1933 Act Registration No. __________
1940 Act File No. 811-07997
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]
Post-Effective Amendment No. __ [ ]
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. __ [ ]
STEIN ROE TRUST
Registrant
One South Wacker Drive, Chicago, Illinois 60606
Telephone Number: 1-800-338-2550
Jilaine Hummel Bauer Cameron S. Avery
Executive Vice-President Bell, Boyd & Lloyd
& Secretary Three First National Plaza
Stein Roe Trust Suite 3300
One South Wacker Drive 70 W. Madison Street
Chicago, Illinois 60606 Chicago, Illinois 60602
(Agents for Service)
Approximate Date of Proposed Public Offering: As soon as
practicable after effectiveness of the Registration Statement.
Registrant hereby elects to register under the Securities Act of
1933 an indefinite number of its shares of beneficial interest,
without par value, of the series of shares designated Stein Roe
Institutional Client High Yield Fund.
Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until
Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933, or
until the Registration Statement shall become effective, or such
date as the Commission, acting pursuant to said Section 8(a), may
determine.
This Registration Statement has also been signed by SR&F Base Trust.
<PAGE>
STEIN ROE TRUST
CROSS REFERENCE SHEET
ITEM
NO. CAPTION
- ----- -------
PART A (PROSPECTUS)
1 Front cover
2 Fee Table; Summary
3 (a) Inapplicable
(b) Inapplicable
(c) Investment Return
(d) Inapplicable
4 Organization and Description of Shares; The Fund;
Investment Policies; Investment Restrictions; Risks
and Investment Considerations; Portfolio Investments and
Strategies; Summary--Investment Risks
5 (a) Management--Trustees and Investment Adviser
(b) Management--Trustees and Investment Adviser, Fees and
Expenses
(c) Management--Portfolio Managers
(d) Inapplicable
(e) Management--Transfer Agent
(f) Management--Fees and Expenses
(g) Inapplicable
5A Inapplicable
6 (a) Organization and Description of Shares; see statement of
additional information: General Information and History
(b) Inapplicable
(c) Organization and Description of Shares
(d) Organization and Description of Shares
(e) For More Information
(f) Distributions and Income Taxes
(g) Distributions and Income Taxes
(h) Special Considerations Regarding Master Fund/Feeder Fund
Structure
7 How to Purchase Shares
(a) Management--Distributor
(b) How to Purchase Shares; Net Asset Value
(c) Inapplicable
(d) How to Purchase Shares
(e) Inapplicable
(f) Inappicable
8 (a) How to Redeem Shares
(b) How to Purchase Shares
(c) How to Redeem Shares
(d) How to Redeem Shares
9 Inapplicable
PART B (STATEMENT OF ADDITIONAL INFORMATION)
10 Cover page
11 Table of Contents
12 General Information and History
13 Investment Policies; Portfolio Investments and Strategies;
Investment Restrictions
14 Management
15(a) Inapplicable
(b) Principal Shareholders
(c) Principal Shareholders
16(a) Investment Advisory Services; Management; see prospectus:
Management
(b) Investment Advisory Services
(c) Inapplicable
(d) Investment Advisory Services
(e) Inapplicable
(f) Distributor
(g) Inapplicable
(h) Custodian; Independent Auditors
(i) Transfer Agent
17(a) Portfolio Transactions
(b) Inapplicable
(c) Portfolio Transactions
(d) Portfolio Transactions
(e) Portfolio Transactions
18 General Information and History
19(a) Purchases and Redemptions; see prospectus: How to Purchase
Shares, How to Redeem Shares
(b) Purchases and Redemptions; see prospectus: Net Asset Value
(c) Purchases and Redemptions
20 Additional Income Tax Considerations; Portfolio Investments
and Strategies--Taxation of Options and Futures
21(a) Distributor
(b) Inapplicable
(c) Inapplicable
22 Investment Performance
23 Balance Sheet
PART C
24 Financial Statements and Exhibits
25 Persons Controlled By or Under Common Control with
Registrant
26 Number of Holders of Securities
27 Indemnification
28 Business and Other Connections of Investment Adviser
29 Principal Underwriters
30 Location of Accounts and Records
31 Management Services
32 Undertakings
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 3, 1997
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET
BECOME EFFECTIVE. INFORMATION CONTAINED HEREIN IS SUBJECT TO
COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS STATEMENT OF ADDITIONAL
INFORMATION SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALES OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION,
OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
______________________
STEIN ROE INSTITUTIONAL CLIENT HIGH YIELD FUND
Institutional Client High Yield Fund seeks total return by
investing for a high level of current income and capital growth.
Institutional Client High Yield Fund seeks to achieve its
objective by investing all of its net investable assets in shares
of SR&F High Yield Portfolio, a portfolio of SR&F Base Trust that
has the same investment objective and substantially the same
investment policies as Institutional Client High Yield Fund. High
Yield Portfolio invests primarily in high-yield, high-risk medium-
and lower-quality debt securities. LOWER-QUALITY SECURITIES,
COMMONLY KNOWN AS "JUNK BONDS," ARE SUBJECT TO A GREATER RISK WITH
REGARD TO PAYMENT OF INTEREST AND RETURN OF PRINCIPAL THAN HIGHER-
RATED BONDS. INVESTORS SHOULD CAREFULLY CONSIDER THE RISKS
ASSOCIATED WITH JUNK BONDS BEFORE INVESTING. (SEE INVESTMENT
POLICIES, RISKS AND INVESTMENT CONSIDERATIONS, SPECIAL
CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND STRUCTURE, AND
APPENDIX.)
Institutional Client High Yield Fund is a "no-load" fund. There
are no sales or redemption charges, and the Fund has no 12b-1
plan. Institutional Client High Yield Fund is a series of the
Stein Roe Trust and High Yield Portfolio is a series of SR&F Base
Trust. Each Trust is a diversified open-end management investment
company.
Shares of Institutional Client High Yield Fund are intended
primarily for investors who are (or through purchase of Fund
shares become) clients of the Institutional Asset Management
Division of Stein Roe & Farnham Incorporated.
This prospectus contains information you should know before
investing in Institutional Client High Yield Fund. Please read it
carefully and retain it for future reference.
A Statement of Additional Information dated _____, 1997,
containing more detailed information, has been filed with the
Securities and Exchange Commission and (together with any
supplements thereto) is incorporated herein by reference. The
Statement of Additional Information may be obtained without charge
by writing to Stein Roe Funds, Suite 3200, One South Wacker Drive,
Chicago, Illinois 60606, or by calling 800-_______.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is _______, 1997.
TABLE OF CONTENTS
Page
Summary....................................2
Fee Table .................................3
The Fund...................................4
Investment Policies........................5
Portfolio Investments and Strategies.......7
Investment Restrictions ..................11
Risks and Investment Considerations ......12
How to Purchase Shares....................12
How to Redeem Shares .....................13
Net Asset Value ..........................13
Distributions and Income Taxes............14
Investment Return.........................15
Management ...............................15
Organization and Description of Shares....17
Special Considerations Regarding the
Master Fund/Feeder Fund Structure.......18
For More Information .....................20
Appendix..................................20
SUMMARY
Stein Roe Institutional Client High Yield Fund ("Institutional
Client High Yield Fund") is a series of Stein Roe Trust, an open-
end diversified management investment company organized as a
Massachusetts business trust. Institutional Client High Yield
Fund offers investors the advantage of a "no-load" fund, with
Stein Roe & Farnham Incorporated and its affiliates providing
customized services as investment adviser, administrator, transfer
agent, and distributor. (See The Fund and Organization and
Description of Shares.) This prospectus is not a solicitation in
any jurisdiction in which shares of Institutional Client High
Yield Fund are not qualified for sale.
INVESTMENT OBJECTIVES AND POLICIES. Institutional Client High
Yield Fund invests all of its net investable assets in SR&F High
Yield Portfolio ("High Yield Portfolio"). High Yield Portfolio
invests in a diversified portfolio of securities in accordance
with the identical investment objective and substantially the same
investment policies as those of Institutional Client High Yield
Fund. High Yield Portfolio seeks total return by investing for a
high level of current income and capital growth. High Yield
Portfolio invests primarily in high-yield, high-risk medium- and
lower-quality debt securities. Medium-quality debt securities,
although considered investment grade, may have some speculative
characteristics. Lower-quality debt securities are obligations of
issuers that 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, and are commonly referred to as "junk
bonds."
For a more detailed discussion of the investment objectives and
policies, please see Investment Policies and Portfolio Investments
and Strategies. There is, of course, no assurance that
Institutional Client High Yield Fund will achieve its investment
objective.
INVESTMENT RISKS. The risks inherent in Institutional Client High
Yield Fund depend primarily upon the term and quality of the
obligations in the investment portfolio of High Yield Portfolio,
as well as on market conditions. Interest rate fluctuations will
affect the Fund's net asset value and, therefore, the total return
from an investment in Institutional Client High Yield Fund.
Interest rate fluctuations will affect income on variable rate
securities and on securities purchased as other portfolio
securities mature. Since yields on debt securities available for
purchase vary over time, no specific yield on shares of
Institutional Client High Yield Fund can be assured.
Institutional Client High Yield Fund is designed for investors who
can accept the heightened level of risk and principal fluctuation
inherent in a portfolio that invests at least 65% of its assets in
medium- and lower-quality debt securities. High Yield Portfolio
may invest in foreign securities, which may entail a greater
degree of risk than investing in securities of domestic issuers.
Please see Investment Restrictions and Risks and Investment
Considerations for further information.
PURCHASES AND REDEMPTIONS. For information on purchasing (buying)
and redeeming (selling) shares, see How to Purchase Shares and How
to Redeem Shares.
DISTRIBUTIONS. Dividends are declared each business day and are
paid monthly. Dividends will be reinvested in additional shares
of Institutional Client High Yield Fund unless you elect to have
distributions paid in cash. (See Distributions and Income Taxes.)
MANAGEMENT AND FEES. Stein Roe & Farnham Incorporated (the
"Adviser") is investment adviser to High Yield Portfolio. In
addition, it provides administrative services to Institutional
Client High Yield Fund and High Yield Portfolio. For a
description of the Adviser and its fees, see Management.
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases......................None
Sales Load Imposed on Reinvested Dividend............None
Deferred Sales Load..................................None
Redemption Fees......................................None
Exchange Fees........................................None
ANNUAL FUND OPERATING EXPENSES (after fee
waiver; as a percentage of average net assets)
Management and Administrative Fees (after fee
waiver)...........................................0.50%
12b-1 Fees...........................................None
Other Expenses.(after fee waiver)....................0.00%
-----
Total Fund Operating Expenses (after fee waiver)....0.50%
=====
EXAMPLE.
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return; and (2) redemption at the end of
each time period:
1 year 3 years
------ -------
$5 $16
The purpose of the Fee Table is to assist you in understanding the
various costs and expenses that you will bear directly or
indirectly as an investor in Institutional Client High Yield Fund.
Because Institutional Client High Yield Fund has no operating
history, the information in the table is based upon an estimate of
expenses, assuming net assets of $50 million. The figures assume
that the percentage amounts listed under Annual Fund Operating
Expenses remain the same during each of the periods and that all
income dividends and capital gain distributions are reinvested in
additional Fund shares.
From time to time, the Adviser may voluntarily waive a portion of
its fees payable by Institutional Client High Yield Fund and the
Fund's pro rata share of the fees payable by High Yield Portfolio.
The Adviser has agreed to voluntarily waive such fees to the
extent the ordinary operating expenses of Institutional Client
High Yield Fund exceed 0.50% of its annual average net assets.
This commitment will be reviewed by the Adviser on January 31,
2000, at which time the commitment could be continued or
terminated. In addition, the commitment is subject to earlier
review and termination by the Adviser on 30 days' notice to the
Fund. Absent such expense undertaking, the estimated Management
and Administrative Fees, Other Expenses and Total Fund Operating
Expenses would be 0.65%, 0.35% and 1.00%, respectively. Any such
reimbursement will lower Institutional Client High Yield Fund's
overall expense ratio and increase its overall return to investors.
(Also see Management--Fees and Expenses.)
Institutional Client High Yield Fund pays the Adviser an
administrative fee based on its average daily net assets and High
Yield Portfolio pays the Adviser a management fee based on its
average daily net assets. The Fee Table summarizes the expenses
of both Institutional Client High Yield Fund and High Yield
Portfolio. Fees and expenses are described under Management.
Institutional Client High Yield Fund bears its proportionate share
of Portfolio expenses. The Trustees of Stein Roe Trust have
considered whether the annual operating expenses of Institutional
Client High Yield Fund, including its proportionate share of the
expenses of High Yield Portfolio, would be more or less than if
Institutional Client High Yield Fund invested directly in the
securities held by High Yield Portfolio, and concluded that
Institutional Client High Yield Fund's expenses would not be
materially greater in such case.
The figures in the Example are not necessarily indicative of past
or future expenses, and actual expenses may be greater or less
than those shown. Although information such as that shown in the
Example and Fee Table is useful in reviewing Institutional Client
High Yield Fund's expenses and in providing a basis for comparison
with other mutual funds, it should not be used for comparison with
other investments using different assumptions or time periods.
THE FUND
STEIN ROE INSTITUTIONAL CLIENT HIGH YIELD FUND ("Institutional
Client High Yield Fund") is a no-load, diversified "mutual fund."
Institutional Client High Yield Fund does not impose commissions
or charges when shares are purchased or redeemed. Institutional
Client High Yield Fund is a series of Stein Roe Trust, an open-end
management investment company, which is authorized to issue shares
of beneficial interest in separate series.
Stein Roe & Farnham Incorporated (the "Adviser") provides
portfolio management services to High Yield Portfolio and
administrative services to Institutional Client High Yield Fund
and High Yield Portfolio.
Rather than invest in securities directly, Institutional Client
High Yield Fund seeks to achieve its investment objective by using
the "master fund/feeder fund" structure. Under that structure,
Institutional Client High Yield Fund and other investment
companies and/or institutional investors with the same investment
objective invest their assets in another investment company having
the same investment objective and substantially the same
investment policies and restrictions as Institutional Client High
Yield Fund. The purpose of such an arrangement is to achieve
greater operational efficiencies and reduce costs. Institutional
Client High Yield Fund invests all of its net investable assets in
shares of SR&F High Yield Portfolio ("High Yield Portfolio"),
which is a series of SR&F Base Trust ("Base Trust"). (See Special
Considerations Regarding Master Fund/Feeder Fund Structure.)
INVESTMENT POLICIES
Institutional Client High Yield Fund and High Yield Portfolio each
seek total return by investing for a high level of current income
and capital growth. Further information on portfolio investments
and strategies may be found under Portfolio Investments and
Strategies in this prospectus and in the Statement of Additional
Information. Institutional Client High Yield Fund seeks to
achieve its objective by investing all of its assets in High Yield
Portfolio. The investment policies of High Yield Portfolio are
substantially identical to those of Institutional Client High
Yield Fund.
High Yield Portfolio invests principally in high-yield, high-risk
medium- and lower-quality debt securities. The medium- and lower-
quality debt securities in which High Yield Portfolio will invest
normally offer a current yield or yield to maturity that is
significantly higher than the yield from securities rated in the
three highest categories assigned by rating services such as
Standard & Poor's Corporation ("S&P") and by Moody's Investors
Service, Inc. ("Moody's").
Under normal circumstances, at least 65% of High Yield Portfolio's
assets will be invested in high-yield, high-risk medium- and
lower-quality debt securities rated lower than Baa by Moody's or
lower than BBB by S&P, or equivalent ratings as determined by
other rating agencies, or unrated securities that the Adviser
determines to be of comparable quality. Medium-quality debt
securities, although considered investment grade, have some
speculative characteristics. Lower-quality debt securities are
obligations of issuers that 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, and are commonly
referred to as "junk bonds." Some issuers of debt securities
choose not to have their securities rated by a rating service, and
High Yield Portfolio may invest in unrated securities that the
Adviser has researched thoroughly and believes are suitable for
investment. High Yield Portfolio may invest in debt obligations
that are in default, but such obligations are not expected to
exceed 10% of High Yield Portfolio's assets.
High Yield Portfolio may invest up to 35% of its total assets in
other securities including, but not limited to, pay-in-kind bonds,
securities issued in private placements, bank loans, zero coupon
bonds, foreign securities, convertible securities, futures, and
options. High Yield Portfolio may also invest in higher-quality
debt securities. Under normal market conditions, however, High
Yield Portfolio is unlikely to emphasize higher-quality debt
securities since generally they offer lower yields than medium-
and lower-quality debt securities with similar maturities. High
Yield Portfolio may also invest in common stocks and securities
that are convertible into common stocks, such as warrants.
Investment in medium- or lower-quality debt securities involves
greater investment risk, including the possibility of issuer
default or bankruptcy. High Yield Portfolio seeks to reduce
investment risk through diversification, credit analysis, and
evaluation of developments in both the economy and financial
markets.
An economic downturn could severely disrupt the high-yield market
and adversely affect the value of outstanding bonds and the
ability of the issuers to repay principal and interest. In
addition, lower-quality bonds are less sensitive to interest rate
changes than higher-quality instruments (see Risks and Investment
Considerations) and generally are more sensitive to adverse
economic changes or individual corporate developments. During a
period of adverse economic changes, including a period of rising
interest rates, issuers of such bonds may experience difficulty in
servicing their principal and interest payment obligations.
Achievement of the investment objective will be more dependent on
the Adviser's credit analysis than would be the case if High Yield
Portfolio were investing in higher-quality debt securities. Since
the ratings of rating services (which evaluate the safety of
principal and interest payments, not market risks) are used only
as preliminary indicators of investment quality, the Adviser
employs its own credit research and analysis, from which it has
developed a proprietary credit rating system based upon
comparative credit analyses of issuers within the same industry.
These analyses may take into consideration such quantitative
factors as an issuer's present and potential liquidity,
profitability, internal capability to generate funds, debt/equity
ratio and debt servicing capabilities, and such qualitative
factors as an assessment of management, industry characteristics,
accounting methodology, and foreign business exposure.
Lower-quality debt securities are obligations of issuers that 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,
and are commonly referred to as "junk bonds." The lowest rating
assigned by Moody's is for bonds that can be regarded as having
extremely poor prospects of ever attaining any real investment
standing.
Medium- and lower-quality debt securities tend to be less
marketable than higher-quality debt securities because the market
for them is less broad. The market for unrated debt securities is
even narrower. During periods of thin trading in these markets,
the spread between bid and asked prices is likely to increase
significantly, and High Yield Portfolio may have greater
difficulty selling its portfolio securities. (See Net Asset
Value.) The market value of these securities and their liquidity
may be affected by adverse publicity and investor perceptions.
PORTFOLIO INVESTMENTS AND STRATEGIES
FOREIGN SECURITIES. High Yield Portfolio may invest in foreign
securities, but will not invest in a foreign security if, as a
result of such investment, more than 25% of its total assets would
be invested in foreign securities. For purposes of this
restriction, foreign debt securities do not include securities
represented by American Depositary Receipts ("ADRs"), foreign debt
securities denominated in U.S. dollars, or securities guaranteed
by a U.S. person such as a corporation domiciled in the United
States that is a parent or affiliate of the issuer of the
securities being guaranteed. High Yield Portfolio may invest in
sponsored or unsponsored ADRs. In addition to, or in lieu of,
such direct investment, High Yield Portfolio may construct a
synthetic foreign position by (a) purchasing a debt instrument
denominated in one currency, generally U.S. dollars; and (b)
concurrently entering into a forward contract to deliver a
corresponding amount of that currency in exchange for a different
currency on a future date and at a specified rate of exchange.
Because of the availability of a variety of highly liquid U.S.
dollar debt instruments, a synthetic foreign position utilizing
such U.S. dollar instruments may offer greater liquidity than
direct investment in foreign currency debt instruments. In
connection with the purchase of foreign securities, High Yield
Portfolio may contract to purchase an amount of foreign currency
sufficient to pay the purchase price of the securities at the
settlement date. (See Risks and Investment Considerations.)
DERIVATIVES. Consistent with its objective, High Yield Portfolio
may invest in a broad array of financial instruments and
securities, including conventional exchange-traded and non-
exchange traded options, futures contracts, futures options,
securities collateralized by underlying pools of mortgages or
other receivables, and other instruments, the value of which is
"derived" from the performance of an underlying asset or a
"benchmark" such as a security index, an interest rate, or a
currency ("Derivatives"). High Yield Portfolio does not expect to
invest more than 5% of its net assets in any type of Derivative
except: options, futures contracts, and futures options.
Derivatives are most often used to manage investment risk or to
create an investment position indirectly because they are more
efficient or less costly than direct investment. They also may be
used in an effort to enhance portfolio returns.
