File No. 33-14954
Rule 497(e)
STEINROE VARIABLE INVESTMENT TRUST
SUPPLEMENT TO MAY 1, 1999 STATEMENT OF ADDITIONAL INFORMATION
NAME CHANGE
The name of Stein Roe Special Venture Fund, Variable Series
was changed on May 5, 1999 to Stein Roe Small Company Growth Fund,
Variable Series.
PORTFOLIO TRANSACTIONS
The section of this Statement of Additional Information
entitled Portfolio Transactions is amended to read as follows:
Stein Roe & Farnham Incorporated ("Stein Roe") places the
orders for the purchase and sale of portfolio securities and
options and futures contracts for its clients, including private
clients and mutual fund clients ("Clients"). Stein Roe's
overriding objective in selecting brokers and dealers to effect
portfolio transactions is to seek the best combination of net
price and execution. The best net price, giving effect to
brokerage commissions, if any, is an important factor in this
decision; however, a number of other judgmental factors may also
enter into the decision. These factors include Stein Roe's
knowledge of negotiated commission rates currently available and
other current transaction costs; the nature of the security being
purchased or sold; the size of the transaction; the desired timing
of the transaction; the activity existing and expected in the
market for the particular security; confidentiality; the
execution, clearance and settlement capabilities of the broker or
dealer selected and others considered; Stein Roe's knowledge of
the financial condition of the broker or dealer selected and such
other brokers and dealers; and Stein Roe's knowledge of actual or
apparent operation problems of any broker or dealer.
Recognizing the value of these factors, Stein Roe may cause a
Client to pay a brokerage commission in excess of that which
another broker may have charged for effecting the same
transaction. Stein Roe has established internal policies for the
guidance of its trading personnel, specifying minimum and maximum
commissions to be paid for various types and sizes of transactions
and effected for Clients in those cases where Stein Roe has
discretion to select the broker or dealer by which the transaction
is to be executed. Stein Roe has discretion for all trades of the
Funds. Transactions which vary from the guidelines are subject to
periodic supervisory review. These guidelines are reviewed and
periodically adjusted, and the general level of brokerage
commissions paid is periodically reviewed by Stein Roe.
Evaluations of the reasonableness of brokerage commissions, based
on the factors described in the preceding paragraph, are made by
Stein Roe's trading personnel while effecting portfolio
transactions. The general level of brokerage commissions paid is
reviewed by Stein Roe, and reports are made annually to the Board
of Trustees.
Stein Roe maintains and periodically updates a list of
approved brokers and dealers which, in Stein Roe's judgment, are
generally capable of providing best price and execution and are
financially stable. Stein Roe's traders are directed to use only
brokers and dealers on the approved list, except in the case of
Client designations of brokers or dealers to effect transactions
for such Clients' accounts. Stein Roe generally posts certain
Client information on the "Alert" broker database system as a
means of facilitating the trade affirmation and settlement
process.
It is Stein Roe's practice, when feasible, to aggregate for
execution as a single transaction orders for the purchase or sale
of a particular security for the accounts of several Clients, in
order to seek a lower commission or more advantageous net price.
The benefit, if any, obtained as a result of such aggregation
generally is allocated pro rata among the accounts of Clients
which participated in the aggregated transaction. In some
instances, this may involve the use of an "average price"
execution wherein a broker or dealer to which the aggregated order
has been given will execute the order in several separate
transactions during the course of a day at differing prices and,
in such case, each Client participating in the aggregated order
will pay or receive the same price and commission, which will be
an average of the prices and commissions for the several separate
transactions executed by the broker or dealer.
Stein Roe sometimes makes use of an indirect electronic
access to the New York Stock Exchange's "SuperDOT" automated
execution system, provided through a NYSE member floor broker, W&D
Securities, Inc., a subsidiary of Jeffries & Co., Inc.,
particularly for the efficient execution of smaller orders in NYSE
listed equities. Stein Roe sometimes uses similar arrangements
through Billings & Co., Inc. and Driscoll & Co., Inc., floor
broker members of the Chicago Stock Exchange, for transactions to
be executed on that exchange. In using these arrangements, Stein
Roe must instruct the floor broker to refer the executed
transaction to another brokerage firm for clearance and
settlement, as the floor brokers do not deal with the public.
Transactions of this type sometimes are referred to as "step-in"
or "step-out" transactions. The brokerage firm to which the
executed transaction is referred may include, in the case of
transactions effected through W&D Securities, brokerage firms
which provide Stein Roe investment research or related services.
