LIBERTY STEIN ROE FUNDS INVESTMENT TRUST, 497, 2001-01-02

LIBERTY STEIN ROE FUNDS INVESTMENT TRUST
497, 2001-01-02

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<PAGE>
STEIN ROE THEMATIC EQUITY FUNDS

Global Thematic Equity Fund
European Thematic Equity Fund

PROSPECTUS
JANUARY 2, 2001

ALTHOUGH THESE SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION, THE COMMISSION HAS NOT APPROVED OR DISAPPROVED ANY SHARES OFFERED IN
THIS PROSPECTUS OR DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<PAGE>

Each fund section contains the following information specific to that fund:
investment goal; principal investment strategies; principal investment risks;
and your expenses.

Please keep this prospectus as your reference manual.

<TABLE>
<S> <C>
3 Global Thematic Equity Fund

7 European Thematic Equity Fund

11 Your Account
Purchasing Shares
Opening an Account
Determining Share Price
Selling Shares
Exchanging Shares
Fund Policy on Trading of Fund Shares
Reporting to Shareholders
Dividends and Distributions

17 Other Investments and Risks

19 The Funds' Management
Investment Advisor and Subadvisor
</TABLE>

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GLOBAL THEMATIC EQUITY FUND

INVESTMENT GOAL Stein Roe Global Thematic Equity Fund seeks long-term growth of
capital.

PRINCIPALINVESTMENT STRATEGIES The Global Thematic Equity Fund seeks to achieve
its investment goal by investing at least 65% of its total assets in common
stocks and other equity securities of U.S. and foreign companies with market
capitalizations generally greater than $2.5 billion. Under normal circumstances,
the Fund will be invested in equity securities of issuers in at least three
countries including the U.S. The Fund seeks to outperform the MSCI World Index
by employing a thematic investing strategy.

THEMATIC INVESTING. The Fund's investment subadvisor, Unibank
Securities, Inc., uses a thematic strategy that is based on the belief
that structural change in the global economy is the most important
factor underlying individual company performance. The thematic approach
combines top-down fundamental analysis of global structural changes
with bottom-up stock picking based on the traditional considerations
such as competitive advantage (for example, above-average cash
flows), company strategy, industry dynamics and other factors that
point to the return potential of a particular company. The subadvisor's
portfolio management team has identified three core structural changes
it currently views as driving the evolution of the global economy:

- demographic change,
- technological revolution, and
- globalization.

The implications of structural change, and the portfolio managers'
understanding of those implications, are the basis for defining the
themes that govern the stock selection process. An implication of
demographic change, for example, is that people are living longer and
more active lives. As a result, there is a need for adequate income in
the retirement years. Underfunded public pension systems alone cannot
meet this need and, as a consequence, demand for supplemental private
investment products is likely to rise. This is the genesis of the
Saving for Retirement theme. Following such a theme, the portfolio
management team might consider investing in firms that provide
retirement products. In so doing, the portfolio management team would
look for the most promising companies providing these services and
would apply a rigorous, disciplined approach in gauging the companies'
prospects. Another theme that might derive from this implication,
Longer Life - Better Life, would center on the growing demand for
products and services that enhance the quality of life in the
retirement years. Following this theme, the portfolio management team
would invest in companies that provide entertainment, pharmaceutical,
leisure and other products that are likely to be demanded at a later
and perhaps also wealthier stage of life.

The thematic approach focuses on identifying and investing in
individual companies that are best positioned to benefit from a
particular theme, rather than on simply identifying and investing in
the most promising region or sector. The portfolio management team may
sell an individual holding if a change in the strategic direction or
management of a company casts doubt on that company's continued ability
to capitalize on a theme, and may consider selling holdings in all
companies thought to be theme beneficiaries if the implications of a
structural change no longer support that theme.

The portfolio management team also monitors regional and sector
weightings in the risk management and optimization process to ensure
that the Fund's

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<PAGE>

sector and regional exposure does not deviate significantly from that
of the Fund's benchmark (the MSCI World Index).

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 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 a similar investment
goal. 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.

EQUITY RISK

Since it purchases equity securities, the Fund is subject to equity
risk. This is the risk that stock prices will fall over short or
extended periods of time. Although the stock market has historically
outperformed other asset classes over the long term, the equity market
tends to move in cycles and individual stock prices may fluctuate
drastically from day to day and may underperform other asset classes
over an extended period of time. Individual companies may report poor
results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by such companies may
suffer a decline in response. These price movements may result from
factors affecting individual companies, industries or the securities
market as a whole.

FOREIGN SECURITIES

Foreign securities are subject to special risks. Foreign stock markets,
especially in countries with developing stock markets, can be extremely
volatile. The liquidity of foreign securities may be more limited than
domestic securities, which means that the Fund may at times be unable
to sell them at desirable prices. Fluctuations in currency exchange
rates impact the value of foreign securities. Brokerage commissions,
custodial fees, and other fees are generally higher for foreign
investments. In addition, foreign governments may impose withholding
taxes which would reduce the amount of income available to distribute
to shareholders. Other risks include: possible delays in settlement of
transactions; less publicly available information about companies; the

4
<PAGE>
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 deposit in a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. It is not a complete investment program.

For more information on the Fund's investment techniques, please refer
to "Other Investments and Risks."

WHO SHOULD INVEST IN THE FUND?

You may want to invest in Global Thematic Equity Fund if you:

- are interested in investing in companies throughout the world and
can tolerate the greater share price volatility that accompanies
international investing

- want an international fund that is broadly diversified among
countries and companies

- are a long-term investor and can afford to potentially lose money
on your investment

Global Thematic Equity Fund is not appropriate for investors who:

- want to avoid volatility or possible losses

- are saving for a short-term investment

- need regular current income

- are not interested in generating taxable current income

FUND PERFORMANCE Because the Fund is a new fund and has not completed one
full year of investment performance, information related to the Fund's
performance, including a bar chart showing the Fund's annual returns,
has not been included in this prospectus.

YOUR EXPENSES This table shows fees and expenses you may pay if you buy and
hold shares of the Fund. You do not pay any sales charge when you
purchase or sell your shares.(a) However, you pay various other
indirect expenses because the Fund pays fees and other expenses that
reduce your investment return.

<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (b)
-------------------------------------------------------------------
(expenses that are deducted from Fund assets)
-------------------------------------------------------------------
<S> <C>
Management fees(c) 1.00%
Distribution (12b-1) fees None
Other expenses 0.77%
-------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES(d) 1.77%
</TABLE>

(a) There is a $7 charge for wiring redemption proceeds to your
bank. A fee of $5 per quarter may be charged to accounts that
fall below the required minimum balance.

5
<PAGE>
There is also a 1% redemption fee on sales of Fund shares held
for less than 90 days. See "Your Account - Selling Shares -
Redemption Fee."

(b) Annual fund operating expenses consist of Fund expenses that
include management fees and administrative costs such as
furnishing the Fund with offices and providing tax and
compliance services.

(c) Management fees include both the management fee and the
administrative fee charged to the Fund. The Fund's investment
advisor pays Unibank a subadvisory fee of 0.60% for managing
the assets of the Fund. (d) The Fund's investment advisor and
administrator has voluntarily agreed to waive advisory fees
and administrative fees and reimburse the Fund for certain
expenses so that the total annual fund operating expenses
(exclusive of interest, taxes and extraordinary expenses, if
any) will not exceed 1.60%. As a result, the actual management
and administration fee would be 0.83% and total annual Fund
operating expenses would be 1.60%. The Fund's investment
advisor may modify or terminate this arrangement at any time.

(d) The Fund's investment advisor and administrator has
voluntarily agreed to waive advisory fees and administrative
fees and reimburse the Fund for certain expenses so that the
total annual fund operating expenses (exclusive of interest,
taxes and extraordinary expenses, if any) will not exceed
1.60%. As a result, the actual management and administration
fee would be 0.83% and total annual Fund operating expenses
would be 1.60%. The Fund's investment advisor may modify or
terminate this arrangement at any time.

EXPENSE EXAMPLE

This example compares the cost of investing in the Fund to the cost of
investing in other mutual funds. It uses the same hypothetical
assumptions that other funds use in their prospectuses:

- $10,000 initial investment
- 5% return each year
- the Fund's operating expenses remain constant as a percent of
net assets
- redemption at the end of each time period

Your actual costs may be higher or lower because in reality fund
returns and operating expenses change. Expenses based on these
assumptions are:

<TABLE>
<CAPTION>
EXPENSE EXAMPLE
-----------------------------------------------
1 yr 3 yrs
-----------------------------------------------
<S> <C> <C>
Global Thematic Equity Fund $180 $557
</TABLE>

6
<PAGE>
EUROPEAN THEMATIC EQUITY FUND

INVESTMENT GOAL Stein Roe European Thematic Equity Fund seeks long-term growth
of capital.

PRINCIPAL INVESTMENT STRATEGIES The European Thematic Equity Fund seeks to
achieve its investment goal by investing at least 65% of its total
assets in common stocks and other equity securities of European companies of
all sizes, including small and mid-sized companies. Under normal
circumstances, the Fund will be substantially invested in equity
securities of issuers of developed European countries. The Fund seeks
to outperform the MSCI Europe Index by employing a thematic investing
strategy.

THEMATIC INVESTING. The Fund's investment subadvisor, Unibank Securities, Inc.,
uses a thematic strategy that is based on the belief that structural change in
the global economy is the most important factor underlying individual company
performance. The thematic approach combines top-down fundamental analysis of
global structural changes with bottom-up stock picking based on the traditional
considerations such as competitive advantage (for example, above-average cash
flows), company strategy, industry dynamics and other factors that point to the
return potential of a particular company. The subadvisor's portfolio management
team has identified three core structural changes it currently views as driving
the evolution of the global economy:

- demographic change,
- technological revolution, and
- globalization.

The thematic approach focuses on identifying and investing in
individual companies that are best positioned to benefit from a
particular theme, rather than on simply identifying and investing in
the most promising region or sector. The portfolio management team may
review an individual holding if a change in the strategic direction or
management of a company casts doubt on that company's continued ability
to capitalize on a theme, and may consider selling holdings in all
companies thought to be theme beneficiaries if the implications of a
structural change no longer support that theme.

7
<PAGE>

The portfolio management team also monitors regional and sector
weightings in the risk management and optimization process to ensure that the
Fund's sector and regional exposure does not deviate significantly from
that of the Fund's benchmark (the MSCI Europe Index).

EQUITY RISK

FOREIGN SECURITIES

8
<PAGE>
delays in settlement of transactions; less publicly available
information about companies; the impact of political, social or
diplomatic events; and possible seizure, expropriation or
nationalization of the company or its assets.

SMALL CAP AND MID CAP COMPANIES

Small Cap and Mid Cap Companies are more likely than large companies to
have limited product lines, operating histories, markets or financial
resources. They may depend heavily on a small management team. Stocks
of small and mid-size companies may trade less frequently, in smaller
volumes and fluctuate more sharply in price than stocks of large
companies. In addition, they may not be widely followed by the
investment community, which can lower demand for their stock.

For more information on the Fund's investment techniques, please refer
to "Other Investments and Risks."

WHO SHOULD INVEST IN THE FUND?

You may want to invest in European Thematic Equity Fund if you:

- can tolerate the greater share price volatility that
accompanies international investing
- want an international fund that emphasizes investment in
European companies
- are a long-term investor and can afford to potentially lose
money on your investment

European Thematic Equity Fund is not appropriate for investors who:

- want to avoid volatility or possible losses
- are saving for a short-term investment
- need regular current income
- are not interested in generating taxable current income

<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (b)
-------------------------------------------------------
(expenses that are deducted from Fund assets)
-------------------------------------------------------
<S> <C>
Management fees(c) 1.00%
Distribution (12b-1) fees None
Other expenses 0.77%
-------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES(d) 1.77%
</TABLE>

(a) There is a $7 charge for wiring redemption proceeds to your
bank. A fee of $5 per quarter may be charged to accounts that
fall below the required minimum balance.

9
<PAGE>
There is also a 1% redemption fee on sales of Fund shares held
for less than 90 days. See "Your Account - Selling Shares -
Redemption Fee."

(b) Annual fund operating expenses consist of Fund expenses that
include management fees and administrative costs such as
furnishing the Fund with offices and providing tax and
compliance services.

EXPENSE EXAMPLE

This example compares the cost of investing in the Fund to the cost of
investing in other mutual funds. It uses the same hypothetical
assumptions that other funds use in their prospectuses:

- $10,000 initial investment
- 5% return each year
- the Fund's operating expenses remain constant as a percent of
net assets
- redemption at the end of each time period

Your actual costs may be higher or lower because in reality fund
returns and operating expenses change. Expenses based on these
assumptions are:

<TABLE>
<CAPTION>
EXPENSE EXAMPLE
---------------------------------------------------
1 yr 3 yrs
---------------------------------------------------
<S> <C> <C>
European Thematic Equity Fund $180 $557
</TABLE>

10
<PAGE>
YOUR ACCOUNT

PURCHASING SHARES You will not pay a sales charge when you purchase Fund shares.
Your purchases are made at the net asset value next determined after
the Fund receives your check, wire transfer or electronic transfer. If
a Fund receives your check, wire transfer or electronic transfer after
the close of regular trading on the New York Stock Exchange (NYSE) --
normally 4 p.m. Eastern time -- your purchase is effective on the next
business day.

PURCHASES THROUGH THIRD PARTIES

If you purchase Fund shares through certain broker-dealers, banks or
other intermediaries (intermediaries), they may charge a fee for their
services. They may also place limits on your ability to use services
the Funds offer. There are no charges or limitations if you purchase
shares directly from a Fund, except those fees described in this
prospectus.

If an intermediary is an agent or designee of the Funds, orders are
processed at the net asset value next calculated after the intermediary
receives the order. The intermediary must segregate any orders it
receives after the close of regular trading on the NYSE and transmit
those orders separately for execution at the net asset value next
determined.

CONDITIONS OF PURCHASE

An order to purchase Fund shares is not binding unless and until an
authorized officer, agent or designee of the Fund accepts it. Once we
accept your purchase order, you may not cancel or revoke it; however,
you may redeem your shares. A Fund may reject any purchase order if it
determines that the order is not in the best interests of the Fund and
its investors. A Fund may waive or lower its investment minimums for
any reason. If you participate in the Stein Roe Counselor(SM) program,
the minimum initial investment is determined by that program.

<TABLE>
<CAPTION>
ACCOUNT MINIMUMS
-------------------------------------------------------------------------
MINIMUM TO MINIMUM MINIMUM
TYPE OF ACCOUNT OPEN AN ACCOUNT ADDITION BALANCE
-------------------------------------------------------------------------
<S> <C> <C> <C>
Regular $2,500 $100 $1,000

Custodial (UGMA/UTMA) $1,000 $100 $1,000

Automatic Investment Plan $1,000 $50 --

Roth and Traditional IRA $500 $50 $500

Educational IRA $500 $50* $500
</TABLE>

*Maximum $500 contribution per year per child.

11
<PAGE>
OPENING AN ACCOUNT

OPENING OR ADDING TO AN ACCOUNT

<TABLE>
<CAPTION>
BY MAIL: BY WIRE:
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPENING AN ACCOUNT Complete the application. Mail your application to the address listed
Make check payable to Stein Roe Mutual on the left, then call 800-338-2550 to
Funds. obtain an account number. Include your
Social Security Number. To wire funds, use
Mail application and check to: the instructions below.
Liberty Funds Services, Inc.
P.O. Box 8900 Fund Numbers:
Boston, MA 02205 __ -- Global Thematic Equity Fund
__ -- European Thematic Equity Fund

ADDING TO AN ACCOUNT Make check payable to Stein Roe Mutual Wire funds to:
Funds. Be sure to write your account BankBoston
number on the check. ABA: 011000390
Attn: LFS, Account No. 98227776
Fill out investment slip (stub from your Fund No. __; Stein Roe ____ Fund
statement or confirmation) or include a Your name (exactly as in the
note indicating the amount of your registration).
purchase, your account number, and the name Fund account number.
in which your account is registered.

Mail check with investment slip or note to the address
above.
</TABLE>

<TABLE>
<CAPTION>
OPENING OR ADDING TO AN ACCOUNT
-------------------------------------------------------------------------------------------------------------
BY ELECTRONIC FUNDS THROUGH AN
TRANSFER: BY EXCHANGE: INTERMEDIARY:
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPENING AN You cannot open a new account via By mail, phone, or automatically Contact your
ACCOUNT electronic transfer. (be sure to elect the Automatic financial
Exchange Privilege on your professional.
application).