The successful use of Derivatives depends on the Adviser's ability
to correctly predict changes in the levels and directions of
movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives. For additional
information on Derivatives, please refer to the Statement of
Additional Information.
MORTGAGE AND OTHER ASSET-BACKED DEBT SECURITIES. High Yield
Portfolio may invest in securities secured by mortgages or other
assets such as automobile or home improvement loans and credit
card receivables. These instruments may be issued or guaranteed
by the U.S. Government or by its agencies or instrumentalities or
by private entities such as commercial, mortgage and investment
banks and financial companies or financial subsidiaries of
industrial companies.
Securities issued by GNMA represent an interest in a pool of
mortgages insured by the Federal Housing Administration or the
Farmers Home Administration, or guaranteed by the Veterans
Administration. Securities issued by FNMA and FHLMC, U.S.
Government-sponsored corporations, also represent an interest in a
pool of mortgages.
The timely payment of principal and interest on GNMA securities is
guaranteed by GNMA and backed by the full faith and credit of the
U.S. Treasury. FNMA guarantees full and timely payment of
interest and principal on FNMA securities. FHLMC guarantees
timely payment of interest and ultimate collection of principal on
FHLMC securities. FNMA and FHLMC securities are not backed by the
full faith and credit of the U.S. Treasury.
Mortgage-backed debt securities, such as those issued by GNMA,
FNMA, and FHLMC, 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 High Yield Portfolio on purchase of such
securities; in addition, the proceeds of prepayment would likely
be invested at lower interest rates.
Mortgage-backed securities provide either a pro rata interest in
underlying mortgages or an interest in collateralized mortgage
obligations ("CMOs"), which 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, pre-payment risks, and
yield characteristics. Mortgage-backed securities involve the
risk of pre-payment of the underlying mortgages at a faster or
slower rate than the established schedule. Pre-payments 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 High Yield Portfolio on
purchase of the CMO, and the proceeds of pre-payment would likely
be invested at lower interest rates. High Yield Portfolio tends
to invest in CMOs of classes known as planned amortization classes
("PACs") which have pre-payment protection features tending to
make them less susceptible to price volatility.
Non-mortgage asset-backed securities usually have less pre-payment
risk than mortgage-backed securities, but have the risk that the
collateral will not be available to support payments on the
underlying loans which finance payments on the securities
themselves. Therefore, greater emphasis is placed on the credit
quality of the security issuer and the guarantor, if any.
Asset-backed securities tend to experience greater price
volatility than straight debt securities.
FLOATING RATE INSTRUMENTS. High Yield Portfolio may also invest
in floating rate instruments which 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%. High
Yield Portfolio does not intend to invest more than 5% of its net
assets in floating rate instruments.
FUTURES AND OPTIONS. High Yield Portfolio may purchase and write
both call options and put options on securities, indexes and
foreign currencies, and enter into interest rate, index and
foreign currency futures contracts. High Yield Portfolio may also
write options on such futures contracts and purchase other types
of forward or investment contracts linked to individual
securities, indexes or other benchmarks, consistent with its
investment objective, in order to provide additional revenue, or
to hedge against changes in security prices, interest rates, or
currency fluctuations. High Yield Portfolio may write a call or
put option only if the option is covered. As the writer of a
covered call option, High Yield Portfolio foregoes, during the
option's life, the opportunity to profit from increases in market
value of the security covering the call option above the sum of
the premium and the exercise price of the call. There can be no
assurance that a liquid market will exist when High Yield
Portfolio seeks to close out a position. Because of low margin
deposits required, the use of futures contracts involves a high
degree of leverage, and may result in losses in excess of the
amount of the margin deposit.
LENDING OF PORTFOLIO SECURITIES. Subject to certain restrictions,
High Yield Portfolio may lend 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 High Yield Portfolio. High Yield Portfolio
would continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities loaned, and would
also receive an additional return that may be in the form of a
fixed fee or a percentage of the collateral. High Yield Portfolio
would have the right to call the loan and obtain the securities
loaned at any time on notice of not more than five business days.
In the event of bankruptcy or other default of the borrower, High
Yield Portfolio could experience both delays in liquidating the
loan collateral or recovering the loaned securities and losses
including (a) possible decline in the value of the collateral or
in the value of the securities loaned during the period while the
Portfolio seeks to enforce its rights thereto; (b) possible
subnormal levels of income and lack of access to income during
this period; and (c) expenses of enforcing its rights.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; STANDBY COMMITMENTS.
High Yield Portfolio's assets may include securities purchased on
a when-issued or delayed-delivery basis. Although the payment and
interest terms of these securities are established at the time the
purchaser 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. High Yield Portfolio makes
such commitments only with the intention of actually acquiring the
securities, but may sell the securities before settlement date if
the Adviser deems it advisable for investment reasons. Securities
purchased in this manner involve a risk of loss if the value of
the security purchased declines before the settlement date.
When-issued or delayed-delivery securities may sometimes be
purchased on a "dollar roll" basis, meaning that High Yield
Portfolio will sell securities with a commitment to purchase
similar, but not identical, securities at a future date.
Generally, the securities are repurchased at a price lower than
the sales price. Dollar roll transactions involve the risk of
restrictions on the Portfolio's ability to repurchase the security
if the counterparty becomes insolvent; an adverse change in the
price of the security during the period of the roll or that the
value of the security repurchased will be less than the security
sold; and transaction costs exceeding the return earned by High
Yield Portfolio on the sales proceeds of the dollar roll.
High Yield Portfolio may also invest in securities purchased on a
standby commitment basis, which is a delayed-delivery agreement in
which High Yield Portfolio binds itself to accept delivery of a
security at the option of the other party to the agreement.
PIK AND ZERO COUPON BONDS. High Yield Portfolio may invest up to
20% of its total assets in zero coupon bonds and bonds the
interest on which is payable in kind ("PIK bonds"). A zero coupon
bond is a bond that does not pay interest for its entire life. A
PIK bond pays interest in the form of additional securities. The
market prices of both zero coupon and PIK bonds are affected to a
greater extent by changes in prevailing levels of interest rates
and thereby tend to be more volatile in price than securities that
pay interest periodically and in cash. In addition, because High
Yield Portfolio accrues income with respect to these securities
prior to the receipt of such interest in cash, it may have to
dispose of portfolio securities under disadvantageous
circumstances in order to obtain cash needed to pay income
dividends in amounts necessary to avoid unfavorable tax
consequences.
SHORT SALES AGAINST THE BOX. The Fund may sell short securities
it owns or has the right to acquire without further consideration,
a technique called selling short "against the box." Short sales
against the box may protect the Fund against the risk of losses in
the value of its portfolio securities because any unrealized
losses with respect to such securities should be wholly or partly
offset by a corresponding gain in the short position. However,
any potential gains in such securities should be wholly or
partially offset by a corresponding loss in the short position.
Short sales against the box may be used to lock in a profit on a
security when, for tax reasons or otherwise, the Adviser does not
want to sell the security. For a more complete explanation,
please refer to the Statement of Additional Information.
PORTFOLIO TURNOVER. In attempting to attain its objective, High
Yield Portfolio may sell portfolio securities without regard to
the period of time they have been held. Further, the Adviser may
purchase and sell securities for the investment portfolio with a
view to maximizing current return, even if portfolio changes would
cause the realization of capital gains. Although the average
stated maturity of High Yield Portfolio will be from five to ten
years, the Adviser may adjust the average effective maturity of
High Yield Portfolio's portfolio from time to time, depending on
its assessment of the relative yields available on securities of
different maturities and its expectations of future changes in
interest rates. As a result, the turnover rate of High Yield
Portfolio may vary from year to year. The turnover rate for High
Yield Portfolio may exceed 100%, but is not expected to exceed
200% under normal market conditions. A high rate of portfolio
turnover may result in increased transaction expenses and the
realization of capital gains (which may be taxable) or losses.
(See Distributions and Income Taxes.)
INVESTMENT RESTRICTIONS
Neither Institutional Client High Yield Fund nor High Yield
Portfolio may invest in a security if, as a result of such
investment: (1) with respect to 75% of its assets, more than 5% of
its total assets would be invested in the securities of any one
issuer, except for U.S. Government Securities or repurchase
agreements /1/ for such securities; or (2) 25% or more of its
total assets would be invested in the securities of a group of
issuers in the same industry, except that this restriction does
not apply to U.S. Government Securities. Notwithstanding these
limitations, Institutional Client High Yield Fund, but not High
Yield Portfolio, may invest all of its assets in another
registered investment company having the same investment objective
and substantially similar investment policies as the Fund.
Neither Institutional Client High Yield Fund nor High Yield
Portfolio may make loans except that it may (1) purchase money
market instruments and enter into repurchase agreements; (2)
acquire publicly-distributed or privately-placed debt securities;
(3) lend its portfolio securities under certain conditions; and
(4) participate in an interfund lending program with other Stein
Roe Funds. Neither may borrow money, except for non-leveraging,
temporary, or emergency purposes or in connection with
participation in the interfund lending program. Neither the
aggregate borrowings (including reverse repurchase agreements) nor
the aggregate loans at any one time may exceed 33 1/3% of the
value of total assets. Additional securities may not be purchased
when borrowings, less proceeds receivable from sales of portfolio
securities, exceed 5% of total assets.
The policies set forth in the first two paragraphs under
Investment Restrictions (but not the footnote) are fundamental
policies of Institutional Client High Yield Fund and High Yield
Portfolio./2/ The Statement of Additional Information contains
all of the investment restrictions.
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/1/ A repurchase agreement involves a sale of securities to High
Yield Portfolio with the concurrent agreement of the seller (bank
or securities dealer) to repurchase the securities at the same
price plus an amount equal to an agreed-upon interest rate within
a specified time. In the event of a bankruptcy or other default
of a seller of a repurchase agreement, the Portfolio could
experience both delays in liquidating the underlying securities
and losses. The Portfolio may not invest more than 10% of its net
assets in repurchase agreements maturing in more than seven days
and other illiquid securities.
/2/ A fundamental policy may be changed only with the approval of
a "majority of the outstanding voting securities" as defined in
the Investment Company Act.
- --------------
RISKS AND INVESTMENT CONSIDERATIONS
The risks inherent in Institutional Client High Yield Fund depend
primarily upon the term and quality of the obligations in High
Yield Portfolio's investment portfolio, as well as on market
conditions. Although High Yield Portfolio seeks to reduce risk by
investing in a diversified portfolio, this does not eliminate all
risk. Institutional Client High Yield Fund is designed for
investors who can accept the heightened level of risk and
principal fluctuation which might result from a portfolio that
invests at least 65% of its assets in medium- and lower-quality
debt securities.
The market value of securities in the investment portfolio tends
to vary inversely with the level of interest rates. As a result,
interest rate fluctuations may affect net asset value. (Because
yields on debt securities available for purchase by High Yield
Portfolio vary over time, no specific yield on shares of
Institutional Client High Yield Fund can be assured.) In
addition, if the bonds in the investment portfolio contain call,
prepayment or redemption provisions, during a period of declining
interest rates, these securities are likely to be redeemed, and
High Yield Portfolio may have to replace the security with a lower
yielding security, resulting in a decreased return for investors.
Investments in foreign securities, including ADRs, represent both
risks and opportunities not typically associated with investments
in domestic issuers. Risks of foreign investing include currency
risk, less complete financial information on issuers, less market
liquidity, more market volatility, less well-developed and
regulated markets, and greater political instability. In
addition, various restrictions by foreign governments on
investments by non-residents may apply, including imposition of
exchange controls and withholding taxes on dividends, and seizure
or nationalization of investments owned by non-residents. Foreign
investments also tend to involve higher transaction and custody
costs.
High Yield Portfolio may enter into foreign currency forward
contracts and use options and futures contracts, as described
elsewhere in this prospectus, to limit or reduce foreign currency
risk.
There can be no assurance that Institutional Client High Yield
Fund or High Yield Portfolio will achieve its objective, nor can
High Yield Portfolio assure that payments of interest and
principal on portfolio securities will be made when due. If,
after purchase by High Yield Portfolio, the rating of a portfolio
security is lost or reduced, High Yield Portfolio would not be
required to sell the security, but the Adviser would consider such
a change in deciding whether High Yield Portfolio should retain
the security in its investment portfolio.
The investment objective of Institutional Client High Yield Fund
and High Yield Portfolio is not fundamental and may be changed by
the respective Board of Trustees without a vote of shareholders.
HOW TO PURCHASE SHARES
Shares of Institutional Client High Yield Fund are intended
primarily for investors who are (or through purchase of Fund
shares become) clients of Stein Roe's Institutional Asset
Management Division. Shares may also be available to other
investors if, in the judgment of the Adviser, the sale of shares
to such investors would not adversely affect the Fund or its
shareholders. The initial purchase minimum is $1,000,000 and the
minimum subsequent investment is $100,000. For more information
on how to purchase Fund shares, please call _____ at 800-_____.
Stein Roe Trust reserves the right to waive or lower its
investment minimums for any reason.
CONDITIONS OF PURCHASE. Each purchase order for Institutional
Client High Yield Fund must be accepted by an authorized officer
of Stein Roe Trust or its authorized agent and is not binding
until accepted and entered on the books of Institutional Client
High Yield Fund. Once your purchase order has been accepted, you
may not cancel or revoke it; you may, however, redeem the shares.
Stein Roe Trust reserves the right not to accept any purchase
order that it determines not to be in the best interests of Stein
Roe Trust or of Institutional Client High Yield Fund's
shareholders.
PURCHASE PRICE AND EFFECTIVE DATE. Each purchase of Institutional
Client High Yield Fund's shares is made at its net asset value
(see Net Asset Value) next determined after receipt of an order in
good form, including receipt of payment by Institutional Client
High Yield Fund.
HOW TO REDEEM SHARES
Shares of Institutional Client High Yield Fund may be redeemed any
day the New York Stock Exchange ("NYSE") is open at the net asset
value next calculated after a redemption order is received and
accepted by Stein Roe Trust.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by Stein Roe Trust. Stein Roe
Trust cannot accept a redemption request that specifies a
particular date or price for redemption or any special conditions.
Because the redemption price you receive depends upon
Institutional Client High Yield Fund's net asset value per share
at the time of redemption, it may be more or less than the price
you originally paid for the shares and may result in a realized
capital gain or loss. Stein Roe Trust will generally mail payment
for shares redeemed within seven days after proper instructions
are received.
Stein Roe Trust reserves the right to redeem shares in any account
and send the proceeds to the owner if the shares in the account do
not have a value of at least $1,000,000. A shareholder would be
notified that his account is below the minimum and would be
allowed 30 days to increase the account before the redemption is
processed.
NET ASSET VALUE
The purchase and redemption price of Institutional Client High
Yield Fund's shares is its net asset value per share.
Institutional Client High Yield Fund determines the net asset
value of its shares as of the close of trading on the NYSE
(currently 3:00 p.m., central time) by dividing the difference
between the values of its assets and liabilities by the number of
shares outstanding. High Yield Portfolio allocates net asset
value, income, and expenses to Institutional Client High Yield
Fund and any other of its feeder funds in proportion to their
respective interests in High Yield Portfolio.
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 of Institutional Client High Yield Fund should be
determined on any such day, in which case the determination will
be made at 3:00 p.m., central time.
Securities for which market quotations are readily available at
the time of valuation are valued on that basis. Long-term
straight-debt securities for which market quotations are not
readily available are valued at a fair value based on valuations
provided by pricing services approved by the Board, which may
employ electronic data processing techniques, including a matrix
system, to determine valuations. Short-term debt securities with
remaining maturities of 60 days or less are valued at their
amortized cost, which does not take into account unrealized gains
or losses. The Board believes that the amortized cost represents
a fair value for such securities. Short-term debt securities with
remaining maturities of more than 60 days for which market
quotations are not readily available are valued by use of a matrix
prepared by the Adviser based on quotations for comparable
securities. Other assets and securities held by High Yield
Portfolio for which these valuation methods do not produce a fair
value are valued by a method that the Board believes will
determine a fair value.
DISTRIBUTIONS AND INCOME TAXES
DISTRIBUTIONS. Income dividends are declared each business day,
paid monthly, and confirmed at least quarterly. Institutional
Client High Yield Fund intends to distribute by the end of each
calendar year at least 98% of any net capital gains realized from
the sale of securities during the twelve-month period ended
October 31 in that year. Institutional Client High Yield Fund
intends to distribute any undistributed net investment income and
net realized capital gains in the following year.
All income dividends and capital gain distributions will be
reinvested in additional shares unless you elect to have
distributions paid in cash. Reinvestment normally occurs on the
payable date. Stein Roe Trust reserves the right to reinvest the
proceeds and future distributions in additional shares of
Institutional Client High Yield Fund if checks mailed to you for
distributions are returned as undeliverable or are not presented
for payment within six months.
INCOME TAXES. Your distributions will be taxable to you, under
income tax law, whether received in cash or reinvested in
additional shares. For federal income tax purposes, any
distribution that is paid in January but was declared in the prior
calendar year is deemed paid in the prior calendar year.
You will be subject to federal income tax at ordinary rates on
income dividends and distributions of net short-term capital gain.
Distributions of net long-term capital gain will be taxable to you
as long-term capital gain regardless of the length of time you
have held your shares.
You will be advised annually as to the source of distributions.
If you are not subject to tax on your income, you will not be
required to pay tax on these amounts.
If you realize a loss on the sale or exchange of Fund shares held
for six months or less, your short-term loss is recharacterized as
long-term to the extent of any long-term capital gain
distributions you have received with respect to those shares.
For federal income tax purposes, Institutional Client High Yield
Fund is treated as a separate taxable entity distinct from any
other series of the Stein Roe Trust. High Yield Portfolio intends
to qualify for the special tax treatment afforded regulated
investment companies under Subchapter M of the Internal Revenue
Code, so that it will be relieved of federal income tax on that
part of its net investment income and net capital gain that is
distributed to shareholders.
This section is not intended to be a full discussion of income tax
laws and their effect on shareholders. You may wish to consult
your own tax advisor.
INVESTMENT RETURN
The total return from an investment in Institutional Client High
Yield Fund is measured by the distributions received (assuming
reinvestment) plus or minus the change in the net asset value per
share for a given period. A total return percentage may be
calculated by dividing the value of a share at the end of the
period (including reinvestment of distributions) 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 calculated
by finding the average annual compounded rate that would equate a
hypothetical $1,000 investment to the ending redeemable value.
The yield of Institutional Client High Yield Fund is calculated by
dividing its net investment income per share (a hypothetical
figure as defined in the SEC rules) during a 30-day period by the
net asset value per share on the last day of the period. The
yield formula provides for semiannual compounding, which assumes
that net investment income is earned and reinvested at a constant
rate and annualized at the end of a six-month period.
Comparison of Institutional Client High Yield Fund's yield or
total return with those of alternative investments should consider
differences between Institutional Client High Yield Fund and the
alternative investments, the periods and methods used in
calculation of the return being compared, and the impact of taxes
on alternative investments. Yield figures are not based on actual
dividends paid. Past performance is not necessarily indicative of
future results. To obtain current yield or total return
information, you may call 800-_______.
MANAGEMENT
TRUSTEES AND INVESTMENT ADVISER. The Board of Trustees of the
Stein Roe Trust has overall management responsibility for Stein
Roe Trust and Institutional Client High Yield Fund; the Board of
Base Trust has overall management responsibility for High Yield
Portfolio. See Management in the Statement of Additional
Information for the names of and other information about the
trustees and officers. Since Stein Roe Trust and Base Trust have
the same trustees, the trustees have adopted conflict of interest
procedures to monitor and address potential conflicts between the
interests of Institutional Client High Yield Fund and High Yield
Portfolio.
The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing the
investment portfolio of High Yield Portfolio and the business
affairs of Institutional Client High Yield Fund, High Yield
Portfolio, Stein Roe Trust, and Base Trust, subject to the
direction of the respective Board. The Adviser is registered as
an investment adviser under the Investment Advisers Act of 1940.
The Adviser was organized in 1986 to succeed to the business of
Stein Roe & Farnham, a partnership that had advised and managed
mutual funds since 1949. The Adviser is a wholly owned subsidiary
of Liberty Financial Companies, Inc. ("Liberty Financial"), which
in turn is a majority owned indirect subsidiary of Liberty Mutual
Insurance Company.
PORTFOLIO MANAGERS. Ann H. Benjamin has been portfolio manager of
High Yield Portfolio since its inception in 1996. She is a senior
vice president of the Adviser and has been associated with the
Adviser since 1989. She has also been portfolio manager of Stein
Roe Income Fund since 1990. Ms. Benjamin has 12 years' experience
in the analysis and investment of medium- and lower-quality debt
securities. She received her B.B.A. from Chatham College in 1980
and her M.A. from Carnegie Mellon University in 1985. Ms.