Stein Roe places certain trades for the Funds through its
affiliate AlphaTrade, Inc. ("ATI"). ATI is a wholly owned
subsidiary of Colonial Management Associates, Inc. ATI is a fully
disclosed introducing broker that limits its activities to
electronic execution of transactions in listed equity securities.
The Funds pay ATI a commission for these transactions. The Funds
have adopted procedures consistent with Investment Company Act
Rule 17e-1 governing such transactions. Certain of Stein Roe's
officers also serve as officers, directors and/or employees of
ATI.
Consistent with the Rules of Fair Practice of National
Securities Dealers, Inc. and subject to seeking best executing and
such other policies as the trustees of the Funds may determine,
Stein Roe may consider sales of shares of each of the Funds as a
factor in the selection of broker-dealers to execute such mutual
fund securities transactions.
Investment Research Products and Services Furnished by Brokers and
Dealers
Stein Roe engages in the long-standing practice in the money
management industry of acquiring research and brokerage products
and services ("research products") from broker-dealer firms in
return directing trades for Client accounts to those firms. In
effect, Stein Roe is using the commission dollars generated from
these Client accounts to pay for these research products. The
money management industry uses the term "soft dollars" to refer to
this industry practice. Stein Roe may engage in soft dollar
transactions on trades for those Client accounts for which Stein
Roe has the discretion to select the brokers-dealer.
The ability to direct brokerage for a Client account belongs
to the Client and not to Stein Roe. When a Client grants Stein
Roe the discretion to select broker-dealers for Client trades,
Stein Roe has a duty to seek the best combination of net price and
execution. Stein Roe faces a potential conflict of interest with
this duty when it uses Client trades to obtain soft dollar
products. This conflict exists because Stein Roe is able to use
the soft dollar products in managing its Client accounts without
paying cash ("hard dollars") for the product. This reduces Stein
Roe's expenses.
Moreover, under a provision of the federal securities laws
applicable to soft dollars, Stein Roe is not required to use the
soft dollar product in managing those accounts that generate the
trade. Thus, the Client accounts that generate the brokerage
commission used to acquire the soft dollar product may not benefit
directly from that product. In effect, those accounts are cross
subsidizing Stein Roe's management of the other accounts that do
benefit directly from the product. This practice is explicitly
sanctioned by a provision of the Securities Exchange Act of 1934,
which creates a "safe harbor" for soft dollar transactions
conducted in a specified manner. Although it is inherently
difficult, if not impossible, to document, Stein Roe believes that
over time most, if not all, Clients benefit from soft dollar
products such that cross subsidizations even out.
Stein Roe attempts to reduce or eliminate this conflict by
directing Client trades for soft dollar products only if Stein Roe
concludes that the broker-dealer supplying the product is capable
of providing a combination of the best net price and execution on
the trade. As noted above, the best net price, while significant,
is one of a number of judgmental factors Stein Roe considers in
determining whether a particular broker is capable of providing
the best net price and execution. Stein Roe may cause a Client
account to pay a brokerage commission in a soft dollar trade in
excess of that which another broker-dealer might have charged for
the same transaction.
Stein Roe acquires two types of soft dollar research
products: (i) proprietary research created by the broker-dealer
firm executing the trade and (ii) other products created by third
parties that are supplied to Stein Roe through the broker-dealer
firm executing the trade.
Proprietary research consists primarily of traditional
research reports, recommendations and similar materials produced
by the in house research staffs of broker-dealer firms. This
research includes evaluations and recommendations of specific
companies or industry groups, as well as analyses of general
economic and market conditions and trends, market data, contacts
and other related information and assistance. Stein Roe's
research analysts periodically rate the quality of proprietary
research produced by various broker-dealer firms. Based on these
evaluations, Stein Roe develops target levels of commission
dollars on a firm-by-firm basis. Stein Roe attempts to direct
trades to each firm to meet these targets.
Stein Roe also uses soft dollars to acquire products created
by third parties that are supplied to Stein Roe through broker-
dealers executing the trade (or other broker-dealers who "step in"
to a transaction and receive a portion of the brokerage commission
for the trade). These products include the following:
* Database Services-comprehensive databases containing current
and/or historical information on companies and industries.
Examples include historical securities prices, earnings
estimates, and SEC filings. These services may include software
tools that allow the user to search the database or to prepare
value-added analyses related to the investment process (such as
forecasts and models used in the portfolio management process).
* Quotation/Trading/News Systems-products that provide real time
market data information, such as pricing of individual
securities and information on current trading, as well as a
variety of news services.
* Economic Data/Forecasting Tools-various macro economic
forecasting tools, such as economic data and economic and
political forecasts for various countries or regions.
