4) from May 1994 to Aug. 1999
Joseph R. Palombo, 47; Executive Vice President 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, 62; Trustee Managing director, William Blair Capital Partners
Suite 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 Trust 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 Fund's
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. The
following table sets forth compensation paid during the fiscal year ended Sept.
30, 1999 to each of the trustees:
<PAGE>
<TABLE>
<CAPTION>
Compensation from the Stein Roe
Fund Complex*
-----------------------------------
Aggregate Compensation Total Average Per
<S> <C> <C> <C>
Name of Trustee from the Trust Compensation Series
------------------------------ ---------------------------------- ------------------- --------------
Thomas W. Butch** -0- -0- -0-
Lindsay Cook -0- -0- -0-
John A. Bacon Jr.** $25,500 $117,850 $2,562
William W. Boyd 22,450 104,100 2,263
Douglas A. Hacker 20,650 93,900 2,041
Janet Langford Kelly 22,450 103,400 2,248
Charles R. Nelson 22,450 103,900 2,259
Thomas C. Theobald 22,450 103,400 2,248
---------------
* At Sept. 30, 1999, the Stein Roe Fund Complex consisted of 12 series of
the Trust, one series of Liberty-Stein Roe Funds Trust, four series of
Liberty-Stein Roe Funds Municipal Trust, four series of Liberty-Stein
Roe Funds Income Trust, five series of Liberty-Stein Roe Advisor Trust,
five series of SteinRoe Variable Investment Trust, 12 portfolios 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.
** Mr. Butch served as a trustee until Nov. 3, 1998; Mr. Bacon was
elected a trustee effective Nov. 3, 1998.
</TABLE>
FINANCIAL STATEMENTS
Please refer to the September 30, 1999 Financial Statements (management
discussion, statements of assets and liabilities and schedules of investments as
of September 30, 1999 and the statements of operations, changes in net assets,
financial highlights, and notes thereto) and the report of independent
accountants contained in the September 30, 1999 Annual Report and in the March
31, 2000 Semi-annual Reports. Those Financial Statements and the report of
independent accountants are incorporated herein by reference. The Annual Report
may be obtained at no charge by telephoning 800-338-2550.
<PAGE>
PRINCIPAL SHAREHOLDERS
As of June 30, 2000, the only persons known by the Trust to own of
record or "beneficially" 5% or more of the outstanding shares of a Fund within
the definition of that term as contained in Rule 13d-3 under the Securities
Exchange Act of 1934 were as follows:
Approximate
Percentage of
Outstanding Shares
Name and Address Fund Held
Charles Schwab & Co., Inc. Capital Opportunities Fund 24.85%
Special Cusody Account for the
exclusive benefit of our customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
National Financial Services Corp. Capital Opportunities Fund 5.48%
For the exclusive benefit of our
customers
P.O. Box 3908
Church Street Station
New York, NY 10008-3908
Keyport Life Insurance Company Small Company Growth Fund 26.32%
C/o Michelle Cote
125 High Street
Boston, MA 02101
INVESTMENT ADVISORY AND OTHER SERVICES
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 LFC 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 director of Stein Roe is C. Allen Merritt, Jr. Merritt is Chief
Operating Officer of Liberty Financial. The business address of Mr. Merritt
is 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 each Fund. The table below
shows the annual rates of such fees as a percentage of average net assets (shown
in millions), gross fees paid for the three most recent fiscal years, and any
expense reimbursements by Stein Roe:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Current Rates Year Ended Year Ended Year Ended
Fund/Portfolio Type (dollars shown in millions) 9/30/99 9/30/98 9/30/97
-------------------------------------------------------------------------------------------------------------------------
<PAGE>
-------------------------------------------------------------------------------------------------------------------------
Disciplined Stock Fund Management N/A N/A N/A $2,638,251
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Administrative .15% up to $500, .125% next
$500, .10% next $500, .075%
thereafter $1,077,094 $1,605,953 1,537,601
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Disciplined Stock Portfolio Management .75% up to $500, .70% next
$500, .65% next $500, .60%
thereafter 5,581,396 8,771,718 5,249,467
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Large Company Focus Fund Management .75% up to $500, .70% next
$500, .65% next $500, .60%
thereafter 397,850 88,815 N/A
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Administrative .15% up to $500, .125% next
$500, .10% next $500, .075%
thereafter 79,514 17,763 N/A
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Reimbursement Expenses exceeding 1.50% -0- 13,361 N/A
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Capital Opportunities Fund Management .75% up to $500, .70% next
$500, .65% next $500, .60%
thereafter 4,331,186 6,827,994 9,097,549
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Administrative .15% up to $500, .125% next
$500, .10% next $500, .075%
thereafter 853,783 1,298,073 1,655,427
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Small Company Growth Management .85% 20,436 N/A N/A
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Fund Administrative .15% 3,606 N/A N/A
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Reimbursement Expenses exceeding 1.50% (53,535) N/A N/A
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stein Roe provides office space and executive and other personnel to
the Funds, and bears any sales or promotional expenses. The Funds pay 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 a
Fund to the extent that total annual expenses of that 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 a Fund are being
offered for sale to the public; provided, however, Stein Roe is not required to
reimburse that Fund an amount in excess of fees paid by the Fund under that
agreement for such year. In addition, in the interest of further limiting
expenses of the Fund, Stein Roe may voluntarily waive its fees and/or absorb
certain expenses, as described under The Funds--Your Expenses in the Prospectus.
Any such reimbursement will enhance the yield of such Fund.
Each management agreement provides that neither Stein Roe, nor any of
its directors, officers, stockholders (or partners of stockholders), agents, or
employees shall have any liability to the Trust or any shareholder of the Trust
for any error of judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance by Stein Roe of
its duties under the agreement, except for liability resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under the
agreement.
Any expenses that are attributable solely to the organization,
operation, or business of a series of the Trust are paid solely out of the
assets of that series. Any expenses incurred by the Trust that are not solely
attributable to a particular series are apportioned in such manner as Stein Roe
determines is fair and appropriate, unless otherwise specified by the Board of
Trustees.
Bookkeeping and Accounting Agreement
Pursuant to a separate agreement with the Trust, Stein Roe receives a
fee for performing certain bookkeeping and accounting services. For such
services, Stein Roe receives an annual fee of $25,000 per series plus .0025 of
1% of average net assets over $50 million. During the fiscal years ended Sept.
30, 1997, 1998 and 1999, Stein Roe received aggregate fees of $315,067, $358,936
and $354,273, respectively, from the Trust for services performed under this
Agreement.
DISTRIBUTOR
Shares of the Funds are distributed by Liberty Funds Distributor, Inc.
(the "Distributor"), One Financial Center, Boston, MA 02111, an indirect
subsidiary of Liberty Financial, under a Distribution Agreement. 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 ("independent trustees"). The Distributor has no
obligation, as underwriter, to buy Fund shares, and purchases shares only upon
receipt of orders from authorized financial service firms or investors. 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.
12b-1 Plan
The Trustees of the Trust have adopted a plan pursuant to Rule 12b-1
under the Investment Company Act of 1940 (the "Plan"). The Plan provides that,
as compensation for personal service and/or the maintenance of shareholder
accounts, the Distributor receives a service fee at an annual rate not to exceed
0.35% of net assets attributed to Class A shares. The Plan also provides that as
compensation for the promotion and distribution of shares of a Funds including
its expenses related to sale and promotion of Fund shares, the Distributor
receives from such Fund a distribution fee at an annual rate not exceeding 0.10%
of the average net assets attributed to Class A shares. At this time, the
Distributor has voluntarily agreed to limit the Class A distribution fee to
0.25% annually. The Distributor may terminate this voluntary limitation without
shareholder approval. The Distributor generally pays this amount to institutions
that distribute Fund shares and provide services to the Funds and their
shareholders. Those institutions may use the payments for, among other purposes,
compensating employees engaged in sales and/or shareholder servicing. The amount
of fees paid by the Fund during any year may be more or less than the cost of
distribution or other services provided to the Fund. NASD rules limit the amount
of annual distribution fees that may be paid by a mutual fund and impose a
ceiling on the cumulative sales charges paid. The Trust's Plan complies with
those rules.
The trustees believe that the Plan could be a significant factor in the
growth and retention of Fund assets resulting in a more advantageous expense
ratio and increased investment flexibility which could benefit each class of
shareholders. The Plan will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote of the
trustees, including the independent trustees. The Plan may not be amended to
increase the fee materially without approval by a vote of a majority of the
outstanding voting securities of the relevant class of shares and all material
amendments of the Plan must be approved by the trustees in the manner provided
in the foregoing sentence. The Plan may be terminated at any time by a vote of a
majority of the independent trustees or by a vote of a majority of the
outstanding voting securities of the relevant Class of shares.
Each Fund offers two classes of shares (Class A and Class S). The Funds
may in the future offer other classes of shares. Class A shares are offered at
net asset value plus a front-end sales charge to be imposed at the time of
purchase and are subject to a Rule 12b-1 fee.
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 fees from the Funds based on an annual rate of
[0.236% of average net assets of Class A shares. The Trust believes the charges
by SSI to the Funds are comparable to those of other companies performing
similar services. (See Investment Advisory and Other Services.) Under a separate
agreement, SSI also provides certain investor accounting services to the
Portfolios.