Benjamin managed $309 million in mutual fund net assets for the
Adviser as of June 30, 1996, serves as High-Yield Credit Research
Manager for the Adviser, and is a member of the Adviser's Fixed
Income Credit Review Committee.
Stephen F. Lockman has been associate portfolio manager of High
Yield Portfolio since its inception in 1996. Mr. Lockman is a
senior vice president of the Adviser and has been employed by the
Adviser since January 1994. A chartered financial analyst, Mr.
Lockman received a B.S. degree from the University of Illinois in
1983 and an M.B.A. from DePaul University in 1986.
FEES AND EXPENSES. The Adviser is entitled to receive a monthly
administrative fee from Institutional Client High Yield Fund,
computed and accrued daily, at an annual rate of .150% of the
first $500 million of average net assets and .125% thereafter; and
a monthly management fee from High Yield Portfolio, computed and
accrued daily, at an annual rate of .500% of the first $500
million of average net assets and .475% thereafter. However, as
noted above under Fee Table, the Adviser may voluntarily waive a
portion of its fees.
The Adviser provides office space and executive and other
personnel to Stein Roe Trust and Base Trust and bears any sales or
promotional expenses. All expenses of Institutional Client High
Yield Fund (other than those paid by the Adviser), including, but
not limited to, printing and postage charges, securities
registration fees, custodian and transfer agency fees, legal and
auditing fees, compensation of trustees not affiliated with the
Adviser and expenses incidental to its organization, are paid out
of the assets of Institutional Client High Yield Fund.
Under a separate agreement with each Trust, the Adviser provides
certain accounting and bookkeeping services to Institutional
Client High Yield Fund and High Yield Portfolio including
computation of net asset value and calculation of net income and
capital gains and losses on disposition of assets.
PORTFOLIO TRANSACTIONS. The Adviser places the orders for the
purchase and sale of portfolio securities and options and futures
contracts. In doing so, the Adviser seeks to obtain the best
combination of price and execution, which involves a number of
judgmental factors.
TRANSFER AGENT. SteinRoe Services Inc. ("SSI"), One South Wacker
Drive, Chicago, Illinois 60606, a wholly owned subsidiary of
Liberty Financial, is the agent of Stein Roe Trust for the
transfer of shares, disbursement of dividends, and maintenance of
shareholder accounting records.
DISTRIBUTOR. The shares of Institutional Client High Yield Fund
are offered for sale through Liberty Securities Corporation
("Distributor") without any sales commissions or charges to
Institutional Client High Yield Fund or to its shareholders. The
Distributor is a wholly owned indirect subsidiary of Liberty
Financial. The business address of the Distributor is 600
Atlantic Avenue, Boston, Massachusetts 02210; however, all Fund
correspondence (including purchase and redemption orders) should
be mailed to SteinRoe Services Inc. at P.O. Box 8900, Boston,
Massachusetts 02205. All distribution and promotional expenses
are paid by the Adviser, including payments to the Distributor for
sales of Fund shares.
CUSTODIAN. State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
Institutional Client High Yield Fund. Foreign securities are
maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network or foreign
depositories used by such members. (See Custodian in the
Statement of Additional Information.)
ORGANIZATION AND DESCRIPTION OF SHARES
Stein Roe Trust is a Massachusetts business trust organized under
an Agreement and Declaration of Trust ("Declaration of Trust")
dated July 31, 1996, 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 Stein Roe
Trust's shareholders or its trustees. Stein Roe Trust may issue
an unlimited number of shares, in one or more series as the Board
may authorize. Currently, Institutional Client High Yield Fund is
the only series authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as Stein Roe Trust could, in some circumstances, be
held personally liable for unsatisfied obligations of Stein Roe
Trust. The Declaration of Trust provides that persons extending
credit to, contracting with, or having any claim against, Stein
Roe Trust or any particular series shall look only to the assets
of Stein Roe Trust or of the respective series for payment under
such credit, contract or claim, and that the shareholders,
trustees and officers of Stein Roe Trust 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 Stein Roe
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 Stein Roe 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 Stein Roe
Trust is also 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 Fund was unable to meet its
obligations.
SPECIAL CONSIDERATIONS REGARDING THE
MASTER FUND/FEEDER FUND STRUCTURE
Institutional Client High Yield Fund, an open-end management
investment company, seeks to achieve its objective by investing
all of its assets in shares of another mutual fund having an
investment objective identical to that of Institutional Client
High Yield Fund. The initial shareholder of Institutional Client
High Yield Fund approved this policy of permitting Institutional
Client High Yield Fund to act as a feeder fund by investing in
High Yield Portfolio. Please refer to the Investment Policies,
Portfolio Investments and Strategies, and Investment Restrictions
for a description of the investment objectives, policies, and
restrictions of Institutional Client High Yield Fund and High
Yield Portfolio. The management and expenses of both
Institutional Client High Yield Fund and High Yield Portfolio are
described under Fee Table and Management. Institutional Client
High Yield Fund bears its proportionate share of Portfolio
expenses.
The Adviser has provided investment management services in
connection with other mutual funds employing the master
fund/feeder fund structure since 1991.
SR&F High Yield Portfolio is a separate series of SR&F Base Trust
("Base Trust"), a Massachusetts common trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
August 23, 1993. The Declaration of Trust of the Base Trust
provides that Institutional Client High Yield Fund and other
investors in High Yield Portfolio will each be liable for all
obligations of High Yield Portfolio that are not satisfied by High
Yield Portfolio. However, the risk of Institutional Client High
Yield Fund incurring financial loss on account of such liability
is limited to circumstances in which both inadequate insurance
existed and High Yield Portfolio itself were unable to meet its
obligations. Accordingly, the Trustees of Stein Roe Trust believe
that neither Institutional Client High Yield Fund nor its
shareholders will be adversely affected by reason of Institutional
Client High Yield Fund's investing in High Yield Portfolio.
The Declaration of Trust of Base Trust provides that High Yield
Portfolio will terminate 120 days after the withdrawal of
Institutional Client High Yield Fund or any other investor in High
Yield Portfolio, unless the remaining investors vote to agree to
continue the business of High Yield Portfolio. The Trustees of
Stein Roe Trust may vote Institutional Client High Yield Fund's
interests in High Yield Portfolio for such continuation without
approval of Institutional Client High Yield Fund's shareholders.
The common investment objective of Institutional Client High Yield
Fund and High Yield Portfolio is non-fundamental and may be
changed without shareholder approval, subject, however, to at
least 30 days' advance written notice to Institutional Client High
Yield Fund's shareholders.
The fundamental policies of Institutional Client High Yield Fund
and the corresponding fundamental policies of the Portfolio can be
changed only with shareholder approval.
If Institutional Client High Yield Fund, as a Portfolio investor,
is requested to vote on a proposed change in fundamental policy of
High Yield Portfolio or any other matter pertaining to High Yield
Portfolio (other than continuation of the business of High Yield
Portfolio after withdrawal of another investor), Institutional
Client High Yield Fund will solicit proxies from its shareholders
and vote its interest in High Yield Portfolio for and against such
matters proportionately to the instructions to vote for and
against such matters received from Fund shareholders.
Institutional Client High Yield Fund will vote shares for which it
receives no voting instructions in the same proportion as the
shares for which it receives voting instructions. If there are
other investors in High Yield Portfolio, there can be no assurance
that any matter receiving a majority of votes cast by Fund
shareholders will receive a majority of votes cast by all High
Yield Portfolio investors. If other investors hold a majority
interest in High Yield Portfolio, they could have voting control
over High Yield Portfolio.
In the event that High Yield Portfolio's fundamental policies were
changed so as to be inconsistent with those of Institutional
Client High Yield Fund, the Board of Trustees of Stein Roe Trust
would consider what action might be taken, including changes to
Institutional Client High Yield Fund's fundamental policies,
withdrawal of Institutional Client High Yield Fund's assets from
High Yield Portfolio and investment of such assets in another
pooled investment entity, or the retention of another investment
adviser. Any of these actions would require the approval of
Institutional Client High Yield Fund's shareholders.
Institutional Client High Yield Fund's inability to find a
substitute master fund or comparable investment management could
have a significant impact upon its shareholders' investments. Any
withdrawal of Institutional Client High Yield Fund's assets could
result in a distribution in kind of portfolio securities (as
opposed to a cash distribution) to Institutional Client High Yield
Fund. Should such a distribution occur, Institutional Client High
Yield Fund would incur brokerage fees or other transaction costs
in converting such securities to cash. In addition, a
distribution in kind could result in a less diversified portfolio
of investments for Institutional Client High Yield Fund and could
affect the liquidity of Institutional Client High Yield Fund.
Each investor in High Yield Portfolio, including Institutional
Client High Yield Fund, may add to or reduce its investment in
High Yield Portfolio on each day the NYSE is open for business.
The investor's percentage of the aggregate interests in High Yield
Portfolio will be computed as the percentage equal to the fraction
(i) the numerator of which is the beginning of the day value of
such investor's investment in High Yield Portfolio on such day
plus or minus, as the case may be, the amount of any additions to
or withdrawals from the investor's investment in High Yield
Portfolio effected on such day; and (ii) the denominator of which
is the aggregate beginning of the day net asset value of High
Yield Portfolio on such day plus or minus, as the case may be, the
amount of the net additions to or withdrawals from the aggregate
investments in High Yield Portfolio by all investors in High Yield
Portfolio. The percentage so determined will then be applied to
determine the value of the investor's interest in High Yield
Portfolio as of the close of business.
Base Trust may permit other investment companies and/or other
institutional investors to invest in High Yield Portfolio, but
members of the general public may not invest directly in High
Yield Portfolio. Other investors in High Yield Portfolio are not
required to sell their shares at the same public offering price as
Institutional Client High Yield Fund, could incur different
administrative fees and expenses than Institutional Client High
Yield Fund, and their shares might be sold with a sales
commission. Therefore, Fund shareholders might have different
investment returns than shareholders in another investment company
that invests exclusively in High Yield Portfolio. Investment by
such other investors in High Yield Portfolio would provide funds
for the purchase of additional portfolio securities and would tend
to reduce the Portfolio's operating expenses as a percentage of
its net assets. Conversely, large-scale redemptions by any such
other investors in High Yield Portfolio could result in untimely
liquidations of High Yield Portfolio's security holdings, loss of
investment flexibility, and increases in the operating expenses of
High Yield Portfolio as a percentage of its net assets. As a
result, High Yield Portfolio's security holdings may become less
diverse, resulting in increased risk.
Currently two other investment companies invest in High Yield
Portfolio: Stein Roe High Yield Fund, a series of Stein Roe
Income Trust; and Stein Roe Institutional High Yield Fund, a
series of Stein Roe Institutional Trust. Information regarding
any investment company that may invest in High Yield Portfolio in
the future may be obtained by writing to SR&F Base Trust, Suite
3200, One South Wacker Drive, Chicago, Illinois 60606 or by
calling 800-338-2550. The Adviser may provide administrative or
other services to one or more of such investors.
FOR MORE INFORMATION
Contact Stein Roe ____________ at 800-_______ for more information
about this Fund.
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,
the Adviser believes that the quality of debt securities in which
High Yield Portfolio 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 that 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
used by Moody's Investors Service, Inc. ("Moody's") and Standard &
Poor's Corporation ("S&P").
CORPORATE BOND RATINGS
RATINGS BY MOODY'S
Aaa. Bonds rated Aaa are judged to be the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a
large or an exceptionally stable margin and principal is secure.
Although the various protective elements are likely to change,
such changes as can be visualized are more unlikely to impair the
fundamentally strong position of such bonds.
Aa. Bonds rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa bonds or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in Aaa bonds.
A. Bonds rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa. Bonds rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba. Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B. Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any
long period of time may be small.
Caa. Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Ca. Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C. Bonds which are rated C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
NOTE: Moody's applies numerical modifiers 1, 2, and 3 in each
generic rating classification from Aa through B in its corporate
bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
RATINGS BY S&P
AAA. Debt rated AAA has the highest rating. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A. Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB. Debt rated BBB is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than for debt in higher rated categories.
BB, B, CCC, CC, and C. Debt rated BB, B, CCC, CC, or C is
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with
the terms of the obligation. BB indicates the lowest degree of
speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C1. This rating is reserved for income bonds on which no interest
is being paid.
D. Debt rated D is in default, and payment of interest and/or
repayment of principal is in arrears. The D rating is also used
upon the filing of a bankruptcy petition if debt service payments
are jeopardized.
NOTES: The ratings from AA to CCC may be modified by the addition
of a plus (+) or minus (-) sign to show relative standing within
the major rating categories. Foreign debt is rated on the same
basis as domestic debt measuring the creditworthiness of the
issuer; ratings of foreign debt do not take into account currency
exchange and related uncertainties.
The "r" is attached to highlight derivative, hybrid, and certain
other obligations that S&P believes may experience high volatility
or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or
interest return is indexed to equities, commodities, or
currencies; certain swaps and options; and interest only and
principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will
exhibit no volatility or variability in total return.
COMMERCIAL PAPER RATINGS
RATINGS BY MOODY'S
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of
rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its commercial paper
obligations are supported by the credit of another entity or
entities, Moody's, in assigning ratings to such issuers, evaluates
the financial strength of the indicated affiliated corporations,
commercial banks, insurance companies, foreign governments or
other entities, but only as one factor in the total rating
assessment.
RATINGS BY S&P
A brief description of the applicable rating symbols and their
meaning follows:
A. Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designations 1, 2, and 3 to indicate the
relative degree of safety.
A-1. This designation indicates that the degree of safety
regarding timely payment is very strong. Those issues determined
to possess overwhelming safety characteristics will be denoted
with a plus (+) sign designation.
______________________
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 3, 1997
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET
BECOME EFFECTIVE. INFORMATION CONTAINED HEREIN IS SUBJECT TO
COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS STATEMENT OF ADDITIONAL
INFORMATION SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALES OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION,
OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
______________________
Statement of Additional Information Dated ______, 1997
STEIN ROE TRUST
Stein Roe Institutional Client High Yield Fund
Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
This Statement of Additional Information is not a prospectus
but provides additional information that should be read in
conjunction with the Prospectus dated _______, 1997 and any
supplements thereto. The Prospectus may be obtained at no charge
by telephoning ________ at 800-_________.
TABLE OF CONTENTS
Page
General Information and History...........................2
Investment Policies.......................................3
Portfolio Investments and Strategies......................5
Investment Restrictions..................................21
Additional Investment Considerations.....................24
Purchases and Redemptions................................25
Management...............................................26
Principal Shareholders...................................29
Investment Advisory Services.............................29
Distributor..............................................31
Transfer Agent...........................................31
Custodian................................................32
Independent Auditors.....................................32
Portfolio Transactions...................................32
Additional Income Tax Considerations.....................34
Investment Performance...................................34
Balance Sheet............................................38
GENERAL INFORMATION AND HISTORY
Stein Roe Institutional Client High Yield Fund
("Institutional Client High Yield Fund") is a series of the Stein
Roe Trust. Institutional Client High Yield Fund invests all of
its net investable assets in shares of SR&F High Yield Portfolio
("High Yield Portfolio"), which is a series of shares of SR&F Base
Trust ("Base Trust").
Currently Institutional Client High Yield Fund is the only
series of Stein Roe Trust authorized and outstanding. Each share
of a series is entitled to participate pro rata in any dividends
and other distributions declared by the Board on shares of that
series, and all shares of a series have equal rights in the event
of liquidation of that series. Each whole share (or fractional
share) outstanding on the record date established in accordance
with the By-Laws shall be entitled to a number of votes on any
matter on which it is entitled to vote equal to the net asset
value of the share (or fractional share) in United States dollars
determined at the close of business on the record date (for
example, a share having a net asset value of $10.50 would be
entitled to 10.5 votes). As a business trust, Stein Roe 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 Stein Roe Trust's outstanding shares,
Stein Roe 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
required by Section 16(c) of the Investment Company Act of 1940.
All shares of Stein Roe Trust are voted together in the election
of trustees. On any other matter submitted to a vote of
shareholders, shares are voted by individual series and not in the
aggregate, except that shares are voted in the aggregate when
required by the Investment Company Act of 1940 or other applicable
law. When the Board of Trustees determines that the matter
affects only the interests of one or more series, shareholders of
the unaffected series are not entitled to vote on such matters.
Stein Roe & Farnham Incorporated (the "Adviser") provides
administrative and accounting and recordkeeping services to
Institutional Client High Yield Fund and High Yield Portfolio and
provides investment advisory services to High Yield Portfolio.
SPECIAL CONSIDERATIONS REGARDING MASTER FUND/FEEDER FUND STRUCTURE
Rather than invest in securities directly, Institutional
Client High Yield Fund seeks to achieve its objective by pooling
its assets with assets of other investment companies and/or
institutional investors for investment in another mutual fund
having the same investment objective and substantially the same
investment policies and restrictions. The purpose of such an
arrangement is to achieve greater operational efficiencies and
reduce costs. For more information, please refer to the
Prospectus under the caption Special Considerations Regarding the
Master Fund/Feeder Fund Structure.
INVESTMENT POLICIES
The following information supplements the discussion of the
investment objective and policies of Institutional Client High
Yield Fund and High Yield Portfolio described in the Prospectus.
In pursuing its objective, High Yield Portfolio will invest as
described below and may employ the investment techniques described
in the Prospectus and in this Statement of Additional Information
under Portfolio Investments and Strategies. The investment
objective is a non-fundamental policy and may be changed by the
Board of Trustees without the approval of a "majority of the
outstanding voting securities" /1/ of Institutional Client High
Yield Fund or High Yield Portfolio.
- -----------
/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.
- -----------
Institutional Client High Yield Fund seeks to achieve its
objective by investing all of its assets in High Yield Portfolio.
The investment policies of Institutional Client High Yield Fund
and High Yield Portfolio are substantially identical. High Yield
Portfolio seeks total return by investing for a high level of
current income and capital growth.
High Yield Portfolio invests principally in high-yield, high-
risk medium- and lower-quality debt securities. The medium- and
lower-quality debt securities in which High Yield Portfolio will
invest normally offer a current yield or yield to maturity that is
significantly higher than the yield from securities rated in the
three highest categories assigned by rating services such as
Standard & Poor's Corporation ("S&P") and by Moody's Investors
Service, Inc. ("Moody's").
Under normal circumstances, at least 65% of High Yield
Portfolio's assets will be invested in high-yield, high-risk
medium- and lower-quality debt securities rated lower than Baa by
Moody's or lower than BBB by S&P, or equivalent ratings as
determined by other rating agencies, or unrated securities that
the Adviser determines to be of comparable quality. Medium-
quality debt securities, although considered investment grade,
have some speculative characteristics. Lower-quality debt
securities are obligations of issuers that 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, and
are commonly referred to as "junk bonds." Some issuers of debt
securities choose not to have their securities rated by a rating
service, and High Yield Portfolio may invest in unrated securities
that the Adviser has researched thoroughly and believes are
suitable for investment. High Yield Portfolio may invest in debt
obligations that are in default, but such obligations are not
expected to exceed 10% of High Yield Portfolio's assets.
High Yield Portfolio may invest up to 35% of its total assets
in other securities including, but not limited to, pay-in-kind
bonds, securities issued in private placements, bank loans, zero
coupon bonds, foreign securities, convertible securities, futures,
and options. High Yield Portfolio may also invest in higher-
quality debt securities. Under normal market conditions, however,
High Yield Portfolio is unlikely to emphasize higher-quality debt
securities since generally they offer lower yields than medium-
and lower-quality debt securities with similar maturities. High
Yield Portfolio may also invest in common stocks and securities
that are convertible into common stocks, such as warrants.
Investment in medium- or lower-quality debt securities
involves greater investment risk, including the possibility of
issuer default or bankruptcy. High Yield Portfolio seeks to
reduce investment risk through diversification, credit analysis,
and evaluation of developments in both the economy and financial
markets.
An economic downturn could severely disrupt the high-yield
market and adversely affect the value of outstanding bonds and the
ability of the issuers to repay principal and interest. In
addition, lower-quality bonds are less sensitive to interest rate
changes than higher-quality instruments (see Risks and Investment
Considerations) and generally are more sensitive to adverse
economic changes or individual corporate developments. During a
period of adverse economic changes, including a period of rising
interest rates, issuers of such bonds may experience difficulty in
servicing their principal and interest payment obligations.
Achievement of the investment objective will be more dependent on
the Adviser's credit analysis than would be the case if High Yield
Portfolio were investing in higher-quality debt securities. Since
the ratings of rating services (which evaluate the safety of
principal and interest payments, not market risks) are used only
as preliminary indicators of investment quality, the Adviser
employs its own credit research and analysis, from which it has
developed a proprietary credit rating system based upon
comparative credit analyses of issuers within the same industry.