ADDING TO AN Call 800-338-2550 to make your By mail, phone, or automatically Contact your
ACCOUNT purchase. To set up prescheduled (be sure to elect the Automatic financial
purchases, be sure to elect the Exchange Privilege on your professional.
Automatic Investment Plan (Stein Roe application).
Asset(SM) Builder) option on your
application.
</TABLE>

All checks must be made payable in U.S. dollars and drawn on U.S.
banks. Money orders and third-party checks will not be accepted.

12
<PAGE>

DETERMINING SHARE PRICE A Fund's share price is its net asset value next
determined. Net asset value is the difference between the values of a
Fund's assets and liabilities divided by the number of shares
outstanding. We determine net asset value at the close of regular
trading on the NYSE -- normally 4 p.m. Eastern time. If you place an
order after that time, you receive the share price determined on the
next business day.

To calculate the net asset value on a given day, we value each stock
listed or traded on a stock exchange at its latest sale price on that
day. If there are no sales that day, we value the security at the most
recently quoted bid price. We value each over-the-counter security or
National Association of Securities Dealers Automated Quotation (Nasdaq)
security as of the last sale price for that day. We value all other
over-the-counter securities that have reliable quotes at the latest
quoted bid price.

We value securities convertible into common stock at fair value.
Pricing services provide the Funds with the value of the securities.
When the price of a security is not available, including days when we
determine that the sale or bid price of the security does not reflect
that security's market value, we value the security at a fair value
determined in good faith under procedures established by the Board of
Trustees.

We value a security at fair value when events have occurred after the
last available market price and before the close of the NYSE that
materially affect the security's price. In the case of foreign
securities, this could include events occurring after the close of the
foreign market and before the close of the NYSE. Foreign securities may
trade on days when the NYSE is closed. We will not price shares on days
that the NYSE is closed for trading. You will not be able to purchase
or redeem shares until the next NYSE-trading day.

SELLING SHARES You may sell your shares any day the Funds are open for
business. Please follow the instructions below.

<TABLE>
<CAPTION>
SELLING SHARES
--------------------------------------------------------------------------------
<S> <C>
BY MAIL: Send a letter of instruction, in English, including
your account number and the dollar value or number of
shares you wish to sell. Sign the request exactly as
the account is registered. Be sure to include a
signature guarantee. All supporting legal documents
as required from executors, trustees, administrators,
or others acting on accounts not registered in their
names, must accompany the request. We will mail the
check to your registered address.

BY PHONE: You may sell your shares by telephone and request
that a check be sent to your address of record by
calling 800-338-2550, unless you have notified the
Fund of an address change within the previous 30
days. The dollar limit for telephone redemptions is
$100,000 in a 30-day period. This feature is
automatically added to your account unless you
decline it on your application.

BY WIRE: Fill out the appropriate areas of the account
application for this feature. Proceeds of $1,000 or
more (no maximum) may be wired to your predesignated
bank account. Call 800-338-2550 to give instructions
to Stein Roe. There is a $7 charge for wiring
redemption proceeds to your bank.
</TABLE>

13
<PAGE>
<TABLE>
<S> <C>
BY ELECTRONIC TRANSFER: Fill out the appropriate areas
of the account application for this feature. To
request an electronic transfer (not less than $50;
not more than $100,000), call 800-338-2550. We will
transfer your sale proceeds electronically to your
bank. The bank must be a member of the Automated
Clearing House.

BY EXCHANGE: Call 800-338-2550 to exchange any portion of your
Fund shares for shares in any other Stein Roe no-load
fund.

BY AUTOMATIC EXCHANGE: Fill out the appropriate areas of
the account application for this feature. Redeem a
fixed amount on a regular basis (not less than $50
per month; not more than $100,000) from a Fund for
investment in another Stein Roe no-load fund.
</TABLE>

WHAT YOU NEED TO KNOW WHEN SELLING SHARES

Once we receive and accept your order to sell shares, you may not
cancel or revoke it. We cannot accept an order to sell that specifies a
particular date or price or any other special conditions. If you have
any questions about the requirements for selling your shares, please
call 800-338-2550 before submitting your order.

A Fund redeems shares at the net asset value next determined after an
order has been accepted. We mail proceeds within seven days after the
sale. The Funds normally pay wire redemption or electronic transfer
proceeds on the next business day.

We will not pay sale proceeds until your shares are paid for. If you
attempt to sell shares purchased by check or electronic transfer within
15 days of the purchase date, we will delay sending the sale proceeds
until we can verify that those shares are paid for. You may avoid this
delay by purchasing shares by a federal funds wire.

We use procedures reasonably designed to confirm that telephone
instructions are genuine. These include recording the conversation,
testing the identity of the caller by asking for account information,
and sending prompt written confirmation of the transaction to the
shareholder of record. If these procedures are followed, the Fund and
its service providers will not be liable for any losses due to
unauthorized or fraudulent instructions.

If the amount you redeem is in excess of the lesser of (1) $250,000 or
(2) 1% of a Fund's net assets, the Fund may pay the redemption "in
kind." This is payment in portfolio securities rather than cash. If
this occurs, you may incur transaction costs when you sell the
securities.

INVOLUNTARY REDEMPTION

If your account value falls below $1,000, the Fund may redeem your
shares and send the proceeds to the registered address. You will
receive notice 30 days before this happens. If your account falls below
$10, the Fund may redeem your shares without notice to you.

REDEMPTION FEE

The Funds charge a 1% redemption fee on sales of Fund shares that you
have held for less than 90 days. The fee is retained by the Fund for
the benefit of the remaining shareholders. The fee is waived for shares
purchased through certain retirement plans, including 401(k) plans,
403(b) plans, 457 plans, Keough accounts, and Stein Roe Profit Sharing
and Money Purchase Pension Plans. The fee waiver may not apply to
shares purchased through an intermediary maintaining an omnibus account
with the Fund. Before purchasing shares, please check with your account

14
<PAGE>
representative concerning the availability of the waiver. The fee
waiver does not apply to IRA and SEP-IRA accounts. The redemption fee
is intended to encourage long-term investment in the Fund, to avoid
transaction and other expenses caused by early redemptions, and to
facilitate portfolio management. The fee does not benefit Stein Roe in
any way. The Fund may modify the terms of, terminate, or waive this fee
at any time.

LOW BALANCE FEE

Due to the expense of maintaining accounts with low balances, if your
account balance falls below $2,000 ($800 for custodial accounts), you
will be charged a low balance fee of $5 per quarter. The low balance
fee does not apply to: (1) shareholders whose accounts in the Stein Roe
Funds total $50,000 or more; (2) Stein Roe IRAs; (3) other Stein Roe
prototype retirement plans; (4) accounts with automatic investment
plans (unless regular investments have been discontinued); or (5)
omnibus or nominee accounts. A Fund can waive the fee, at its
discretion, in the event of significant market corrections.

EXCHANGING SHARES You may exchange Fund shares for shares of other Stein Roe
no-load funds. Call 800-338-2550 to request a prospectus and
application for the fund you wish to exchange into. Please be sure to
read the prospectus carefully before you exchange your shares.

The account you exchange into must be registered exactly the same as
the account you exchange from. You must meet all investment minimum
requirements for the fund you wish to exchange into before we can
process your exchange transaction.

An exchange is a redemption and purchase of shares for tax purposes,
and you may realize a gain or a loss when you exchange Fund shares for
shares of another fund.

We may change, suspend or eliminate the exchange service after
notification to you.

Generally, we limit you to four telephone exchange "roundtrips" per
year. A roundtrip is an exchange out of a Fund into another Stein Roe
no-load fund and then back to that Fund.

FUND POLICY ON TRADING OF FUND SHARES The Funds do not permit short-term or
excessive trading. Excessive purchases, redemptions or exchanges of
Fund shares disrupt portfolio management and increase Fund expenses. In
order to promote the best interests of the Funds, the Funds reserve 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 of short-term or excessive trading or whose trading has been or
may be disruptive a Fund. The Fund into which you would like to
exchange also may reject your request.

REPORTINGTO SHAREHOLDERS To reduce the volume of mail you receive, only one copy
of certain materials, such as shareholder reports, will be mailed to
your household (same address). Please call 800-338-2550 if you want to
receive additional copies free of charge. This policy may not apply if
you purchase shares through an intermediary.

DIVIDENDSAND DISTRIBUTIONS Each Fund distributes, at least once a year,
virtually all of its net investment income and net realized capital
gains.

15
<PAGE>
A dividend from net investment income represents the income a Fund
earns from dividends and interest paid on its investments, after
payment of the Fund's expenses.

A capital gain is the increase in value of a security that the Fund
holds. The gain is "unrealized" until the security is sold. Each
realized capital gain is either short term or long term depending on
whether the Fund held the security for one year or less or more than
one year, regardless of how long you have held your Fund shares.

When a Fund makes a distribution of income or capital gains, the
distribution is automatically invested in additional shares of that
Fund unless you elect on the account application to have distributions
paid by check.

[CALLOUT]
OPTIONS FOR RECEIVING DISTRIBUTION AND REDEMPTION PROCEEDS:
- by check
- by electronic transfer into your bank account
- a purchase of shares of another Stein Roe fund
- a purchase of shares in a Stein Roe fund account of another person
[/CALLOUT]

If you elect to receive distributions by check and a distribution check
is returned to a Fund as undeliverable, or if you do not present a
distribution check for payment within six months, we will change the
distribution option on your account and reinvest the proceeds of the
check in additional shares of that Fund. You will not receive any
interest on amounts represented by uncashed distribution or redemption
checks.

TAX CONSEQUENCES

You are subject to federal income tax on both dividends and capital
gains distributions whether you elect to receive them in cash or
reinvest them in additional Fund shares. If a Fund declares a
distribution in December, but does not pay it until after December 31,
you will be taxed as if the distribution were paid in December. Stein
Roe will process your distributions and send you a statement for tax
purposes each year showing the source of distributions for the
preceding year.

<TABLE>
<CAPTION>
TRANSACTION TAX STATUS
-------------------------------------------------------------------------------------------------------------
<S> <C>
Income dividend Ordinary income

Short-term capital gain distribution Ordinary income

Long-term capital gain distribution Capital gain

Sale of shares owned one year or less Gain is ordinary income; loss is subject to special rules

Sale of shares owned more than one year Capital gain or loss
-------------------------------------------------------------------------------------------------------------
</TABLE>

In addition to the dividends and capital gains distributions made by a
Fund, you may realize a capital gain or loss when selling and
exchanging Fund shares. Such transactions may be subject to federal
income tax.

16
<PAGE>
This tax information provides only a general overview. It does not
apply if you invest in a tax-deferred retirement account such as an
IRA. Please consult your own tax adviser about the tax consequences of
an investment in a Fund.

17
<PAGE>
OTHER INVESTMENTS AND RISKS

The Funds' principal investment strategies and their associated risks are
described above. This section describes other investments the Funds may make and
the risks associated with them. In seeking to achieve their investment goals,
the Funds may invest in various types of securities and engage in various
investment techniques which are not the principal focus of the Funds and
therefore are not described in this prospectus. These types of securities and
investment practices are identified and discussed in the Funds' Statement of
Additional Information, which you may obtain free of charge (see back cover).
Approval by the Funds' shareholders is not required to modify or change any of
the Funds' investment goals or investment strategies.

FUTURES AND OPTIONS The Funds may use futures to gain exposure to groups of
stocks or individual issuers. The Funds may also use futures to invest
cash pending direct investments in stocks and to enhance their return.
The Funds may use options on securities to earn additional income or to
hedge against price erosion in the underlying security for the
intermediate term. A future is an agreement to buy or sell a specific
amount of a financial instrument or physical commodity for an
agreed-upon price at a certain time in the future. Futures and options
are efficient since they typically cost less than direct investments in
the underlying securities. However, the Funds can lose money if the
portfolio manager does not correctly anticipate the market movements of
those underlying securities.

SHORT SALES The Funds may make short sales of securities. Short selling
involves the sale of borrowed securities. When a Fund thinks the price
of a stock will decline, it borrows the stock and then sells the
borrowed stock. When the Fund has to return the borrowed stock, it
tries to buy the stock at a lower price. If the Fund is successful, it
has a capital gain. If the Fund is unsuccessful and buys the stock at a
higher price than the price at which it sold the stock, the Fund has a
capital loss. A Fund's capital gains and losses may result in federal
income tax consequences to the Fund's shareholders. Short selling
involves certain risks. A Fund could have a loss if the borrowed
security increases in value and if the purchased security declines in
value.

PORTFOLIOTURNOVER There are no limits on turnover. Turnover may vary
significantly from year to year. Unibank does not expect it to exceed
100% under normal conditions. The Funds generally intend to purchase
securities for long-term investment although, to a limited extent,

18
<PAGE>
they may purchase securities (including securities purchased in initial
public offerings) in anticipation of relatively short-term price gains.
Portfolio turnover typically produces capital gains or losses resulting
in tax consequences for Fund investors. It also increases transaction
expenses, which reduce a Fund's return.

TEMPORARYDEFENSIVE POSITIONS When Unibank believes that a temporary defensive
position is necessary, a Fund may invest, without limit, in
high-quality debt securities or hold assets in cash and cash
equivalents. Unibank is not required to take a temporary defensive
position, and market conditions may prevent such an action. A Fund may
not achieve its investment objective if it takes a temporary defensive
position.

INTERFUNDLENDING PROGRAM The Funds may lend money to and borrow money from other
funds advised by Stein Roe. They will do so when Stein Roe believes
such lending or borrowing is necessary and appropriate. Borrowing costs
will be the same as or lower than the costs of a bank loan.

PURCHASE AND SALE DECISIONS Unibank's portfolio managers review holdings in
terms of five key elements:

INVESTMENT ALTERNATIVES. Unibank regularly monitors investment holdings
to ensure that the stocks selected reflect the most attractive
risk-return profiles for the portfolio. The portfolio managers work to
maintain a constant number of stocks in the portfolio: one stock "in"
usually results in one stock "out." New stock ideas are introduced and
discussed continuously as alternatives to existing holdings.

ABILITY TO CAPITALIZE ON A THEME. A company's ability to capitalize on
a theme is equally important in Unibank's buy and sell disciplines.
News indicating a significant change in a company's strategy or
management priorities leads to a review of the company by the portfolio
managers. Unibank also meets periodically with company management to
verify the portfolio managers' assessment of a company's strategic
direction and management's ability to maintain it. Should further
analysis lead to doubt as to a company's continued ability to
capitalize on a theme, Unibank may sell the security.

THEME DETERIORATION. If a theme deteriorates, all stocks previously
characterized as beneficiaries of that theme are reviewed. If no other
theme is shown to be driving an individual stock, Unibank will sell the
stock.

PRICE CAPITALIZATION. Price movements of individual stocks are reviewed
by the team on a weekly basis. Large price movements lead to further
review and analysis of the stock's risk-return profile and the
fundamentals of the underlying company. Negative indications from any
of these factors may lead to a sale.

PORTFOLIO OPTIMIZATION AND RISK CONTROL. The portfolio managers also
identify potential sell candidates through monthly risk-optimization
analysis. By evaluating the risk related to market expectations and
valuations against corresponding consensus risk and valuation estimates
developed by Unibank, the portfolio managers are able to apply a robust
analytic overlay in decisions to increase or decrease holdings in the
portfolio.

19
<PAGE>
THE FUNDS' MANAGEMENT

INVESTMENT ADVISOR AND SUBADVISOR Stein Roe & Farnham Incorporated (Stein Roe),
One South Wacker Drive, Chicago, IL 60606, is the investment advisor
for the Funds and receives an advisory fee from each Fund equal to
0.85% of the average daily net asset value of each Fund. Stein Roe (and
its predecessor) has advised and managed mutual funds since 1949. Stein
Roe's mutual funds and institutional investment advisory businesses are
part of a larger business unit known as Liberty Funds Group LLC (LFG)
that includes several separate legal entities. LFG includes certain
affiliates of Stein Roe, including Colonial Management Associates, Inc.
(Colonial). The LFG business unit is managed by a single management
team. Colonial and other LFG entities also share personnel, facilities,
and systems with Stein Roe that may be used in providing administrative
or operational services to the Funds. Colonial is a registered
investment advisor. Stein Roe and the other entities that make up LFG
are subsidiaries of Liberty Financial Companies, Inc.