Some financial services firms ("FSF") or other intermediaries having
special selling arrangements with the Distributor, including certain bank trust
departments, wrap fee programs and retirement plan service providers
("Intermediaries") that maintain nominee accounts with the Funds for their
clients who are Fund shareholders, may be paid a fee from SSI for shareholder
servicing and accounting services they provide with respect to the underlying
Fund shares.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus under the
heading Your Account, and that information is incorporated herein by reference.
It is the responsibility of any investment dealers, banks, or other
institutions, including retirement plan service providers, through whom you
purchase or redeem shares to establish procedures insuring the prompt
transmission to the Trust of any order.
The Funds will accept unconditional orders for shares to be executed at
the public offering price based on the net asset value per share next determined
after the order is received in good order. The public offering price is the net
asset value plus the applicable sales charge, if any. In the case of orders for
purchase of shares placed through FSFs or Intermediaries, the public offering
price will be determined on the day the order is placed in good order, but only
if the FSF or Intermediary receives the order prior to the time at which shares
are valued and transmits it to a Fund before that day's transactions are
processed. If the FSF or Intermediary fails to transmit before a Fund processes
that day's transactions, the customer's entitlement to that day's closing price
must be settled between the customer and the FSF or Intermediary. If the FSF or
Intermediary receives the order after the time at which a Fund values its
shares, the price will be based on the net asset value determined as of the
close of the NYSE on the next day it is open. If funds for the purchase of
shares are sent directly to the Transfer Agent, they will be invested at the
public offering price next determined after receipt in good order. Payment for
shares of a Fund must be in U.S. dollars; if made by check, the check must be
drawn on a U.S. bank.
A Fund receives the entire net asset value of shares sold. Since Class
A shares are subject to an initial sales charge, the Distributor's commission is
the sales charge shown in the Prospectus less any applicable FSF or Intermediary
discount. The FSF or Intermediary discount is the same for all FSFs or
Intermediaries, except that the Distributor retains the entire sales charge on
any sales made to a shareholder who does not specify an FSF or Intermediary on
the application, and except that the Distributor may from time to time reallow
additional amounts to all or certain FSFs or Intermediaries. The Distributor
generally retains 100% of any asset-based sales charge (distribution fee) or
contingent deferred sales charge. Such charges generally reimburse the
Distributor for any up-front and/or ongoing commissions paid to FSFs or
Intermediaries.
Checks presented for the purchase of Fund shares which are returned by
the purchaser's bank will subject the purchaser to a $15 service fee for each
check returned.
The Transfer Agent acts as the shareholder's agent whenever it receives
instructions to carry out a transaction on the shareholder's account. Upon
receipt of instructions that shares are to be purchased for a shareholder's
account, the designated FSF or Intermediary will receive the applicable sales
commission. Shareholders may change FSFs or Intermediaries at any time by
written notice to the Transfer Agent, provided the new FSF or Intermediary has a
sales agreement with the Distributor.
Determination of Net Asset Value
The net asset value per share for each Class is determined as of the
close of business (normally 3:00 p.m., Central time, or 4:00 p.m., Eastern time)
on days on which the New York Stock Exchange (the "NYSE") is open for trading,
except that certain classes of assets, such as index futures for which the
market close occurs shortly after regular trading on the NYSE will be priced at
the closing time of the markets on which they trade but in no event later than
5:00 p.m. The NYSE is regularly closed on Saturdays and Sundays and on New
Year's Day, the third Monday in January, the third Monday in February, Good
Friday, the last Monday in May, Independence Day, Labor Day, Thanksgiving, and
Christmas. If one of these holidays falls on a Saturday or Sunday, the NYSE will
be closed on the preceding Friday or the following Monday, respectively. Net
asset value will not be determined on days when the NYSE is closed unless, in
the judgment of the Board of Trustees, net asset value of the Fund should be
determined on any such day, in which case the determination will be made at 3:00
p.m., Central time.
The Funds may invest in securities that are listed primarily on foreign
exchanges that are open and allow trading on days on which the Funds do not
determine net asset value. This may significantly affect the net asset value of
the Fund's redeemable securities on days when an investor cannot redeem such
securities. Debt securities generally are valued by a pricing service which
determines valuations based upon market transactions for normal,
institutional-size trading units of similar securities. However, in
circumstances where such prices are not available or where Stein Roe deems it
appropriate to do so, an over-the-counter or exchange bid quotation is used.
Securities listed on an exchange or on Nasdaq are valued at the last sale price.
Listed securities for which there were no sales during the day and unlisted
securities are valued at the last quoted bid price. Options are valued at the
last sale price or in the absence of a sale, the mean between the last quoted
bid and offering prices. Short-term obligations with a maturity of 60 days or
less are valued at amortized cost pursuant to procedures adopted by the Board of
Trustees. The values of foreign securities quoted in foreign currencies are
translated into U.S. dollars at the exchange rate for that day. Positions for
which there are no such valuations and other assets are valued at fair value as
determined in good faith under the direction of the Board of Trustees.
Generally, trading in certain securities (such as foreign securities)
is substantially completed each day at various times prior to the close of the
NYSE. Trading on certain foreign securities markets may not take place on all
NYSE business days, and trading on some foreign securities markets takes place
on days that are not NYSE business days and on which net asset value is not
calculated. The values of these securities used in determining net asset value
are computed as of such times. Also, because of the amount of time required to
collect and process trading information as to large numbers of securities
issues, the values of certain securities (such as convertible bonds, U.S.
government securities, and tax-exempt securities) are determined based on market
quotations collected earlier in the day at the latest practicable time prior to
the close of the NYSE. Occasionally, events affecting the value of such
securities may occur between such time and the close of the NYSE which will not
be reflected in the computation of the net asset value. If events materially
affecting the value of such securities occur during such period, then these
securities will be valued at their fair value following procedures approved by
the Board of Trustees.
The Trust intends to pay all redemptions in cash and is obligated to
redeem shares solely in cash up to the lesser of $250,000 or one percent of the
net assets of the Trust during any 90-day period for any one shareholder.
However, redemptions in excess of such limit may be paid wholly or partly by a
distribution in kind of securities. If redemptions were made in kind, the
redeeming shareholders might incur transaction costs in selling the securities
received in the redemptions.
Due to the relatively high cost of maintaining smaller accounts, the
Trust may deduct $10 (payable to the Transfer Agent) from accounts valued at
less than $1,000 unless the account value has dropped below $1,000 solely as a
result of share depreciation. An investor will be notified that the value of his
account is less than that minimum and allowed at least 60 days to bring the
value of the account up to at least $1,000 before the fee is deducted. The
Agreement and Declaration of Trust also authorizes the Trust to redeem shares
under certain other circumstances as may be specified by the Board of Trustees.
The Trust reserves the right to suspend or postpone redemptions of Fund
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 of the Fund not reasonably
practicable.
Special Purchase Programs/Investor Services
The following special purchase programs/investor services may be
changed or eliminated at any time.
Automatic Investment Plan. As a convenience to investors, shares of
most funds advised by Colonial, Newport Management, Inc., Crabbe Huson Group,
Inc. and Stein Roe may be purchased through the Automatic Investment Plan.
Preauthorized monthly bank drafts or electronic funds transfers for a fixed
amount at least $50 are used to purchase a fund's shares at the public offering
price next determined after the distributor receives the proceeds from the draft
(normally the 5th or the 20th of each month, or the next business day
thereafter). If your Automatic Investment Plan purchase is by electronic funds
transfer, you may request the Automatic Investment Plan purchase any day.
Further information and application forms are available from the distributor.
Automated Dollar Cost Averaging. The Automated Dollar Cost Averaging
program allows you to exchange $100 or more on a monthly basis from any mutual
fund advised by Colonial, Newport Fund Management, Inc., Crabbe Huson Group,
Inc., and Stein Roe in which you have a current balance of at least $5000 into
the same class of shares of up to four other funds. Complete the Automated
Dollar Cost Averaging section of the Application. The designated amount will be
exchanged on the third Tuesday of each month. There is no charge for exchanges
made pursuant to the Automated Dollar Cost Averaging program. Exchanges will
continue so long as your fund balance is sufficient to complete the transfers.
Your normal rights and privileges as a shareholder remain in full force and
effect. Thus you can buy any fund, exchange between the same class of shares of
funds written instruction or by telephone exchange if you have so elected and
withdraw amounts from any fund, subject to the imposition of any applicable
CDSC.
Any additional payments or exchanges into your fund will extend the time of the
Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal and income tax
purposes.
You may terminate your program, change the amount of the exchange (subject to
the $100 minimum) or change your selection of funds, by telephone or in writing;
if in writing to Liberty Funds Services, Inc., P.O. Box 1722, Boston, MA
02105-1722.
You should consult your investment advisor to determine whether or not the
Automated Dollar Cost Averaging program is appropriate for you.
The Distributor offers several plans by which an investor may obtain reduced
initial or contingent deferred sales charges. These plans may be altered or
discontinued at any time. See "Programs for Reducing or Eliminating Sales
Charges" for more information.
Tax-Sheltered Retirement Plans. The Distributor offers prototype
tax-qualified plans, including Individual Retirement Accounts (IRAs) and pension
and profit-sharing plans for individuals, corporations, employees and the
self-employed. The minimum initial investment for a retirement account is $25.
Investor's Bank & Trust Company is the Trustee of the prototype plans and
charges an $18 annual fee. The annual fee will be waived if your aggregated IRA
(Traditional IRA, Roth IRA and Education IRA) assets total $25,000 or more. This
waiver will be based on the assets of record when the fees are assessed in
December. If you close your account during the year, the Distributor will not
aggregate the IRAs and you will be subject to that year's annual fee per IRA
regardless of total assets. Further Detailed information concerning these
retirement plans and copies of the retirement plans are available from the
Distributor.