These analyses may take into consideration such quantitative
factors as an issuer's present and potential liquidity,
profitability, internal capability to generate funds, debt/equity
ratio and debt servicing capabilities, and such qualitative
factors as an assessment of management, industry characteristics,
accounting methodology, and foreign business exposure.
Lower-quality debt securities are obligations of issuers that
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, and are commonly referred to as "junk bonds." The
lowest rating assigned by Moody's is for bonds that can be
regarded as having extremely poor prospects of ever attaining any
real investment standing.
Medium- and lower-quality debt securities tend to be less
marketable than higher-quality debt securities because the market
for them is less broad. The market for unrated debt securities is
even narrower. During periods of thin trading in these markets,
the spread between bid and asked prices is likely to increase
significantly, and High Yield Portfolio may have greater
difficulty selling its portfolio securities. The market value of
these securities and their liquidity may be affected by adverse
publicity and investor perceptions.
PORTFOLIO INVESTMENTS AND STRATEGIES
DERIVATIVES
Consistent with its objective, High Yield Portfolio may
invest in a broad array of financial instruments and securities,
including conventional exchange-traded and non-exchange traded
options, futures contracts, futures options, securities
collateralized by underlying pools of mortgages or other
receivables, and other instruments the value of which is "derived"
from the performance of an underlying asset or a "benchmark" such
as a security index, an interest rate, or a currency
("Derivatives").
Derivatives are most often used to manage investment risk or
to create an investment position indirectly because it 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 Adviser's
ability to correctly predict changes in the levels and directions
of movements in security prices, interest rates and other market
factors affecting the Derivative itself or the value of the
underlying asset or benchmark. In addition, correlations in the
performance of an underlying asset to a Derivative may not be well
established. Finally, privately negotiated and over-the-counter
Derivatives may not be as well regulated and may be less
marketable than exchange-traded Derivatives.
High Yield Portfolio does not intend to invest more than 5%
of its assets in any type of Derivative except for options,
futures contracts, and futures options.
MORTGAGE AND OTHER ASSET-BACKED SECURITIES
High Yield Portfolio may invest in securities secured by
mortgages or other assets such as automobile or home improvement
loans and credit card receivables. These instruments may be
issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities or by private entities such as commercial,
mortgage and investment banks and financial companies or financial
subsidiaries of industrial companies.
Mortgage-backed securities provide either a pro rata interest
in underlying mortgages or an interest in collateralized mortgage
obligations ("CMOs") which 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, pre-payment risks and yield
characteristics. Mortgage-backed securities involve the risk of
pre-payment on the underlying mortgages at a faster or slower rate
than the established schedule. Pre-payments 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 High Yield Portfolio on purchase of the CMO,
and the proceeds of pre-payment would likely be invested at lower
interest rates. High Yield Portfolio intends to invest in CMOs of
classes known as planned amortization classes ("PACs") which have
pre-payment protection features tending to make them less
susceptible to price volatility.
Non-mortgage asset-backed securities usually have less pre-
payment risk than mortgage-backed securities, but have the risk
that the collateral will not be available to support payments on
the underlying loans which finance payments on the securities
themselves. Therefore, greater emphasis is placed on the credit
quality of the security issuer and the guarantor, if any.
FLOATING RATE INSTRUMENTS
High Yield Portfolio may also invest in floating rate
instruments which 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%. High Yield Portfolio does not intend to invest
more than 5% of its net assets in floating rate instruments.
LENDING OF PORTFOLIO SECURITIES
Subject to restriction (7) under Investment Restrictions,
High Yield Portfolio may lend its portfolio securities to broker-
dealers and banks. Any such loan must be continuously secured by
collateral in cash or cash equivalents maintained on a current
basis in an amount at least equal to the market value of the
securities loaned by High Yield Portfolio. High Yield Portfolio
would continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities loaned, and would
also receive an additional return that may be in the form of a
fixed fee or a percentage of the collateral. High Yield Portfolio
would have the right to call the loan and obtain the securities
loaned at any time on notice of not more than five business days.
In the event of bankruptcy or other default of the borrower, High
Yield Portfolio could experience both delays in liquidating the
loan collateral or recovering the loaned securities and losses
including (a) possible decline in the value of the collateral or
in the value of the securities loaned during the period while High
Yield Portfolio seeks to enforce its rights thereto, (b) possible
subnormal levels of income and lack of access to income during
this period, and (c) expenses of enforcing its rights.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES; REVERSE REPURCHASE
AGREEMENTS; STANDBY COMMITMENTS
High Yield Portfolio may purchase instruments on a when-
issued or delayed-delivery basis. Although payment terms are
established at the time High Yield Portfolio enters into the
commitment, the instruments may be delivered and paid for some
time after the date of purchase, when their value may have changed
and the yields available in the market may be greater. High Yield
Portfolio will make such commitments only with the intention of
actually acquiring the instruments, but may sell them before
settlement date if it is deemed advisable for investment reasons.
Securities purchased in this manner involve risk of loss if the
value of the security purchased declines before settlement date.
High Yield Portfolio may purchase securities on a when-issued
or delayed-delivery basis, as described in the Prospectus. High
Yield Portfolio makes such commitments only with the intention of
actually acquiring the securities, but may sell the securities
before settlement date if the Adviser deems it advisable for
investment reasons. Securities purchased on a when-issued or
delayed-delivery basis are sometimes done on a "dollar roll"
basis. Dollar roll transactions consist of the sale by High Yield
Portfolio of securities with a commitment to purchase similar but
not identical securities, generally at a lower price at a future
date. A dollar roll may be renewed after cash settlement and
initially may involve only a firm commitment agreement by High
Yield Portfolio to buy a security. A dollar roll transaction
involves the following risks: if the broker-dealer to whom High
Yield Portfolio sells the security becomes insolvent, High Yield
Portfolio's right to purchase or repurchase the security may be
restricted; the value of the security may change adversely over
the term of the dollar roll; the security which High Yield
Portfolio is required to repurchase may be worth less than a
security which High Yield Portfolio originally held; and the
return earned by High Yield Portfolio with the proceeds of a
dollar roll may not exceed transaction costs.
High Yield Portfolio may enter into reverse repurchase
agreements with banks and securities dealers. A reverse
repurchase agreement is a repurchase agreement in which High Yield
Portfolio is the seller of, rather than the investor in,
securities and agrees to repurchase them at an agreed-upon time
and price. Use of a reverse repurchase agreement may be
preferable to a regular sale and later repurchase of securities
because it avoids certain market risks and transaction costs.
At the time High Yield Portfolio enters into a binding
obligation to purchase securities on a when-issued basis or enters
into a reverse repurchase agreement, liquid assets (cash, U.S.
Government or other "high grade" debt obligations) of High Yield
Portfolio having a value at least as great as the purchase price
of the securities to be purchased will be segregated on the books
of High Yield Portfolio and held by the custodian throughout the
period of the obligation. The use of these investment strategies,
as well as borrowing under a line of credit as described below,
may increase net asset value fluctuation.
Standby commitment agreements create an additional risk for
High Yield Portfolio because the other party to the standby
agreement generally will not be obligated to deliver the security,
but High Yield Portfolio will be obligated to accept it if
delivered. Depending on market conditions, High Yield Portfolio
may receive a commitment fee for assuming this obligation. If
prevailing market interest rates increase during the period
between the date of the agreement and the settlement date, the
other party can be expected to deliver the security and, in
effect, pass any decline in value to High Yield Portfolio. If the
value of the security increases after the agreement is made,
however, the other party is unlikely to deliver the security. In
other words, a decrease in the value of the securities to be
purchased under the terms of a standby commitment agreement will
likely result in the delivery of the security, and, therefore,
such decrease will be reflected in High Yield Portfolio's net
asset value. However, any increase in the value of the securities
to be purchased will likely result in the non-delivery of the
security and, therefore, such increase will not affect the net
asset value unless and until High Yield Portfolio actually obtains
the security.
SHORT SALES AGAINST THE BOX
High Yield Portfolio may sell securities short against the
box; that is, enter into short sales of securities that it
currently owns or has the right to acquire through the conversion
or exchange of other securities that it owns at no additional
cost. High Yield Portfolio may make short sales of securities
only if at all times when a short position is open High Yield
Portfolio 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, High Yield Portfolio does
not deliver from its portfolio the securities sold. Instead,
High Yield Portfolio borrows the securities sold short from a
broker-dealer through which the short sale is executed, and the
broker-dealer delivers such securities, on behalf of High Yield
Portfolio, to the purchaser of such securities. High Yield
Portfolio is required to pay to the broker-dealer the amount of
any dividends paid on shares sold short. Finally, to secure its
obligation to deliver to such broker-dealer the securities sold
short, High Yield Portfolio must deposit and continuously maintain
in a separate account with High Yield Portfolio's custodian an
equivalent amount of the securities sold short or securities
convertible into or exchangeable for such securities at no
additional cost. High Yield Portfolio is said to have a short
position in the securities sold until it delivers to the broker-
dealer the securities sold. High Yield Portfolio may close out a
short position by purchasing on the open market and delivering to
the broker-dealer an equal amount of the securities sold short,
rather than by delivering portfolio securities.
Short sales may protect High Yield Portfolio against the risk
of losses in the value of its portfolio securities because any
unrealized losses with respect to such portfolio securities should
be wholly or partially offset by a corresponding gain in the short
position. However, any potential gains in such portfolio
securities should be wholly or partially offset by a corresponding
loss in the short position. The extent to which such gains or
losses are offset will depend upon the amount of securities sold
short relative to the amount High Yield Portfolio owns, either
directly or indirectly, and, in the case where High Yield
Portfolio owns convertible securities, changes in the conversion
premium.
Short sale transactions involve certain risks. If the price
of the security sold short increases between the time of the short
sale and the time High Yield Portfolio replaces the borrowed
security, High Yield Portfolio will incur a loss and if the price
declines during this period, High Yield Portfolio will realize a
short-term capital gain. Any realized short-term capital gain
will be decreased, and any incurred loss increased, by the amount
of transaction costs and any premium, dividend or interest which
High Yield Portfolio may have to pay in connection with such short
sale. Certain provisions of the Internal Revenue Code may limit
the degree to which High Yield Portfolio is able to enter into
short sales. There is no limitation on the amount of High Yield
Portfolio's assets that, in the aggregate, may be deposited as
collateral for the obligation to replace securities borrowed to
effect short sales and allocated to segregated accounts in
connection with short sales. High Yield Portfolio currently
expects that no more than 5% of its total assets would be involved
in short sales against the box.
LINE OF CREDIT
Subject to restriction (8) under Investment Restrictions,
High Yield Portfolio may establish and maintain a line of credit
with a major bank in order to permit borrowing on a temporary
basis to meet share redemption requests in circumstances in which
temporary borrowing may be preferable to liquidation of portfolio
securities.
INTERFUND BORROWING AND LENDING PROGRAM
Pursuant to an exemptive order issued by the Securities and
Exchange Commission, Institutional Client High Yield Fund has
received permission to lend money to, and borrow money from, other
mutual funds advised by the Adviser. Institutional Client High
Yield Fund will borrow through the program when the costs are
equal to or lower than the costs of bank loans.
PIK AND ZERO COUPON BONDS
High Yield Portfolio may invest up to 20% of its assets in
zero coupon bonds and bonds the interest on which is payable in
kind ("PIK bonds"). A zero coupon bond is a bond that does not
pay interest for its entire life. A PIK bond pays interest in the
form of additional securities. The market prices of both zero
coupon and PIK bonds are affected to a greater extent by changes
in prevailing levels of interest rates and thereby tend to be more
volatile in price than securities that pay interest periodically
and in cash. In addition, because High Yield Portfolio accrues
income with respect to these securities prior to the receipt of
such interest in cash, it may have to dispose of portfolio
securities under disadvantageous circumstances in order to obtain
cash needed to pay income dividends in amounts necessary to avoid
unfavorable tax consequences.
RATED SECURITIES
For a description of the ratings applied by rating services
to debt securities, please refer to the Appendix. The rated debt
securities described under Investment Policies above for High
Yield Portfolio include securities given a rating conditionally by
Moody's or provisionally by S&P. If the rating of a security held
by High Yield Portfolio is withdrawn or reduced, High Yield
Portfolio is not required to sell the security, but the Adviser
will consider such fact in determining whether High Yield
Portfolio should continue to hold the security. To the extent
that the ratings accorded by Moody's or S&P for debt securities
may change as a result of changes in such organizations, or
changes in their rating systems, High Yield Portfolio will attempt
to use comparable ratings as standards for its investments in debt
securities in accordance with its investment policies.
FOREIGN SECURITIES
High Yield Portfolio may invest up to 25% of total assets
(taken at market value at the time of investment) in securities of
foreign issuers that are not publicly traded in the United States
("foreign securities"). For purposes of these limits, foreign
securities do not include securities represented by American
Depositary Receipts ("ADRs"), securities denominated in U.S.
dollars, or securities guaranteed by U.S. persons. Investment in
foreign securities may involve a greater degree of risk (including
risks relating to exchange fluctuations, tax provisions, or
expropriation of assets) than does investment in securities of
domestic issuers.
High Yield Portfolio may invest in both "sponsored" and
"unsponsored" ADRs. In a sponsored ADR, the issuer typically pays
some or all of the expenses of the depositary and agrees to
provide its regular shareholder communications to ADR holders. An
unsponsored ADR is created independently of the issuer of the
underlying security. The ADR holders generally pay the expenses
of the depositary and do not have an undertaking from the issuer
of the underlying security to furnish shareholder communications.
High Yield Portfolio does not expects to invest as much as 5% of
its total assets in unsponsored ADRs.
With respect to portfolio securities that are issued by
foreign issuers or denominated in foreign currencies, High Yield
Portfolio's investment performance is affected by the strength or
weakness of the U.S. dollar against these currencies. For
example, if the dollar falls in value relative to the Japanese
yen, the dollar value of a yen-denominated stock held in the
investment 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 in which are generally denominated in foreign
currencies, and utilization of forward foreign currency exchange
contracts involve certain considerations comprising both risks and
opportunities not typically associated with investing in U.S.
securities. These considerations include: fluctuations in
exchange rates of foreign currencies; possible imposition of
exchange control regulation or currency restrictions that would
prevent cash from being brought back to the United States; less
public information with respect to issuers of securities; less
governmental supervision of stock exchanges, securities brokers,
and issuers of securities; lack of uniform accounting, auditing,
and financial reporting standards; lack of uniform settlement
periods and trading practices; less liquidity and frequently
greater price volatility in foreign markets than in the United
States; possible imposition of foreign taxes; possible investment
in securities of companies in developing as well as developed
countries; and sometimes less advantageous legal, operational, and
financial protections applicable to foreign sub-custodial
arrangements.
Although High Yield Portfolio will try to invest in companies
and governments of countries having stable political environments,
there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of
foreign government restrictions, or other adverse political,
social or diplomatic developments that could affect investment in
these nations.
Currency Exchange Transactions. Currency exchange
transactions may be conducted either on a spot (i.e., cash) basis
at the spot rate for purchasing or selling currency prevailing in
the foreign exchange market or through forward currency exchange
contracts ("forward contracts"). Forward contracts are
contractual agreements to purchase or sell a specified currency at
a specified future date (or within a specified time period) and
price set at the time of the contract. Forward contracts are
usually entered into with banks and broker-dealers, are not
exchange traded, and are usually for less than one year, but may
be renewed.
High Yield Portfolio's foreign currency exchange transactions
are limited to transaction and portfolio hedging involving either
specific transactions or portfolio positions, except to the extent
described below under Synthetic Foreign Positions. Transaction
hedging is the purchase or sale of forward contracts with respect
to specific receivables or payables of High Yield Portfolio
arising in connection with the purchase and sale of its portfolio
securities. Portfolio hedging is the use of forward contracts
with respect to portfolio security positions denominated or quoted
in a particular foreign currency. Portfolio hedging allows High
Yield Portfolio to limit or reduce its exposure in a foreign
currency by entering into a forward contract to sell such foreign
currency (or another foreign currency that acts as a proxy for
that currency) at a future date for a price payable in U.S.
dollars so that the value of the foreign-denominated portfolio
securities can be approximately matched by a foreign-denominated
liability. High Yield Portfolio may not engage in portfolio
hedging with respect to the currency of a particular country to an
extent greater than the aggregate market value (at the time of
making such sale) of the securities held in its portfolio
denominated or quoted in that particular currency, except that
High Yield Portfolio may hedge all or part of its foreign currency
exposure through the use of a basket of currencies or a proxy
currency where such currencies or currency act as an effective
proxy for other currencies. In such a case, High Yield Portfolio
may enter into a forward contract where the amount of the foreign
currency to be sold exceeds the value of the securities
denominated in such currency. The use of this basket hedging
technique may be more efficient and economical than entering into
separate forward contracts for each currency held in High Yield
Portfolio. High Yield Portfolio may not engage in "speculative"
currency exchange transactions.
At the maturity of a forward contract to deliver a particular
currency, High Yield Portfolio may either sell the portfolio
security related to such contract and make delivery of the
currency, or it may retain the security and either acquire the
currency on the spot market or terminate its contractual
obligation to deliver the currency by purchasing an offsetting
contract with the same currency trader obligating it to purchase
on the same maturity date the same amount of the currency.
It is impossible to forecast with absolute precision the
market value of portfolio securities at the expiration of a
forward contract. Accordingly, it may be necessary for High Yield
Portfolio to purchase additional currency on the spot market (and
bear the expense of such purchase) if the market value of the
security is less than the amount of currency High Yield Portfolio
is obligated to deliver and if a decision is made to sell the
security and make delivery of the currency. Conversely, it may be
necessary to sell on the spot market some of the currency received
upon the sale of the portfolio security if its market value
exceeds the amount of currency High Yield Portfolio is obligated
to deliver.
If High Yield Portfolio retains the portfolio security and
engages in an offsetting transaction, High Yield Portfolio will
incur a gain or a loss to the extent that there has been movement
in forward contract prices. If High Yield Portfolio engages in an
offsetting transaction, it may subsequently enter into a new
forward contract to sell the currency. Should forward prices
decline during the period between High Yield Portfolio's entering
into a forward contract for the sale of a currency and the date it
enters into an offsetting contract for the purchase of the
currency, High Yield Portfolio will realize a gain to the extent
the price of the currency it has agreed to sell exceeds the price
of the currency it has agreed to purchase. Should forward prices
increase, High Yield Portfolio will suffer a loss to the extent
the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell. A default on the
contract would deprive High Yield Portfolio of unrealized profits
or force High Yield Portfolio to cover its commitments for
purchase or sale of currency, if any, at the current market price.
Hedging against a decline in the value of a currency does not
eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Such
transactions also preclude the opportunity for gain if the value
of the hedged currency should rise. Moreover, it may not be
possible for High Yield Portfolio to hedge against a devaluation
that is so generally anticipated that High Yield Portfolio is not
able to contract to sell the currency at a price above the
devaluation level it anticipates. The cost to High Yield
Portfolio of engaging in currency exchange transactions varies
with such factors as the currency involved, the length of the
contract period, and prevailing market conditions. Since currency
exchange transactions are usually conducted on a principal basis,
no fees or commissions are involved.
Synthetic Foreign Positions. High Yield Portfolio may invest
in debt instruments denominated in foreign currencies. In
addition to, or in lieu of, such direct investment, High Yield
Portfolio may construct a synthetic foreign position by (a)
purchasing a debt instrument denominated in one currency,
generally U.S. dollars, and (b) concurrently entering into a
forward contract to deliver a corresponding amount of that
currency in exchange for a different currency on a future date and
at a specified rate of exchange. Because of the availability of a
variety of highly liquid U.S. dollar debt instruments, a synthetic
foreign position utilizing such U.S. dollar instruments may offer
greater liquidity than direct investment in foreign currency debt
instruments. The results 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.
High Yield Portfolio may also construct a synthetic foreign
position by entering into a swap arrangement. A swap is a
contractual agreement between two parties to exchange cash flows--
at the time of the swap agreement and again at maturity, and, with
some swaps, at various intervals through the period of the
agreement. The use of swaps to construct a synthetic foreign
position would generally entail the swap of interest rates and
currencies. A currency swap is a contractual arrangement between
two parties to exchange principal amounts in different currencies
at a predetermined foreign exchange rate. An interest rate swap
is a contractual agreement between two parties to exchange
interest payments on identical principal amounts. An interest
rate swap may be between a floating and a fixed rate instrument, a
domestic and a foreign instrument, or any other type of cash flow
exchange. A currency swap generally has the same risk
characteristics as a forward currency contract, and all types of
swaps have counter-party risk. Depending on the facts and
circumstances, swaps may be considered illiquid. Illiquid
securities usually have greater investment risk and are subject to
greater price volatility. The net amount of the excess, if any,
of High Yield Portfolio's obligations over which it is entitled to
receive with respect to an interest rate or currency swap will be
accrued daily and liquid assets (cash, U.S. Government securities,
or other "high grade" debt obligations) of High Yield Portfolio
having a value at least equal to such accrued excess will be
segregated on the books of High Yield Portfolio and held by the
Custodian for the duration of the swap.