Unibank Securities, Inc., which does business in the U.S. as Unibank
Investment Management and is located at 13-15 West 54th Street, New
York, NY 10019, serves as the investment subadvisor for the Funds and
manages the day-to-day investment operations of the Funds. Stein Roe
pays Unibank a subadvisory fee equal to 0.60% of the average daily net
asset value of each Fund. Unibank's investment decisions for each Fund
are made by an investment team. Unibank has advised and managed mutual
funds since 1994. Unibank offers a range of equity investment products
and services to institutional clients, including private and public
retirement funds, unions, endowments, foundations, and insurance
companies, as well as to mutual fund sponsors on a subadvisory basis.
Unibank is a direct, wholly-owned subsidiary of Unibank A/S, one of
Scandinavia's leading financial institutions. Unibank A/S is owned by
Unidanmark Group, which is held by the Nordic Baltic Holdings Group.

20
<PAGE>
FOR MORE INFORMATION

More information about the Funds' investments will be published in the Funds'
semi-annual and annual reports to shareholders. The annual report will contain a
discussion of the market conditions and investment strategies that significantly
affected the Funds' performance over their last fiscal year.

You may wish to read the Funds' Statement of Additional Information (SAI) for
more information on the Funds and the securities in which they invest. The SAI
is incorporated into this prospectus by reference, which means that it is
considered to be part of this prospectus and you are deemed to have been told of
its contents.

To obtain free copies of the Funds' semiannual and annual reports, latest
quarterly profile, or the SAI or to request other information about the Funds,
write or call:

Stein Roe Mutual Funds
One Financial Center
Boston, MA 02111
800-338-2550

www.steinroe.com

Information about the Funds (including the SAI) can be reviewed and copied at
the Public Reference Room of the Securities and Exchange Commission (SEC) in
Washington, D.C. Information on the Public Reference Room may be obtained by
calling the SEC at 202-942-8090. Reports and other information about the Funds
are available on the EDGAR database on the SEC's Internet site at
http://www.sec.gov. Copies of this information may be obtained, after paying a
duplicating fee, by electronic request at the following E-mail address:
[email protected] or by writing the SEC's Public Reference Section, Washington,
D.C. 20549-0102.

Investment Company Act file number:
Liberty-Stein Roe Funds Investment Trust: 811-04978
- Stein Roe Global Thematic Equity Fund
- Stein Roe European Thematic Equity Fund

LIBERTY FUNDS DISTRIBUTOR, INC.

21
<PAGE>
Statement of Additional Information Dated January 2, 2001

LIBERTY-STEIN ROE FUNDS INVESTMENT TRUST
One Financial Center, Boston, MA 02111-2621
800-338-2550

STEIN ROE GLOBAL THEMATIC EQUITY FUND
STEIN ROE EUROPEAN THEMATIC EQUITY FUND

This Statement of Additional Information ("SAI") is not a
prospectus, but provides additional information that should be read in
conjunction with the Funds' prospectus dated January 2, 2001, and any
supplements thereto ("Prospectus"). The Prospectus may be obtained at no charge
by telephoning 800-338-2550.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
General Information and History.........................................
Investment Policies.....................................................
Portfolio Investments and Strategies....................................
Investment Restrictions.................................................
Additional Investment Considerations....................................
Purchases and Redemptions...............................................
Management..............................................................
Codes of Ethics.........................................................
Principal Shareholders..................................................
Investment Advisory and Other Services..................................
Distributor.............................................................
Transfer Agent..........................................................
Custodian...............................................................
Independent Accountants.................................................
Portfolio Transactions..................................................
Additional Income Tax Considerations....................................
Investment Performance..................................................
Appendix -- Ratings.....................................................
</TABLE>
<PAGE>
GENERAL INFORMATION AND HISTORY

Stein Roe Global Thematic Equity Fund and Stein Roe European
Thematic Equity Fund (the "Funds," and each a "Fund"), the mutual funds
described in this SAI, are separate series of Liberty-Stein Roe Funds Investment
Trust (the "Trust"). The Funds commenced operations on January 2, 2001.

On February 1, 1996, the name of the Trust was changed to separate
"SteinRoe" into two words. The name of the Trust was changed on October 18,
1999, from "Stein Roe Investment Trust" to "Liberty-Stein Roe Funds Investment
Trust."

The Trust is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated January 8,
1987, which provides that each shareholder shall be deemed to have agreed to be
bound by the terms thereof. The Declaration of Trust may be amended by a vote of
either the Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series each with one or more classes
of shares, as the Board may authorize. Currently, 12 series are authorized and
outstanding. Each series invests in a separate portfolio of securities and other
assets, with its own objectives and policies.

Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held personally liable
for unsatisfied obligations of the trust. The Declaration of Trust provides that
persons extending credit to, contracting with, or having any claim against the
Trust or any particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or claim, and that
the shareholders, trustees and officers shall have no personal liability
therefor. The Declaration of Trust requires that notice of such disclaimer of
liability be given in each contract, instrument or undertaking executed or made
on behalf of the Trust. The Declaration of Trust provides for indemnification of
any shareholder against any loss and expense arising from personal liability
solely by reason of being or having been a shareholder. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
believed to be remote, because it would be limited to circumstances in which the
disclaimer was inoperative and the Trust was unable to meet its obligations. The
risk of a particular series incurring financial loss on account of unsatisfied
liability of another series of the Trust also is believed to be remote, because
it would be limited to claims to which the disclaimer did not apply and to
circumstances in which the other series was unable to meet its obligations.

Each share of a series (or class thereof) is entitled to participate
pro rata in any dividends and other distributions declared by the Board on
shares of that series (or class thereof), and all shares of a series have equal
rights in the event of liquidation of that series (or class thereof). Each whole
share (or fractional share) outstanding on the record date established in
accordance with the By-Laws shall be entitled to a number of votes on any matter
on which it is entitled to vote equal to the net asset value of the share (or
fractional share) in United States dollars determined at the close of business
on the record date (for example, a share having a net asset value of $10.50
would be entitled to 10.5 votes). As a business trust, the Trust is not required
to hold annual shareholder meetings. However, special meetings may be called for
purposes such as electing or removing trustees, changing fundamental policies,
or approving an investment advisory contract. If requested to do so by the
holders of at least 10% of its outstanding shares, the Trust will call a special
meeting for the purpose of voting upon the question of removal of a trustee or
trustees and will assist in the communications with other shareholders as if the
Trust were subject to Section 16(c) of the Investment

2
<PAGE>
Company Act of 1940. All shares of all series of the Trust are voted together in
the election of trustees. On any other matter submitted to a vote of
shareholders, shares are voted in the aggregate and not by individual series,
except that shares are voted by individual series when required by the
Investment Company Act of 1940 or other applicable law, or when the Board of
Trustees determines that the matter affects only the interests of one or more
series, in which case shareholders of the unaffected series are not entitled to
vote on such matters.

INVESTMENT POLICIES

The Trust is an open-end management investment company. The Funds
are diversified, as that term is defined in the Investment Company Act of 1940.

The investment objectives and policies of the Funds are described in
the Prospectus. In pursuing its objective, each Fund may employ the investment
techniques described in Portfolio Investments and Strategies in this SAI. Each
Fund's investment objective is a non-fundamental policy and may be changed by
the Board of Trustees without the approval of a "majority of the outstanding
voting securities."(1)

PORTFOLIO INVESTMENTS AND STRATEGIES

DEBT SECURITIES

In pursuing its investment objective, a Fund may invest in debt
securities of corporate and governmental issuers. The risks inherent in debt
securities depend primarily on the term and quality of the obligations in the
portfolio as well as on market conditions. A decline in the prevailing levels of
interest rates generally increases the value of debt securities, while an
increase in rates usually reduces the value of those securities.

Investments in debt securities are limited to those that are within
the four highest grades (generally referred to as "investment grade") assigned
by a nationally recognized statistical rating organization or, if unrated,
deemed to be of comparable quality by the portfolio managers.

Securities in the fourth highest grade may possess speculative
characteristics, and changes in economic conditions are more likely to affect
the issuer's capacity to pay interest and repay principal. If the rating of a
security held by a Fund is lost or reduced below investment grade, the Fund is
not required to dispose of the security, but the portfolio managers will
consider that fact in determining whether the Fund should continue to hold the
security.

Securities that are rated below investment grade are considered
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal according to the terms of the obligation and therefore carry
greater investment risk, including the possibility of issuer default and
bankruptcy.

When the portfolio managers determine that adverse market or
economic conditions exist and consider a temporary defensive position advisable,
the Funds may

--------

(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.

3
<PAGE>
invest without limitation in high-quality fixed income securities or hold assets
in cash or cash equivalents.

DERIVATIVES

Consistent with its objective, a Fund may invest in a broad array of
financial instruments and securities, including conventional exchange-traded and
non-exchange-traded options; futures contracts; futures options; securities
collateralized by underlying pools of mortgages or other receivables; floating
rate instruments; and other instruments that securitize assets of various types
("Derivatives"). In each case, the value of the instrument or security is
"derived" from the performance of an underlying asset or a "benchmark" such as a
security index, an interest rate, or a currency.

Derivatives are most often used to manage investment risk or to
create an investment position indirectly because using them is more efficient or
less costly than direct investment that cannot be readily established directly
due to portfolio size, cash availability, or other factors. They also may be
used in an effort to enhance portfolio returns.

The successful use of Derivatives depends on the portfolio managers'
ability to correctly predict changes in the levels and directions of movements
in security prices, interest rates and other market factors affecting the
Derivative itself or the value of the underlying asset or benchmark. In
addition, correlations in the performance of an underlying asset to a Derivative
may not be well established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less marketable than
exchange-traded Derivatives.

Each Fund currently intends to invest no more than 5% of its net
assets in any type of Derivative other than options, futures contracts, futures
options, and forward contracts. (See Options and Futures below.)

Some mortgage-backed debt securities are of the "modified
pass-through type," which means the interest and principal payments on mortgages
in the pool are "passed through" to investors. During periods of declining
interest rates, there is increased likelihood that mortgages will be prepaid,
with a resulting loss of the full-term benefit of any premium paid by a Fund on
purchase of such securities; in addition, the proceeds of prepayment would
likely be invested at lower interest rates.

Mortgage-backed securities provide either a pro rata interest in
underlying mortgages or an interest in collateralized mortgage obligations
("CMOs") that represent a right to interest and/or principal payments from an
underlying mortgage pool. CMOs are not guaranteed by either the U.S. Government
or by its agencies or instrumentalities, and are usually issued in multiple
classes each of which has different payment rights, prepayment risks, and yield
characteristics. Mortgage-backed securities involve the risk of prepayment on
the underlying mortgages at a faster or slower rate than the established
schedule. Prepayments generally increase with falling interest rates and
decrease with rising rates but they also are influenced by economic, social, and
market factors. If mortgages are pre-paid during periods of declining interest
rates, there would be a resulting loss of the full-term benefit of any premium
paid by a Fund on purchase of the CMO, and the proceeds of prepayment would
likely be invested at lower interest rates.

4
<PAGE>
Non-mortgage asset-backed securities usually have less prepayment
risk than mortgage-backed securities, but have the risk that the collateral will
not be available to support payments on the underlying loans that finance
payments on the securities themselves.

Floating rate instruments provide for periodic adjustments in coupon
interest rates that are automatically reset based on changes in amount and
direction of specified market interest rates. In addition, the adjusted duration
of some of these instruments may be materially shorter than their stated
maturities. To the extent such instruments are subject to lifetime or periodic
interest rate caps or floors, such instruments may experience greater price
volatility than debt instruments without such features. Adjusted duration is an
inverse relationship between market price and interest rates and refers to the
approximate percentage change in price for a 100 basis point change in yield.
For example, if interest rates decrease by 100 basis points, a market price of a
security with an adjusted duration of 2 would increase by approximately 2%.

CONVERTIBLE SECURITIES

By investing in convertible securities, a Fund obtains the right to
benefit from the capital appreciation potential in the underlying stock upon
exercise of the conversion right, while earning higher current income than would
be available if the stock were purchased directly. In determining whether to
purchase a convertible, the portfolio managers will consider substantially the
same criteria that would be considered in purchasing the underlying stock. While
convertible securities purchased by the Fund are frequently rated investment
grade, the Fund may purchase unrated securities or securities rated below
investment grade if the securities meet the portfolio managers' other investment
criteria. Convertible securities rated below investment grade (a) tend to be
more sensitive to interest rate and economic changes, (b) may be obligations of
issuers who are less creditworthy than issuers of higher quality convertible
securities, and (c) may be more thinly traded due to such securities being less
well known to investors than investment grade convertible securities, common
stock or conventional debt securities. As a result, the portfolio managers' own
investment research and analysis tend to be more important in the purchase of
such securities than other factors.

FOREIGN SECURITIES

Each Fund invests in foreign securities. Investment in foreign
securities may entail a greater degree of risk (including risks relating to
exchange rate fluctuations, tax provisions, or expropriation of assets) than
investment in securities of domestic issuers. For this purpose, foreign
securities do not include American Depositary Receipts (ADRs) or securities
guaranteed by a United States person. ADRs are receipts typically issued by an
American bank or trust company evidencing ownership of the underlying
securities. A Fund may invest in sponsored or unsponsored ADRs. In the case of
an unsponsored ADR, the Fund is likely to bear its proportionate share of the
expenses of the depositary, and it may have greater difficulty in receiving
shareholder communications than it would have with a sponsored ADR. The Fund may
also purchase foreign securities in the form of European Depositary Receipts
(EDRs) or other securities representing underlying shares of foreign issuers.
Positions in these securities are not necessarily denominated in the same
currency as the common stocks into which they may be converted. EDRs are
European receipts evidencing a similar arrangement. Generally, ADRs, in
registered form, are designed for the U.S. securities markets and EDRs, in
bearer form, are designed for use in European securities markets.

5
<PAGE>
With respect to portfolio securities that are issued by foreign
issuers or denominated in foreign currencies, investment performance is affected
by the strength or weakness of the U.S. dollar against these currencies. For
example, if the dollar falls in value relative to the Japanese yen, the dollar
value of a yen-denominated stock held in the portfolio will rise even though the
price of the stock remains unchanged. Conversely, if the dollar rises in value
relative to the yen, the dollar value of the yen-denominated stock will fall.
(See discussion of transaction hedging and portfolio hedging under Currency
Exchange Transactions.)

Investors should understand and consider carefully the risks
involved in foreign investing. Investing in foreign securities, positions which
are generally denominated in foreign currencies, and utilization of forward
foreign currency exchange contracts involve certain considerations comprising
both risks and opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in exchange rates of
foreign currencies; possible imposition of exchange control regulation or
currency restrictions that would prevent cash from being repatriated; less
public information with respect to issuers of securities; less governmental
supervision of stock exchanges, securities brokers, and issuers of securities;
lack of uniform accounting, auditing, and financial reporting standards; lack of
uniform settlement periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United States; possible
imposition of foreign taxes; possible investment in securities of companies in
developing as well as developed countries; and sometimes less advantageous
legal, operational, and financial protections applicable to foreign
sub-custodial arrangements. These risks are greater for emerging markets.

Although the Funds will try to invest in companies and governments
of countries having stable political environments, there is the possibility of
expropriation or confiscatory taxation, seizure or nationalization of foreign
bank deposits or other assets, establishment of exchange controls, the adoption
of foreign government restrictions, or other adverse political, social or
diplomatic developments that could affect investment in these nations.

Currency Exchange Transactions. Currency exchange transactions may
be conducted either on a spot (i.e., cash) basis at the spot rate for purchasing
or selling currency prevailing in the foreign exchange market or through forward
currency exchange contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at a specified
future date (or within a specified time period) and price set at the time of the
contract. Forward contracts are usually entered into with banks and
broker-dealers, are not exchange traded, and are usually for less than one year,
but may be renewed.