Participants in other prototype retirement plans (other than IRAs) also
are charged a $10 annual fee unless the plan maintains an omnibus account with
the Transfer Agent. Participants in prototype plans offered by the Distributor
(other than IRAs) who liquidate the total value of their account will also be
charged a $15 close-out processing fee payable to the Transfer Agent. The fee is
in addition to any applicable CDSC. The fee will not apply if the participant
uses the proceeds to open an IRA Rollover account in any fund, or if the plan
maintains an omnibus account.
Consultation with a competent financial and tax advisor regarding these
plans and consideration of the suitability of Fund shares as an investment under
the Employee Retirement Income Security Act of 1974 or otherwise is recommended.
Telephone Address Change Services. By calling the Transfer Agent,
shareholders, beneficiaries or their FSF or Intermediary of record may change an
address on a recorded telephone line. Confirmations of address change will be
sent to both the old and the new addresses. Telephone redemption privileges are
suspended for 30 days after an address change is effected.
Cash Connection. Dividends and any other distributions, including
Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a
shareholder's bank account via electronic funds transfer. Shareholders wishing
to avail themselves of this electronic transfer procedure should complete the
appropriate sections of the Application.
Automatic Dividend Diversification. The automatic dividend
diversification reinvestment program (ADD) generally allows shareholders to have
all distributions from a fund automatically invested in the same class of shares
of another fund. An ADD account must in the same name as the shareholder's
existing open account with the particular Fund. Call for more information at
1-800-422-3737.
Programs for Reducing or Eliminating Sales Charges
Right of Accumulation and Statement of Intent. Reduced sales charges on
Class A shares can be effected by combining a current purchase with prior
purchases of Class A, B, C, T, and Z shares of other funds managed by Colonial
Management Associates, Inc. or distributed by the Distributor (such funds
hereinafter referred to as "Colonial Funds"). The applicable sales charged is
based on the combined total of: (1) the current purchase and (2) the value at
the public offering price at the close of business on the previous day of all
Colonial Fund's Class A shares held by the shareholder (except shares of any
Colonial money market fund, unless such shares were acquired by exchange from
Class A shares of another Colonial Fund other than a money market fund and Class
B, C, T and Z shares).
The Distributor must be promptly notified of each purchase which
entitles a shareholder to a reduced sales charge. Such reduced sales charge will
be applied upon confirmation of the shareholder's holdings by the Transfer
Agent. A Colonial Fund may terminate or amend this right of Accumulation.
Any person may qualify for reduced sales charges on purchase of Class A
shares made within a 13-month period pursuant to a Statement of Intent
("Statement"). A shareholder may include, as an accumulation credit toward the
completion of such Statement, the value of all Class A, B, C, T and Z shares
held by the shareholder on the date of the Statement in the Trust's Funds and
Colonial Funds (except shares of any Colonial money market fund, unless such
shares were acquired by exchange from Class A shares of another non-money market
Colonial Fund). The value is determined at the public offering price on the date
of the Statement. Purchases made through reinvestment of distributions do not
count toward satisfaction of the Statement.
During the term of a Statement, the Transfer Agent will hold shares in
escrow to secure payment of the higher sales charge applicable to Class A shares
actually purchased. Dividends and capital gains will be paid on all escrowed
shares and these shares will be released when the amount indicated has been
purchased. A Statement does not obligate the investor to buy or the Fund to sell
the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an
amount which would qualify for a further quantity discount, a retroactive price
adjustment will be made at the time of expiration of the Statement. The
resulting difference in offering price will purchase additional shares for the
shareholder's account at the then-current applicable offering price. As a part
of this adjustment, the FSF or Intermediary shall return to the Distributor the
excess commission previously paid during the 13-month period.
If the amount of the Statement is not purchased, the shareholder shall
remit to the Distributor an amount equal to the difference between the sales
charge paid and the sales charge that should have been paid. If the shareholder
fails within 20 days after a written request to pay such difference in sales
charge, the Transfer Agent will redeem that number of escrowed Class A shares
equal to such difference. The additional amount of FSF or Intermediary discount
from the applicable offering price shall be remitted to the shareholder's FSF or
Intermediary of record.
Additional information about and the terms of Statements of Intent are
available from your FSF or Intermediary or from the Transfer Agent at
1-800-345-6611.
Reinstatement Privilege. An investor who has redeemed Fund shares may,
upon request, reinstate within one year a portion or all of the proceeds of such
sale in shares of the same class of that Fund at the net asset value next
determined after the Transfer Agent receives a written reinstatement request and
payment. Any contingent deferred sales charge paid at the time of the redemption
will be credited to the shareholder upon reinstatement. The period between the
redemption and the reinstatement will not be counted in aging the reinstated
shares for purposes of calculating any contingent deferred sales charge or
conversion date. Investors who desire to exercise this privilege should contact
their FSF or Intermediary or the Distributor. Shareholders may exercise this
privilege an unlimited number of times. Exercise of this privilege does not
alter the federal income tax treatment of any capital gains realized on the
prior sale of Fund shares, but to the extent any such shares were sold at a
loss, some or all of the loss may be disallowed for tax purposes. Consult your
tax advisor.
Shareholders may reinvest all or a portion of a recent cash
distribution without a sales charge. A shareholder request must be received
within 30 calendar days of the distribution. A shareholder may exercise this
privilege only once. No charge is currently made for reinvestment.
Privileges of Adviser Employees, FSFs or Intermediaries. Class A shares
may be sold at net asset value to the following individuals whether currently
employed or retired: Trustees of funds advised or administered by Stein Roe or
an affiliate of Stein Roe; directors, officers and employees of Stein Roe or an
affiliate of Stein Roe, including the Transfer Agent and the Distributor;
registered representatives and employees of FSFs or Intermediaries (including
their affiliates) that are parties to dealer agreements or other sales
arrangements with the Distributor; and such persons' families and their
beneficial accounts.
Sponsored Arrangements. Class A shares may be purchased at reduced or
no sales charge pursuant to sponsored arrangements, which include programs under
which an organization makes recommendations to, or permits group solicitation
of, its employees, members or participants in connection with the purchase of
Fund shares on an individual basis. The amount of the sales charge reduction
will reflect the anticipated reduction in sales expense associated with
sponsored arrangements. The reduction in sales expense, and therefore the
reduction in sales charge, will vary depending on factors such as the size and
stability of the organization's group, the term of the organization's existence
and certain characteristics of the members of its group. The Funds reserve the
right to revise the terms of or to suspend or discontinue sales pursuant to
sponsored plans at any time.
Class A shares may also be purchased at reduced or no sales charge by
clients of dealers, brokers or registered investment advisers that have entered
into agreements with the Distributor pursuant to which a Fund is included as an
investment option in programs involving fee-based compensation arrangements.
Waiver of Contingent Deferred Sales Charges (Class A accounts in excess
of $1,000,000). Contingent deferred sales charges may be waived on redemptions
in the following situations with the proper documentation:
1. Death. Contingent deferred sales charges may be waived on redemptions within
one year following the death of (i) the sole shareholder on an individual
account, (ii) a joint tenant where the surviving joint tenant is the deceased's
spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act ("UGMA"),
Uniform Transfers to Minors Act ("UTMA") or other custodial account. If, upon
the occurrence of one of the foregoing, the account is transferred to an account
registered in the name of the deceased's estate, the contingent deferred sales
charge will be waived on any redemption from the estate account occurring within
one year after the death. If the shares are not redeemed within one year of the
death, they will remain subject to the applicable contingent deferred sales
charge, when redeemed from the transferee's account. If the account is
transferred to a new registration and then a redemption is requested, the
applicable contingent deferred sales charge will be charged.
2. Systematic Withdrawal Plan (SWP). Contingent deferred sales charges may be
waived on redemptions occurring pursuant to a monthly, quarterly or semiannual
SWP established with the Transfer Agent, to the extent the redemptions do not
exceed, on an annual basis, 12% of the account's value, so long as at the time
of the first SWP redemption the account had distributions reinvested for a
period at least equal to the period of the SWP (e.g., if it is a quarterly SWP,
distributions must have been reinvested at least for the three month period
prior to the first SWP redemption); otherwise contingent deferred sales charges
will be charged on SWP redemptions until this requirement is met. See below
under How to Sell Shares--Systematic Withdrawal Plan.
3. Disability. Contingent deferred sales charges may be waived on redemptions
occurring within one year after the sole shareholder on an individual account or
a joint tenant on a spousal joint tenant account becomes disabled (as defined in
Section 72(m)(7) of the Internal Revenue Code). To be eligible for such waiver,
(i) the disability must arise after the purchase of shares and (ii) the disabled
shareholder must have been under age 65 at the time of the initial determination
of disability. If the account is transferred to a new registration and then a
redemption is requested, the applicable contingent deferred sales charge will be
charged.
4. Death of a trustee. Contingent deferred sales charges may be waived on
redemptions occurring upon dissolution of a revocable living or grantor trust
following the death of the sole trustee where (i) the grantor of the trust is
the sole trustee and the sole life beneficiary, (ii) death occurs following the
purchase and (iii) the trust document provides for dissolution of the trust upon
the trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable contingent deferred
sales charge will be charged upon any subsequent redemption.
5. Returns on excess contributions. Contingent deferred sales charges may be
waived on redemptions required to return excess contributions made to retirement
plans or IRAs, so long as the FSF or Intermediary agrees to return the
applicable portion of any commission paid by the Distributor.