* Quantitative/Technical Analysis-software tools that assist in
quantitative and technical analysis of investment data.
* Fundamental Industry Analysis-industry-specific fundamental
investment research.
* Fixed Income Security Analysis-data and analytical tools that
pertain specifically to fixed income securities. These tools
assist in creating financial models, such as cash flow
projections and interest rate sensitivity analyses, that are
relevant to fixed income securities.
* Other Specialized Tools-other specialized products, such as
specialized economic consulting analyses and attendance at
investment oriented conferences.
Many third-party products include computer software or on-
line data feeds. Certain products also include computer hardware
necessary to use the product.
Certain of these third party services may be available
directly from the vendor on a hard dollar basis. Others are
available only through broker-dealer firms for soft dollars.
Stein Roe evaluates each product to determine a cash ("hard
dollars") value of the product to Stein Roe. Stein Roe then on a
product-by-product basis targets commission dollars in an amount
equal to a specified multiple of the hard dollar value to the
broker-dealer that supplies the product to Stein Roe. In general,
these multiples range from 1.25 to 1.85 times the hard dollar
value. Stein Roe attempts to direct trades to each firm to meet
these targets. (For example, if the multiple is 1.5:1.0, assuming
a hard dollar value of $10,000, Stein Roe will target to the
broker-dealer providing the product trades generating $15,000 in
total commissions.)
The targets that Stein Roe establishes for both proprietary
and for third party research products typically will reflect
discussions that Stein Roe has with the broker-dealer providing
the product regarding the level of commissions it expects to
receive for the product. However, these targets are not binding
commitments, and Stein Roe does not agree to direct a minimum
amount of commissions to any broker-dealer for soft dollar
products. In setting these targets, Stein Roe makes a
determination that the value of the product is reasonably
commensurate with the cost of acquiring it. These targets are
established on a calendar year basis. Stein Roe will receive the
product whether or not commissions directed to the applicable
broker-dealer are less than, equal to or in excess of the target.
Stein Roe generally will carry over target shortages and excesses
to the next year's target. Stein Roe believes that this practice
reduces the conflicts of interest associated with soft dollar
transactions, since Stein Roe can meet the non-binding
expectations of broker-dealers providing soft dollar products over
flexible time periods. In the case of third party products, the
third party is paid by the broker-dealer and not by Stein Roe.
Stein Roe may enter into a contract with the third party vendor to
use the product. (For example, if the product includes software,
Stein Roe will enter into a license to use the software from the
vendor.)
In certain cases, Stein Roe uses soft dollars to obtain
products that have both research and non-research purposes.
Examples of non-research uses are administrative and marketing
functions. These are referred to as "mixed use" products. As of
the date of this SAI, Stein Roe acquires two mixed use products.
These are (i) a fixed income security data service and (ii) a
mutual fund performance ranking service. In each case, Stein Roe
makes a good faith evaluation of the research and non-research
uses of these services. These evaluations are based upon the time
spent by Firm personnel for research and non-research uses. Stein
Roe pays the provider in cash ("hard dollars") for the non-
research portion of its use of these products.
Stein Roe may use research obtained from soft dollar trades
in the management of any of its discretionary accounts. Thus,
consistent with industry practice, Stein Roe does not require that
the Client account that generates the trade receive any benefit
from the soft dollar product obtained through the trade. As noted
above, this may result in cross subsidization of soft dollar
products among Client accounts. As noted therein, this practice
is explicitly sanctioned by a provision of the Securities Exchange
Act of 1934, which creates a "safe harbor" for soft dollar
transactions conducted in a specified manner.
In certain cases, Stein Roe will direct a trade to one
broker-dealer with the instruction that it execute the trade and
pay over a portion of the commission from the trade to another
broker-dealer who provides Stein Roe with a soft dollar research
product. The broker-dealer executing the trade "steps out" of a
portion of the commission in favor of the other broker-dealer
providing the soft dollar product. Stein Roe may engage in step
out transactions in order to direct soft dollar commissions to a
broker-dealer which provides research but may not be able to
provide best execution. Brokers who receive step out commissions
typically are brokers providing a third party soft dollar product
that is not available on a hard dollars basis. Stein Roe has not
engaged in step out transactions as a manner of compensating
broker-dealers that sell shares of investment companies managed by
Stein Roe.