The Funds' foreign currency exchange transactions are limited to
transaction and portfolio hedging involving either specific transactions or
portfolio positions. Transaction hedging is the purchase or sale of forward
contracts with respect to specific receivables or payables of a Fund arising in
connection with the purchase and sale of its portfolio securities. Portfolio
hedging is the use of forward contracts with respect to portfolio security
positions denominated or quoted in a particular foreign currency. Portfolio
hedging allows a Fund to limit or reduce its exposure in a foreign currency by
entering into a forward contract to sell such foreign currency (or another
foreign currency that acts as a proxy for that currency) at a future date for a
price payable in U.S. dollars so that the value of the foreign-denominated
portfolio securities

6
<PAGE>

can be approximately matched by a foreign-denominated liability. A Fund may not
engage in portfolio hedging with respect to the currency of a particular country
to an extent greater than the aggregate market value (at the time of making such
sale) of the securities held in its portfolio denominated or quoted in that
particular currency, except that the 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 by the Fund. The Funds may not engage in "speculative"
currency exchange transactions.

At the maturity of a forward contract to deliver a particular
currency, a Fund may either sell the portfolio security related to such contract
and make delivery of the currency, or it may retain the security and either
acquire the currency on the spot market or terminate its contractual obligation
to deliver the currency by purchasing an offsetting contract with the same
currency trader obligating it to purchase on the same maturity date the same
amount of the currency.

It is impossible to forecast with absolute precision the market
value of portfolio securities at the expiration of a forward contract.
Accordingly, it may be necessary for a Fund to purchase additional currency on
the spot market (and bear the expense of such purchase) if the market value of
the security is less than the amount of currency the Fund is obligated to
deliver and if a decision is made to sell the security and make delivery of the
currency. Conversely, it may be necessary to sell on the spot market some of the
currency received upon the sale of the portfolio security if its market value
exceeds the amount of currency the Fund is obligated to deliver.

If 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 a Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates. The cost to the Fund of
engaging in currency exchange transactions varies with such factors as the
currency involved, the length of the contract period, and prevailing market
conditions. Since currency exchange transactions are usually conducted on a
principal basis, no fees or commissions are involved.

7
<PAGE>
Synthetic Foreign Money Market Positions. The Funds may invest in
money market instruments denominated in foreign currencies. In addition to, or
in lieu of, such direct investment, a Fund may construct a synthetic foreign
money market position by (a) purchasing a money market instrument denominated in
one currency, and (b) concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different currency on a
future date and at a specified rate of exchange. For example, a synthetic money
market position in Japanese yen could be constructed by purchasing a U.S. dollar
money market instrument, and entering concurrently into a forward contract to
deliver a corresponding amount of U.S. dollars in exchange for Japanese yen on a
specified date and at a specified rate of exchange. Because of the availability
of a variety of highly liquid short-term U.S. dollar money market instruments, a
synthetic money market position utilizing such U.S. dollar instruments may offer
greater liquidity than direct investment in foreign currency money market
instruments. The result of a direct investment in a foreign currency and a
concurrent construction of a synthetic position in such foreign currency, in
terms of both income yield and gain or loss from changes in currency exchange
rates, in general should be similar, but would not be identical because the
components of the alternative investments would not be identical. Except to the
extent a synthetic foreign money market position consists of a money market
instrument denominated in a foreign currency, the synthetic foreign money market
position shall not be deemed a "foreign security" for purposes of the policy
that, under normal conditions, the Stein Roe European Thematic Equity Fund will
invest at least 65% of total assets in foreign securities.

EURODOLLAR INSTRUMENTS

The Funds may make investments in Eurodollar instruments. Eurodollar
instruments are U.S. dollar-denominated futures contracts or options thereon
which are linked to LIBOR, although foreign currency-denominated instruments are
available from time to time. Eurodollar future contracts enable purchasers to
obtain a fixed rate for the lending of funds and sellers to obtain a fixed rate
for borrowings. The Funds might use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR, to which many interest rate swaps and
fixed income instruments are linked.

STRUCTURED NOTES

Structured Notes are Derivatives on which the amount of principal
repayment and or interest payments is based upon the movement of one or more
factors. These factors include, but are not limited to, currency exchange rates,
interest rates (such as the prime lending rate and the London Interbank Offered
Rate ("LIBOR")), stock indices such as the S&P 500 Index and the price
fluctuations of a particular security. In some cases, the impact of the
movements of these factors may increase or decrease through the use of
multipliers or deflators. The use of Structured Notes allows a Fund to tailor
its investments to the specific risks and returns the portfolio managers wish to
accept while avoiding or reducing certain other risks.

SWAPS, CAPS, FLOORS AND COLLARS

The Funds may enter into swaps and may purchase or sell related
caps, floors and collars. A Fund would enter into these transactions primarily
to preserve a return or spread on a particular investment or portion of its
portfolio, to protect against currency fluctuations, as a duration management
technique or to protect against any

8
<PAGE>
increase in the price of securities it purchases at a later date. The Funds
would use these techniques only as hedges and not as speculative investments and
will not sell any interest rate income streams they may be obligated to pay.

A swap agreement is generally individually negotiated and structured
to include exposure to a variety of different types of investments or market
factors. Depending on its structure, a swap agreement may increase or decrease a
Fund's exposure to changes in the value of an index of securities in which the
Fund might invest, the value of a particular security or group of securities, or
foreign currency values. Swap agreements can take many different forms and are
known by a variety of names. A Fund may enter into any form of swap agreement if
the portfolio managers determine it is consistent with its investment objective
and policies.

A swap agreement tends to shift a Fund's investment exposure from
one type of investment to another. For example, if a Fund agrees to exchange
payments in dollars at a fixed rate for payments in a foreign currency the
amount of which is determined by movements of a foreign securities index, the
swap agreement would tend to increase exposure to foreign stock market movements
and foreign currencies. Depending on how it is used, a swap agreement may
increase or decrease the overall volatility of the Fund's investments and its
net asset value.

The performance of a swap agreement is determined by the change in
the specific currency, market index, security, or other factors that determine
the amounts of payments due to and from a Fund. If a swap agreement calls for
payments by the Fund, it must be prepared to make such payments when due. If the
counterparty's creditworthiness declines, the value of a swap agreement would be
likely to decline, potentially resulting in a loss. A Fund will not enter into
any swap, cap, floor or collar transaction unless, at the time of entering into
such transaction, the unsecured long-term debt of the counterparty, combined
with any credit enhancements, is rated at least A by Standard & Poor's Ratings
Services or Moody's Investors Service, Inc. or has an equivalent rating from a
nationally recognized statistical rating organization or is determined to be of
equivalent credit quality by the portfolio managers.

The purchase of a cap entitles the purchaser to receive payments on
a notional principal amount from the party selling the cap to the extent that a
specified index exceeds a predetermined interest rate or amount. The purchase of
a floor entitles the purchaser to receive payments on a notional principal
amount from the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a combination
of a cap and floor that preserves a certain return within a predetermined range
of interest rates or values.

At the time a Fund enters into swap arrangements or purchases or
sells caps, floors or collars, liquid assets of the Fund having a value at least
as great as the commitment underlying the obligations will be segregated on the
books of the Fund and held by the custodian throughout the period of the
obligation.

LENDING OF PORTFOLIO SECURITIES

Subject to restriction (6) under Investment Restrictions in this
SAI, a Fund may lend its portfolio securities to broker-dealers and banks. Any
such loan must be continuously secured by collateral in cash or cash equivalents
maintained on a current basis in an amount at least equal to the market value of
the securities loaned by the Fund. The Fund would continue to receive the
equivalent of the interest or

9
<PAGE>
dividends paid by the issuer on the securities loaned, and would also receive an
additional return that may be in the form of a fixed fee or a percentage of the
collateral. The Fund would have the right to call the loan and obtain the
securities loaned at any time on notice of not more than five business days. The
Fund would not have the right to vote the securities during the existence of the
loan but would call the loan to permit voting of the securities if, in the
portfolio managers' judgment, a material event requiring a shareholder vote
would otherwise occur before the loan was repaid. In the event of bankruptcy or
other default of the borrower, the Fund could experience both delays in
liquidating the loan collateral or recovering the loaned securities and losses,
including (a) possible decline in the value of the collateral or in the value of
the securities loaned during the period while the Fund seeks to enforce its
rights thereto, (b) possible subnormal levels of income and lack of access to
income during this period, and (c) expenses of enforcing its rights. The Funds
do not currently intend to loan more than 5% of their net assets.

REPURCHASE AGREEMENTS

A Fund may invest in repurchase agreements, provided that it will
not invest more than 15% of net assets in repurchase agreements maturing in more
than seven days and any other illiquid securities. A repurchase agreement is a
sale of securities to a Fund in which the seller agrees to repurchase the
securities at a higher price, which includes an amount representing interest on
the purchase price, within a specified time. In the event of bankruptcy of the
seller, a Fund could experience both losses and delays in liquidating its
collateral.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE AGREEMENTS

The Funds may purchase securities on a when-issued or
delayed-delivery basis. Although the payment and interest terms of these
securities are established at the time a Fund enters into the commitment, the
securities may be delivered and paid for a month or more after the date of
purchase, when their value may have changed. The Funds makes such commitments
only with the intention of actually acquiring the securities, but may sell the
securities before settlement date if the portfolio managers deem it advisable
for investment reasons. The Funds may utilize spot and forward foreign currency
exchange transactions to reduce the risk inherent in fluctuations in the
exchange rate between one currency and another when securities are purchased or
sold on a when-issued or delayed-delivery basis.

The Funds may enter into reverse repurchase agreements with banks
and securities dealers. A reverse repurchase agreement is a repurchase agreement
in which a Fund is the seller of, rather than the investor in, securities and
agrees to repurchase them at an agreed-upon time and price. Use of a reverse
repurchase agreement may be preferable to a regular sale and later repurchase of
securities because it avoids certain market risks and transaction costs.

At the time a Fund enters into a binding obligation to purchase
securities on a when-issued basis or enters into a reverse repurchase agreement,
liquid assets (cash, U.S. Government securities or other "high-grade" debt
obligations) of the Fund having a value at least as great as the purchase price
of the securities to be purchased will be segregated on the books of the Fund
and held by the custodian throughout the period of the obligation. The use of
these investment strategies, as well as borrowing under a line of credit as
described below, may increase net asset value fluctuation.

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<PAGE>
SHORT SALES "AGAINST THE BOX"

A Fund may sell securities short against the box; that is, enter
into short sales of securities that it currently owns or has the right to
acquire through the conversion or exchange of other securities that it owns at
no additional cost. A Fund may make short sales of securities only if at all
times when a short position is open it owns at least an equal amount of such
securities or securities convertible into or exchangeable for securities of the
same issue as, and equal in amount to, the securities sold short, at no
additional cost.

In a short sale against the box, a Fund does not deliver from its
portfolio the securities sold. Instead, the Fund borrows the securities sold
short from a broker-dealer through which the short sale is executed, and the
broker-dealer delivers such securities, on behalf of the Fund, to the purchaser
of such securities. The Fund is required to pay to the broker-dealer the amount
of any dividends paid on shares sold short. Finally, to secure its obligation to
deliver to such broker-dealer the securities sold short, the Fund must deposit
and continuously maintain in a separate account with its custodian an equivalent
amount of the securities sold short or securities convertible into or
exchangeable for such securities at no additional cost. The Fund is said to have
a short position in the securities sold until it delivers to the broker-dealer
the securities sold. The Fund may close out a short position by purchasing on
the open market and delivering to the broker-dealer an equal amount of the
securities sold short, rather than by delivering portfolio securities.

Short sales may protect a Fund against the risk of losses in the
value of its portfolio securities because any unrealized losses with respect to
such portfolio securities should be wholly or partially offset by a
corresponding gain in the short position. However, any potential gains in such
portfolio securities should be wholly or partially offset by a corresponding
loss in the short position. The extent to which such gains or losses are offset
will depend upon the amount of securities sold short relative to the amount the
Fund owns, either directly or indirectly, and, in the case where the Fund owns
convertible securities, changes in the conversion premium.

Short sale transactions involve certain risks. If the price of the
security sold short increases between the time of the short sale and the time
the Fund replaces the borrowed security, the Fund will incur a loss, and if the
price declines during this period, the Fund will realize a short-term capital
gain. Any realized short-term capital gain will be decreased, and any incurred
loss increased, by the amount of transaction costs and any premium, dividend or
interest which the Fund may have to pay in connection with such short sale.
Certain provisions of the Internal Revenue Code may limit the degree to which
the Funds are able to enter into short sales. There is no limitation on the
amount of a Fund's assets that, in the aggregate, may be deposited as collateral
for the obligation to replace securities borrowed to effect short sales and
allocated to segregated accounts in connection with short sales.

RULE 144A SECURITIES

The Funds may purchase securities that have been privately placed
but that are eligible for purchase and sale under Rule 144A under the Securities
Act of 1933. That Rule permits certain qualified institutional buyers, such as
the Funds, to trade in privately placed securities that have not been registered
for sale under the 1933 Act. The portfolio managers, under the supervision of
the Board of Trustees, will consider whether securities purchased under Rule
144A are illiquid and thus subject to

11
<PAGE>
the restriction of investing no more than 15% of a Fund's net assets in illiquid
securities. A determination of whether a Rule 144A security is liquid or not is
a question of fact. In making this determination, the portfolio managers will
consider the trading markets for the specific security, taking into account the
unregistered nature of a Rule 144A security. In addition, the portfolio managers
could consider the (1) frequency of trades and quotes, (2) number of dealers and
potential purchasers, (3) dealer undertakings to make a market, and (4) nature
of the security and of marketplace trades (e.g., the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of transfer).
The liquidity of Rule 144A securities would be monitored and if, as a result of
changed conditions, it is determined that a Rule 144A security is no longer
liquid, the relevant Fund's holdings of illiquid securities would be reviewed to
determine what, if any, steps are required to assure that the Fund does not
invest more than 15% of its assets in illiquid securities. Investing in Rule
144A securities could have the effect of increasing the amount of a Fund's
assets invested in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities. The Funds do not expect to invest as much
as 5% of their respective total assets in Rule 144A securities that have not
been deemed to be liquid by the portfolio managers.

LINE OF CREDIT

Subject to restriction (6) under Investment Restrictions in this
SAI, each Fund may establish and maintain a line of credit with a major bank in
order to permit borrowing on a temporary basis to meet share redemption requests
in circumstances in which temporary borrowing may be preferable to liquidation
of portfolio securities.

INTERFUND BORROWING AND LENDING PROGRAM

Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Funds may lend money to and borrow money from other mutual funds
advised by Stein Roe. The Funds will borrow through the program when borrowing
is necessary and appropriate and the costs are equal to or lower than the costs
of bank loans.

PORTFOLIO TURNOVER

Although the Funds do not purchase securities with a view to rapid
turnover, there are no limitations on the length of time that portfolio
securities must be held. Portfolio turnover can occur for a number of reasons
such as general conditions in the securities markets, more favorable investment
opportunities in other securities, or other factors relating to the desirability
of holding or changing a portfolio investment. Because of each Fund's
flexibility of investment and emphasis on growth of capital, it may have greater
portfolio turnover than that of mutual funds that have primary objectives of
income or maintenance of a balanced investment position. The future turnover
rate may vary greatly from year to year. A high rate of portfolio turnover, if
it should occur, would result in increased transaction expenses, which must be
borne by the relevant Fund. High portfolio turnover may also result in the
realization of capital gains or losses and, to the extent net short-term capital
gains are realized, any distributions resulting from such gains will be
considered ordinary income for federal income tax purposes.

OPTIONS ON SECURITIES AND INDEXES

The Funds may purchase and sell put options and call options on
securities, indexes or foreign currencies in standardized contracts traded on
recognized

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<PAGE>
securities exchanges, boards of trade, or similar entities, or quoted on Nasdaq.
The Funds may purchase agreements, sometimes called cash puts, that may
accompany the purchase of a new issue of bonds from a dealer.

An option on a security (or index) is a contract that gives the
purchaser (holder) of the option, in return for a premium, the right to buy from
(call) or sell to (put) the seller (writer) of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option (normally not exceeding nine
months). The writer of an option on an individual security or on a foreign
currency has the obligation upon exercise of the option to deliver the
underlying security or foreign currency upon payment of the exercise price or to
pay the exercise price upon delivery of the underlying security or foreign
currency. Upon exercise, the writer of an option on an index is obligated to pay
the difference between the cash value of the index and the exercise price
multiplied by the specified multiplier for the index option. (An index is
designed to reflect specified facets of a particular financial or securities
market, a specific group of financial instruments or securities, or certain
economic indicators.)

The Funds will write call options and put options only if they are
"covered." For example, in the case of a call option on a security, the option
is "covered" if the Fund owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount are held in a segregated account by its custodian)
upon conversion or exchange of other securities held in its portfolio.