6. Qualified Retirement Plans. Contingent deferred sales charges may be waived
on redemptions required to make distributions from qualified retirement plans
following (i) normal retirement (as stated in the plan document) or (ii)
separation from service. For shares purchased in a prototype 401K plan after
Sept. 1, 1997, contingent deferred sales charges will not be waived upon
separation from service except if such plan is held in an omnibus account.
Contingent deferred sales charges also will be waived on SWP redemptions made to
make required minimum distributions from qualified retirement plans that have
invested in the Fund for at least two years.
The contingent deferred sales charge also may be waived where the FSF
or Intermediary agrees to return all or an agreed upon portion of the commission
earned on the sale of the shares being redeemed.
How to Sell ("Redeem") Shares
Shares may be sold on any day the NYSE is open, either directly to a
Fund or through an FSF or Intermediary. Sale proceeds generally are sent within
seven days (usually on the next business day after your request is received in
good form). However, for shares recently purchased by check, a Fund will delay
sending proceeds for 15 days in order to protect the Fund against financial
losses and dilution in net asset value caused by dishonored purchase payment
checks. To avoid delays in payment, investors are advised to purchase shares
unconditionally, such as by certified check or other immediately available
funds.
To sell shares directly to the Fund, send a signed letter of
instruction to the Transfer Agent. The sale price is the net asset value next
determined (less any applicable contingent deferred sales charge) after the Fund
or an FSF or Intermediary receives the request in proper form. Signatures must
be guaranteed by a bank, a member firm of a national stock exchange or another
eligible guarantor institution. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners and IRA holders.
Call the Transfer Agent for more information at (800) 345-6611.
FSFs and Intermediaries must receive requests before the time at which
Fund shares are valued to receive that day's price, are responsible for
furnishing all necessary documentation to the Transfer Agent and may charge for
this service.
Systematic Withdrawal Plan. If a shareholder's account balance is at
least $5,000, the shareholder may establish a SWP. A specified dollar amount or
percentage of the then-current net asset value of the shareholder's investment
in a Fund designated by the shareholder will be paid monthly, quarterly or
semiannually to a designated payee. The amount or percentage the shareholder
specifies generally may not, on an annualized basis, exceed 12% of the value, as
of the time the shareholder makes the election of the shareholder's investment.
If a shareholder wishes to participate in a SWP, the shareholder must elect to
have all income dividends and other distributions payable in Fund shares rather
than in cash.
A shareholder or its FSF or Intermediary of record may establish a SWP
account by telephone on a recorded line. However, SWP checks will be payable
only to the shareholder and sent to the address of record. SWPs from retirement
accounts cannot be established by telephone.
Purchasing additional shares (other than through dividend and
distribution reinvestment) while receiving SWP payments is ordinarily
disadvantageous because of duplicative sales charges. For this reason, a
shareholder may not maintain a plan for the accumulation of shares of a Fund
(other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a
gain or loss for tax purposes, may involve the use of principal and may
eventually use up all of the shares in a shareholder's account.
A Fund may terminate a shareholder's SWP if the shareholder's account
balance falls below $5,000 due to any transfer or liquidation of shares other
than pursuant to the SWP. SWP payments will be terminated on receiving
satisfactory evidence of the death or incapacity of a shareholder. Until this
evidence is received, the Transfer Agent will not be liable for any payment made
in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who
participate in them is borne by the Funds as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs
or Intermediaries may not be able to participate in a SWP. If a shareholder's
Fund shares are held in "street name," the shareholder should consult his or her
FSF or Intermediary to determine whether he or she may participate in a SWP.
Telephone Redemptions. Telephone redemption privileges are described
in the Prospectus.
Non-Cash Redemptions. For redemptions of any single shareholder within
any 90-day period exceeding the lesser of $250,000 or 1% of a Fund's net asset
value, that Fund may make the payment or a portion of the payment with portfolio
securities held by it instead of cash, in which case the redeeming shareholder
may incur brokerage and other costs in selling the securities received.
How to Exchange Shares
Class A share exchanges at net asset value may be made among shares of
the same class of any other fund that is a series of the Trust or of most
Colonial Funds. With respect to Class A shares, for a period of 90 days
following the purchase of shares, exchanges at net asset value may be made among
Class A shares of Colonial Municipal Money Market Fund or Colonial Government
Money Market Fund (or its successor). Thereafter, exchanges at net asset value
may be made among Class A shares of any other fund that is a series of the Trust
or of most Colonial Funds. For more information on the Colonial Funds, see your
FSF or Intermediary or call (800) 345-6611.
Before exchanging into another fund, you should obtain the prospectus
for the fund in which you wish to invest and read it carefully. Prospectuses of
Colonial Funds are available by calling (800) 426-3750. Consult the Transfer
Agent before requesting an exchange.
By calling the Transfer Agent, shareholders or their FSF or
Intermediary of record may exchange among accounts with identical registrations,
provided that the shares are held on deposit. During periods of unusual market
changes and/or shareholder activity, shareholders may experience delays in
contacting the Transfer Agent by telephone to exercise the telephone exchange
privilege. Because an exchange involves a redemption and reinvestment in another
fund, completion of an exchange may be delayed under unusual circumstances, such
as if the Fund suspends repurchases or postpones payment for Fund shares being
exchanged in accordance with federal securities law. The Transfer Agent will
also make exchanges upon receipt of a written exchange request. If the
shareholder is a corporation, partnership, agent, or surviving joint owner, the
Transfer Agent will require customary additional documentation.
A loss to a shareholder may result from an unauthorized transaction
reasonably believed to have been authorized. No shareholder is obligated to use
the telephone to execute transactions.
In all cases, the shares to be exchanged must be registered on the
records of the Fund in the name of the shareholder desiring to exchange.
An exchange is a capital sale transaction for federal income tax
purposes. The exchange privilege may be revised, suspended or terminated at any
time.
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 U.S. are maintained in the
custody of the Bank or of other domestic banks or depositories. Portfolio
securities purchased outside of the U.S. are maintained in the custody of
foreign banks and trust companies that are members of the Bank's Global Custody
Network and foreign depositories ("foreign sub-custodians"). Each of the
domestic and foreign custodial institutions holding portfolio securities has
been approved by the Board of Trustees in accordance with regulations under the
Investment Company Act of 1940.
Each Board of Trustees reviews, at least annually, whether it is in the
best interests of the Fund and their shareholders to maintain assets in each of
the countries in which the Fund invests with particular foreign sub-custodians
in such countries, pursuant to contracts between such respective foreign
sub-custodians and the Bank. The review includes an assessment of the risks of
holding assets in any such country (including risks of expropriation or
imposition of exchange controls), the operational capability and reliability of
each such foreign sub-custodian, and the impact of local laws on each such
custody arrangement. Each Board of Trustees is aided in its review by the Bank,
which has assembled the network of foreign sub-custodians, as well as by Stein
Roe and counsel. However, with respect to foreign sub-custodians, there can be
no assurance that the Fund and the value of its shares will not be adversely
affected by acts of foreign governments, financial or operational difficulties
of the foreign sub-custodians, difficulties and costs of obtaining jurisdiction
over or enforcing judgments against the foreign sub-custodians, or application
of foreign law to the foreign sub-custodial arrangements. Accordingly, an
investor should recognize that the non-investment risks involved in holding
assets abroad are greater than those associated with investing in the United
States.
The Fund 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 is PricewaterhouseCoopers
LLP, 160 Federal Street, Boston, MA 02110. The 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
Stein Roe places the orders for the purchase and sale of portfolio
securities and options and futures contracts for its clients, including private
clients and mutual fund clients ("Clients"). Stein Roe's overriding objective in
selecting brokers and dealers to effect portfolio transactions is to seek the
best combination of net price and execution. The best net price, giving effect
to brokerage commissions, if any, is an important factor in this decision;
however, a number of other judgmental factors may also enter into the decision.
These factors include Stein Roe's knowledge of negotiated commission rates
currently available and other current transaction costs; the nature of the
security being purchased or sold; the size of the transaction; the desired
timing of the transaction; the activity existing and expected in the market for
the particular security; confidentiality; the execution, clearance and
settlement capabilities of the broker or dealer selected and others considered;
Stein Roe's knowledge of the financial condition of the broker or dealer
selected and such other brokers and dealers; and Stein Roe's knowledge of actual
or apparent operation problems of any broker or dealer.
Recognizing the value of these factors, Stein Roe may cause a Client to
pay a brokerage commission in excess of that which another broker may have
charged for effecting the same transaction. Stein Roe has established internal
policies for the guidance of its trading personnel, specifying minimum and
maximum commissions to be paid for various types and sizes of transactions and
effected for Clients in those cases where Stein Roe has discretion to select the
broker or dealer by which the transaction is to be executed. Stein Roe has
discretion for all trades of the Funds. Transactions which vary from the
guidelines are subject to periodic supervisory review. These guidelines are
reviewed and periodically adjusted, and the general level of brokerage
commissions paid is periodically reviewed by Stein Roe. Evaluations of the
reasonableness of brokerage commissions, based on the factors described in the
preceding paragraph, are made by Stein Roe's trading personnel while effecting
portfolio transactions. The general level of brokerage commissions paid is
reviewed by Stein Roe, and reports are made annually to the Board of Trustees.