High Yield Portfolio may also construct a synthetic foreign
position by purchasing an instrument whose return is tied to the
return of the desired foreign position. An investment in these
"principal exchange rate linked securities" (often called PERLS)
can produce a similar return to a direct investment in a foreign
security.
RULE 144A SECURITIES
High Yield Portfolio may purchase securities that have been
privately placed but that are eligible for purchase and sale under
Rule 144A under the 1933 Act. That Rule permits certain qualified
institutional buyers, such as High Yield Portfolio, to trade in
privately placed securities that have not been registered for sale
under the 1933 Act. The Adviser, under the supervision of the
Board of Trustees, will consider whether securities purchased
under Rule 144A are illiquid and thus subject to High Yield
Portfolio's restriction of investing no more than 10% of its net
assets in illiquid securities. A determination of whether a Rule
144A security is liquid or not is a question of fact. In making
this determination, the Adviser will consider the trading markets
for the specific security, taking into account the unregistered
nature of a Rule 144A security. In addition, the Adviser 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, High Yield Portfolio's holdings of illiquid
securities would be reviewed to determine what, if any, steps are
required to assure that High Yield Portfolio does not invest more
than 10% of its assets in illiquid securities. Investing in Rule
144A securities could have the effect of increasing the amount of
High Yield Portfolio's assets invested in illiquid securities if
qualified institutional buyers are unwilling to purchase such
securities. High Yield Portfolio does not expect to invest as
much as 5% of its total assets in Rule 144A securities that have
not been deemed to be liquid by the Adviser.
PORTFOLIO TURNOVER
The turnover rate for High Yield Portfolio in the future may
vary greatly from year to year, and when portfolio changes are
deemed appropriate due to market or other conditions, such
turnover rate may be greater than might otherwise be anticipated.
A high rate of portfolio turnover may result in increased
transaction expenses and the realization of capital gains or
losses. Distributions of any net realized gains are subject to
federal income tax. (See Risks and Investment Considerations and
Distributions and Income Taxes in the Prospectus, and Additional
Income Tax Considerations in this Statement of Additional
Information.)
OPTIONS ON SECURITIES AND INDEXES
High Yield Portfolio may purchase and may sell both put
options and call options on debt or other securities or indexes in
standardized contracts traded on national securities exchanges,
boards of trade, or similar entities, or quoted on NASDAQ, and
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. The writer of an option on an individual
security has the obligation upon exercise of the option to deliver
the underlying security upon payment of the exercise price or to
pay the exercise price upon delivery of the underlying security.
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.)
High Yield Portfolio will write call options and put options
only if they are "covered." In the case of a call option on a
security, the option is "covered" if High Yield Portfolio owns the
security underlying the call or has an absolute and immediate
right to acquire that security without additional cash
consideration (or, if additional cash consideration is required,
cash or cash equivalents in such amount are held in a segregated
account by its custodian) upon conversion or exchange of other
securities held in its portfolio.
If an option written by High Yield Portfolio expires, High
Yield Portfolio realizes a capital gain equal to the premium
received at the time the option was written. If an option
purchased by High Yield Portfolio expires, High Yield Portfolio
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may
be closed out by an offsetting purchase or sale of an option of
the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when High Yield Portfolio desires.
High Yield Portfolio will realize a capital gain from a
closing purchase transaction if the cost of the closing option is
less than the premium received from writing the option, or, if it
is more, High Yield Portfolio will realize a capital loss. If the
premium received from a closing sale transaction is more than the
premium paid to purchase the option, High Yield Portfolio will
realize a capital gain or, if it is less, High Yield Portfolio
will realize a capital loss. The principal factors affecting the
market value of a put or a call option include supply and demand,
interest rates, the current market price of the underlying
security or index in relation to the exercise price of the option,
the volatility of the underlying security or index, and the time
remaining until the expiration date.
A put or call option purchased by High Yield Portfolio is an
asset of High Yield Portfolio, valued initially at the premium
paid for the option. The premium received for an option written
by High Yield Portfolio is recorded as a deferred credit. The
value of an option purchased or written is marked-to-market daily
and is valued at the closing price on the exchange on which it is
traded or, if not traded on an exchange or no closing price is
available, at the mean between the last bid and asked prices.
Risks Associated with Options on Securities and Indexes.
There are several risks associated with transactions in options on
securities and on indexes. For example, there are significant
differences between the securities markets and 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 High Yield Portfolio seeks to close out an option position.
If High Yield Portfolio were unable to close out an option that it
had purchased on a security, it would have to exercise the option
in order to realize any profit or the option would expire and
become worthless. If High Yield Portfolio were unable to close
out a covered call option that it had written on a security, it
would not be able to sell the underlying security until the option
expired. As the writer of a covered call option, High Yield
Portfolio foregoes, during the option's life, the opportunity to
profit from increases in the market value of the security covering
the call option above the sum of the premium and the exercise
price of the call.
If trading were suspended in an option purchased by High
Yield Portfolio, High Yield Portfolio would not be able to close
out the option. If restrictions on exercise were imposed, High
Yield Portfolio might be unable to exercise an option it has
purchased.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
High Yield Portfolio may use interest rate futures contracts
and index futures contracts. An interest rate or index 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 as well as the following financial instruments: U.S.
Treasury bonds; U.S. Treasury notes; GNMA Certificates; three-
month U.S. Treasury bills; 90-day commercial paper; bank
certificates of deposit; Eurodollar certificates of deposit; and
foreign currencies. It is expected that other futures contracts
will be developed and traded.
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/2/ A futures contract on an index is an agreement pursuant to
which two parties agree to take or make delivery of an amount of
cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at
which the index contract was originally written. Although the
value of a securities index is a function of the value of certain
specified securities, no physical delivery of those securities is
made.
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High Yield Portfolio may purchase and write call and put
futures options. Futures options possess many of the same
characteristics as options on securities and indexes (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. High Yield
Portfolio might, for example, use futures contracts to hedge
against or gain exposure to fluctuations in the general level of
security prices, anticipated changes in interest rates or currency
fluctuations that might adversely affect either the value of High
Yield Portfolio's securities or the price of the securities that
High Yield Portfolio intends to purchase. Although other
techniques could be used to reduce High Yield Portfolio's exposure
to security price, interest rate and currency fluctuations, High
Yield Portfolio may be able to achieve its exposure more
effectively and perhaps at a lower cost by using futures contracts
and futures options.
High Yield Portfolio will only enter into futures contracts
and futures options that are standardized and traded on an
exchange, board of trade, or similar entity, or quoted on an
automated quotation system.
The success of any futures transaction depends on the Adviser
correctly predicting changes in the level and direction of
security prices, interest rates, currency exchange rates and other
factors. Should those predictions be incorrect, High Yield
Portfolio's return might have been better had the transaction not
been attempted; however, in the absence of the ability to use
futures contracts, the Adviser 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 High
Yield Portfolio, High Yield Portfolio is required to deposit with
its custodian (or broker, if legally permitted) a specified amount
of cash or U.S. Government securities or other securities
acceptable to the broker ("initial margin"). The margin required
for a futures contract is set by the exchange on which the
contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance
bond or good faith deposit on the futures contract that is
returned to High Yield Portfolio upon termination of the contract,
assuming all contractual obligations have been satisfied. High
Yield Portfolio expects to earn interest income on its initial
margin deposits. A futures contract held by High Yield Portfolio
is valued daily at the official settlement price of the exchange
on which it is traded. Each day High Yield Portfolio pays or
receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking-to-market." Variation margin paid or received by High
Yield Portfolio does not represent a borrowing or loan by High
Yield Portfolio but is instead settlement between High Yield
Portfolio and the broker of the amount one would owe the other if
the futures contract had expired at the close of the previous
trading day. In computing daily net asset value, High Yield
Portfolio will mark-to-market its open futures positions.
High Yield Portfolio is also required to deposit and maintain
margin with respect to put and call options on futures contracts
written by it. Such margin deposits will vary depending on the
nature of the underlying futures contract (and the related initial
margin requirements), the current market value of the option, and
other futures positions held by High Yield Portfolio.
Although some futures contracts call for making or taking
delivery of the underlying securities, usually these obligations
are closed out prior to delivery by offsetting purchases or sales
of matching futures contracts (same exchange, underlying security
or index, and delivery month). If an offsetting purchase price is
less than the original sale price, High Yield Portfolio realizes a
capital gain, or if it is more, High Yield Portfolio realizes a
capital loss. Conversely, if an offsetting sale price is more
than the original purchase price, High Yield Portfolio realizes a
capital gain, or if it is less, High Yield Portfolio realizes a
capital loss. The transaction costs must also be included in
these calculations.
RISKS ASSOCIATED WITH FUTURES
There are several risks associated with the use of futures
contracts and futures options as hedging techniques. 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 debt securities, including technical
influences in futures trading and futures options and differences
between the financial instruments and the instruments underlying
the standard contracts available for trading in such respects as
interest rate levels, maturities, and creditworthiness of issuers.
A decision as to whether, when and how to hedge 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 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.
There can be no assurance that a liquid market will exist at
a time when High Yield Portfolio seeks to close out a futures or a
futures option position. High Yield Portfolio would be exposed to
possible loss on the position during the interval of inability to
close and would continue to be required to meet margin
requirements until the position is closed. In addition, many of
the contracts discussed above are relatively new instruments
without a significant trading history. As a result, there can be
no assurance that an active secondary market will develop or
continue to exist.
LIMITATIONS ON OPTIONS AND FUTURES
If other options, futures contracts, or futures options of
types other than those described herein are traded in the future,
High Yield Portfolio may also use those investment vehicles,
provided the Board of Trustees determines that their use is
consistent with High Yield Portfolio's investment objective.
High Yield Portfolio will not enter into a futures contract
or purchase an option thereon if, immediately thereafter, the
initial margin deposits for futures contracts held by High Yield
Portfolio plus premiums paid by it for open futures option
positions, less the amount by which any such positions are "in-
the-money," /3/ would exceed 5% of High Yield Portfolio's total
assets.
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/3/ A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise
price. A put option is "in-the-money" if the exercise price
exceeds the value of the futures contract that is the subject of
the option.
- -------------
When purchasing a futures contract or writing a put on a
futures contract, High Yield Portfolio must maintain with its
custodian (or broker, if legally permitted) cash or cash
equivalents (including any margin) equal to the market value of
such contract. When writing a call option on a futures contract,
High Yield Portfolio similarly will maintain with its custodian
cash or cash equivalents (including any margin) equal to the
amount by which such option is in-the-money until the option
expires or is closed out by High Yield Portfolio.
High Yield Portfolio may not maintain open short positions in
futures contracts, call options written on futures contracts or
call options written on indexes if, in the aggregate, the market
value of all such open positions exceeds the current value of the
securities in its portfolio, plus or minus unrealized gains and
losses on the open positions, adjusted for the historical relative
volatility of the relationship between the portfolio and the
positions. For this purpose, to the extent High Yield Portfolio
has written call options on specific securities in its portfolio,
the value of those securities will be deducted from the current
market value of the securities portfolio.
In order to comply with Commodity Futures Trading Commission
Regulation 4.5 and thereby avoid being deemed a "commodity pool
operator," High Yield Portfolio will use commodity futures or
commodity options contracts solely for bona fide hedging purposes
within the meaning and intent of Regulation 1.3(z), or, with
respect to positions in commodity futures and commodity options
contracts that do not come within the meaning and intent of
1.3(z), the aggregate initial margin and premiums required to
establish such positions will not exceed 5% of the fair market
value of the assets of High Yield Portfolio, after taking into
account unrealized profits and unrealized losses on any such
contracts it has entered into [in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount (as
defined in Section 190.01(x) of the Commission Regulations) may be
excluded in computing such 5%].
As long as Institutional Client High Yield Fund continues to
sell its shares in certain states, High Yield Portfolio's options
transactions will also be subject to certain non-fundamental
investment restrictions set forth under Investment Restrictions in
this Statement of Additional Information.
TAXATION OF OPTIONS AND FUTURES
If High Yield Portfolio exercises a call or put option that
it holds, the premium paid for the option is added to the cost
basis of the security purchased (call) or deducted from the
proceeds of the security sold (put). For cash settlement options
and futures options exercised by High Yield Portfolio, the
difference between the cash received at exercise and the premium
paid is a capital gain or loss.
If a call or put option written by High Yield Portfolio is
exercised, the premium is included in the proceeds of the sale of
the underlying security (call) or reduces the cost basis of the
security purchased (put). For cash settlement options and futures
options written by High Yield Portfolio, the difference between
the cash paid at exercise and the premium received is a capital
gain or loss.
Entry into a closing purchase transaction will result in
capital gain or loss. If an option written by High Yield
Portfolio was in-the-money at the time it was written and the
security covering the option was held for more than the long-term
holding period prior to the writing of the option, any loss
realized as a result of a closing purchase transaction will be
long-term. The holding period of the securities covering an in-
the-money option will not include the period of time the option is
outstanding.
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 High
Yield Portfolio delivers securities under a futures contract, High
Yield Portfolio also realizes a capital gain or loss on those
securities.
For federal income tax purposes, High Yield Portfolio
generally is required to recognize as income for each taxable year
its net unrealized gains and losses as of the end of the year on
options, futures and futures 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 High
Yield Portfolio: (1) will affect the holding period of the hedged
securities; and (2) may cause unrealized gain or loss on such
securities to be recognized upon entry into the hedge.
In order for High Yield Portfolio to continue to qualify for
federal income tax treatment as a regulated investment company, at
least 90% of its gross income for a taxable year must be derived
from qualifying income; i.e., dividends, interest, income derived
from loans of securities, and gains from the sale of securities or
foreign currencies or other income (including but not limited to
gains from options, futures, and forward contracts). In addition,
gains realized on the sale or other disposition of securities held
for less than three months must be limited to less than 30% of
High Yield Portfolio's annual gross income. 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. In order to avoid
realizing excessive gains on securities held less than three
months, High Yield Portfolio may be required to defer the closing
out of certain positions beyond the time when it would otherwise
be advantageous to do so.
Institutional Client High Yield Fund distributes to
shareholders annually any net capital gains that have been
recognized for federal income tax purposes (including year-end
mark-to-market gains) on options and futures transactions. Such
distributions are combined with distributions of capital gains
realized on the other investments and shareholders are advised of
the nature of the payments.
INVESTMENT RESTRICTIONS
Institutional Client High Yield Fund and High Yield Portfolio
operate under the following investment restrictions.
Institutional Client High Yield Fund and High Yield Portfolio may
not:
(1) invest in a security if, as a result of such investment,
more than 25% of its total assets (taken at market value at the
time of such investment) would be invested in the securities of
issuers in any particular industry, except that this restriction
does not apply to U.S. Government Securities, and [Institutional
Client High Yield Fund only] except that all or substantially all
of the assets of the Fund may be invested in another registered
investment company having the same investment objective and
substantially similar investment policies as the Fund;
(2) invest in a security if, with respect to 75% of its
assets, as a result of such investment, more than 5% of its total
assets (taken at market value at the time of such investment)
would be invested in the securities of any one issuer, except that
this restriction does not apply to U.S. Government Securities or
repurchase agreements for such securities and [Institutional
Client High Yield Fund only] except that all or substantially all
of the assets of the Fund may be invested in another registered
investment company having the same investment objective and
substantially similar investment policies as the Fund;
(3) invest in a security if, as a result of such investment,
it would hold more than 10% (taken at the time of such investment)
of the outstanding voting securities of any one issuer,
[Institutional Client High Yield Fund only] except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund;
(4) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies which invest in real estate, or
interests therein);
(5) purchase or sell commodities or commodities contracts or
oil, gas or mineral programs, except that it may enter into (i)
futures and options on futures and (ii) forward contracts;
(6) purchase securities on margin, except for use of short-
term credit necessary for clearance of purchases and sales of
portfolio securities, but it may make margin deposits in
connection with transactions in options, futures, and options on
futures;
(7) make loans, although it may (a) lend portfolio
securities and participate in an interfund lending program with
other Stein Roe Funds and Portfolios provided that no such loan
may be made if, as a result, the aggregate of such loans would
exceed 33 1/3% of the value of its total assets (taken at market
value at the time of such loans); (b) purchase money market
instruments and enter into repurchase agreements; and (c) acquire
publicly-distributed or privately-placed debt securities;
(8) borrow except that it may (a) borrow for non-leveraging,
temporary or emergency purposes, (b) engage in reverse repurchase
agreements and make other borrowings, provided that the
combination of (a) and (b) shall not exceed 33 1/3% of the value
of its total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage
permitted by law, and (c) enter into futures and options
transactions; it may borrow from banks, other Stein Roe Funds and
Portfolios, and other persons to the extent permitted by
applicable law;
(9) act as an underwriter of securities, except insofar as
it may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933 on disposition of securities acquired
subject to legal or contractual restrictions on resale,
[Institutional Client High Yield Fund only] except that all or
substantially all of the assets of the Fund may be invested in
another registered investment company having the same investment
objective and substantially similar investment policies as the
Fund; or
(10) issue any senior security except to the extent
permitted under the Investment Company Act of 1940.
The above restrictions are fundamental policies and may not
be changed without the approval of a "majority of the outstanding
voting securities" of the Fund or High Yield Portfolio, as
previously defined herein. The policy on the scope of
transactions involving lending of portfolio securities to broker-
dealers and banks (as set forth herein under Portfolio Investments
and Strategies) is also a fundamental policy.
Institutional Client High Yield Fund and High Yield Portfolio
are also subject to the following restrictions and policies that
may be changed by the Board of Trustees. None of the following
restrictions shall prevent it from investing all or substantially
all of its assets in another investment company having the same
investment objective and substantially similar investment policies
as the Fund. Unless otherwise indicated, Institutional Client
High Yield Fund and High Yield Portfolio may not:
(A) invest for the purpose of exercising control or
management;
(B) purchase more than 3% of the stock of another investment
company or purchase stock of other investment companies equal to
more than 5% of its total assets (valued at time of purchase) in
the case of any one other investment company and 10% of such
assets (valued at time of purchase) in the case of all other
investment companies in the aggregate; any such purchases are to
be made in the open market where no profit to a sponsor or dealer
results from the purchase, other than the customary broker's
commission, except for securities acquired as part of a merger,
consolidation or acquisition of assets; /4/
- --------------
/4/ Stein Roe Funds have been informed that the staff of the
Securities and Exchange Commission takes the position that the
issuers of certain CMOs and certain other collateralized assets
are investment companies and that subsidiaries of foreign banks
may be investment companies for purposes of Section 12(d)(1) of
the Investment Company Act of 1940, which limits the ability of
one investment company to invest in another investment company.
Accordingly, High Yield Portfolio intends to operate within the
applicable limitations under Section 12(d)(1)(A) of that Act.
- --------------
(C) mortgage, pledge, hypothecate or in any manner transfer,
as security for indebtedness, any securities owned or held by it,
except as may be necessary in connection with (i) borrowings
permitted in (8) above and (ii) options, futures, and options on
futures;
(D) purchase or retain securities of any issuer if 5% of the
securities of such issuer are owned by those officers and trustees
or directors of the Trust or of its investment adviser who each
own beneficially more than l/2 of 1% of its securities;
(E) purchase portfolio securities from, or sell portfolio
securities to, any of the officers and directors or trustees of
the Trust or of its investment adviser;
(F) purchase shares of other open-end investment companies,
except in connection with a merger, consolidation, acquisition, or
reorganization;
(G) invest more than 5% of its net assets (valued at time of
investment) in warrants, nor more than 2% of its net assets in
warrants which are not listed on the New York or American Stock
Exchange;
(H) purchase a put or call option if the aggregate premiums
paid for all put and call options exceed 20% of its net assets
(less the amount by which any such positions are in-the-money),
excluding put and call options purchased as closing transactions;
(I) write an option on a security unless the option is
issued by the Options Clearing Corporation, an exchange, or
similar entity;
(J) buy or sell an option on a security, a futures
contract, or an option on a futures contract unless the option,
the futures contract, or the option on the futures contract is
offered through the facilities of a national securities
association or listed on a national exchange or similar entity;
(K) invest in limited partnerships in real estate unless
they are readily marketable;
(L) sell securities short unless (i) it owns or has the
right to obtain securities equivalent in kind and amount to those
sold short at no added cost or (ii) the securities sold are "when
issued" or "when distributed" securities which it expects to
receive in a recapitalization, reorganization, or other exchange
for securities it contemporaneously owns or has the right to
obtain and provided that transactions in options, futures, and
options on futures are not treated as short sales;
(M) invest more than 5% of its total assets (taken at market
value at the time of a particular investment) in securities of
issuers (other than issuers of federal agency obligations or
securities issued or guaranteed by any foreign country or asset-
backed securities) that, together with any predecessors or
unconditional guarantors, have been in continuous operation for
less than three years ("unseasoned issuers");
(N) invest more than 15% of its total assets (taken at
market value at the time of a particular investment) in restricted
securities, other than securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933;
(O) invest more than 15% of its total assets (taken at
market value at the time of a particular investment) in restricted
securities and securities of unseasoned issuers; or
(P) invest more than 10% of its net assets (taken at market
value at the time of a particular investment) in illiquid
securities /5/, including repurchase agreements maturing in more
than seven days.