If an option written by a Fund expires, the Fund realizes a capital
gain equal to the premium received at the time the option was written. If an
option purchased by a Fund expires, the Fund realizes a capital loss equal to
the premium paid.

Prior to the earlier of exercise or expiration, an option may be
closed out by an offsetting purchase or sale of an option of the same series
(type, exchange, underlying security or index, exercise price, and expiration).
There can be no assurance, however, that a closing purchase or sale transaction
can be effected when a Fund desires.

A Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the premium received
from writing the option, or, if it is more, the Fund will realize a capital
loss. If the premium received from a closing sale transaction is more than the
premium paid to purchase the option, the Fund will realize a capital gain or, if
it is less, the Fund will realize a capital loss. The principal factors
affecting the market value of a put or a call option include supply and demand,
interest rates, the current market price of the underlying security or index in
relation to the exercise price of the option, the volatility of the underlying
security or index, and the time remaining until the expiration date.

A put or call option purchased by a Fund is an asset of the Fund,
valued initially at the premium paid for the option. The premium received for an
option written by a Fund is recorded as a deferred credit. The value of an
option purchased or written is marked-to-market daily and is valued at the
closing price on the exchange on which it is traded or, if not traded on an
exchange or no closing price is available, at the mean between the last bid and
asked prices.

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<PAGE>
Risks Associated with Options on Securities and Indexes. There are
several risks associated with transactions in options. For example, there are
significant differences between the securities markets, the currency markets,
and the options markets that could result in an imperfect correlation between
these markets, causing a given transaction not to achieve its objectives. A
decision as to whether, when and how to use options involves the exercise of
skill and judgment, and even a well-conceived transaction may be unsuccessful to
some degree because of market behavior or unexpected events.

There can be no assurance that a liquid market will exist when a
Fund seeks to close out an option position. If a Fund were unable to close out
an option that it had purchased on a security, it would have to exercise the
option in order to realize any profit or the option would expire and become
worthless. If a Fund were unable to close out a covered call option that it had
written on a security, it would not be able to sell the underlying security
until the option expired. As the writer of a covered call option on a security,
a Fund foregoes, during the option's life, the opportunity to profit from
increases in the market value of the security covering the call option above the
sum of the premium and the exercise price of the call.

If trading were suspended in an option purchased or written by a
Fund, the Fund would not be able to close out the option. If restrictions on
exercise were imposed, the Fund might be unable to exercise an option it has
purchased.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The Funds may use interest rate futures contracts, index futures
contracts, and foreign currency futures contracts. An interest rate, index or
foreign currency futures contract provides for the future sale by one party and
purchase by another party of a specified quantity of a financial instrument or
the cash value of an index(2) at a specified price and time. A public market
exists in futures contracts covering a number of indexes (including, but not
limited to: the Standard & Poor's 500 Index, the Value Line Composite Index, and
the New York Stock Exchange Composite Index) as well as financial instruments
(including, but not limited to: U.S. Treasury bonds, U.S. Treasury notes,
Eurodollar certificates of deposit, and foreign currencies). Other index and
financial instrument futures contracts are available and it is expected that
additional futures contracts will be developed and traded.

The Funds may purchase and write call and put futures options.
Futures options possess many of the same characteristics as options on
securities, indexes and foreign currencies (discussed above). A futures option
gives the holder the right, in return for the premium paid, to assume a long
position (call) or short position (put) in a futures contract at a specified
exercise price at any time during the period of the option. Upon exercise of a
call option, the holder acquires a long position in the futures contract and the
writer is assigned the opposite short position. In the case of a put option, the
opposite is true. A Fund might, for example, use futures contracts to hedge
against or gain exposure to fluctuations in the general level of stock prices,
anticipated changes in interest rates or currency fluctuations that might
adversely affect either the value of the Fund's securities or the price of the
securities that the Fund intends to purchase. Although other techniques could be
used to reduce or increase the Fund's exposure to

--------------

(2) A futures contract on an index is an agreement pursuant to which two parties
agree to take or make delivery of an amount of cash equal to the difference
between the value of the index at the close of the last trading day of the
contract and the price at which the index contract was originally written.
Although the value of a securities index is a function of the value of certain
specified securities, no physical delivery of those securities is made.

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<PAGE>
stock price, interest rate and currency fluctuations, the Fund may be able to
achieve its exposure more effectively and perhaps at a lower cost by using
futures contracts and futures options.

The Funds will only enter into futures contracts and futures options
that are standardized and traded on an exchange, board of trade, or similar
entity, or quoted on an automated quotation system.

The success of any futures transaction depends on accurate
predictions of changes in the level and direction of stock prices, interest
rates, currency exchange rates and other factors. Should those predictions be
incorrect, the return might have been better had the transaction not been
attempted; however, in the absence of the ability to use futures contracts, the
portfolio managers might have taken portfolio actions in anticipation of the
same market movements with similar investment results but, presumably, at
greater transaction costs.

When a purchase or sale of a futures contract is made by a Fund, the
Fund is required to deposit with its custodian (or broker, if legally permitted)
a specified amount of cash or U.S. Government securities or other securities
acceptable to the broker ("initial margin"). The margin required for a futures
contract is set by the exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is in the nature of
a performance bond or good faith deposit on the futures contract, which is
returned to the Fund upon termination of the contract, assuming all contractual
obligations have been satisfied. The Fund expects to earn interest income on its
initial margin deposits. A futures contract held by a Fund is valued daily at
the official settlement price of the exchange on which it is traded. Each day
the Fund pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking-to-market." Variation margin paid or received by a Fund does not
represent a borrowing or loan by the Fund but is instead settlement between the
Fund and the broker of the amount one would owe the other if the futures
contract had expired at the close of the previous day. In computing daily net
asset value, the Funds will mark-to-market their open futures positions.

A Fund is also required to deposit and maintain margin with respect
to put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Fund.

Although some futures contracts call for making or taking delivery
of the underlying securities, usually these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index, and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund engaging in the
transaction realizes a capital gain, or if it is more, the Fund realizes a
capital loss. Conversely, if an offsetting sale price is more than the original
purchase price, the Fund engaging in the transaction realizes a capital gain, or
if it is less, the Fund realizes a capital loss. The transaction costs must also
be included in these calculations.

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<PAGE>
RISKS ASSOCIATED WITH FUTURES

There are several risks associated with the use of futures contracts
and futures options. A purchase or sale of a futures contract may result in
losses in excess of the amount invested in the futures contract. In trying to
increase or reduce market exposure, there can be no guarantee that there will be
a correlation between price movements in the futures contract and in the
portfolio exposure sought. In addition, there are significant differences
between the securities and futures markets that could result in an imperfect
correlation between the markets, causing a given transaction not to achieve its
objectives. The degree of imperfection of correlation depends on circumstances
such as: variations in speculative market demand for futures, futures options
and the related securities, including technical influences in futures and
futures options trading and differences between the securities market and the
securities underlying the standard contracts available for trading. For example,
in the case of index futures contracts, the composition of the index, including
the issuers and the weighting of each issue, may differ from the composition of
the portfolio, and, in the case of interest rate futures contracts, the interest
rate levels, maturities, and creditworthiness of the issues underlying the
futures contract may differ from the financial instruments held in the
portfolio. A decision as to whether, when and how to use futures contracts
involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected stock price or interest rate trends.

Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. Stock index futures contracts are not normally subject to
such daily price change limitations.

There can be no assurance that a liquid market will exist at a time
when a Fund seeks to close out a futures or futures option position. The Fund
would be exposed to possible loss on the position during the interval of
inability to close, and would continue to be required to meet margin
requirements until the position is closed. In addition, many of the contracts
discussed above are relatively new instruments without a significant trading
history. As a result, there can be no assurance that an active secondary market
will develop or continue to exist.

LIMITATIONS ON OPTIONS AND FUTURES

If other options, futures contracts, or futures options of types
other than those described herein are traded in the future, the Funds may also
use those investment vehicles, provided the Board of Trustees determines that
their use is consistent with the relevant Fund's investment objective.

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<PAGE>
A Fund will not enter into a futures contract or purchase an option
thereon if, immediately thereafter, the initial margin deposits for futures
contracts held by the Fund plus premiums paid by it for open futures option
positions, less the amount by which any such positions are "in-the-money,"(3)
would exceed 5% of the Fund's total assets.

When purchasing a futures contract or writing a put option on a
futures contract, a Fund must maintain with its custodian (or broker, if legally
permitted) cash or cash equivalents (including any margin) equal to the market
value of such contract. When writing a call option on a futures contract, a Fund
similarly will maintain with its custodian cash or cash equivalents (including
any margin) equal to the amount by which such option is in-the-money until the
option expires or is closed out by the Fund.

A Fund may not maintain open short positions in futures contracts,
in call options written on futures contracts or in call options written on
indexes if, in the aggregate, the market value of all such open positions
exceeds the current value of the securities in its portfolio, plus or minus
unrealized gains and losses on the open positions, adjusted for the historical
relative volatility of the relationship between the portfolio and the positions.
For this purpose, to the extent the Fund has written call options on specific
securities in its portfolio, the value of those securities will be deducted from
the current market value of the securities portfolio.

In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool operator," each
Fund will use commodity futures or commodity options contracts solely for bona
fide hedging purposes within the meaning and intent of Regulation 1.3(z), or,
with respect to positions in commodity futures and commodity options contracts
that do not come within the meaning and intent of 1.3(z), the aggregate initial
margin and premiums required to establish such positions will not exceed 5% of
the fair market value of the assets of the Fund, after taking into account
unrealized profits and unrealized losses on any such contracts it has entered
into [in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount (as defined in Section 190.01(x) of the Commission
Regulations) may be excluded in computing such 5%].

TAXATION OF OPTIONS AND FUTURES

If a Fund exercises a call or put option that it holds, the premium
paid for the option is added to the cost basis of the security purchased (call)
or deducted from the proceeds of the security sold (put). For cash settlement
options and futures options exercised by the Fund, the difference between the
cash received at exercise and the premium paid is a capital gain or loss.

If a call or put option written by a Fund is exercised, the premium
is included in the proceeds of the sale of the underlying security (call) or
reduces the cost basis of the security purchased (put). For cash settlement
options and futures options written by the Fund, the difference between the cash
paid at exercise and the premium received is a capital gain or loss.

Entry into a closing purchase transaction will result in capital
gain or loss. If an option written by a Fund was in-the-money at the time it was
written and the

-------------

(3) A call option is "in-the-money" if the value of the futures contract that is
the subject of the option exceeds the exercise price. A put option is
"in-the-money" if the exercise price exceeds the value of the futures contract
that is the subject of the option.

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<PAGE>
security covering the option was held for more than the long-term holding period
prior to the writing of the option, any loss realized as a result of a closing
purchase transaction will be long-term. The holding period of the securities
covering an in-the-money option will not include the period of time the option
is outstanding.

If a Fund writes an equity call option(4) other than a "qualified
covered call option," as defined in the Internal Revenue Code, any loss on such
option transaction, to the extent it does not exceed the unrealized gains on the
securities covering the option, may be subject to deferral until the securities
covering the option have been sold.

A futures contract held until delivery results in capital gain or
loss equal to the difference between the price at which the futures contract was
entered into and the settlement price on the earlier of delivery notice date or
expiration date. If a Fund delivers securities under a futures contract, the
Fund also realizes a capital gain or loss on those securities.

For federal income tax purposes, a Fund generally is required to
recognize as income for each taxable year its net unrealized gains and losses as
of the end of the year on futures, futures options and non-equity options
positions ("year-end mark-to-market"). Generally, any gain or loss recognized
with respect to such positions (either by year-end mark-to-market or by actual
closing of the positions) is considered to be 60% long-term and 40% short-term,
without regard to the holding periods of the contracts. However, in the case of
positions classified as part of a "mixed straddle," the recognition of losses on
certain positions (including options, futures and futures options positions, the
related securities and certain successor positions thereto) may be deferred to a
later taxable year. Sale of futures contracts or writing of call options (or
futures call options) or buying put options (or futures put options) that are
intended to hedge against a change in the value of securities held by a Fund:
(1) will affect the holding period of the hedged securities; and (2) may cause
unrealized gain or loss on such securities to be recognized upon entry into the
hedge.

If a Fund were to enter into a short index future, short index
futures option or short index option position and the Fund were deemed to
"mimic" the performance of the index underlying such contract, the option or
futures contract position and the Fund's stock positions would be deemed to be
positions in a mixed straddle, subject to the above-mentioned loss deferral
rules.

In order for a Fund to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of its gross income
for a taxable year must be derived from qualifying income; i.e., dividends,
interest, income derived from loans of securities, and gains from the sale of
securities or foreign currencies, or other income (including but not limited to
gains from options, futures, or forward contracts). Any net gain realized from
futures (or futures options) contracts will be considered gain from the sale of
securities and therefore be qualifying income for purposes of the 90%
requirement.

The Funds distribute to shareholders annually any net capital gains
that have been recognized for federal income tax purposes (including year-end
mark-to-

----------------------

(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).

18
<PAGE>
market gains) on options and futures transactions. Such distributions are
combined with distributions of capital gains realized on a Fund's other
investments, and shareholders are advised of the nature of the payments.

The Taxpayer Relief Act of 1997 (the "Act") imposed constructive
sale treatment for federal income tax purposes on certain hedging strategies
with respect to appreciated securities. Under these rules, taxpayers will
recognize gain, but not loss, with respect to securities if they enter into
short sales of "offsetting notional principal contracts" (as defined by the Act)
or futures or "forward contracts" (as defined by the Act) with respect to the
same or substantially identical property, or if they enter into such
transactions and then acquire the same or substantially identical property.
These changes generally apply to constructive sales after June 8, 1997.
Furthermore, the Secretary of the Treasury is authorized to promulgate
regulations that will treat as constructive sales certain transactions that have
substantially the same effect as short sales, offsetting notional principal
contracts, and futures or forward contracts to deliver the same or substantially
similar property.

19
<PAGE>
INVESTMENT RESTRICTIONS

FUNDAMENTAL INVESTMENT POLICIES

The Investment Company Act of 1940 (the "1940 Act") provides that a "vote
of a majority of the outstanding voting securities" means the affirmative vote
of the lesser of (1) more than 50% of the outstanding shares of a Fund, or (2)
67% or more of the shares present at a meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. The
following fundamental investment policies cannot be changed without such a vote.

Each Fund may:

1. Borrow from banks, other affiliated funds and other entities to the extent
permitted by applicable law, provided that the Fund's borrowings shall not
exceed 33 1/3% of the value of its total assets (including the amount
borrowed) less liabilities (other than borrowings) or such other percentage
permitted by law;

2. Only own real estate acquired as the result of owning securities and not
more than 5% of total assets;

3. Purchase and sell futures contracts and related options so long as the
total initial margin and premiums on the contracts do not exceed 5% of its
total assets;

4. Not issue senior securities except as provided in paragraph 1 above and to
the extent permitted by the Act;

5. Underwrite securities issued by others only when disposing of portfolio
securities;

6. Make loans (a) through lending of securities, (b) through the purchase of
debt instruments or similar evidences of indebtedness typically sold
privately to financial institutions, (c) through an interfund lending
program with other affiliated funds provided that no such loan may be made
if, as a result, the aggregate of such loans would exceed 33 1/3% of the
value of its total assets (taken at market value at the time of such loans)
and (d) through repurchase agreements; and

7. Not concentrate more than 25% of its total assets in any one industry or
with respect to 75% of total assets purchase any security (other than
obligations of the U.S. government and cash items including receivables) if
as a result more than 5% of its total assets would then be invested in
securities of a single issuer or purchase the voting securities of an
issuer if, as a result of such purchases, the Fund would own more than 10%
of the outstanding voting shares of such issuer.

Total assets and net assets are determined at current value for purposes
of compliance with investment restrictions and policies. All percentage
limitations will apply at the time of investment and are not violated unless an
excess or deficiency occurs as a result of such investment. For the purpose of
the 1940 Act's diversification requirement, an issuer is the entity whose
revenues support the security.

OTHER INVESTMENT POLICIES

As non-fundamental investment policies which may be changed without a
shareholder vote, each Fund may not:

1. Purchase securities on margin, but it may receive short-term credit to
clear securities transactions and may make initial or maintenance margin
deposits in connection with futures transactions;

2. Have a short securities position, unless the Fund owns, or owns rights
(exercisable without payment) to acquire, an equal amount of such
securities; and

3. Invest more than 15% of its net assets in illiquid assets.

20
<PAGE>
Notwithstanding the investment policies and restrictions of each Fund, the
Fund may invest all or a portion of its investable assets in investment
companies with substantially the same investment objective, policies and
restrictions as the Fund.