Stein Roe maintains and periodically updates a list of approved brokers
and dealers which, in Stein Roe's judgment, are generally capable of providing
best price and execution and are financially stable. Stein Roe's traders are
directed to use only brokers and dealers on the approved list, except in the
case of Client designations of brokers or dealers to effect transactions for
such Clients' accounts. Stein Roe generally posts certain Client information on
the "Alert" broker database system as a means of facilitating the trade
affirmation and settlement process.
It is Stein Roe's practice, when feasible, to aggregate for execution
as a single transaction orders for the purchase or sale of a particular security
for the accounts of several Clients, in order to seek a lower commission or more
advantageous net price. The benefit, if any, obtained as a result of such
aggregation generally is allocated pro rata among the accounts of Clients which
participated in the aggregated transaction. In some instances, this may involve
the use of an "average price" execution wherein a broker or dealer to which the
aggregated order has been given will execute the order in several separate
transactions during the course of a day at differing prices and, in such case,
each Client participating in the aggregated order will pay or receive the same
price and commission, which will be an average of the prices and commissions for
the several separate transactions executed by the broker or dealer.
Stein Roe sometimes makes use of an indirect electronic access to the
New York Stock Exchange's "SuperDOT" automated execution system, provided
through a NYSE member floor broker, W&D Securities, Inc., a subsidiary of
Jeffries & Co., Inc., particularly for the efficient execution of smaller orders
in NYSE listed equities. Stein Roe sometimes uses similar arrangements through
Billings & Co., Inc. and Driscoll & Co., Inc., floor broker members of the
Chicago Stock Exchange, for transactions to be executed on that exchange. In
using these arrangements, Stein Roe must instruct the floor broker to refer the
executed transaction to another brokerage firm for clearance and settlement, as
the floor brokers do not deal with the public. Transactions of this type
sometimes are referred to as "step-in" or "step-out" transactions. The brokerage
firm to which the executed transaction is referred may include, in the case of
transactions effected through W&D Securities, brokerage firms which provide
Stein Roe investment research or related services.
Stein Roe places certain trades for the Funds through its affiliate
AlphaTrade, Inc. ("ATI"). ATI is a wholly owned subsidiary of Colonial
Management Associates, Inc. ATI is a fully disclosed introducing broker that
limits its activities to electronic execution of transactions in listed equity
securities. The Funds pay ATI a commission for these transactions. The Funds
have adopted procedures consistent with Investment Company Act Rule 17e-1
governing such transactions. Certain of Stein Roe's officers also serve as
officers, directors and/or employees of ATI.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and subject to seeking best execution and such other
policies as the trustees of the Funds may determine, Stein Roe may consider
sales of shares of each of the Funds as a factor in the selection of
broker-dealers to execute such mutual fund securities transactions.
Investment Research Products and Services Furnished by Brokers and Dealers
Stein Roe engages in the long-standing practice in the money management
industry of acquiring research and brokerage products and services ("research
products") from broker-dealer firms in return directing trades for Client
accounts to those firms. In effect, Stein Roe is using the commission dollars
generated from these Client accounts to pay for these research products. The
money management industry uses the term "soft dollars" to refer to this industry
practice. Stein Roe may engage in soft dollar transactions on trades for those
Client accounts for which Stein Roe has the discretion to select the
broker-dealers.
The ability to direct brokerage for a Client account belongs to the
Client and not to Stein Roe. When a Client grants Stein Roe the discretion to
select broker-dealers for Client trades, Stein Roe has a duty to seek the best
combination of net price and execution. Stein Roe faces a potential conflict of
interest with this duty when it uses Client trades to obtain soft dollar
products. This conflict exists because Stein Roe is able to use the soft dollar
products in managing its Client accounts without paying cash ("hard dollars")
for the product. This reduces Stein Roe's expenses.
Moreover, under a provision of the federal securities laws applicable
to soft dollars, Stein Roe is not required to use the soft dollar product in
managing those accounts that generate the trade. Thus, the Client accounts that
generate the brokerage commission used to acquire the soft dollar product may
not benefit directly from that product. In effect, those accounts are cross
subsidizing Stein Roe's management of the other accounts that do benefit
directly from the product. This practice is explicitly sanctioned by a provision
of the Securities Exchange Act of 1934, which creates a "safe harbor" for soft
dollar transactions conducted in a specified manner. Although it is inherently
difficult, if not impossible, to document, Stein Roe believes that over time
most, if not all, Clients benefit from soft dollar products such that cross
subsidizations even out.
Stein Roe attempts to reduce or eliminate this conflict by directing
Client trades for soft dollar products only if Stein Roe concludes that the
broker-dealer supplying the product is capable of providing a combination of the
best net price and execution on the trade. As noted above, the best net price,
while significant, is one of a number of judgmental factors Stein Roe considers
in determining whether a particular broker is capable of providing the best net
price and execution. Stein Roe may cause a Client account to pay a brokerage
commission in a soft dollar trade in excess of that which another broker-dealer
might have charged for the same transaction.
Stein Roe acquires two types of soft dollar research products: (i)
proprietary research created by the broker-dealer firm executing the trade and
(ii) other products created by third parties that are supplied to Stein Roe
through the broker-dealer firm executing the trade.
Proprietary research consists primarily of traditional research
reports, recommendations and similar materials produced by the in house research
staffs of broker-dealer firms. This research includes evaluations and
recommendations of specific companies or industry groups, as well as analyses of
general economic and market conditions and trends, market data, contacts and
other related information and assistance. Stein Roe's research analysts
periodically rate the quality of proprietary research produced by various
broker-dealer firms. Based on these evaluations, Stein Roe develops target
levels of commission dollars on a firm-by-firm basis. Stein Roe attempts to
direct trades to each firm to meet these targets.
Stein Roe also uses soft dollars to acquire products created by third
parties that are supplied to Stein Roe through broker-dealers executing the
trade (or other broker-dealers who "step in" to a transaction and receive a
portion of the brokerage commission for the trade). These products include the
following:
o Database Services--comprehensive databases containing current and/or
historical information on companies and industries. Examples include
historical securities prices, earnings estimates, and SEC filings. These
services may include software tools that allow the user to search the
database or to prepare value-added analyses related to the investment
process (such as forecasts and models used in the portfolio management
process).
o Quotation/Trading/News Systems--products that provide real time market data
information, such as pricing of individual securities and information on
current trading, as well as a variety of news services.
o Economic Data/Forecasting Tools--various macro economic forecasting tools,
such as economic data and economic and political forecasts for various
countries or regions.
o Quantitative/Technical Analysis--software tools that assist in quantitative
and technical analysis of investment data. o Fundamental Industry
Analysis--industry-specific fundamental investment research. o Fixed Income
Security Analysis--data and analytical tools that pertain specifically to fixed
income securities. These tools
assist in creating financial models, such as cash flow projections and
interest rate sensitivity analyses, that are relevant to fixed income
securities.
o Other Specialized Tools--other specialized products, such as specialized
economic consulting analyses and attendance at investment oriented
conferences.
Many third-party products include computer software or on-line data
feeds. Certain products also include computer hardware necessary to use the
product.
Certain of these third party services may be available directly from
the vendor on a hard dollar basis. Others are available only through
broker-dealer firms for soft dollars. Stein Roe evaluates each product to
determine a cash ("hard dollars") value of the product to Stein Roe. Stein Roe
then on a product-by-product basis targets commission dollars in an amount equal
to a specified multiple of the hard dollar value to the broker-dealer that
supplies the product to Stein Roe. In general, these multiples range from 1.25
to 1.85 times the hard dollar value. Stein Roe attempts to direct trades to each
firm to meet these targets. (For example, if the multiple is 1.5:1.0, assuming a
hard dollar value of $10,000, Stein Roe will target to the broker-dealer
providing the product trades generating $15,000 in total commissions.)
The targets that Stein Roe establishes for both proprietary and for
third party research products typically will reflect discussions that Stein Roe
has with the broker-dealer providing the product regarding the level of
commissions it expects to receive for the product. However, these targets are
not binding commitments, and Stein Roe does not agree to direct a minimum amount
of commissions to any broker-dealer for soft dollar products. In setting these
targets, Stein Roe makes a determination that the value of the product is
reasonably commensurate with the cost of acquiring it. These targets are
established on a calendar year basis. Stein Roe will receive the product whether
or not commissions directed to the applicable broker-dealer are less than, equal
to or in excess of the target. Stein Roe generally will carry over target
shortages and excesses to the next year's target. Stein Roe believes that this
practice reduces the conflicts of interest associated with soft dollar
transactions, since Stein Roe can meet the non-binding expectations of
broker-dealers providing soft dollar products over flexible time periods. In the
case of third party products, the third party is paid by the broker-dealer and
not by Stein Roe. Stein Roe may enter into a contract with the third party
vendor to use the product. (For example, if the product includes software, Stein
Roe will enter into a license to use the software from the vendor.)
In certain cases, Stein Roe uses soft dollars to obtain products that
have both research and non-research purposes. Examples of non-research uses are
administrative and marketing functions. These are referred to as "mixed use"
products. As of the date of this SAI, Stein Roe acquires two mixed use products.
These are (i) a fixed income security data service and (ii) a mutual fund
performance ranking service. In each case, Stein Roe makes a good faith
evaluation of the research and non-research uses of these services. These
evaluations are based upon the time spent by Firm personnel for research and
non-research uses. Stein Roe pays the provider in cash ("hard dollars") for the
non-research portion of its use of these products.