- --------------
/5/ In the judgment of the Adviser, Private Placement Notes, which
are issued pursuant to Section 4(2) of the Securities Act of 1933,
generally are readily marketable even though they are subject to
certain legal restrictions on resale. As such, they are not
treated as being subject to the limitation on illiquid securities.
- --------------
ADDITIONAL INVESTMENT CONSIDERATIONS
The Adviser seeks to provide superior long-term investment
results through a disciplined, research-intensive approach to
investment selection and prudent risk management. In working to
build wealth for generations, it has been guided by three primary
objectives which it believes are the foundation of a successful
investment program. These objectives are preservation of capital,
limited volatility through managed risk, and consistent above-
average returns, as appropriate for the particular client or
managed account.
Because every investor's needs are different, Stein Roe
mutual funds are designed to accommodate different investment
objectives, risk tolerance levels, and time horizons. In
selecting a mutual fund, investors should ask the following
questions:
What are my investment goals?
It is important to a choose a fund that has investment objectives
compatible with your investment goals.
What is my investment time frame?
If you have a short investment time frame (e.g., less than three
years), a mutual fund that seeks to provide a stable share price,
such as a money market fund, or one that seeks capital
preservation as one of its objectives may be appropriate. If you
have a longer investment time frame, you may seek to maximize your
investment returns by investing in a mutual fund that offers
greater yield or appreciation potential in exchange for greater
investment risk.
What is my tolerance for risk?
All investments, including those in mutual funds, have risks which
will vary depending on investment objective and security type.
However, mutual funds seek to reduce risk through professional
investment management and portfolio diversification.
In general, equity mutual funds emphasize long-term capital
appreciation and tend to have more volatile net asset values than
bond or money market mutual funds. Although there is no guarantee
that they will be able to maintain a stable net asset value of
$1.00 per share, money market funds emphasize safety of principal
and liquidity, but tend to offer lower income potential than bond
funds. Bond funds tend to offer higher income potential than
money market funds but tend to have greater risk of principal and
yield volatility.
In addition, the Adviser believes that investment in a high
yield fund provides an opportunity to diversify an investment
portfolio because the economic factors that affect the performance
of high-yield, high-risk debt securities differ from those that
affect the performance of high-quality debt securities or equity
securities.
PURCHASES AND REDEMPTIONS
Purchases and redemptions are discussed in the Prospectus
under the headings How to Purchase Shares, How to Redeem Shares,
and Net Asset Value, and that information is incorporated herein
by reference.
Institutional Client High Yield Fund's net asset value is
determined on days on which the New York Stock Exchange (the
"NYSE") is open for trading. The NYSE is regularly closed on
Saturdays and Sundays and on New Year's Day, the third Monday in
February, Good Friday, the last Monday in May, Independence Day,
Labor Day, Thanksgiving, and Christmas. If one of these holidays
falls on a Saturday or Sunday, the NYSE will be closed on the
preceding Friday or the following Monday, respectively. Net asset
value will not be determined on days when the NYSE is closed
unless, in the judgment of the Board of Trustees, net asset value
of Institutional Client High Yield Fund should be determined on
any such day, in which case the determination will be made at 3:00
p.m., central time.
Stein Roe Trust reserves the right to suspend or postpone
redemptions of shares of its series during any period when: (a)
trading on the NYSE is restricted, as determined by the Securities
and Exchange Commission, or the NYSE is closed for other than
customary weekend and holiday closings; (b) the Securities and
Exchange Commission has by order permitted such suspension; or (c)
an emergency, as determined by the Securities and Exchange
Commission, exists, making disposal of portfolio securities or
valuation of net assets of a series not reasonably practicable.
Stein Roe Trust intends to pay all redemptions in cash and is
obligated to redeem shares of its series solely in cash up to the
lesser of $250,000 or one percent of the net assets of
Institutional Client High Yield Fund during any 90-day period for
any one shareholder. However, redemptions in excess of such limit
may be paid wholly or partly by a distribution in kind of
securities. If redemptions were made in kind, the redeeming
shareholders might incur transaction costs in selling the
securities received in the redemptions.
Due to the relatively high cost of maintaining smaller
accounts, Stein Roe Trust reserves the right to redeem shares in
any account for their then-current value (which will be promptly
paid to the investor) if at any time the shares in the account do
not have a value of at least $1,000,000. An investor will be
notified that the value of his account is less than the minimum
and allowed at least 30 days to bring the value of the account up
to at least $1,000,000 before the redemption is processed. The
Agreement and Declaration of Trust also authorizes Stein Roe Trust
to redeem shares under certain other circumstances as may be
specified by the Board of Trustees.
MANAGEMENT
The following table sets forth certain information with
respect to trustees and officers of Stein Roe Trust:
<TABLE>
<CAPTION>
POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S)
NAME AGE INSTITUTIONAL TRUST DURING PAST FIVE YEARS
<C> <S> <S> <S>
Gary A. Anetsberger 41 Senior Vice-President Chief Financial Officer of the
(4) Mutual Funds division of Stein
Roe & Farnham Incorporated
(the "Adviser"); senior vice
president of the Adviser since
April, 1996; vice president
of the Adviser prior thereto
Timothy K. Armour 48 President; Trustee President of the Mutual Funds
(1)(2)(4) division of the Adviser and
director of the Adviser since
June, 1992; senior vice president
and director of marketing of
Citibank Illinois prior thereto
Jilaine Hummel Bauer 41 Executive Vice-President; General counsel and secretary of
(4) Secretary the Adviser since November 1995;
senior vice president of the
Adviser since April, 1992; vice
president of the Adviser prior
thereto
Ann H. Benjamin 38 Vice-President Senior vice president of the
Adviser since July, 1994; vice
president of the Adviser from
January, 1992 to July, 1994;
associate of the Adviser prior
thereto
Kenneth L. Block 76 Trustee Chairman Emeritus of A. T. Kearney,
(3)(4) Inc. (international management
consultants)
William W. Boyd 70 Trustee Chairman and director of Sterling
(3)(4) Plumbing Group, Inc. (manufacturer
of plumbing products) since 1992;
chairman, president, and chief
executive officer of Sterling
Plumbing Group, Inc. prior thereto
Thomas W. Butch 39 Vice-President Senior vice president of the
Adviser since September, 1994;
first vice president, corporate
communications, of Mellon Bank
Corporation prior thereto
Lindsay Cook(1)(4) 44 Trustee Senior vice president of Liberty
Financial Companies, Inc. (the
indirect parent of the Adviser)
Philip J. Crosley 50 Vice-President Senior Vice President of the
Adviser since February, 1996;
Vice President, Institutional
Sales-Advisor Sales, Invesco
Funds Group prior thereto
Douglas A. Hacker 41 Trustee Senior vice president and chief
(3)(4) financial officer, United
Airlines, since July, 1994;
senior vice president - Finance,
United Airlines, February, 1993
to July, 1994; vice president,
American Airlines prior thereto
Janet Langford Kelly 39 Trustee Senior vice president, secretary
(3)(4) and general counsel, Sara Lee
Corporation (branded, packaged,
consumer-products manufacturer),
since 1995; partner, Sidley &
Austin (law firm), 1991 through 1994
Michael T. Kennedy 34 Vice-President Senior vice president of the
Adviser since October, 1994;
vice president of the Adviser
from January, 1992 to October,
1994; associate of the Adviser
prior thereto
Steven P. Luetger 43 Vice-President Senior vice president of the Adviser
Lynn C. Maddox 55 Vice-President Senior vice president of the Adviser
Anne E. Marcel 38 Vice-President Vice president of the Adviser
since April, 1996; manager,
Mutual Fund Sales & Services
of the Adviser since October,
1994; supervisor of the Counselor
Department of the Adviser from
October, 1992 to October, 1994;
vice president of Selected
Financial Services prior thereto
Francis W. Morley 76 Trustee Chairman of Employer Plan
(2)(3)(4) Administrators and Consultants
Co. (designer, administrator,
and communicator of employee
benefit plans)
Jane M. Naeseth 46 Vice-President Senior vice president of the
Adviser since January, 1991; vice
president of the Adviser prior thereto
Charles R. Nelson 54 Trustee Van Voorhis Professor of Political
(3) (4) Economy of the University of Washington
Nicolette D. Parrish 47 Vice-President; Senior compliance administrator and
(4) Assistant Secretary assistant secretary of the Adviser
since November 1995; senior legal
assistant for the Adviser prior thereto
Cynthia A. Prah (4) 34 Vice-President Manager of Shareholder
Transaction Processing for
the Adviser
Sharon R. Robertson 35 Controller Accounting manager for the Adviser's
(4) Mutual Funds division
Janet B. Rysz (4) 41 Assistant Secretary Senior compliance administrator
and assistant secretary of the
Adviser
Thomas P. Sorbo 35 Vice-President Senior vice president of the
Adviser since January, 1994;
vice president of the Adviser
from September, 1992 to December,
1993; associate of Travelers
Insurance Company prior thereto
Thomas C. Theobald 59 Trustee Managing partner, William Blair
(3) (4) Capital Partners (private equity
fund) since 1994; chief executive
officer and chairman of the Board
of Directors of Continental Bank
Corporation prior thereto
Heidi J. Walter (4) 29 Vice-President Legal counsel for the Adviser
since March, 1995; associate with
Beeler Schad & Diamond, P,C.
prior thereto
Hans P. Ziegler (4) 55 Executive Vice-President Chief executive officer of the
Adviser since May, 1994;
president of the Investment
Counsel division of the Adviser
from July, 1993 to June, 1994;
president and chief executive
officer, Pitcairn Financial
Management Group prior thereto
Margaret O. Zwick 30 Treasurer Compliance manager for the Adviser's
(4) Mutual Funds division since
August 1995; compliance
accountant, January 1995 to
July 1995; section manager,
January 1994 to January 1995;
supervisor prior thereto
</TABLE>
______________________
(1) Trustee who is an "interested person" of Stein Roe Trust and
of the Adviser, 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 the Base Trust.
Certain of the trustees and officers of Stein Roe Trust and
of Base Trust are trustees or officers of other investment
companies managed by the Adviser. Mr. Armour, Ms. Bauer, and Mr.
Cook are also vice presidents of Institutional Client High Yield
Fund's distributor, Liberty Securities Corporation. The address
of Mr. Block is 11 Woodley Road, Winnetka, Illinois 60093; that of
Mr. Boyd is 2900 Golf Road, Rolling Meadows, Illinois 60008; that
of Mr. Cook is 600 Atlantic Avenue, Boston, MA 02210; that of Mr.
Hacker is P.O. Box 66100, Chicago, IL 60666; that of Ms. Kelly is
Three First National Plaza, Chicago, Illinois 60602; that of Mr.
Morley is 20 North Wacker Drive, Suite 2275, Chicago, Illinois
60606; that of Mr. Nelson is Department of Economics, University
of Washington, Seattle, Washington 98195; that of Mr. Theobald is
Suite 3300, 222 West Adams Street, Chicago, IL 60606; and that of
the officers is One South Wacker Drive, Chicago, Illinois 60606.
Officers and trustees affiliated with the Adviser serve
without any compensation from Stein Roe Trust. In compensation
for their services to Stein Roe Trust, trustees who are not
"interested persons" of Stein Roe Trust or the Adviser are paid an
annual retainer of $8,000 (divided equally among the series of
Stein Roe Trust) plus an attendance fee from each series for each
meeting of the Board or standing committee thereof attended at
which business for the series is conducted. The attendance fees
(other than for a Nominating Committee meeting) are based on each
series' net assets as of the preceding December 31. For a series
with net assets of less than $50 million, the fee is $50 per
meeting; with $51 to $250 million, the fee is $200 per meeting;
with $251 million to $500 million, $350; with $501 million to $750
million, $500; with $751 million to $1 billion, $650; and with
over $1 billion in net assets, $800. For Institutional Client
High Yield Fund and any other series of Stein Roe Trust
participating in the master fund/feeder fund structure, the
trustees' attendance fee is paid solely by the master portfolio.
Each non-interested trustee also receives $500 from Stein Roe
Trust for attending each meeting of the Nominating Committee.
Stein Roe Trust has no retirement or pension plan. The following
table sets forth compensation paid to the trustees by the Stein
Roe Fund complex:
Estimated Compensation Total Compensation from
from Institutional Trust the Stein Roe Fund
for Fiscal Year Ending Complex for the year
Name of Trustee June 30, 1997* ended June 30, 1996**
- --------------- ------------------------ -----------------------
Timothy K. Armour -0- -0-
Lindsay Cook -0- -0-
Douglas A. Hacker -0- -0-
Thomas C. Theobald -0- -0-
Kenneth L. Block $4,000 $82,417
William W. Boyd 4,000 86,317
Francis W. Morley 4,000 82,017
Charles R. Nelson 4,000 86,317
Gordon R. Worley 4,000 82,817
_______________
* Assuming less than $50 million in net assets and no
nominating committee meeting held during the period.
** During this period, the Stein Roe Fund Complex consisted
of six series of Stein Roe Income Trust, four series of
Stein Roe Municipal Trust, eight series of Stein Roe
Investment Trust, and one series of Base Trust. Messrs.
Hacker and Theobald were elected trustees of those Trusts
on June 18, 1996, and, therefore, did not receive any
compensation for the year ended June 30, 1996. Mr. Worley
retired as a trustee on December 31, 1996; and Ms. Kelly
became a trustee on January 1, 1997.
PRINCIPAL SHAREHOLDERS
As of the date of this Statement of Additional Information,
Institutional Client High Yield Fund had only one shareholder,
__________, which held ______ shares.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated provides administrative
services to Institutional Client High Yield Fund and High Yield
Portfolio and portfolio management services to High Yield
Portfolio. The Adviser is a wholly owned subsidiary of SteinRoe
Services Inc. ("SSI"), Institutional Client High Yield Funds'
transfer agent, which is a wholly owned subsidiary of Liberty
Financial Companies, Inc. ("Liberty Financial"), which is a
majority owned subsidiary of LFC Holdings, Inc., which is a wholly
owned subsidiary of Liberty Mutual Equity Corporation, which is a
wholly owned subsidiary of Liberty Mutual Insurance Company.
Liberty Mutual Insurance Company is a mutual insurance company,
principally in the property/casualty insurance field, organized
under the laws of Massachusetts in 1912.
The directors of the Adviser are Kenneth R. Leibler, Harold
W. Cogger, C. Allen Merritt, Jr., Timothy K. Armour, and Hans P.
Ziegler. Mr. Leibler is President and Chief Executive Officer of
Liberty Financial; Mr. Cogger is Executive Vice President of
Liberty Financial; Mr. Merritt is Senior Vice President and
Treasurer of Liberty Financial; Mr. Armour is President of the
Adviser's Mutual Funds division; and Mr. Ziegler is Chief
Executive Officer of the Adviser. The business address of Messrs.
Leibler, Cogger, and Merritt is Federal Reserve Plaza, Boston,
Massachusetts 02210; and that of Messrs. Armour, and Ziegler is
One South Wacker Drive, Chicago, Illinois 60606.
The Adviser and its predecessor have been providing
investment advisory services since 1932. The Adviser acts as
investment adviser to wealthy individuals, trustees, pension and
profit sharing plans, charitable organizations, and other
institutional investors. As of June 30, 1996, the Adviser managed
over $24.7 billion in assets: over $7.4 billion in equities and
over $17.3 billion in fixed-income securities (including $1.2
billion in municipal securities). The $24.7 billion in managed
assets included over $7 billion held by open-end mutual funds
managed by the Adviser (approximately 16% of the mutual fund
assets were held by clients of the Adviser). These mutual funds
were owned by over 189,000 shareholders. The $7 billion in mutual
fund assets included over $660 million in over 38,000 IRA
accounts. In managing those assets, the Adviser utilizes a
proprietary computer-based information system that maintains and
regularly updates information for approximately 6,500 companies.
The Adviser also monitors over 1,400 issues via a proprietary
credit analysis system. At June 30, 1996, the Adviser employed
approximately 16 research analysts and 32 account managers. The
average investment-related experience of these individuals was 20
years.
Please refer to the description of the Adviser, the
management and administrative agreements, fees, expense
limitations, and transfer agency services under Management and Fee
Table in the Prospectus, which is incorporated herein by
reference.
The Adviser provides office space and executive and other
personnel to Institutional Client High Yield Fund and bears any
sales or promotional expenses. Institutional Client High Yield
Fund pays all expenses other than those paid by the Adviser,
including but not limited to printing and postage charges and
securities registration and custodian fees and expenses incidental
to its organization.
Institutional Client High Yield Fund's administrative
agreement provides that the Adviser shall reimburse the Fund to
the extent that its total annual expenses (including fees paid to
the Adviser, but excluding taxes, interest, brokers' commissions
and other normal charges incident to the purchase and sale of
portfolio securities, and expenses of litigation to the extent
permitted under applicable state law) exceed the applicable limits
prescribed by any state in which shares of Institutional Client
High Yield Fund are being offered for sale to the public; however,
such reimbursement for any fiscal year will not exceed the amount
of the fees paid by Institutional Client High Yield Fund under
that agreement for such year. In addition, in the interest of
further limiting Institutional Client High Yield Fund's expenses,
the Adviser may voluntarily waive its management fee and/or absorb
certain its expenses, as described in the Prospectus under Fee
Table. Any such reimbursements will enhance the yield of the
Fund.
High Yield Portfolio's management agreement provides that
neither the Adviser nor any of its directors, officers,
stockholders (or partners of stockholders), agents, or employees
shall have any liability to Base Trust or any shareholder of High
Yield Portfolio 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 the Adviser of its duties under the
agreement, except for liability resulting from willful
misfeasance, bad faith or gross negligence on the Adviser's part
in the performance of its duties or from reckless disregard by the
Adviser of the Adviser's obligations and duties under that
agreement.
Any expenses that are attributable solely to the
organization, operation, or business of Institutional Client High
Yield Fund shall be paid solely out of that Fund's assets. Any
expenses incurred by Stein Roe Trust that are not solely
attributable to a particular Fund are apportioned in such manner
as the Adviser determines is fair and appropriate, unless
otherwise specified by the Board of Trustees.
DISTRIBUTOR
Shares of Institutional Client High Yield Fund are
distributed by Liberty Securities Corporation ("LSC"), under a
Distribution Agreement as described under Management in the
Prospectus, which is incorporated herein by reference. 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 Stein Roe Trust, and (ii) by a majority of the
trustees who are not parties to the Agreement or interested
persons of any such party. Stein Roe 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, LSC offers shares of Institutional Client High
Yield Fund to investors in states where the shares are qualified
for sale, at net asset value, without sales commissions or other
sales load to the investor. No sales commission or "12b-1"
payment is paid by Institutional Client High Yield Fund. LSC
offers Institutional Client High Yield Fund's shares only on a
best-efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for Stein Roe
Trust, as described under Management in the Prospectus. For
performing these services, SSI receives from Institutional Client
High Yield Fund a fee based on an annual rate of [.05] of 1% of
average daily net assets of Institutional Client High Yield Fund.
The Board of Trustees believes the charges by SSI are comparable
to those of other companies performing similar services. (See
Investment Advisory Services.)
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
Stein Roe Trust and Base Trust. It is responsible for holding all
securities and cash, receiving and paying for securities
purchased, delivering against payment securities sold, receiving
and collecting income from investments, making all payments
covering expenses, and performing other administrative duties, all
as directed by authorized persons. The custodian does not
exercise any supervisory function in such matters as purchase and
sale of portfolio securities, payment of dividends, or payment of
expenses.