ADDITIONAL INVESTMENT CONSIDERATIONS

Stein Roe seeks to provide superior long-term investment results
through a disciplined, research-intensive approach to investment selection and
prudent risk management. In working to take sensible risks and make intelligent
investments it has been guided by three primary objectives which it believes are
the foundation of a successful investment program. These objectives are
preservation of capital, limited volatility through managed risk, and consistent
above-average returns as appropriate for the particular client or managed
account. Because every investor's needs are different, Stein Roe mutual funds
are designed to accommodate different investment objectives, risk tolerance
levels, and time horizons. In selecting a mutual fund, investors should ask the
following questions:

What are my investment goals?

It is important to choose a fund that has investment objectives compatible with
your investment goals.

What is my investment time frame?

If you have a short investment time frame (e.g., less than three years), a
mutual fund that seeks to provide a stable share price, such as a money market
fund, or one that seeks capital preservation as one of its objectives may be
appropriate. If you have a longer investment time frame, you may seek to
maximize your investment returns by investing in a mutual fund that offers
greater yield or appreciation potential in exchange for greater investment risk.

What is my tolerance for risk?

All investments, including those in mutual funds, have risks which will vary
depending on investment objective and security type. However, mutual funds seek
to reduce risk through professional investment management and portfolio
diversification.

In general, equity mutual funds emphasize long-term capital
appreciation and tend to have more volatile net asset values than bond or money
market mutual funds.

PURCHASES AND REDEMPTIONS

PURCHASES THROUGH THIRD PARTIES

You may purchase (or redeem) shares through certain broker-dealers,
banks, or other intermediaries ("Intermediaries"). The state of Texas has asked
that investment companies disclose in their SAIs, as a reminder to any such bank
or institution, that it must be registered as a securities dealer in Texas.
Intermediaries may charge for their services or place limitations on the extent
to which you may use the services offered by the Trust. It is the responsibility
of any such Intermediary to establish procedures insuring the prompt
transmission to the Trust of any such purchase order. An Intermediary, who
accepts orders that are processed at the net asset value next determined after
receipt of the order by the Intermediary, accepts such orders as authorized
agent or designee of the relevant Fund. The Intermediary is required to
segregate any orders received on a business day after the close of regular
session trading

21
<PAGE>
on the New York Stock Exchange and transmit those orders separately for
execution at the net asset value next determined after that business day.

Some Intermediaries that maintain nominee accounts with the Funds
for their clients for whom they hold Fund shares charge an annual fee of up to
0.35% of the average net assets held in such accounts for accounting, servicing,
and distribution services they provide with respect to the underlying Fund
shares. Stein Roe and the Funds' transfer agent share in the expense of these
fees, and Stein Roe pays all sales and promotional expenses.

NET ASSET VALUE

The net asset value of the Funds is determined on days on which the
New York Stock Exchange (the "NYSE") is open for regular session trading. The
NYSE is regularly closed on Saturdays and Sundays and on New Year's Day, the
third Monday in January, the third Monday in February, Good Friday, the last
Monday in May, Independence Day, Labor Day, Thanksgiving, and Christmas. If one
of these holidays falls on a Saturday or Sunday, the NYSE will be closed on the
preceding Friday or the following Monday, respectively. Net asset value will not
be determined on days when the NYSE is closed unless, in the judgment of the
Board of Trustees, the net asset value should be determined on any such day, in
which case the determination will be made at 4 p.m., Eastern time. Please refer
to Your Account -- Determining Share Price in the Prospectus for additional
information on how the purchase and redemption price of Fund shares is
determined.

GENERAL REDEMPTION POLICIES

The Trust intends to pay all redemptions in cash. The Trust retains
the right, subject to the Rule 18f-1 notice described below, to alter this
policy to provide for redemptions in whole or in part by a distribution in kind
of securities held by the Fund in lieu of cash. If redemptions were made in
kind, the redeeming shareholders might incur transaction costs in selling the
securities received in the redemptions. The Trust filed a Notification of
Election pursuant to Rule 18f-1 under the Investment Company Act of 1940 with
the Securities and Exchange Commission which commits each Fund to pay in cash
all requests for redemptions by any shareholder, limited in amount with respect
to each shareholder during any 90-day period to the lesser of $250,000 or 1% of
the net asset value of the Fund at the beginning of such period.

The Trust reserves the right to suspend or postpone redemptions of
shares during any period when: (a) trading on the NYSE is restricted, as
determined by the Securities and Exchange Commission, or the NYSE is closed for
other than customary weekend and holiday closings; (b) the Securities and
Exchange Commission has by order permitted such suspension; or (c) an emergency,
as determined by the Securities and Exchange Commission, exists, making disposal
of portfolio securities or valuation of net assets not reasonably practicable.

You may not cancel or revoke your redemption order once instructions
have been received and accepted. The Trust cannot accept a redemption request
that specifies a particular date or price for redemption or any special
conditions. Please call 800-338-2550 if you have any questions about
requirements for a redemption before submitting your request. The Trust reserves
the right to require a properly completed application before making payment for
shares redeemed.

22
<PAGE>
The Trust will generally mail payment for shares redeemed within
seven days after proper instructions are received. However, the Trust normally
intends to pay proceeds of a Telephone Redemption paid by wire on the next
business day. If you attempt to redeem shares within 15 days after they have
been purchased by check or electronic transfer, the Trust will delay payment of
the redemption proceeds to you until it can verify that payment for the purchase
of those shares has been (or will be) collected. To reduce such delays, the
Trust recommends that your purchase be made by federal funds wire through your
bank.

Generally, you may not use any Special Redemption Privilege to
redeem shares purchased by check (other than certified or cashiers' checks) or
electronic transfer until 15 days after their date of purchase. The Trust
reserves the right at any time without prior notice to suspend, limit, modify,
or terminate any Privilege or its use in any manner by any person or class.

Neither the Trust, its transfer agent, nor their respective
officers, trustees, directors, employees, or agents will be responsible for the
authenticity of instructions provided under the Privileges, nor for any loss,
liability, cost or expense for acting upon instructions furnished thereunder if
they reasonably believe that such instructions are genuine. The Funds employ
procedures reasonably designed to confirm that instructions communicated by
telephone under any Special Redemption Privilege or the Special Electronic
Transfer Redemption Privilege are genuine. Use of any Special Redemption
Privilege or the Special Electronic Transfer Redemption Privilege authorizes the
relevant Fund and its transfer agent to tape-record all instructions to redeem.
In addition, callers are asked to identify the account number and registration,
and may be required to provide other forms of identification. Written
confirmations of transactions are mailed promptly to the registered address; a
legend on the confirmation requests that the shareholder review the transactions
and inform the Fund immediately if there is a problem. If a Fund does not follow
reasonable procedures for protecting shareholders against loss on telephone
transactions, it may be liable for any losses due to unauthorized or fraudulent
instructions.

Shares in any account you maintain with a Fund or any of the other
Stein Roe Funds may be redeemed to the extent necessary to reimburse any Stein
Roe Fund for any loss you cause it to sustain (such as loss from an uncollected
check or electronic transfer for the purchase of shares, or any liability under
the Internal Revenue Code provisions on backup withholding).

The Trust reserves the right to suspend or terminate, at any time
and without prior notice, the use of the Telephone Exchange Privilege by any
person or class of persons. The Trust believes that use of the Telephone
Exchange Privilege by investors utilizing market-timing strategies adversely
affects the Fund. THEREFORE, REGARDLESS OF THE NUMBER OF TELEPHONE EXCHANGE
ROUND-TRIPS MADE BY AN INVESTOR, THE TRUST GENERALLY WILL NOT HONOR REQUESTS FOR
TELEPHONE EXCHANGES BY SHAREHOLDERS IDENTIFIED BY THE TRUST AS "MARKET-TIMERS"
IF THE OFFICERS OF THE TRUST DETERMINE THE ORDER NOT TO BE IN THE BEST INTERESTS
OF THE TRUST OR ITS SHAREHOLDERS. The Trust generally identifies as a
"market-timer" an investor whose investment decisions appear to be based on
actual or anticipated near-term changes in the securities markets other than for
investment considerations. Moreover, the Trust reserves the right to suspend,
limit, modify, or terminate, at any time and without prior notice, the Telephone
Exchange Privilege in its entirety. Because such a step would be taken only if
the Board of Trustees believes it would be in the best interests of the Fund,
the Trust expects that it would provide shareholders with prior written notice
of any such action

23
<PAGE>
unless the resulting delay in the suspension, limitation, modification, or
termination of the Telephone Exchange Privilege would adversely affect the Fund.
If the Trust were to suspend, limit, modify, or terminate the Telephone Exchange
Privilege, a shareholder expecting to make a Telephone Exchange might find that
an exchange could not be processed or that there might be a delay in the
implementation of the exchange. During periods of volatile economic and market
conditions, you may have difficulty placing your exchange by telephone.

The Telephone Exchange Privilege and the Telephone Redemption by
Check Privilege will be established automatically for you when you open your
account unless you decline these Privileges on your application. Other
Privileges must be specifically elected. A signature guarantee may be required
to establish a Privilege after you open your account. If you establish both the
Telephone Redemption by Wire Privilege and the Electronic Transfer Privilege,
the bank account that you designate for both Privileges must be the same. The
Telephone Redemption by Check Privilege, Telephone Redemption by Wire Privilege,
and Special Electronic Transfer Redemptions may not be used to redeem shares
held by a tax-sheltered retirement plan sponsored by Stein Roe.

REDEMPTION PRIVILEGES

Exchange Privilege. You may redeem all or any portion of your Fund
shares and use the proceeds to purchase shares of any other no-load Stein Roe
Fund offered for sale in your state if your signed, properly completed
application is on file. An exchange transaction is a sale and purchase of shares
for federal income tax purposes and may result in capital gain or loss. Before
exercising the Exchange Privilege, you should obtain the prospectus for the
no-load Stein Roe Fund in which you wish to invest and read it carefully. The
registration of the account to which you are making an exchange must be exactly
the same as that of the Fund account from which the exchange is made and the
amount you exchange must meet any applicable minimum investment of the no-load
Stein Roe Fund being purchased.

Telephone Exchange Privilege. You may use the Telephone Exchange
Privilege to exchange an amount of $50 or more from your account by calling
800-338-2550 or by sending a telegram; new accounts opened by exchange are
subject to the $2,500 initial purchase minimum. GENERALLY, YOU WILL BE LIMITED
TO FOUR TELEPHONE EXCHANGE ROUND-TRIPS PER YEAR AND A FUND MAY REFUSE REQUESTS
FOR TELEPHONE EXCHANGES IN EXCESS OF FOUR ROUND-TRIPS (A ROUND-TRIP BEING THE
EXCHANGE OUT OF A FUND INTO ANOTHER NO-LOAD STEIN ROE FUND, AND THEN BACK TO THE
FUND). In addition, the Trust's general redemption policies apply to redemptions
of shares by Telephone Exchange.

Automatic Exchanges. You may use the Automatic Exchange Privilege to
automatically redeem a fixed amount from your Fund account for investment in
another no-load Stein Roe Fund account on a regular basis ($50 minimum; $100,000
maximum).

Telephone Redemption by Wire Privilege. You may use this Privilege
to redeem shares from your account ($1,000 minimum; no maximum) by calling
800-338-2550. The proceeds will be transmitted by wire to your account at a
commercial bank previously designated by you that is a member of the Federal
Reserve System. The fee for wiring proceeds (currently $7.00 per transaction)
will be deducted from the amount wired.

24
<PAGE>

Telephone Redemption by Check Privilege. You may use the Telephone
Redemption by Check Privilege to redeem shares from your account by calling
800-338-2550. Telephone redemptions are limited to a total of $100,000 in a
30-day period. The proceeds will be sent by check to your registered address.

Electronic Transfer Privilege. You may redeem shares by calling
800-338-2550 and requesting an electronic transfer ("Special Redemption") of the
proceeds to a bank account previously designated by you at a bank that is a
member of the Automated Clearing House. You may also request electronic
transfers at scheduled intervals ("Automatic Redemptions"). A Special Redemption
request received by telephone after 4 p.m., Eastern time, is deemed received on
the next business day. You may purchase Fund shares directly from your bank
account either at regular intervals ("Regular Investments") or upon your request
("Special Investments"). Electronic transfers are subject to a $50 minimum and a
$100,000 maximum. You may also have income dividends and capital gains
distributions deposited directly into your bank account ("Automatic Dividend
Deposits").

Systematic Withdrawals. You may have a fixed dollar amount,
declining balance, or fixed percentage of your account redeemed and sent at
regular intervals by check to you or another payee.

Dividend Purchase Option. You may have distributions from one Fund
account automatically invested in another no-load Stein Roe Fund account. Before
establishing this option, you should obtain and read the prospectus of the Stein
Roe Fund into which you wish to have your distributions invested. The account
from which distributions are made must be of sufficient size to allow each
distribution to usually be at least $25.

MANAGEMENT

The Board of Trustees of the Trust has overall management responsibility
for the Trust and the Funds. The following table sets forth certain information
with respect to the trustees and officers of the Trust:

25
<PAGE>
The following table sets forth certain information with respect to the
trustees and officers of the Trust:

<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME, AGE; ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
------------------ -------------- ----------------------
<S> <C> <C>
William D. Andrews, 53; Executive Executive vice president of Stein Roe
One South Wacker Drive, Vice-President & Farnham Incorporated ("Stein Roe")
Chicago, IL 60606 (4)

Christine Balzano, 35; Vice-President Senior vice president of Liberty Funds
245 Summer Street, Services, Inc.; formerly vice
Boston, MA 02210 president and assistant vice president

Kevin M. Carome, 44; Executive Executive Vice President of the Stein
One Financial Center, Vice-President Roe Funds since May 1999 (formerly
Boston, MA 02111 (4) Vice President and Secretary);
General Counsel and Secretary
of Stein Roe since 1998;
Executive Vice President of
Liberty Funds Group and Liberty
All-Star Funds since October,
2000; Executive Vice President
and Assistant Secretary,
Liberty Funds Group - Chicago;
Senior Vice President, Legal
since January, 1999 of Liberty
Funds Group; Associate General
Counsel and Vice President of
Liberty Financial Companies,
Inc. through January, 1999.

Denise E. Chasmer, 32 Vice President Employee of Liberty Funds Services,
12100 East Iliffe Avenue Inc. and assistant vice president of
Aurora, CO 80014 (4) Stein Roe since November 1999; manager
with Scudder Kemper Investments
from October 1995 to November
1999; assistant manager with
Scudder Kemper prior thereto

J. Kevin Connaughton Controller Controller of the Funds since December
One Financial Center 2000 (formerly Controller of the
Boston, MA 02111 (4) Funds from May 2000 to October,
2000); Treasurer and Chief
Financial Officer of the
Liberty Funds and of the
Liberty All-Star Funds since
December, 2000 (formerly
Controller and Chief Accounting
Officer of the Liberty Funds
from February, 1998 to October,
2000); Vice President of the
Colonial Management Associates
since February, 1998 (formerly
Senior Tax Manager, Coopers &
Lybrand, LLP from April, 1996
to January, 1998; Vice
President, 440 Financial
Group/First Data Investor
Services Group from March, 1994
to April, 1996).

</TABLE>

26
<PAGE>

<TABLE>
<S> <C> <C>
William M. Garrison, 34; Vice-President Vice president of Stein Roe since Feb.
One South Wacker Drive, 1998; associate portfolio manager for
Chicago, IL 60606 (4) Stein Roe since August 1994

Stephen E. Gibson, 47; President Director of Stein Roe since September
One Financial Center, 1, 2000, President and Vice Chairman
Boston, MA 02111 (4) of Stein Roe since January, 2000
(formerly Assistant Chairman
from August, 1998 to January,
2000); President of the Stein
Roe Funds since November 1999;
President of the Liberty Funds
since June, 1998, Chairman of
the Board of the Liberty Funds
since July, 1998, Chief
Executive Officer and President
since December, 1996 and
Director, since July, 1996 of
Colonial Management Associates
(formerly Executive Vice
President from July, 1996 to
December, 1996); Director,
Chief Executive Officer and
President of LFG since
December, 1998 (formerly
Director, Chief Executive
Officer and President of The
Colonial Group, Inc. (TCG) from
December, 1996 to December,
1998); (formerly Managing
Director of Marketing of Putnam
Investments, June, 1992 to
July, 1996.)