Stein Roe may use research obtained from soft dollar trades in the
management of any of its discretionary accounts. Thus, consistent with industry
practice, Stein Roe does not require that the Client account that generates the
trade receive any benefit from the soft dollar product obtained through the
trade. As noted above, this may result in cross subsidization of soft dollar
products among Client accounts. As noted therein, this practice is explicitly
sanctioned by a provision of the Securities Exchange Act of 1934, which creates
a "safe harbor" for soft dollar transactions conducted in a specified manner.
In certain cases, Stein Roe will direct a trade to one broker-dealer
with the instruction that it execute the trade and pay over a portion of the
commission from the trade to another broker-dealer who provides Stein Roe with a
soft dollar research product. The broker-dealer executing the trade "steps out"
of a portion of the commission in favor of the other broker-dealer providing the
soft dollar product. Stein Roe may engage in step out transactions in order to
direct soft dollar commissions to a broker-dealer which provides research but
may not be able to provide best execution. Brokers who receive step out
commissions typically are brokers providing a third party soft dollar product
that is not available on a hard dollars basis. Stein Roe has not engaged in step
out transactions as a manner of compensating broker-dealers that sell shares of
investment companies managed by Stein Roe.
<PAGE>
<TABLE>
<CAPTION>
The table below shows information on brokerage commissions paid by the
Funds:
<S> <C> <C> <C> <C>
-----------------------------------------------------
Large Disciplined Capital Small
Company Stock Opportunities Company
Focus Fund Portfolio Fund Growth Fund
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Total amount of brokerage commissions paid during fiscal
year ended 9/30/99 $51,496 $1,692,241 $867,578 $15,944
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Amount of commissions paid to brokers or dealers who
supplied research services to Stein Roe 31,435 1,012,153 609,016 7,694
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Total dollar amount involved in such transactions (000
omitted) 178,047 5,927,255 1,591,956 8,360
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Total amount of brokerage commissions paid during fiscal
year ended 9/30/98 43,465 2,301,286 732,013 --
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Total amount of brokerage commissions paid during fiscal
year ended 9/30/97 -- 766,278 543,951 --
----------------------------------------------------------------------------------------------------------------
</TABLE>
.........Each Trust has arranged for its custodian to act as a soliciting
dealer to accept any fees available to the custodian as a soliciting dealer
in connection with any tender offer for portfolio securities. The custodian
will credit any such fees received against its custodial fees. In addition,
the Board of Trustees has reviewed the legal developments pertaining
to and the practicability of attempting to recapture underwriting discounts
or selling concessions when portfolio securities are purchased in underwritten
offerings. However, the Board has been advised by counsel that recapture by a
mutual fund currently is not permitted under the Rules of the Association of
the National Association of Securities Dealers.
During the last fiscal year, no Fund held any securities issued by one or
more of its regular broker-dealers or the parent of such broker-dealers that
derive more than 15% of gross revenue from securities-related activities.
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.
To the extent a Fund invests in foreign securities, it may be subject
to withholding and other taxes imposed by foreign countries. Tax treaties
between certain countries and the United States may reduce or eliminate such
taxes. Investors may be entitled to claim U.S. foreign tax credits with respect
to such taxes, subject to certain provisions and limitations contained in the
Code. Specifically, if more than 50% of the Fund's total assets at the close of
any fiscal year consist of stock or securities of foreign corporations, the Fund
may file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their pro rata
shares of foreign income taxes paid by the Fund even though not actually
received, (ii) treat such respective pro rata shares as foreign income taxes
paid by them, and (iii) deduct such pro rata shares in computing their taxable
incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their United States income taxes. Shareholders
who do not itemize deductions for federal income tax purposes will not, however,
be able to deduct their pro rata portion of foreign taxes paid by the Fund,
although such shareholders will be required to include their share of such taxes
in gross income. Shareholders who claim a foreign tax credit may be required to
treat a portion of dividends received from the Fund as separate category income
for purposes of computing the limitations on the foreign tax credit available to
such shareholders. Tax-exempt shareholders will not ordinarily benefit from this
election relating to foreign taxes. Each year, the Funds will notify
shareholders of the amount of (i) each shareholder's pro rata share of foreign
income taxes paid by the Fund and (ii) the portion of Fund dividends which
represents income from each foreign country, if the Fund qualifies to pass along
such credit.
INVESTMENT PERFORMANCE
A Fund may quote certain total return figures from time to time. A
"Total Return" on a per share basis is the amount of dividends distributed per
share plus or minus the change in the net asset value per share for a period. A
"Total Return Percentage" may be calculated by dividing the value of a share at
the end of a period by the value of the share at the beginning of the period and
subtracting one. For a given period, an "Average Annual Total Return" may be
computed by finding the average annual compounded rate that would equate a
hypothetical initial amount invested of $1,000 to the ending redeemable value.
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).
The total return performance as of September 30, 1999* was:
10 Years or Life of
1 Year 5 Years Fund (if shorter)
Disciplined Stock Fund 13.57 10.64 10.96
Large Company Focus Fund 35.05 N/A 13.93**
Capital Opportunities Fund 13.43 13.66 10.21
Small Company Growth Fund 33.06 N/A 15.37**
*Performance information is based on each Fund's Class S
shares.
**Life of Fund is from date of public offering of Fund or its
predecessor: June 26, 1998 for Large Company Focus Fund;
and March 25, 1996 for predecessor of Small Company
Growth Fund.
Investment performance figures assume reinvestment of all dividends and
distributions and do not take into account any federal, state, or local income
taxes which shareholders must pay on a current basis. They are not necessarily
indicative of future results. The performance of the Fund is a result of
conditions in the securities markets, portfolio management, and operating
expenses. Although investment performance information is useful in reviewing the
Fund's performance and in providing some basis for comparison with other
investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods.
A Fund may note its mention or recognition in newspapers, magazines, or
other media from time to time. However, the Funds assume no responsibility for
the accuracy of such data. Newspapers and magazines which might mention the
Funds include, but are not limited to, the following:
<PAGE>
1
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
<PAGE>
1
In advertising and sales literature, the Fund may compare its
performance with that of other mutual funds, indexes or averages of other mutual
funds, indexes of related financial assets or data, and other competing
investment and deposit products available from or through other financial
institutions. The composition of these indexes or averages differs from that of
the Funds. Comparison of the Fund to an alternative investment should be made
with consideration of differences in features and expected performance. All of
the indexes and averages noted below will be obtained from the indicated sources
or reporting services, which the Funds believe to be generally accurate. All of
the Funds may compare their performance to the Consumer Price Index (All Urban),
a widely recognized measure of inflation. The Fund's performance may be compared
to the following indexes or averages:
Dow-Jones Industrial Average New York Stock Exchange Composite Index
Standard & Poor's 500 Stock Index American Stock Exchange Composite Index
Standard & Poor's 400 Industrials Nasdaq Composite
Russell 2000 Index Nasdaq Industrials
Wilshire 5000
(These indexes are widely recognized (These indexes generally reflect the
indicators of general U.S. stock market performance of stocks traded in the
results.) indicated markets.)
<PAGE>
<TABLE>
<CAPTION>
In addition, the Fund may compare performance to the indicated
benchmarks:
<S> <C> <C>
----------------------------------------------------------------------------------------------------------------
Benchmark Fund(s)
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Lipper Capital Appreciation Fund Average Capital Opportunities Fund, Large Company Focus
Fund
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Lipper Capital Appreciation Fund Index Capital Opportunities Fund, Large Company Focus
Fund
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Lipper Equity Fund Average All Funds
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Lipper General Equity Fund Average All Funds
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Lipper Growth Fund Average Small Company Growth Fund
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Lipper Growth Fund Index Small Company Growth Fund
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Lipper Midcap Value Average Disciplined Stock Fund
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Morningstar Aggressive Growth Fund Average Capital Opportunities Fund, Large Company Focus
Fund
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Morningstar All Equity Funds Average All Funds
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Morningstar Domestic Stock Average All Funds
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Morningstar Equity Fund Average All Funds
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Morningstar General Equity Average* All Funds
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Morningstar Growth Fund Average Small Company Growth Fund
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Morningstar Hybrid Fund Average Small Company Growth Fund
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Morningstar Midcap Value Average Disciplined Stock Fund
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Morningstar Total Fund Average All Funds
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Morningstar U.S. Diversified Average Small Company Growth Fund
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Value Line Index Capital Opportunities Fund, Large Company Focus
(Widely recognized indicator of the performance of Fund
small- and medium-sized company stocks)
----------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes Morningstar Aggressive Growth, Growth, Balanced, Equity Income, and
Growth and Income Averages.
Lipper Growth Fund Index reflects the net asset value weighted total
return of the largest thirty growth funds and thirty growth and income funds,
respectively, as calculated and published by Lipper. The Lipper 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 the
Fund to a different category or develop (and place the Fund into) a new
category, that Fund may compare its performance or ranking with those of other
funds in the newly assigned category, as published by the service.
A Fund may also cite its rating, recognition, or other mention by
Morningstar or any other entity. Morningstar's rating system is based on
risk-adjusted total return performance and is expressed in a star-rating format.
The risk-adjusted number is computed by subtracting the Fund's risk score (which
is a function of the fund's monthly returns less the 3-month T-bill return) from
its load-adjusted total return score. This numerical score is then translated
into rating categories, with the top 10% labeled five star, the next 22.5%
labeled four star, the next 35% labeled three star, the next 22.5% labeled two
star, and the bottom 10% one star. A high rating reflects either above-average
returns or below-average risk, or both.
Of course, past performance is not indicative of future results.