Portfolio securities purchased in the U.S. are maintained in
the custody of the Bank or of other domestic banks or
depositories. Portfolio securities purchased outside of the U.S.
are maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network, and foreign
depositories ("foreign sub-custodians"). Each of the domestic and
foreign custodial institutions holding portfolio securities has
been approved by the Board of Trustees in accordance with
regulations under the Investment Company Act of 1940.
Each Board of Trustees reviews, at least annually, whether it
is in the best interest of Institutional Client High Yield Fund,
High Yield Portfolio, and their shareholders to maintain assets in
each custodial institution. However, with respect to foreign sub-
custodians, there can be no assurance that it, and the value of
its shares, will not be adversely affected by acts of foreign
governments, financial or operational difficulties of the foreign
sub-custodians, difficulties and costs of obtaining jurisdiction
over, or enforcing judgments against, the foreign sub-custodians,
or application of foreign law to the foreign sub-custodial
arrangements. Accordingly, an investor should recognize that the
non-investment risks involved in holding assets abroad are greater
than those associated with investing in the United States.
Institutional Client High Yield Fund and High Yield Portfolio
may invest in obligations of the custodian and may purchase or
sell securities from or to the custodian.
INDEPENDENT AUDITORS
The independent auditors for Stein Roe Trust and High Yield
Portfolio are Ernst & Young LLP, 233 South Wacker Drive, Chicago,
Illinois 60606. 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 applicable Trust.
PORTFOLIO TRANSACTIONS
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts for High
Yield Portfolio. Purchases and sales of portfolio securities are
ordinarily transacted with the issuer or with a primary market
maker acting as principal or agent for the securities on a net
basis, with no brokerage commission being paid by High Yield
Portfolio. Transactions placed through dealers reflect the spread
between the bid and asked prices. Occasionally, High Yield
Portfolio may make purchases of underwritten issues at prices that
include underwriting discounts or selling concessions.
The Adviser's overriding objective in effecting portfolio
transactions is to seek to obtain the best combination of price
and execution. The best net price, giving effect to transaction
charges, if any, and other costs, normally is an important factor
in this decision, but a number of other judgmental factors may
also enter into the decision. These include: the Adviser's
knowledge of current transaction costs; the nature of the security
being traded; the size of the transaction; the desired timing of
the trade; 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 that are considered; the Adviser's knowledge of the
financial stability of the broker or dealer selected and such
other brokers or dealers; and the Adviser's knowledge of actual or
apparent operational problems of any broker or dealer.
Recognizing the value of these factors, High Yield Portfolio may
incur a transaction charge in excess of that which another broker
or dealer may have charged for effecting the same transaction.
Evaluations of the reasonableness of the costs of portfolio
transactions, based on the foregoing factors, are made on an
ongoing basis by the Adviser's staff and reports are made annually
to the Board of Trustees.
With respect to issues of securities involving brokerage
commissions, when more than one broker or dealer is believed to be
capable of providing the best combination of price and execution
with respect to a particular portfolio transaction for High Yield
Portfolio, the Adviser often selects a broker or dealer that has
furnished it with research products or services such as research
reports, subscriptions to financial publications and research
compilations, compilations of securities prices, earnings,
dividends and similar data, and computer databases, quotation
equipment and services, research-oriented computer software and
services, and services of economic and other consultants.
Selection of brokers or dealers is not made pursuant to an
agreement or understanding with any of the brokers or dealers;
however, the Adviser uses an internal allocation procedure to
identify those brokers or dealers who provide it with research
products or services and the amount of research products or
services they provide, and endeavors to direct sufficient
commissions generated by its clients' accounts in the aggregate,
including High Yield Portfolio, to such brokers or dealers to
ensure the continued receipt of research products or services the
Adviser feels are useful. In certain instances, the Adviser
receives from brokers and dealers products or services which are
used both as investment research and for administrative,
marketing, or other non-research purposes. In such instances, the
Adviser makes a good faith effort to determine the relative
proportions of such products or services which may be considered
as investment research. The portion of the costs of such products
or services attributable to research usage may be defrayed by the
Adviser (without prior agreement or understanding, as noted above)
through brokerage commissions generated by transactions of clients
(including High Yield Portfolio), while the portion of the costs
attributable to non-research usage of such products or services is
paid by the Adviser in cash. No person acting on behalf of High
Yield Portfolio is authorized, in recognition of the value of
research products or services, to pay a price in excess of that
which another broker or dealer might have charged for effecting
the same transaction. Research products or services furnished by
brokers and dealers through whom transactions are effected may be
used in servicing any or all of the clients of the Adviser and not
all such research products or services are used in connection with
the management of High Yield Portfolio.
The Board has reviewed the legal developments pertaining to
and the practicability of attempting to recapture underwriting
discounts or selling concessions when portfolio securities are
purchased in underwritten offerings. The Board has been advised
by counsel that recapture by a mutual fund currently is not
permitted under the Rules of Fair Practice of the National
Association of Securities Dealers ("NASD").
ADDITIONAL INCOME TAX CONSIDERATIONS
Institutional Client High Yield Fund and High Yield Portfolio
intend to comply with the special provisions of the Internal
Revenue Code that relieve it of federal income tax to the extent
of its net investment income and capital gains currently
distributed to shareholders.
Because capital gain distributions reduce net asset value, if
a shareholder purchases shares shortly before a record date, he
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.
Institutional Client High Yield Fund expects that none of its
dividends will qualify for the deduction for dividends received by
corporate shareholders.
INVESTMENT PERFORMANCE
Institutional Client High Yield Fund may quote yield figures
from time to time. "Yield" is computed by dividing the net
investment income per share earned during a 30-day period (using
the average number of shares entitled to receive dividends) by the
net asset value per share on the last day of the period. The
Yield formula provides for semiannual compounding which assumes
that net investment income is earned and reinvested at a constant
rate and annualized at the end of a six-month period. 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.
6
The Yield formula is as follows: YIELD = 2[((a-b/cd) +1) -1].
Where: a = dividends and interest earned during the period
. (For this purpose, the Fund will recalculate the
yield to maturity based on market value of each
portfolio security on each business day on which
net asset value is calculated.)
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the ending net asset value of Institutional Client
High Yield Fund for the period.
_____________________
Institutional Client High Yield Fund may quote total return
figures from time to time. A "Total Return" on a per share basis
is the amount of dividends received 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 (including reinvestment of
distributions) by the value of the share at the beginning of the
period and subtracting one.
n
Average Annual Total Return is computed as follows: ERV = P(1+T)
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the period at the
end of the period (or fractional portion thereof).
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 Institutional Client High Yield Fund
is a result of conditions in the securities markets, portfolio
management, and operating expenses. Although investment
performance information is useful in reviewing Institutional
Client High Yield 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.
In advertising and sales literature, Institutional Client
High Yield Fund may compare its yield and 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 Institutional Client High Yield.
Comparison of Institutional Client High Yield 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 Stein Roe
Trust believes to be generally accurate. Institutional Client
High Yield Fund may also note its mention in newspapers,
magazines, or other media from time to time. However, Stein Roe
Trust assumes no responsibility for the accuracy of such data.
Newspapers and magazines that might mention Institutional Client
High Yield Fund include, but are not limited to, the following:
Architectural Digest
Arizona Republic
Atlanta Constitution
Associated Press
Barron's
Bloomberg
Boston Herald
Business Week
Chicago Tribune
Chicago Sun-Times
Cleveland Plain Dealer
CNBC
CNN
Crain's Chicago Business
Consumer Reports
Consumer Digest
Dow Jones Newswire
Fee Advisor
Financial Planning
Financial World
Forbes
Fortune
Fund Action
Fund Decoder
Gourmet
Individual Investor
Investment Adviser
Investment Dealers' Digest
Investor's Business Daily
Kiplinger's Personal Finance Magazine
Knight-Ridder
Lipper Analytical Services
Los Angeles Times
Louis Rukeyser's Wall Street
Money
Morningstar
Mutual Fund Market News
Mutual Fund News Service
Mutual Funds Magazine
Newsweek
The New York Times
No-Load Fund Investor
Pension World
Pensions and Investment
Personal Investor
Physicians Financial News
Jane Bryant Quinn (syndicated column)
The San Francisco Chronicle
Securities Industry Daily
Smart Money
Smithsonian
Strategic Insight
Time
Travel & Leisure
USA Today
U.S. News & World Report
Value Line
The Wall Street Journal
The Washington Post
Working Women
Worth
Your Money
Institutional Client High Yield Fund may compare its
performance to the Consumer Price Index (All Urban), a widely-
recognized measure of inflation.
The performance of Institutional Client High Yield Fund may
be compared to the following as indicated below:
CS First Boston High Yield Index
ICD High Yield Index
Lehman High Yield Bond Index
Lehman High Yield Corporate Bond Index
Merrill Lynch High-Yield Master Index
Morningstar Corporate Bond (General) Average
Salomon Brothers Extended High Yield Market Index
Salomon Brothers High Yield Market Index
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. Institutional Client
High Yield Fund may also use comparative performance as computed
in a ranking by these services or category averages and rankings
provided by another independent service. Should these services
reclassify Institutional Client High Yield Fund to a different
category or develop (and place it into) a new category, it may
compare its performance or rank against other funds in the newly-
assigned category (or the average of such category) as published
by the service.
In advertising and sales literature, Institutional Client
High Yield 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 Institutional Client High Yield 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, Institutional Client High Yield Fund may use
historical data provided by Ibbotson Associates, Inc.
("Ibbotson"), a Chicago-based investment firm. Ibbotson
constructs (or obtains) very long-term (since 1926) total return
data (including, for example, total return indexes, total return
percentages, average annual total returns and standard deviations
of such returns) for the following asset types:
Common stocks
Small company stocks
Long-term corporate bonds
Long-term government bonds
Intermediate-term government bonds
U.S. Treasury bills
Consumer Price Index
____________________
Institutional Client High Yield Fund may also use
hypothetical returns to be used as an example in a mix of asset
allocation strategies. One such example is reflected in the chart
below, which shows the effect of tax deferral on a hypothetical
investment. This chart assumes that an investor invested $2,000 a
year on January 1, for any specified period, in both a Tax-
Deferred Investment and a Taxable Investment, that both
investments earn either 6%, 8% or 10% compounded annually, and
that the investor withdrew the entire amount at the end of the
period. (A tax rate of 39.6% is applied annually to the Taxable
Investment and on the withdrawal of earnings on the Tax-Deferred
Investment.)
TAX-DEFERRED INVESTMENT VS. TAXABLE INVESTMENT
INTEREST RATE 6% 8% 10% 6% 8% 10%
Compounding
Years Tax-Deferred Investment Taxable Investment
30 $124,992 $171,554 $242,340 $109,197 $135,346 $168,852
25 90,053 115,177 150,484 82,067 97,780 117,014
20 62,943 75,543 91,947 59,362 68,109 78,351
15 41,684 47,304 54,099 40,358 44,675 49,514
10 24,797 26,820 29,098 24,453 26,165 28,006
5 11,178 11,613 12,072 11,141 11,546 11,965
1 2,072 2,096 2,121 2,072 2,096 2,121
Average Life Calculations. From time to time, Institutional
Client High Yield Fund may quote an average life figure for its
portfolio. Average life is the weighted average period over which
the Adviser expects the principal to be paid, and differs from
stated maturity in that it estimates the effect of expected
principal prepayments and call provisions. With respect to GNMA
securities and other mortgage-backed securities, average life is
likely to be substantially less than the stated maturity of the
mortgages in the underlying pools. With respect to obligations
with call provisions, average life is typically the next call date
on which the obligation reasonably may be expected to be called.
Securities without prepayment or call provisions generally have an
average life equal to their stated maturity.
Dollar Cost Averaging. Dollar cost averaging is an
investment strategy that requires investing a fixed amount of
money in Fund shares at set intervals. This allows you to
purchase more shares when prices are low and fewer shares when
prices are high. Over time, this tends to lower your average cost
per share.
Like any investment strategy, dollar cost averaging can't
guarantee a profit or protect against losses in a steadily
declining market. Dollar cost averaging involves uninterrupted
investing regardless of share price and therefore may not be
appropriate for every investor.
BALANCE SHEET
[TO BE PROVIDED]
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) 1. Financial statements included in Part A of this
Registration Statement: None.
2. Financial statements included in Part B of this Registration
Statement:
(a) Balance sheet as of ____, 1997*
(b) Report of independent auditors*
(b) Exhibits:
1. Agreement and Declaration of Trust.
2. By-Laws of Registrant.
3. None.
4. None.
5. None.
6. Underwriting agreement.*
7. None.
8. Custodian contract.*
9. (a) Transfer agency agreement.*
(b) Administrative agreement.*
(c) Accounting and bookkeeping agreement.*
10. Opinion and consent of Bell, Boyd & Lloyd.*
11. Consent of Ernst & Young LLP.*
12. None.
13. Subscription agreement.*
14. None.
15. None.
16. Inapplicable.
17. Inapplicable.
18. Inapplicable.
19. (Miscellaneous.) Fund Application.*
_____________
* To be filed by amendment.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
The Registrant does not consider that it is directly or indirectly
controlling, controlled by, or under common control with other
persons within the meaning of this Item. See "Investment Advisory
Services," "Management," and "Transfer Agent" in the Statement of
Additional Information, each of which is incorporated herein by
reference.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Number of Record Holders
Title of Series as of January 2, 1997
--------------- -----------------------
Stein Roe Institutional Client
High Yield Fund 0
ITEM 27. INDEMNIFICATION.
Article VIII of the Agreement and Declaration of Trust of
Registrant (Exhibit 1), which Article is incorporated herein by
reference, provides that Registrant shall provide indemnification
of its trustees and officers (including persons who serve or
have served at Registrant's request as directors, officers, or
trustees of another organization in which Registrant has any
interest as a shareholder, creditor or otherwise) ("Covered
Persons") under specified circumstances.
Section 17(h) of the Investment Company Act of 1940 ("1940 Act")
provides that neither the Agreement and Declaration of Trust nor
the By-Laws of Registrant, nor any other instrument pursuant to
which Registrant is organized or administered, shall contain any
provision which protects or purports to protect any trustee or
officer of Registrant against any liability to Registrant or its
shareholders to which he would otherwise be subject by reason of
wilful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. In
accordance with Section 17(h) of the 1940 Act, Article VIII shall
not protect any person against any liability to Registrant or its
shareholders to which he would otherwise be subject by reason of
wilful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Unless otherwise permitted under the 1940 Act,
(i) Article VIII does not protect any person against any
liability to Registrant or to its shareholders to which he would
otherwise be subject by reason of wilful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in
the conduct of his office;
(ii) in the absence of a final decision on the merits by a
court or other body before whom a proceeding was brought that a
Covered Person was not liable to the Registrant or its shareholders
by reason of wilful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his
office, indemnification is permitted under Article VIII if (a)
approved as in the best interest of the Registrant, after notice
that it involves such indemnification, by at least a majority of
the Trustees who are disinterested persons are not "interested
persons" as defined in Section 2(a)(19) of the 1940 Act
("disinterested trustees"), upon determination, based upon a review
of readily available facts (but not a full trial-type inquiry) that
such Covered Person is not liable to the Registrant or its
shareholders by reason of wilful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of such Covered Person's office or (b) there has been
obtained a opinion in writing of independent legal counsel, based
upon a review of readily available facts (but not a full trial-type
inquiry) to the effect that such indemnification would not protect
such Covered Person against any liability to the Trust to which
such Covered Person would otherwise be subject by reason of wilful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office; and
(iii) Registrant will not advance expenses, including counsel
fees(but excluding amounts paid in satisfaction of judgments, in
compromise or as fines or penalties), incurred by a Covered Person
unless Registrant receives an undertaking by or on behalf of the
Covered Person to repay the advance if it is ultimately determined
that indemnification of such expenses is not authorized by Article
VII and (a) the Covered Person provides security for his
undertaking, or (b) Registrant is insured against losses arising by
reason of such Covered Person's failure to fulfill his undertaking,
or (c) a majority of the disinterested trustees of Registrant or an
independent legal counsel as expressed in a written opinion,
determine, based on a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that
the Covered Person ultimately will be found entitled to indemnification.
Any approval of indemnification pursuant to Article VIII does not
prevent the recovery from any Covered Person of any amount paid to
such Covered Person in accordance with Article VIII as
indemnification if such Covered Person is subsequently adjudicated
by a court of competent jurisdiction to have been liable to the
Trust or its shareholders by reason of wilful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of such Covered Person's office.
Article VIII also provides that its indemnification provisions
are not exclusive.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers, and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by Registrant of expenses incurred or paid by a trustee, officer,
or controlling person of Registrant in the successful defense of
any action, suit, or proceeding) is asserted by such trustee,
officer, or controlling person in connection with the securities
being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Registrant, its trustees and officers, its investment adviser, the
other investment companies advised by the adviser, and persons
affiliated with them are insured against certain expenses in
connection with the defense of actions, suits, or proceedings, and
certain liabilities that might be imposed as a result of such
actions, suits, or proceedings. Registrant will not pay any
portion of the premiums for coverage under such insurance that
would (1) protect any trustee or officer against any liability to
Registrant or its shareholders to which he would otherwise be
subject by reason of wilful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his office or (2) protect its investment adviser or
principal underwriter, if any, against any liability to Registrant
or its shareholders to which such person would otherwise be
subject by reason of wilful misfeasance, bad faith, or gross
negligence, in the performance of its duties, or by reason of its
reckless disregard of its duties and obligations under its
contract or agreement with the Registrant; for this purpose the
Registrant will rely on an allocation of premiums determined by
the insurance company.
Registrant, its trustees, officers, employees and representatives
and each person, if any, who controls the Registrant within the
meaning of Section 15 of the Securities Act of 1933 are
indemnified by the distributor of Registrant's shares (the
"distributor"), pursuant to the terms of the distribution
agreement, which governs the distribution of Registrant's shares,
against any and all losses, liabilities, damages, claims and
expenses arising out of the acquisition of any shares of the
Registrant by any person which (i) may be based upon any wrongful
act by the distributor or any of the distributor's directors,
officers, employees or representatives or (ii) may be based upon
any untrue or alleged untrue statement of a material fact
contained in a registration statement, prospectus, statement of
additional information, shareholder report or other information
covering shares of the Registrant filed or made public by the
Registrant or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
therein not misleading if such statement or omission was made in
reliance upon information furnished to the Registrant by the
distributor in writing. In no case does the distributor's
indemnity indemnify an indemnified party against any liability to
which such indemnified party would otherwise be subject by reason
of wilful misfeasance, bad faith, or negligence in the
performance of its or his duties or by reason of its or his
reckless disregard of its or his obligations and duties under the
distribution agreement.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
The Adviser is a wholly-owned subsidiary of SteinRoe Services Inc.
("SSI"), which in turn is a wholly-owned subsidiary of Liberty
Financial Companies, Inc., which is a majority owned subsidiary of
LFC Holdings, Inc., which in turn is a subsidiary of Liberty Mutual
Equity Corporation, which in turn is a subsidiary of Liberty Mutual
Insurance Company. The Adviser acts as investment adviser to
individuals, trustees, pension and profit-sharing plans, charitable
organizations, and other investors. In addition to Registrant, it
also acts as investment adviser to other investment companies
having different investment policies.
For a two-year business history of officers and directors of the
Adviser, please refer to the Form ADV of Stein Roe & Farnham
Incorporated and to the section of the statement of additional
information (part B) entitled "Investment Advisory Services."
Certain directors and officers of the Adviser also serve and have
during the past two years served in various capacities as
officers, directors, or trustees of SSI and of the Registrant,
Stein Roe Investment Trust, Stein Roe Municipal Trust, SR&F Base
Trust, Stein Roe Income Trust, Stein Roe Institutional Trust, Stein
Roe Advisor Trust, SteinRoe Variable Investment Trust and LFC Utilities
Trust, investment companies managed by the Adviser. (The listed
entities are located at One South Wacker Drive, Chicago, Illinois
60606, except for SteinRoe Variable Investment Trust, which is
located at Federal Reserve Plaza, Boston, MA 02210 and LFC Utilities
Trust, which is located at One Financial Center, Boston, MA 02111.)
A list of such capacities is given below.
POSITION FORMERLY
HELD WITHIN
CURRENT POSITION PAST TWO YEARS
------------------- --------------
STEINROE SERVICES INC.