Erik P. Gustafson, 36; Vice-President Senior portfolio manager of Stein Roe;
One South Wacker Drive, senior vice president of Stein Roe
Chicago, IL 60606 (4) since April 1996; vice president of
Stein Roe prior thereto

Douglas A. Hacker, 44; Trustee Senior vice president and chief
P.O. Box 66100, financial officer of UAL, Inc.
Chicago, IL 60666 (3) (airline)
(4)

Loren A. Hansen, 52; Executive Chief investment officer/equity of CMA
One South Wacker Drive, Vice-President since 1997; executive vice president
Chicago, IL 60606 (4) of Stein Roe since Dec. 1995; vice
president of The Northern Trust (bank)
prior thereto

Harvey B. Hirschhorn, 50; Vice-President Executive vice president, senior
One South Wacker Drive, portfolio manager, and chief economist
Chicago, IL 60606 (4) and investment strategist of Stein
Roe; director of research of Stein
Roe, 1991 to 1995

Janet Langford Kelly, 42; Trustee Executive vice president-corporate
One Kellogg Square, development, general counsel and
Battle Creek, MI 49016 secretary of Kellogg Company since
(3)(4) Sept. 1999; senior vice president,
secretary and general counsel of Sara
Lee Corporation (branded, packaged,
consumer-products manufacturer) from
1995 to Aug. 1999; partner of Sidley &
Austin (law firm) prior thereto

Gail D. Knudsen, 39; Vice President Vice president and assistant
245 Summer Street, controller of CMA
Boston, MA 02210 (4)

Richard W. Lowry, 64 Trustee Private Investor since August, 1987.
10701 Charleston Drive
Vero Beach, FL 32963 (4)
</TABLE>

27
<PAGE>

<TABLE>
<S> <C> <C>
Salvatore Macera, 69; Trustee Private Investor (formerly Executive
26 Little Neck Lane Vice President and Director of Itek
New Seabury, MA 02349 Corporation (electronics) from 1975 to
(4) 1981).

William E. Mayer, 60; Trustee Partner, Park Avenue Equity Partners
500 Park Avenue, (venture capital) (formerly Dean,
5th Floor College of Business and Management,
New York, NY 10022 University of Maryland from October,
(1) (4) 1992 to November, 1996);Director,
Johns Manville; Director, Lee
Enterprises; Director, WR Hambrecht &
Co.

Mary D. McKenzie, 46; Vice President President of Liberty Funds Services,
One Financial Center, Inc.
Boston, MA 02111 (4)

Charles R. Nelson, 58; Trustee Van Voorhis Professor of Political
Department of Economics, Economy, Department of Economics of
University of Washington, the University of Washington
Seattle, WA 98195 (3)(4)

John J. Neuhauser, 57; Trustee Academic Vice President and Dean of
84 College Road Faculties since August, 1999, Boston
Chestnut Hill, MA College (formerly Dean, Boston College
02467-3838 (4) School of Management from September,
1977 to September, 1999).

Nicholas S. Norton, 41; Vice President Senior vice president of Liberty Funds
12100 East Iliff Services, Inc. since Aug. 1999; vice
Avenue, Aurora, CO president of Scudder Kemper, Inc. from
80014 (4) May 1994 to Aug. 1999

Joseph R. Palombo, 47 Trustee and Trustee and Chairman of the Board of
One Financial Center, Chairman of the Stein Roe Funds since October,
Boston, MA 02111 (1) (4) the Board 2000(formerly Vice President of the
Funds from April, 1999 to
August, 2000); Director of
Stein Roe since September ,
2000; Manager of Stein Roe
Floating Rate Limited Liability
Company since October, 2000;
Chief Operations Officer of
Mutual Funds, Liberty Financial
Companies, Inc. since August,
2000; Executive Vice President
and Director of the Colonial
Management Associates since
April, 1999; Executive Vice
President and Chief
Administrative Officer of
Liberty Funds Group since
April, 1999; and Chief
Operating Officer, Putnam
Mutual Funds from 1994 to
1998).

Thomas Stitzel, 64; Trustee Business Consultant (formerly
2208 Tawny Woods Place Professor of Finance from 1975 to 1999
Boise, ID 83706 (4) and Dean from 1977 to 1991, College of
Business, Boise State University);
Chartered Financial Analyst.
</TABLE>

28
<PAGE>

<TABLE>
<S> <C> <C>
Thomas C. Theobald, 63; Trustee Managing director, William Blair
Suite 1300, Capital Partners (private equity fund)
222 West Adams Street,
Chicago, IL 60606 (3)(4)

Anne-Lee Verville, 55; Trustee Consultant (formerly General Manager,
359 Stickney Hill Road Global Education Industry from 1994 to
Hopkinton, NH 03229 (4) 1997, and President, Applications
Solutions Division from 1991 to
1994, IBM Corporation (global
education and global
applications)).
</TABLE>

----------------------
(1) Trustee who is an "interested person" of the Trust and of Stein Roe, as
defined in the Investment Company Act of 1940.

(2) Member of the Executive Committee of the Board of Trustees, which is
authorized to exercise all powers of the Board with certain statutory
exceptions.

(3) Member of the Audit Committee of the Board, which makes recommendations to
the Board regarding the selection of auditors and confers with the auditors
regarding the scope and results of the audit.

(4) This person holds the corresponding officer or trustee position with SR&F
Base Trust.

Certain of the trustees and officers of the Funds are trustees or
officers of other investment companies managed by Stein Roe; and some of the
officers are also officers of Liberty Funds Distributor, Inc., the Funds'
distributor.

Officers and trustees affiliated with Stein Roe serve without any
compensation from the Trust. In compensation for their services to the Trust,
trustees who are not "interested persons" of the Trust or Stein Roe are paid an
annual retainer plus an attendance fee for each meeting of the Board or standing
committee thereof attended. The Trust has no retirement or pension plan. It is
estimated that the Trustees will receive the amounts set forth below for the
fiscal year ending October 31, 2001. For the calendar year ended December 31,
1999, the Trustees received the compensation set forth below for serving as
Trustees:

<TABLE>
<CAPTION>
Aggregate Estimated Aggregate Estimated
Compensation from the Compensation from the Total Compensation from
Global Thematic European Thematic the Fund Complex Paid
Equity Fund for the Equity Fund for the to the Trustees for the
Fiscal Year Ending Fiscal Year Ending Calendar Year Ended
Trustee October 31, 2001(1)* October 31, 2001(1) December 31, 1999(2)
------- ------------------- ------------------- --------------------
<S> <C> <C> <C>
Douglas A. Hacker $445 $445 $93,950
Janet Langford Kelly 445 445 103,450
Richard W. Lowry (5) 464 464 N/A
Salvatore Macera (5) 445 445 N/A
William E. Mayer (5) 464 464 N/A
Charles R. Nelson 445 445 108,050
John J. Neuhauser (5) 447 447 N/A
Thomas E. Stitzel (5) 445 445 95,000
Thomas C. Theobald 464 464 103,450
Anne-Lee Verville (5) 464(3) 464(4) N/A
</TABLE>

29
<PAGE>
--------------

1. Since neither Fund has completed its first full fiscal year, compensation is
estimated based upon payments to be made and upon estimates relative Fund net
assets.

2. At December 31, 1999, the Stein Roe Fund Complex consisted of four series of
the Trust, one series of Liberty-Stein Roe Funds Trust, four series of
Liberty-Stein Roe Funds Municipal Trust, 12 series of Liberty-Stein Roe Funds
Investment Trust, five series of Liberty-Stein Roe Advisor Trust, five series
of SteinRoe Variable Investment Trust, 12 Portfolio of SR&F Base Trust,
Liberty-Stein Roe Advisor Floating Rate Fund, Liberty-Stein Roe Institutional
Floating Rate Income Fund, and Stein Roe Floating Rate Limited Liability
Company.

3. Total estimated compensation of $464 is payable in later years as deferred
compensation.

4. Total estimated compensation of $464 is payable in later years as deferred
compensation.

5. Elected as Trustee on December 27, 2000.

CODES OF ETHICS

The Funds, Stein Roe, Unibank and the Distributor have adopted codes
of ethics pursuant to the requirements of the 1940 Act. The codes of ethics
permit personnel subject to the codes to invest in securities, including
securities that may be purchased or held by the Funds.

PRINCIPAL SHAREHOLDERS

As of the date of this SAI, the Funds had no outstanding shares.

INVESTMENT ADVISORY AND OTHER SERVICES

INVESTMENT ADVISER

Stein Roe provides management and administrative services to the Funds. Stein
Roe is a wholly owned subsidiary of Liberty Funds Group, LLC which is a wholly
owned subsidiary of Liberty Financial Services, Inc., which is a wholly owned
subsidiary of Liberty Financial Companies, Inc. (Liberty Financial), which is a
majority owned subsidiary of Liberty Corporate Holdings, Inc., which is a wholly
owned subsidiary of LFC Holdings, Inc., which is a wholly owned subsidiary of
Liberty Mutual 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. As of September 30, 2000,
Stein Roe managed over $24.2 billion in assets.

On November 1, 2000, Liberty Financial announced that it had retained CS
First Boston to help it explore strategic alternatives, including the possible
sale of Liberty Financial.

The directors of Stein Roe are C. Allen Merritt, Jr., J. Andrew Hilbert,
Stephen E. Gibson and Joseph R. Palombo. Mr. Merritt is Chief Operating Officer
of Liberty Financial. Mr. Hilbert is Senior Vice President and Chief Financial
Officer of Liberty Financial. The positions held by Messrs. Gibson and Palombo
are listed above. The business address of Messrs. Merritt and Hilbert is Federal
Reserve Plaza, Boston, MA 02210. The business address of Messrs. Gibson and
Palombo is One Financial Center, Boston, MA 02111.

30
<PAGE>

Stein Roe Counselor(SM) is a professional investment advisory service
offered by Stein Roe to Fund shareholders. Stein Roe Counselor(SM) 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 Counselor(SM) 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>
------------------------------------------------------------------------------------

CURRENT RATES (AS
A % OF AVERAGE NET
FUNDS TYPE ASSETS)
------------------------------------------------------------------------------------
<S> <C> <C>
Management Fee 0.85%
Global Thematic Equity Fund and --------------------------------------------------
European Thematic Equity Fund Administrative Fee 0.15%
------------------------------------------------------------------------------------
</TABLE>

Stein Roe provides office space and executive and other personnel to
the Fund, and bears any sales or promotional expenses. The Fund pays all
expenses other than those paid by Stein Roe, including but not limited to
printing and postage charges, securities registration and custodian fees, and
expenses incidental to its organization.

The administrative agreement provides that Stein Roe shall reimburse
the Fund to the extent that total annual expenses of the Fund (including fees
paid to Stein Roe, but excluding taxes, interest, commissions and other normal
charges incident to the

31
<PAGE>
purchase and sale of portfolio securities, and expenses of litigation to the
extent permitted under applicable state law) exceed the applicable limits
prescribed by any state in which shares of the Fund are being offered for sale
to the public; provided, however, Stein Roe is not required to reimburse the
Fund an amount in excess of fees paid by the Fund under that agreement for such
year. In addition, in the interest of further limiting expenses, Stein Roe may
waive its fees and/or absorb certain expenses for the Fund. Any such
reimbursement will enhance the yield of the Fund.

The management agreement provides that neither Stein Roe, nor any of
its directors, officers, stockholders (or partners of stockholders), agents, or
employees shall have any liability to the Trust or any shareholder of the Trust
for any error of judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance by Stein Roe of
its duties under the agreement, except for liability resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under the
agreement.

Any expenses that are attributable solely to the organization,
operation, or business of a series of the Trust are paid solely out of the
assets of that series. Any expenses incurred by the Trust that are not solely
attributable to a particular series are apportioned in such manner as Stein Roe
determines is fair and appropriate, unless otherwise specified by the Board of
Trustees.

INVESTMENT SUBADVISER

Unibank Securities, Inc. ("Unibank"), doing business as Unibank
Investment Management in the United States, serves as the Funds' investment
subadviser, with day-to-day responsibility for managing each Fund's investment
portfolio. Unibank is located at 13-15 West 54th Street, New York, NY 10019.
Unibank offers a range of equity investment products and services to
institutional clients, including private and public retirement funds, unions,
endowments, foundations, and insurance companies, as well as to mutual fund
sponsors on a subadvisory basis. Unibank is an indirect wholly-owned subsidiary
of Unibank A/S, one of Scandinavia's leading financial institutions, which in
turn is a direct wholly-owned subsidiary of Unidanmark A/S, which in turn is a
direct wholly-owned subsidiary of Nordic Baltic Holding AB. The principal
executive offices of Unibank A/S are located at Torvegade 2 DK-1786 Copenhagen
V., Denmark. The principal executive offices of Unidanmark A/S are located at
Strandgrade 3 DK-1786 Copenhagen V., Denmark. The principal executive offices of
Nordic Baltic Holding AB are located at Hamngatan 10, SE-105 71 Stockholm,
Sweden.

Under each of the subadvisory agreements with Stein Roe and the Trust, on
behalf of the Funds, Unibank, under the supervision of the Board of Trustees of
the Funds and Stein Roe, manages the investment of the assets of the Fund in
accordance with the investment objectives, policies and limitations of the Fund;
places purchase and sale orders for portfolio transactions for the Fund;
evaluates such economic, statistical and financial information and undertakes
such investment research as it shall deem advisable; employs professional
portfolio managers to provide research services to the Fund; and reports results
to the Board of Trustees. For the services rendered by Unibank under the
subadvisory agreement, Stein Roe pays Unibank a monthly fee at the annual rate
of 0.60% of the average daily net asset value of each Fund. Any liability of
Unibank to the Trust, the Funds and/or Fund shareholders is limited to
situations involving Unibank's own willful misfeasance, bad faith or gross
negligence in the

32
<PAGE>
performance of its duties. In addition to the services provided by Unibank to
the Funds, Unibank also provides subadvisory and other services and facilities
to other investment companies.

BOOKKEEPING AND ACCOUNTING AGREEMENT

Pursuant to a separate agreement with the Trust, Stein Roe receives
a fee for performing certain bookkeeping and accounting services for the Fund.
For services provided to the Trust, Stein Roe receives an annual fee of $25,000
per series plus .0025 of 1% of average net assets over $50 million.

DISTRIBUTOR

Fund shares are distributed by Liberty Funds Distributor, Inc.
("Distributor"), One Financial Center, Boston, MA 02111, under a Distribution
Agreement. The Distributor is a subsidiary of Colonial Management Associates,
Inc., which is an indirect subsidiary of Liberty Financial. The Distribution
Agreement continues in effect from year to year, provided such continuance is
approved annually (i) by a majority of the trustees or by a majority of the
outstanding voting securities of the Trust, and (ii) by a majority of the
trustees who are not parties to the Agreement or interested persons of any such
party. The Trust has agreed to pay all expenses in connection with registration
of its shares with the Securities and Exchange Commission and auditing and
filing fees in connection with registration of its shares under the various
state blue sky laws and assumes the cost of preparation of prospectuses and
other expenses.

As agent, the Distributor offers shares of the Funds to investors in
states where the shares are qualified for sale, at net asset value, without
sales commissions or other sales load to the investor. In addition, no sales
commission or "12b-1" payment is paid by the Funds. The Distributor offers the
Funds' shares only on a best-efforts basis.

TRANSFER AGENT

Liberty Funds Services, Inc. ("LFS"), is the agent of the Trust for
the transfer of shares, disbursement of dividends, and maintenance of
shareholder accounting records. For performing these services, LFS receives from
the Funds a fee based on an annual rate of 0.22 of 1% of the Funds' average net
assets. The Trust believes the charges by LFS to the Funds are comparable to
those of other companies performing similar services. (See Investment Advisory
and Other Services.)

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.

33
<PAGE>
Portfolio securities purchased in the United States are maintained
in the custody of the Bank or of other domestic banks or depositories. Portfolio
securities purchased outside of the United States are maintained in the custody
of foreign banks and trust companies that are members of the Bank's Global
Custody Network and foreign depositories ("foreign sub-custodians"). Each of the
domestic and foreign custodial institutions holding portfolio securities has
been approved by the Board of Trustees in accordance with regulations under the
Investment Company Act of 1940.