----------------
To illustrate the historical returns on various types of financial
assets, the Funds may use historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or obtains)
very long-term (since 1926) total return data (including, for example, total
return indexes, total return percentages, average annual total returns and
standard deviations of such returns) for the following asset types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
---------------------
A Fund may also use hypothetical returns to be used as an example in a
mix of asset allocation strategies. One such example is reflected in the chart
below, which shows the effect of tax deferral on a hypothetical investment. This
chart assumes that an investor invested $2,000 a year on January 1, for any
specified period, in both a Tax-Deferred Investment and a Taxable Investment,
that both investments earn either 6%, 8% or 10% compounded annually, and that
the investor withdrew the entire amount at the end of the period. (A tax rate of
39.6% is applied annually to the Taxable Investment and on the withdrawal of
earnings on the Tax-Deferred Investment.)
<TABLE>
<CAPTION>
Tax-Deferred Investment vs. Taxable Investment
<S> <C> <C> <C> <C> <C> <C>
Interest Rate 6% 8% 10% 6% 8% 10%
Compounding
Years Tax-Deferred Investment Taxable Investment
----- ----------------------- ------------------
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 150,484 82,067 97,780 117,014
20 62,943 75,543 91,947 59,362 68,109 78,351
15 41,684 47,304 54,099 40,358 44,675 49,514
10 24,797 26,820 29,098 24,453 26,165 28,006
5 11,178 11,613 12,072 11,141 11,546 11,965
1 2,072 2,096 2,121 2,072 2,096 2,121
</TABLE>
Dollar Cost Averaging. Dollar cost averaging is an investment strategy
that requires investing a fixed amount of money in Fund shares at set intervals.
This allows you to purchase more shares when prices are low and fewer shares
when prices are high. Over time, this tends to lower your average cost per
share. Like any investment strategy, dollar cost averaging can't guarantee a
profit or protect against losses in a steadily declining market. Dollar cost
averaging involves uninterrupted investing regardless of share price and
therefore may not be appropriate for every investor.
From time to time, a Fund may offer in its advertising and sales
literature to send an investment strategy guide, a tax guide, or other
supplemental information to investors and shareholders. It may also mention the
Stein Roe CounselorSM program and asset allocation and other investment
strategies.
MASTER FUND/FEEDER FUND: STRUCTURE AND RISK FACTORS
The Disciplined Stock Fund, (a series of the Trust, an open-end
management investment company) seeks to achieve its objective by investing all
of its assets in another mutual fund having an investment objective identical to
the of the Fund. The shareholders of the Fund approved this policy of permitting
the Fund to act as a feeder fund by investing in the Portfolio. Please refer to
Investment Policies, Portfolio Investments and Strategies, and Investment
Restrictions for a description of the investment objectives, policies, and
restrictions of the Fund and the Portfolio. The management fees and expenses of
the Fund and the Portfolio are described under Investment Advisory and Other
Services. The feeder Fund bears its proportionate share of the expenses of its
master Portfolio.
Stein Roe has provided investment management services in connection
with mutual funds employing the master fund/feeder fund structure since 1991.
The Portfolio is a separate series of SR&F Base Trust ("Base Trust"), a
Massachusetts common law trust organized under an Agreement and Declaration of
Trust ("Declaration of Trust") dated Aug. 23, 1993. The Declaration of Trust of
Base Trust provides that the Fund and other investors in the Portfolio will be
liable for all obligations of the Portfolio that are not satisfied by the
Portfolio. However, the risk of the Fund incurring financial loss on account of
such liability is limited to circumstances in which liability was inadequately
insured and the Portfolio was unable to meet its obligations. Accordingly, the
trustees of the Trust believe that neither the Fund nor its shareholders will be
adversely affected by reason of the Fund's investing in the Portfolio.
The Declaration of Trust of Base Trust provides that the Portfolio will
terminate 120 days after the withdrawal of the Fund or any other investor in the
Portfolio, unless the remaining investors vote to agree to continue the business
of the Portfolio. The trustees of the Trust may vote the Fund's interests in the
Portfolio for such continuation without approval of the Fund's shareholders.
The common investment objectives of the Fund and the Portfolio are
nonfundamental and may be changed without shareholder approval, subject,
however, to at least 30 days' advance written notice to the Fund's shareholders.
The fundamental policies of the Fund and the corresponding fundamental
policies of its master Portfolio can be changed only with shareholder approval.
If the Fund, as a Portfolio investor, is requested to vote on a change in a
fundamental policy of a Portfolio or any other matter pertaining to the
Portfolio (other than continuation of the business of the Portfolio after
withdrawal of another investor), the Fund will solicit proxies from its
shareholders and vote its interest in the Portfolio for and against such matters
proportionately to the instructions to vote for and against such matters
received from Fund shareholders. The Fund will vote shares for which it receives
no voting instructions in the same proportion as the shares for which it
receives voting instructions. There can be no assurance that any matter
receiving a majority of votes cast by Fund shareholders will receive a majority
of votes cast by all investors in a Portfolio. If other investors hold a
majority interest in a Portfolio, they could have voting control over that
Portfolio.
In the event that the Portfolio's fundamental policies were changed so
as to be inconsistent with those of the Fund, the Board of Trustees of the Trust
would consider what action might be taken, including changes to the Fund's
fundamental policies, withdrawal of the Fund's assets from the Portfolio and
investment of such assets in another pooled investment entity, or the retention
of an investment adviser to invest those assets directly in a portfolio of
securities. The Fund's inability to find a substitute master fund or comparable
investment management could have a significant impact upon its shareholders'
investments. Any withdrawal of the Fund's assets could result in a distribution
in kind of portfolio securities (as opposed to a cash distribution) to the Fund.
Should such a distribution occur, the Fund would incur brokerage fees or other
transaction costs in converting such securities to cash. In addition, a
distribution in kind could result in a less diversified portfolio of investments
for the Fund and could affect the liquidity of the Fund.
Each investor in the Portfolio, including the Fund, may add to or
reduce its investment in the Portfolio on each day the NYSE is open for
business. The investor's percentage of the aggregate interests in the Portfolio
will be computed as the percentage equal to the fraction (i) the numerator of
which is the beginning of the day value of such investor's investment in the
Portfolio on such day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investor's investment in the Portfolio
effected on such day; and (ii) the denominator of which is the aggregate
beginning of the day net asset value of the Portfolio on such day plus or minus,
as the case may be, the amount of the net additions to or withdrawals from the
aggregate investments in the Portfolio by all investors in the Portfolio. The
percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of the close of business.
Base Trust may permit other investment companies and/or other
institutional investors to invest in the Portfolio, but members of the general
public may not invest directly in the Portfolio. Other investors in the
Portfolio are not required to sell their shares at the same public offering
price as the Fund, might incur different administrative fees and expenses than
the Fund, and might charge a sales commission. Therefore, Fund shareholders
might have different investment returns than shareholders in another investment
company that invests exclusively in a Portfolio. Investment by such other
investors in a Portfolio would provide funds for the purchase of additional
portfolio securities and would tend to reduce the operating expenses as a
percentage of the Portfolio's net assets. Conversely, large-scale redemptions by
any such other investors in the Portfolio could result in untimely liquidations
of the Portfolio's security holdings, loss of investment flexibility, and
increases in the operating expenses of the Portfolio as a percentage of its net
assets. As a result, the Portfolio's security holdings may become less diverse,
resulting in increased risk.
Information regarding other investors in the Portfolio may be obtained
by writing to SR&F Base Trust at One Financial Center, Boston, MA 02111, or by
calling 800-338-2550. Stein Roe may provide administrative or other services to
one or more of such investors
APPENDIX--RATINGS
RATINGS IN GENERAL
A rating of a rating service represents the service's opinion as to the
credit quality of the security being rated. However, the ratings are general and
are not absolute standards of quality or guarantees as to the creditworthiness
of an issuer. Consequently, Stein Roe believes that the quality of debt
securities invests should be continuously reviewed and that individual analysts
give different weightings to the various factors involved in credit analysis. A
rating is not a recommendation to purchase, sell or hold a security because it
does not take into account market value or suitability for a particular
investor. When a security has received a rating from more than one service, each
rating should be evaluated independently. Ratings are based on current
information furnished by the issuer or obtained by the rating services from
other sources which they consider reliable. Ratings may be changed, suspended or
withdrawn as a result of changes in or unavailability of such information, or
for other reasons.
The following is a description of the characteristics of ratings of
corporate debt securities used by Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's ("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).
<PAGE>
PART C. OTHER INFORMATION
ITEM 23. EXHIBITS [Note: As used herein, the term "PEA" refers to a
post-effective amendment to the Registration Statement of the Registrant on Form
N-1A under the Securities Act of 1933, No. 33-11351.]
(a) Form of Restated Agreement and Declaration of Trust dated [8/17/99]
as amended on 7/ /2000. (Exhibit (a)
(b)(1) By-Laws of Registrant as amended through February
3, 1993. (Exhibit 2 to PEA #34).*
(2) Amendment to By-Laws dated February 4, 1998.
(Exhibit 2(a) to PEA #45.)*
(c) None.