As stated above, Stein Roe's overriding objective in
effecting portfolio transactions for the Funds is to seek to
obtain the best combination of price and execution. However,
consistent with the provisions of the Rules of Conduct of the
National Association of Securities Dealers, Inc., Stein Roe may,
in selecting broker-dealers to effect portfolio transactions for
the Funds, and where more than one broker-dealer is believed
capable of providing the best combination of price and execution
with respect to a particular transaction, select a broker-dealer
in recognition of its sales of VA contracts or VLI policies
offered by Participating Insurance Companies. Except as described
in the next following sentence, neither the Trust nor any Fund nor
Stein Roe has entered into any agreement with, or made any
commitment to, any unaffiliated broker-dealer which would bind
Stein Roe, the Trust or any Fund to compensate any such broker-
dealer, directly or indirectly, for sales of VA contracts or VLI
policies. Stein Roe has entered into arrangements with sponsors
of programs for the sale of VA contracts issued by Participating
Insurance Companies which are not affiliates of Stein Roe pursuant
to which Stein Roe pays the sponsor from Stein Roe's fee for
managing Special Venture Fund an amount in respect of Special
Venture Fund's assets allocable to Special Venture Fund shares
held in separate accounts of such unaffiliated Participating
Insurance Companies in respect of VA contracts issued by such
entities and sold through such arrangements. Stein Roe does not
cause the Trust or any Fund to pay brokerage commissions higher
than those obtainable from other broker-dealers in recognition of
such sales of VA contracts or VLI policies.
In light of the fact that Stein Roe may also provide advisory
services to the Participating Insurance Companies, and to other
advisory accounts that may or may not be registered investment
companies, securities of the same issuer may be included, from
time to time, in the portfolios of the Funds and these other
entities where it is consistent with their respective investment
objectives. If these entities desire to buy or sell the same
portfolio security at about the same time, combined purchases and
sales may be made, and in such event the security purchased or
sold normally will be allocated at the average price and as nearly
as practicable on a pro-rata basis in proportion to the amounts
desired to be purchased or sold by each entity. While it is
possible that in certain instances this procedure could adversely
affect the price or number of shares involved in the Funds'
transactions, it is believed that the procedure generally
contributes to better overall execution of the Funds' portfolio
transactions.
Because Stein Roe's personnel may also provide investment
advisory services to the Participating Insurance Companies and
other advisory clients, it may be difficult to quantify the
relative benefits received by the Trust and these other entities
from research provided by broker-dealers.
The Trust has arranged for the Bank, as its custodian, to act
as a soliciting dealer to accept any fees available to the Bank as
a soliciting dealer in connection with any tender offer for a
Fund's portfolio securities. The Bank will credit any such fees
received against its custodial fees. However, the Board has been
advised by counsel that recapture by a mutual fund currently is
not permitted under the Rules of Conduct of the National
Association of Securities Dealers, Inc.
The Trust's purchases and sales of securities not traded on
securities exchanges generally are placed by Stein Roe with market
makers for these securities on a net basis, without any brokerage
commissions being paid by the Trust. Net trading does involve,
however, transaction costs. Included in prices paid to
underwriters of portfolio securities is the spread between the
price paid by the underwriter to the issuer and the price paid by
the purchasers. Each Fund's purchases and sales of portfolio
securities in the over-the-counter market usually are transacted
with a broker-dealer on a net basis without any brokerage
commission being paid by such Fund, but do reflect the spread
between the bid and asked prices. Stein Roe may also transact
purchases of some portfolio securities directly with the issuers.
With respect to a Fund's purchases and sales of portfolio
securities transacted with a broker or dealer on a net basis,
Stein Roe may also consider the part, if any, played by the broker
or dealer in bringing the security involved to Stein Roe's
attention, including investment research related to the security
and provided to the Fund.
The table below shows information on brokerage commissions
paid by Special Venture Fund, Growth Stock Fund and Balanced Fund
during the periods indicated. Mortgage Securities Fund and Money
Market Fund did not pay commissions on any of their transactions.
Special Growth
Venture Stock Balanced
Fund Fund Fund
----------- ----------- -----------
Total amount of brokerage
commissions paid during
fiscal year ended 12/31/98 $ 396,775 $ 180,194 $ 400,313
Amount of commissions paid
to brokers or dealers who
supplied research services
to Stein Roe 392,241 167,594 389,453
Total dollar amount involved
in such transactions: 255,845,108 235,217,789 302,652,397
Amount of commissions paid
to brokers or dealers that
were allocated to such
brokers or dealers by the
Fund's portfolio manager
because of research services
provided to the Fund 33,910 4,800 35,410
Total dollar amount involved
in such transactions 13,042,308 8,470,588 47,332,857
Total amount of brokerage
commissions paid during
fiscal year ended 12/31/97 421,740 89,691 294,537
Total brokerage fees paid
during fiscal year ended
12/31/96 316,995 81,270 304,087
This Supplement is Dated May 14, 1999