Each Board of Trustees reviews, at least annually, whether it is in
the best interests of the Funds and their shareholders to maintain assets in
each of the countries in which the Funds invest with particular foreign
sub-custodians in such countries, pursuant to contracts between such respective
foreign sub-custodians and the Bank. The review includes an assessment of the
risks of holding assets in any such country (including risks of expropriation or
imposition of exchange controls), the operational capability and reliability of
each such foreign sub-custodian, and the impact of local laws on each such
custody arrangement. Each Board of Trustees is aided in its review by the Bank,
which has assembled the network of foreign sub-custodians, as well as by Stein
Roe and counsel. However, with respect to foreign sub-custodians, there can be
no assurance that the Funds and the value of their shares will not be adversely
affected by acts of foreign governments, financial or operational difficulties
of the foreign sub-custodians, difficulties and costs of obtaining jurisdiction
over or enforcing judgments against the foreign sub-custodians, or application
of foreign law to the foreign sub-custodial arrangements. Accordingly, an
investor should recognize that the non-investment risks involved in holding
assets abroad are greater than those associated with investing in the United
States.

The Funds may invest in obligations of the Bank and may purchase or
sell securities from or to the Bank.

INDEPENDENT ACCOUNTANTS

The independent auditors for the Funds are Ernst & Young LLP, 200 Clarendon
Street, Boston, MA 02116. The independent auditors audit and report on the
annual financial statements, review certain regulatory reports and the federal
income tax returns, and perform other professional accounting, auditing, tax and
advisory services when engaged to do so by the Trust.

PORTFOLIO TRANSACTIONS

Transactions on stock exchanges and other agency transactions for
the accounts of the Funds involve the payment by the Funds of negotiated
brokerage commissions. Such commissions vary among different brokers. A
particular broker may charge different commissions according to such factors as
the difficulty and size of the transaction. There is generally no stated
commission in the case of securities traded in the over-the-counter markets, but
the price paid by the Funds usually includes an undisclosed dealer commission,
markup or markdown. In underwritten offerings, the price paid by the Funds
includes a disclosed, fixed commission or discount retained by the underwriter
or dealer.

34
<PAGE>

In addition to selecting portfolio investments for the Funds,
Unibank selects brokers or dealers to execute securities purchases and sales for
the Funds' accounts. Unibank selects only brokers or dealers which it believes
are financially responsible, will provide efficient and effective services in
executing, clearing and settling an order and will charge commission rates
which, when combined with the quality of the foregoing services, will produce
best price and execution for the transaction. This does not necessarily mean
that the lowest available brokerage commission will be paid. However, the
commissions are believed to be competitive with generally prevailing rates.
Unibank uses its best efforts to obtain information as to the general level of
commission rates being charged by the brokerage community from time to time and
evaluates the overall reasonableness of brokerage commissions paid on
transactions by reference to such data. In making such evaluation, all factors
affecting liquidity and execution of the order, as well as the amount of the
capital commitment by the broker in connection with the order, are taken into
account.

Unibank's receipt of research services from brokers may sometimes be
a factor in its selection of a broker that it believes will provide best price
and execution for a transaction. These research services include not only a wide
variety of reports on such matters as economic and political developments,
industries, companies, securities, portfolio strategy, account performance,
daily prices of securities, stock and bond market conditions and projections,
asset allocation and portfolio structure, but also meetings with management
representatives of issuers and with other analysts and specialists. Although it
is in many cases not possible to assign an exact dollar value to these services,
they may, to the extent used, tend to reduce Unibank's expenses. Such services
may be used by Unibank in managing other client accounts and in some cases may
not be used with respect to the Funds. Receipt of services or products other
than research from brokers is not a factor in the selection of brokers.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution,
purchases of shares of a Fund by customers of broker-dealers may be considered
as a factor in the selection of broker-dealers to execute the Funds' securities
transactions.

Unibank may cause a Fund to pay a broker-dealer that provides
brokerage and research services to Unibank an amount of commission for effecting
a securities transaction for that Fund in excess of the amount another
broker-dealer would have charged for effecting that transaction. Unibank must
determine in good faith that such greater commission is reasonable in relation
to the value of the brokerage and research services provided by the executing
broker-dealer viewed in terms of that particular transaction or Unibank's
overall responsibilities to the Fund and its other clients. Unibank's authority
to cause a Fund to pay greater commissions is also subject to such policies as
the Trustees of the Trust may adopt from time to time.

Transactions in unlisted securities are carried out through
broker-dealers who make the primary market for such securities unless, in the
judgment of Unibank, a more favorable price can be obtained by carrying out such
transactions through other brokers or dealers.

ADDITIONAL INCOME TAX CONSIDERATIONS

Each Fund intends to qualify under Subchapter M of the Internal
Revenue Code and to comply with the special provisions of the Internal Revenue
Code that

35
<PAGE>
relieve it of federal income tax to the extent of its net investment income and
capital gains currently distributed to shareholders.

Because dividend and capital gains distributions reduce net asset
value, a shareholder who purchases shares shortly before a record date will, in
effect, receive a return of a portion of his investment in such distribution.
The distribution would nonetheless be taxable to him, even if the net asset
value of shares were reduced below his cost. However, for federal income tax
purposes the shareholder's original cost would continue as his tax basis.

Each Fund expects that less than 100% of its dividends will qualify
for the deduction for dividends received by corporate shareholders.

Each Fund may be subject to withholding and other taxes imposed by
foreign countries. Tax treaties between certain countries and the United States
may reduce or eliminate such taxes. Investors may be entitled to claim U.S.
foreign tax credits with respect to such taxes, subject to certain provisions
and limitations contained in the Code. Specifically, if more than 50% of a
Fund's total assets at the close of any fiscal year consist of stock or
securities of foreign corporations, the Fund may file an election with the
Internal Revenue Service pursuant to which shareholders of the Fund will be
required to (i) include in ordinary gross income (in addition to taxable
dividends actually received) their pro rata shares of foreign income taxes paid
by the Fund even though not actually received, (ii) treat such respective pro
rata shares as foreign income taxes paid by them, and (iii) deduct such pro rata
shares in computing their taxable incomes, or, alternatively, use them as
foreign tax credits, subject to applicable limitations, against their U.S.
income taxes. Shareholders who do not itemize deductions for federal income tax
purposes will not, however, be able to deduct their pro rata portion of foreign
taxes paid by a Fund, although such shareholders will be required to include
their share of such taxes in gross income. Shareholders who claim a foreign tax
credit may be required to treat a portion of dividends received from a Fund as
separate category income for purposes of computing the limitations on the
foreign tax credit available to such shareholders. Tax-exempt shareholders will
not ordinarily benefit from this election relating to foreign taxes. Each year,
each Fund will notify shareholders of the amount of (i) each shareholder's pro
rata share of foreign income taxes paid by the Fund and (ii) the portion of Fund
dividends which represents income from each foreign country, if the Fund
qualifies to pass along such credit.

Passive Foreign Investment Companies. Each Fund may purchase the
securities of certain foreign investment funds or trusts called passive foreign
investment companies ("PFICs"). In addition to bearing their proportionate share
of Fund expenses (management fees and operating expenses), shareholders will
also indirectly bear similar expenses of PFICs. Capital gains on the sale of
PFIC holdings will be deemed to be ordinary income regardless of how long the
Fund holds its investment. In addition, the Fund may be subject to corporate
income tax and an interest charge on certain dividends and capital gains earned
from PFICs, regardless of whether such income and gains are distributed to
shareholders.

In accordance with tax regulations, each Fund intends to treat PFICs
as sold on the last day of their fiscal year and recognize any gains for tax
purposes at that time; losses will not be recognized. Such gains will be
considered ordinary income which it will be required to distribute even though
it has not sold the security and received cash to pay such distributions.

36
<PAGE>
INVESTMENT PERFORMANCE

Either Fund may quote certain total return figures from time to
time. A "Total Return" on a per share basis is the amount of dividends
distributed per share plus or minus the change in the net asset value per share
for a period. A "Total Return Percentage" may be calculated by dividing the
value of a share at the end of a period by the value of the share at the
beginning of the period and subtracting one. For a given period, an "Average
Annual Total Return" may be computed by finding the average annual compounded
rate that would equate a hypothetical initial amount invested of $1,000 to the
ending redeemable value.

Average Annual Total Return is computed as follows: ERV = P(1+T)(n)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the period at the end of the
period (or fractional portion).

Investment performance figures assume reinvestment of all dividends
and distributions and do not take into account any federal, state, or local
income taxes which shareholders must pay on a current basis. They are not
necessarily indicative of future results. The performance of a Fund is a result
of conditions in the securities markets, portfolio management, and operating
expenses. Although investment performance information is useful in reviewing a
Fund's performance and in providing some basis for comparison with other
investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods.

Each Fund may note its mention or recognition in newspapers,
magazines, or other media from time to time. However, the Funds assume no
responsibility for the accuracy of such data. Newspapers and magazines which
might mention the Funds include, but are not limited to, the following:

Architectural Digest
Arizona Republic
Atlanta Constitution
Atlantic Monthly
Associated Press
Barron's
Bloomberg
Boston Globe
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Investment Advisor
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World

37
<PAGE>
Forbes
Fortune
Fund Action
Fund Marketing Alert
Gourmet
Individual Investor
Investment Dealers' Digest
Investment News
Investor's Business Daily
Kiplinger's Personal Finance Magazine Knight-Ridder Lipper Analytical Services
Los Angeles Times Louis Rukeyser's Wall Street Money Money on Line Morningstar
Mutual Fund Market News Mutual Fund News Service Mutual Funds Magazine Newsday
Newsweek New York Daily News The New York Times No-Load Fund Investor Pension
World Pensions and Investment Personal Investor Physicians Financial News Jane
Bryant Quinn (syndicated column) Reuters The San Francisco Chronicle Securities
Industry Daily Smart Money Smithsonian Strategic Insight Street.com Time Travel
& Leisure USA Today U.S. News & World Report Value Line The Wall Street Journal
The Washington Post Working Women Worth Your Money

In advertising and sales literature, each Fund may compare its
performance with that of other mutual funds, indexes or averages of other mutual
funds, indexes of related financial assets or data, and other competing
investment and deposit products available from or through other financial
institutions. The composition of these indexes or averages differs from that of
each Fund. Comparison of a Fund to an alternative investment should be made with
consideration of differences in features and expected performance. All of the
indexes and averages noted below will be obtained from the indicated sources or
reporting services, which the Funds believe to be

38
<PAGE>
generally accurate. Each Fund may compare its performance to the Consumer Price
Index (All Urban), a widely recognized measure of inflation. Each Fund's
performance may be compared to the following indexes or averages:

Dow-Jones Industrial Average New York Stock Exchange Composite Index
Standard & Poor's 500 Stock Index American Stock Exchange Composite Index
Standard & Poor's 400 Industrials Nasdaq Composite
Russell 2000 Index Nasdaq Industrials
Wilshire 5000
(These indexes are widely (These indexes generally reflect the
recognized indicators of performance of stocks traded in the
general U.S. stock market indicated markets.)
results.)

In addition, each Fund may compare its performance to the indicated
benchmarks:

Lipper Equity Fund Average
Lipper General Equity Fund Average
Lipper International & Global Funds Average
Lipper International Fund Index
Morningstar All Equity Funds Average
Morningstar Equity Fund Average
Morningstar General Equity Average*
Morningstar Hybrid Fund Average
Morningstar U.S. Diversified Average

-------------
* Includes Morningstar Aggressive Growth, Growth, Balanced,
Equity Income, and Growth and Income Averages.

The Lipper International Fund Index reflects the net asset value
weighted return of the ten largest international funds. The Lipper and
Morningstar averages are unweighted averages of total return performance of
mutual funds as classified, calculated, and published by these independent
services that monitor the performance of mutual funds. The Funds may also use
comparative performance as computed in a ranking by Lipper or category averages
and rankings provided by another independent service. Should Lipper or another
service reclassify a Fund to a different category or develop (and place a Fund
into) a new category, the Fund may compare its performance or ranking with those
of other funds in the newly assigned category, as published by the service.

A Fund may also cite its rating, recognition, or other mention by
Morningstar or any other entity. Morningstar's rating system is based on
risk-adjusted total return performance and is expressed in a star-rating format.
The risk-adjusted number is computed by subtracting a fund's risk score (which
is a function of the fund's monthly returns less the 3-month T-bill return) from
its load-adjusted total return score. This numerical score is then translated
into rating categories, with the top 10% labeled five star, the next 22.5%
labeled four star, the next 35% labeled three star, the next 22.5% labeled two
star, and the bottom 10% one star. A high rating reflects either above-average
returns or below-average risk, or both.

Of course, past performance is not indicative of future results.

----------------

To illustrate the historical returns on various types of financial
assets, the Funds may use historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson constructs (or obtains)
very long-term (since

39
<PAGE>
1926) total return data (including, for example, total return indexes, total
return percentages, average annual total returns and standard deviations of such
returns) for the following asset types:

Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index

---------------------

The Funds may also use hypothetical returns to be used as an example in a
mix of asset allocation strategies. One such example is reflected in the chart
below, which shows the effect of tax deferral on a hypothetical investment. This
chart assumes that an investor invested $2,000 a year on January 1, for any
specified period, in both a Tax-Deferred Investment and a Taxable Investment,
that both investments earn either 6%, 8% or 10% compounded annually, and that
the investor withdrew the entire amount at the end of the period. (A tax rate of
39.6% is applied annually to the Taxable Investment and on the withdrawal of
earnings on the Tax-Deferred Investment.)

TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT

<TABLE>
<CAPTION>
INTEREST RATE 6% 8% 10% 6% 8% 10%
Compounding
Years Tax-Deferred Investment Taxable Investment
----- ---------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 150,484 82,067 97,780 117,014
20 62,943 75,543 91,947 59,362 68,109 78,351
15 41,684 47,304 54,099 40,358 44,675 49,514
10 24,797 26,820 29,098 24,453 26,165 28,006
5 11,178 11,613 12,072 11,141 11,546 11,965
1 2,072 2,096 2,121 2,072 2,096 2,121
</TABLE>

Dollar Cost Averaging. Dollar cost averaging is an investment
strategy that requires investing a fixed amount of money in Fund shares at set
intervals. This allows you to purchase more shares when prices are low and fewer
shares when prices are high. Over time, this tends to lower your average cost
per share. Like any investment strategy, dollar cost averaging cannot guarantee
a profit or protect against losses in a steadily declining market. Dollar cost
averaging involves uninterrupted investing regardless of share price and
therefore may not be appropriate for every investor.

From time to time, a Fund may offer in its advertising and sales
literature to send an investment strategy guide, a tax guide, or other
supplemental information to investors and shareholders. It may also mention the
Stein Roe Counselor(SM) and the Stein Roe Personal Counselor(SM) programs and
asset allocation and other investment strategies.

40
<PAGE>
APPENDIX -- RATINGS

RATINGS IN GENERAL

A rating of a rating service represents the service's opinion as to
the credit quality of the security being rated. However, the ratings are general
and are not absolute standards of quality or guarantees as to the
creditworthiness of an issuer. Consequently, Stein Roe believes that the quality
of debt securities invests should be continuously reviewed and that individual
analysts give different weightings to the various factors involved in credit
analysis. A rating is not a recommendation to purchase, sell or hold a security
because it does not take into account market value or suitability for a
particular investor. When a security has received a rating from more than one
service, each rating should be evaluated independently. Ratings are based on
current information furnished by the issuer or obtained by the rating services
from other sources which they consider reliable. Ratings may be changed,
suspended or withdrawn as a result of changes in or unavailability of such
information, or for other reasons.

The following is a description of the characteristics of ratings of
corporate debt securities used by Moody's Investors Service, Inc. ("Moody's")
and Standard & Poor's Ratings Services ("S&P").

RATINGS BY MOODY'S

Aaa. Bonds rated Aaa are judged to be the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or an exceptionally stable margin and
principal is secure. Although the various protective elements are likely to
change, such changes as can be visualized are more unlikely to impair the
fundamentally strong position of such bonds.

Aa. Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa bonds.

A. Bonds rated A possess many favorable investment attributes and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.

Baa. Bonds rated Baa are considered as medium grade obligations; i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.

Ba. Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

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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

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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.

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