(d)(1) Management Agreement between Registrant and Stein Roe & Farnham
Incorporated dated 8/15/95, as amended through 2/2/99. (Exhibit (d)(1) to
PEA #58.)*
(2) Management Agreement between SR&F Base Trust and Stein Roe & Farnham
Incorporated dated 8/15/95, as amended through 6/28/99. (Exhibit (d)(2)
to PEA #59.)*
(3) Sub-Advisory Agreement among Registrant, Stein Roe &
Farnham Incorporated, and Newport Pacific Management,
Inc. dated 8/3/99 relating to the series Stein Roe
Asia Pacific Fund.(Exhibit (d)(3) to PEA #59.)*
(e)(1) Underwriting Agreement between Registrant and Liberty
Funds Distributor, Inc. dated 8/4/99. (Exhibit (e)(1)
to PEA #59.)*
(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 through 5/8/95.(Exhibit 8 to PEA #31.)*
(h)(1) Restated Transfer Agency Agreement between Registrant and
SteinRoe Services Inc. dated 8/1/95 as amended through
3/31/99. (Exhibit(h)(1) to PEA #58.)*
(2) Accounting and Bookkeeping Agreement between Registrant
and Stein Roe & Farnham Incorporated dated 8/3/99.
(Exhibit (h)(2) to PEA #59.)*
(3) Administrative Agreement between Registrant and Stein Roe & Farnham
Incorporated 8/15/95 as amended through 6/28/99.
(Exhibit (h)(3) to PEA #59.)*
(4) Sub-Transfer Agent Agreement with Liberty Funds Services,
Inc. (formerly named Colonial Investors Service Center)
dated 7/3/96, as amended through 3/31/99. (Exhibit (h)(4)
to PEA #58.)*
(i)(1) Opinions and consents of Ropes & Gray. (Exhibit
10(a) to PEA #34).*
(2) Opinions and consents of Bell, Boyd & Lloyd with respect to SteinRoe
Prime Equities (now named Stein Roe Advisor Select Growth & Income Fund),
Stein Roe Capital Opportunities Fund, Stein Roe Special Fund (now named
Stein Roe Disciplined Stock Fund), SteinRoe Stock Fund (now named Stein
Roe Growth Stock Fund), SteinRoe Total Return Fund (now named Stein Roe
Balanced Fund), Stein Roe International Fund, Stein Roe Young Investor
Fund, and Stein Roe Special Venture Fund. (Exhibit 10(b) to PEA #34).*
(3) Opinion and consent of Bell, Boyd & Lloyd with respect to Stein Roe
Growth Opportunities Fund (now named Stein Roe Midcap Growth Fund).
(Exhibit 10(d) to PEA #39.)*
(4) Opinion and consent of Bell, Boyd & Lloyd with
respect to Stein Roe Large Company Focus Fund.
(Exhibit 10(e) to PEA #45.)*
(5) Opinion and consent of Bell, Boyd & Lloyd with
respect to Stein Roe Asia Pacific Fund. (Exhibit
10(f) to PEA #46.)*
(6) Opinion and consent of Bell, Boyd & Lloyd with
respect to Stein Roe Small Company Growth Fund.
(Exhibit (i)(6) to PEA #54.)*
(7) Opinion and Consent of Bell, Boyd & Lloyd LLC.
(j)(1) Consent of PricewaterhouseCoopers LLP.
(2) Consent of Morningstar, Inc. (Exhibit 11(b) to PEA #34).*
(k) None.
(l) Inapplicable.
(m) Rule 12b-1 Plan. (Exhibit (m) to PEA #62.)*
(n) Rule 18f-3 Plan. (Exhibit (n) to PEA #62.)*
---------
*Incorporated by reference.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
The Registrant does not consider that it is directly or indirectly controlling,
controlled by, or under common control with other persons within the meaning of
this Item. See "Investment Advisory 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., which
is 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 VP; 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 VP VP; Secretary
Denise Chasmer Vice President
Nancy L. Conlin Senior VP;Secy. VP; Asst. Secy.
J. Kevin Connaughton VP and Controller
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 VP;Treasurer
Mary D. McKenzie Vice President
Jane M. Naeseth Vice-President
Maureen G. Newman Vice-President
Joseph R. Palumbo 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 VP VP;Secy.
Stephen E. Gibson President
Loren A. Hansen Executive Vice-President
Michael T. Kennedy Vice-President
Stephen F. Lockman Vice-President
Jane M. Naeseth Vice-President
LIBERTY-STEIN ROE FUNDS INVESTMENT TRUST
William D. Andrews Executive Vice-President
David P. Brady Vice-President
Daniel K. Cantor Vice-President
Kevin M. Carome Executive VP VP; Asst. 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
LIBERTY-STEIN ROE ADVISOR TRUST
William D. Andrews Executive Vice-President
David P. Brady Vice-President
Daniel K. Cantor Vice-President
Kevin M. Carome Executive VP; Secy. VP; Asst. 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
Stephen F. Lockman Vice-President
Maureen G. Newman Vice-President
LIBERTY-STEIN ROE FUNDS MUNICIPAL TRUST
William D. Andrews Executive Vice-President
Kevin M. Carome Executive VP; Secy. VP; Asst. Secy.
Stephen E. Gibson President
Loren A. Hansen Executive Vice-President
Brian M. Hartford Vice-President
William C. Loring Vice-President
Maureen G. Newman Vice-President
Veronica M. Wallace Vice-President
STEINROE VARIABLE INVESTMENT TRUST
William D. Andrews Executive Vice-President
Kevin M. Carome Executive VP; Secy. VP; Asst. 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
Jane M. Naeseth Vice President
William M. Wadden IV Vice President
LIBERTY-STEIN ROE ADVISOR FLOATING RATE FUND; LIBERTY-STEIN ROE
INSTITUTIONAL FLOATING RATE INCOME FUND, STEIN ROE FLOATING RATE
LIMITED LIABILITY COMPANY
William D. Andrews Executive Vice-President
Kevin M. Carome Executive VP; Secy. VP; Asst. Secy.
Stephen E. Gibson President
Brian W. Good Vice-President
James R. Fellows Vice-President
Loren A. Hansen 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 VP & 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
Conlin, Nancy L. Director; Clerk 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
Gariepy, Tom Vice President None
Gauger, Richard Vice President None
Gerokoulis, Stephen A. Senior Vice President None
Gibson, Stephen E. Director; Chairman of Board None
Goldberg, Matthew Senior Vice President None
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
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.
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes Nancy L. Conlin, 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-Stein Roe Advisor 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 22nd day of May, 2000.
/s/ John A. Bacon, Jr.
John A. Bacon, Jr.
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes Nancy L. Conlin, 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-Stein Roe Advisor 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 22nd day of May, 2000.
/s/ William W. Boyd
William W. Boyd
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes Nancy L. Conlin, 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-Stein Roe Advisor 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 22nd day of May, 2000.
/s/ Lindsey Cook
Lindsay Cook
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes Nancy L. Conlin, 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-Stein Roe Advisor 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 22nd day of May, 2000.
/s/ Douglas A. Hacker
Douglas A. Hacker
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes Nancy L. Conlin,
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-Stein Roe Advisor 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 22nd day of May, 2000.
/s/ Janet Langford Kelly
Janet Langford Kelly
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes Nancy L. Conlin, 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-Stein Roe Advisor 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 22nd day of May, 2000.
/s/ Charles R. Nelson
Charles R. Nelson
<PAGE>
POWER OF ATTORNEY FOR SIGNATURE
The undersigned constitutes Nancy L. Conlin, 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-Stein Roe Advisor 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 22nd day of May, 2000.
/s/ Thomas C. Theobald
Thomas C. Theobald
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Chicago and State of Illinois on the
14th day of July, 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 July 14, 2000
Stephen E. Gibson
Principal Executive Officer
J. KEVIN CONNAGHTON Controller July 14, 2000
J. Kevin Connaghton
Principal Accounting Officer
JOHN A. BACON JR. Trustee July 14, 2000
John A. Bacon Jr.
WILLIAM W. BOYD Trustee July 14, 2000
William W. Boyd
LINDSAY COOK Trustee July 14, 2000
Lindsay Cook
DOUGLAS A. HACKER Trustee July 14, 2000
Douglas A. Hacker
JANET LANGFORD KELLY Trustee July 14, 2000
Janet Langford Kelly
CHARLES R. NELSON Trustee July 14, 2000
Charles R. Nelson
THOMAS C. THEOBALD Trustee July 14, 2000
Thomas C. Theobald
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the undersigned certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this amendment
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Chicago and State of Illinois on the
14th day of July, 2000.
SR&F BASE 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 July 14, 2000
Stephen E. Gibson
Principal Executive Officer
J. KEVIN CONNAUGHTON Controller July 14, 2000
J. Kevin Connaughton
Principal Accounting Officer
JOHN A. BACON JR. Trustee July 14, 2000
John A. Bacon Jr.
WILLIAM W. BOYD Trustee July 14, 2000
William W. Boyd
LINDSAY COOK Trustee July 14, 2000
Lindsay Cook
DOUGLAS A. HACKER Trustee July 14, 2000
Douglas A. Hacker
JANET LANGFORD KELLY Trustee July 14, 2000
Janet Langford Kelly
CHARLES R. NELSON Trustee July 14, 2000
Charles R. Nelson
THOMAS C. THEOBALD Trustee July 14, 2000
Thomas C. Theobald
VINCENT P. PIETROPAOLO
Vincent P.Pietropaolo
Attorney-in-fact for each Trustee
<PAGE>
Exhibits
(a) Form of Restated Agreement and Declaration of Trust dated [8/17/99]
as amended on 7/ /2000.
(i)(7) Opinion and Consent of Bell, Boyd & Lloyd LLC.
(j)(1) Consent of PricewaterhouseCoopers LLP.