Gary A. Anetsberger Vice President
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President; Secretary
Kenneth J. Kozanda Vice President; Treasurer
Kenneth R. Leibler Director
C. Allen Merritt, Jr. Director; Vice President
Hans P. Ziegler Director, President, Vice Chairman
Chairman
SR&F BASE TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive Vice-President;
Secretary Vice-President
Ann H. Benjamin Vice-President
Michael T. Kennedy Vice-President
Lynn C. Maddox Vice-President
Jane M. Naeseth Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEIN ROE INCOME TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive V-P; Secretary Vice-President
Ann H. Benjamin Vice-President
Thomas W. Butch Vice-President
Philip J. Crosley Vice-President
Michael T. Kennedy Vice-President
Steven P. Luetger Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel Vice-President
Jane M. Naeseth Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEIN ROE INVESTMENT TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive V-P; Secretary Vice-President
Bruno Bertocci Vice-President
David P. Brady Vice-President
Thomas W. Butch Vice-President
Daniel K. Cantor Vice-President
Philip J. Crosley Vice-President
E. Bruce Dunn Vice-President
Erik P. Gustafson Vice-President
David P. Harris Vice-President
Harvey B. Hirschhorn Vice-President
Alfred F. Kugel Trustee
Eric S. Maddix Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel Vice-President
Richard B. Peterson Vice-President
Gloria J. Santella Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEIN ROE MUNICIPAL TRUST
Gary A. Anetsberger Senior Vice-President Controller
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive V-P; Secretary Vice-President
Thomas W. Butch Vice-President
Joanne T. Costopoulos Vice-President
Philip J. Crosley Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel Vice-President
M. Jane McCart Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEIN ROE ADVISOR TRUST and STEIN ROE TRUST
Gary A. Anetsberger Senior Vice-President
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive V-P; Secretary
Bruno Bertocci Vice-President
David P. Brady Vice-President
Thomas W. Butch Vice-President
Daniel K. Cantor Vice-President
Philip J. Crosley Vice-President
E. Bruce Dunn Vice-President
Erik P. Gustafson Vice-President
David P. Harris Vice-President
Harvey B. Hirschhorn Vice-President
Eric S. Maddix Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel Vice-President
Richard B. Peterson Vice-President
Gloria J. Santella Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEIN ROE INSTITUTIONAL TRUST
Gary A. Anetsberger Senior Vice-President
Timothy K. Armour President; Trustee
Jilaine Hummel Bauer Executive V-P; Secretary
Ann H. Benjamin Vice-President
Thomas W. Butch Vice-President
Philip J. Crosley Vice-President
Michael T. Kennedy Vice-President
Steven P. Luetger Vice-President
Lynn C. Maddox Vice-President
Anne E. Marcel Vice-President
Jane M. Naeseth Vice-President
Thomas P. Sorbo Vice-President
Hans P. Ziegler Executive Vice-President
STEINROE VARIABLE INVESTMENT TRUST
Gary A. Anetsberger Treasurer
Timothy K. Armour Vice President
Jilaine Hummel Bauer Vice President
Ann H. Benjamin Vice President
E. Bruce Dunn Vice President
Erik P. Gustafson Vice President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy Vice President
Jane M. Naeseth Vice President
Richard B. Peterson Vice President
LFC UTILITIES TRUST
Gary A. Anetsberger Vice President
Ophelia L. Barsketis Vice President
ITEM 29. PRINCIPAL UNDERWRITERS.
Registrant's principal underwriter, Liberty Securities
Corporation, is a wholly owned subsidiary of Liberty Investment
Services, Inc., a wholly owned subsidiary of Liberty Financial
Services, Inc. which, in turn, is a wholly owned subsidiary of
Liberty Financial Companies, Inc. Liberty Financial Companies,
Inc. is a public corporation whose majority shareholder is LFC
Holdings, Inc., a wholly owned subsidiary of Liberty Mutual Equity
Corporation. Liberty Mutual Equity Corporation is a wholly owned
subsidiary of Liberty Mutual Insurance Company.
Liberty Securities Corporation is principal underwriter for the
following investment companies:
Stein Roe Income Trust
Stein Roe Municipal Trust
Stein Roe Investment Trust
Stein Roe Insitutional Trust
Stein Roe Advisor Trust
Stein Roe Trust
Set forth below is information concerning the directors and
officers of Liberty Securities Corporation:
Positions
Positions and Offices and Offices
Name with Underwriter with Registrant
- ------------------ -------------------- ---------------
Porter P. Morgan Chairman of the Board; Director None
Frank L. Tarantino President; Chief Operating
Officer; Director None
Robert L. Spadafora Executive Vice President -
Sales and Marketing None
John T. Treece, Jr. Senior Vice President - Operations None
John W. Reading Senior Vice President and
Assistant Secretary None
Valerie A. Arendell Senior Vice President - Sales None
Gerald H. Stanney, Vice President and Compliance
Jr. Officer (Boston) None
Jilaine Hummel Bauer Vice President and Compliance Exec. V-P &
Officer (Chicago) Secretary
Timothy K. Armour Vice President President,
Trustee
Lindsay Cook Vice President Trustee
Ralph E. Nixon Vice President None
Glenn E. Williams Assistant Vice President None
Philip J. Iudice Treasurer None
John A. Benning Secretary None
John A. Davenport Assistant Secretary None
C. Allen Merritt, Jr. Assistant Treasurer; Assistant
Secretary; Director None
The principal business address of Mr. Armour and Ms. Bauer is One
South Wacker Drive, Chicago, IL 60606; that of Mr. Williams is Two
Righter Parkway, Wilmington, DE 19803; and that of the other
officers is 600 Atlantic Avenue, Boston, MA 02210-2214.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Jilaine Hummel Bauer
Executive Vice-President and Secretary
Stein Roe Trust
One South Wacker Drive, Suite 3500
Chicago, Illinois 60606
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
Registrant hereby undertakes to file a post-effective amendment
using financial statements, which need not be certified, within
four to six months from the effective date of this Registration
Statement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago and
State of Illinois on the 2nd day of January, 1997.
STEIN ROE TRUST
By TIMOTHY K. ARMOUR
Timothy K. Armour
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
Signature* Title Date
- ------------------------ --------------------- --------------
TIMOTHY K. ARMOUR President and Trustee January 2, 1997
Timothy K. Armour
Principal Executive Officer
GARY A. ANETSBERGER Senior Vice-President January 2, 1997
Gary A. Anetsberger
Principal Financial Officer
SHARON R. ROBERTSON Controller January 2, 1997
Sharon R. Robertson
Principal Accounting Officer
KENNETH L. BLOCK Trustee January 2, 1997
Kenneth L. Block
WILLIAM W. BOYD Trustee January 2, 1997
William W. Boyd
LINDSAY COOK Trustee January 2, 1997
Lindsay Cook
DOUGLAS A. HACKER Trustee January 2, 1997
Douglas A. Hacker
FRANCIS W. MORLEY Trustee January 2, 1997
Francis W. Morley
CHARLES R. NELSON Trustee January 2, 1997
Charles R. Nelson
THOMAS C. THEOBALD Trustee January 2, 1997
Thomas C. Theobald
__________________ Trustee ________________
Janet Langford Kelly
*This Registration Statement has also been signed by the above persons
in their capacities as trustees and officers of SR&F Base Trust
<PAGE>
STEIN ROE TRUST
INDEX TO EXHIBITS FILED WITH THIS REGISTRATION STATEMENT
Exhibit
Number Description
- ------- -------------
1 Agreement and Declaration of Trust
2 By-Laws of Registrant
EXHIBIT 1
<PAGE> 1
STEIN ROE TRUST
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST made at Boston,
Massachusetts, this 31st day of July, 1996 by the Trustees
hereunder, and by the holders of shares of beneficial
interest to be issued hereunder as hereinafter provided.
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the
business of an investment company; and
WHEREAS, the Trustees have agreed to manage all property
coming into their hands as trustees of a Massachusetts
business trust in accordance with the provisions hereinafter
set forth.
NOW, THEREFORE, the Trustees hereby declare that they
will hold all cash, securities and other assets, which they
may from time to time acquire in any manner as Trustees
hereunder, IN TRUST to manage and dispose of the same upon
the following terms and conditions for the pro rata benefit
of the holders from time to time of Shares in this Trust as
hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
Name
Section 1. This Trust shall be known as "Stein Roe
Trust", and the Trustees shall conduct the business of the
Trust under that name or any other name as they may from
time to time determine.
<PAGE> 2
Definitions
Section 2. Whenever used herein, unless otherwise
required by the context or specifically provided:
(a) The "Trust" refers to the Massachusetts business
trust established by this Agreement and Declaration of Trust,
as amended from time to time;
(b) "Trustees" refers to the Trustee or Trustees of the
Trust named herein or elected in accordance with Article IV;
(c) "Shares" means the equal proportionate transferable
units of interest into which the beneficial interest in the
Trust shall be divided from time to time or, if more than one
series of Shares is authorized by the Trustees, the equal
proportionate units into which each series of Shares shall be
divided from time to time or, if more than one class of
Shares of any series is authorized by the Trustees, the equal
proportionate units into which each class of such series of
Shares shall be divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act
of 1940 and the Rules and Regulations thereunder, all as
amended from time to time;
(f) The terms "Affiliated Person," "Assignment,"
"Commission," "Interested Person," "Principal Underwriter"
and "Majority Shareholder Vote" (the 67% or 50% requirement
of the third sentence of Section 2(a)(42) of the 1940 Act,
whichever may be applicable) shall have the meanings given
them in the 1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust as amended or restated from time to
time; and
(h) "By-Laws" shall mean the By-Laws of the Trust as
amended from time to time.
ARTICLE II
PURPOSE
The purpose of the Trust is to engage in the business of
a management investment company and to provide investors a
managed investment primarily in securities, commodities and
debt instruments.
<PAGE> 3
ARTICLE III
SHARES
Division of Beneficial Interest
Section 1. The Shares of the Trust shall be issued in
one or more series as the Trustees may, without Shareholder
approval, authorize. The Trustees may, without Shareholder
approval, divide the Shares of any series into two or more
classes, Shares of each such class having such preferences or
special or relative rights or privileges (including
conversion rights, if any) as the Trustees may determine and
as are not inconsistent with any provision of this
Declaration of Trust. Each series shall be preferred over
all other series in respect of the assets allocated to that
series. The beneficial interest in each series shall at all
times be divided into Shares, without par value, each of
which shall, except as the Trustees may otherwise authorize
in the case of any series that is divided into two or more
classes, represent an equal proportionate interest in the
series with each other Share of the same series, none having
priority or preference over another. The number of Shares
authorized shall be unlimited, and the Shares so authorized
may be represented in part by fractional shares. The
Trustees may from time to time divide or combine the Shares
of any series or class into a greater or lesser number
without thereby changing the proportionate beneficial
interests in the series or class.
Ownership of Shares
Section 2. The ownership of Shares shall be recorded on
the books of the Trust or its transfer or similar agent. No
certificates certifying the ownership of Shares shall be
issued except as the Trustees may otherwise determine from
time to time. The Trustees may make such rules as they
consider appropriate for the issuance of Share certificates,
the transfer of Shares and similar matters. The record books
of the Trust as kept by the Trust or any transfer or similar
agent of the Trust, as the case may be, shall be conclusive
as to who are the Shareholders of each series and class and
as to the number of Shares of each series and class held from
time to time by each Shareholder.
Investments in the Trust; Assets of the Series
Section 3. The Trustees may accept investments in the
Trust from such persons and on such terms and, subject to any
requirements of law, for such consideration, which may
consist of cash or tangible or intangible property or a
combination thereof, as they from time to time authorize.
All consideration received by the Trust for the issue or
sale of Shares of each series, together with all income,
earnings, profits and proceeds thereof, including any
proceeds derived from the sale, exchange or liquidation
thereof, and any funds or payments derived
<PAGE> 4
from any reinvestment of such proceeds in whatever form the
same may be, shall irrevocably belong to the series of Shares
with respect to which the same were received by the Trust for
all purposes, subject only to the rights of creditors, and
shall be so handled upon the books of account of the Trust
and are herein referred to as "assets of" such series.
No Preemptive Rights
Section 4. Shareholders shall have no preemptive or
other right to receive, purchase or subscribe for any
additional Shares or other securities issued by the Trust.
Status of Shares and Limitation of Personal Liability
Section 5. Shares shall be deemed to be personal
property giving only the rights provided in this instrument.
Every Shareholder by virtue of having become a Shareholder
shall be held to have expressly assented and agreed to the
terms hereof and to have become a party hereto. The death of
a Shareholder during the continuance of the Trust shall not
operate to terminate the same nor entitle the representative
of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the
Trustees, but only to the rights of said decedent under this
Trust. Ownership of Shares shall not entitle the Shareholder
to any title in or to the whole or any part of the Trust
property or right to call for a partition or division of the
same or for an accounting, nor shall the ownership of Shares
constitute the Shareholders partners. Neither the Trust nor
the Trustees, nor any officer, employee or agent of the
Trust, shall have any power to bind personally any
Shareholder, nor except as specifically provided herein to
call upon any Shareholder for the payment of any sum of money
or assessment whatsoever other than such as the Shareholder
may at any time personally agree to pay.
Derivative Claims
Section 6. No Shareholder shall have the right to bring
or maintain any court action, proceeding or claim on behalf
of this Trust or any series without first making demand on
the Trustees requesting the Trustees to bring or maintain
such action, proceeding or claim. Such demand shall be
excused only when the plaintiff makes a specific showing that
irreparable injury to the Trust or series would otherwise
result. Such demand shall be mailed to the Secretary of the
Trust at the Trust's principal office and shall set forth in
reasonable detail the nature of the proposed court action,
proceeding or claim and the essential facts relied upon by
the Shareholder to support the allegations made in the
demand. The Trustees shall consider such demand within 45
days of its receipt by the Trust. In their sole discretion,
the Trustees may submit the matter to a vote of Shareholders
of the Trust or series, as appropriate. Any decision by the
Trustees to bring, maintain or settle (or not to bring,
maintain or settle) such court action, proceeding or claim,
or to submit the matter to a vote of Shareholders shall be
made by the Trustees in their business judgment and shall be
binding upon the Shareholders.
<PAGE> 5
ARTICLE IV
THE TRUSTEES
Election; Removal
Section 1. The number of Trustees shall be fixed by the
Trustees, except that, subsequent to any sale of Shares
pursuant to a public offering, there shall be not less than
three Trustees. Any vacancies occurring in the Board of
Trustees may be filled by the Trustees if, immediately after
filling any such vacancy, at least two-thirds of the Trustees
then holding office shall have been elected to such office by
the Shareholders. In the event that at any time less than a
majority of the Trustees then holding office were elected to
such office by the Shareholders, the Trustees shall call a
meeting of Shareholders for the purpose of electing Trustees.
Each Trustee elected by the Shareholders or by the Trustees
shall serve until the next meeting of Shareholders called for
the purpose of electing Trustees and until the election and
qualification of his or her successor, or until he or she
sooner dies, resigns or is removed. The initial Trustees,
each of whom shall serve until the first meeting of
Shareholders at which Trustees are elected and until his or
her successor is elected and qualified, or until he or she
sooner dies, resigns or is removed, shall be Antonio
DeSpirito, III and such other persons as the Trustee or
Trustees then in office shall, prior to any sale of Shares
pursuant to a public offering, appoint. By vote of a
majority of the Trustees then in office, the Trustees may
remove a Trustee with or without cause. At any meeting
called for the purpose, a Trustee may be removed, with or
without cause, by vote of the holders of two-thirds of the
outstanding Shares.
Effect of Death, Resignation, etc. of a Trustee
Section 2. The death, declination, resignation,
retirement, removal or incapacity of the Trustees, or any one
of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this
Declaration of Trust.
Powers
Section 3. Subject to the provisions of this
Declaration of Trust, the business of the Trust shall be
managed by the Trustees, and they shall have all powers
necessary or convenient to carry out that responsibility.
Without limiting the foregoing, the Trustees may adopt By-
Laws not inconsistent with this Declaration of Trust
providing for the conduct of the business of the Trust and
may amend and repeal them to the extent that such By-Laws do
not reserve that right to the Shareholders; they may fill
vacancies in their number, including vacancies resulting from
increases in their number, and may elect and remove such
officers and appoint and terminate such agents as they
consider appropriate; they may appoint from their own number,
and terminate, any one or more committees consisting of two
or more Trustees, including an executive committee which may,
when the Trustees are not in session, exercise some or all of
the power and authority of the Trustees as the Trustees may
determine;
<PAGE> 6
they may appoint an advisory board, the members of which
shall not be Trustees and need not be Shareholders; they may
employ one or more custodians of the assets of the Trust and
may authorize such custodians to employ subcustodians and to
deposit all or any part of such assets in a system or systems
for the central handling of securities, retain a transfer
agent or a Shareholder services agent, or both, provide for
the distribution of Shares by the Trust, through one or more
principal underwriters or otherwise, set record dates for the
determination of Shareholders with respect to various
matters, and in general delegate such authority as they
consider desirable to any officer of the Trust, to any
committee of the Trustees and to any agent or employee of the
Trust or to any such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have
power and authority:
(a) To invest and reinvest in securities, options,
futures contracts, options on futures contracts and other
property, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage,
hypothecate, write options on and lease any or all of the
assets of the Trust;
(c) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or
property; and to execute and deliver proxies or powers of
attorney to such person or persons as the Trustees shall deem
proper, granting to such person or persons such power and
discretion with relation to securities or property as the
Trustees shall deem proper;
(d) To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of
securities or other assets;
(e) To hold any security or property in a form not
indicating any trust, whether in bearer, unregistered or
other negotiable form, or in the name of the Trustees or of
the Trust or in the name of a custodian, subcustodian or
other depository or a nominee or nominees or otherwise;
(f) Subject to the provisions of Article III, Section 3,
to allocate assets, liabilities and expenses of the Trust to
a particular series of Shares or to apportion the same among
two or more series, provided that any liabilities or expenses
incurred by a particular series of Shares shall be payable
solely out of the assets of that series; and to the extent
necessary or appropriate to give effect to the preferences
and special or relative rights and privileges of any classes
of Shares, to allocate assets, liabilities, income and
expenses of a series to a particular class of Shares of that
series or to apportion the same among two or more classes of
Shares of that series;
(g) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
issuer, any security of which is or was held in the
<PAGE> 7
Trust; to consent to any contract, lease, mortgage, purchase
or sale of property by such corporation or issuer, and to pay
calls or subscriptions with respect to any security held in
the Trust;
(h) To join with other security holders in acting
through a committee, depositary, voting trustee or otherwise,
and in that connection to deposit any security with, or
transfer any security to, any such committee, depositary or
trustee, and to delegate to them such power and authority
with relation to any security (whether or not so deposited or
transferred) as the Trustees shall deem proper, and to agree
to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the
Trustees shall deem proper;
(i) To compromise, arbitrate or otherwise adjust claims
in favor of or against the Trust on any matter in
controversy, including but not limited to claims for taxes;
(j) To enter into joint ventures, general or limited
partnerships and any other combinations or associations;
(k) To borrow funds, securities or other assets;
(1) To endorse or guarantee the payment of any notes or
other obligations of any person; to make contracts of
guaranty or suretyship, or otherwise assume liability for
payment thereof; and to mortgage and pledge the Trust
property or any part thereof to secure any of or all of such
obligations or obligations incurred pursuant to subparagraph
(k) hereof;
(m) To purchase and pay for entirely out of Trust
property such insurance as they may deem necessary or
appropriate for the conduct of the business, including,
without limitation, insurance policies insuring the assets of
the Trust and payment of distributions and principal on its
portfolio investments, and insurance policies insuring the
Shareholders, Trustees, officers, employees, agents,
investment advisers or managers, principal underwriters or
independent contractors of the Trust individually against all
claims and liabilities of every nature arising by reason of
holding, being or having held any such office or position, or
by reason of any action alleged to have been taken or omitted
by any such person as Shareholder, Trustee, officer,
employee, agent, investment adviser or manager, principal
underwriter or independent contractor, including any action
taken or omitted that may be determined to constitute
negligence, whether or not the Trust would have the power to
indemnify such person against such liability; and
(n) To pay pensions for faithful service, as deemed
appropriate by the Trustees, and to adopt, establish and
carry out pension, profit-sharing, share bonus, share
purchase, savings, thrift and other retirement, incentive and
benefit plans, trusts and
<PAGE> 8
provisions, including the purchasing of life insurance and
annuity contracts as a means of providing such retirement and
other benefits, for any or all of the Trustees, officers,
employees and agents of the Trust.
The Trustees shall not in any way be bound or limited by
any present or future law or custom in regard to investments
by Trustees. Except as otherwise provided herein or from
time to time in the By-Laws, any action to be taken by the
Trustees may be taken by a majority of the Trustees present
at a meeting of the Trustees (a quorum being present), within
or without Massachusetts, including any meeting held by means
of a conference telephone or other communications equipment
by means of which all persons participating in the meeting
can hear each other at the same time, and participation by
such means shall constitute presence in person at a meeting,
or by written consents of a majority of the Trustees then in
office.
Payment of Expenses by Trust
Section 4. The Trustees are authorized to pay or to
cause to be paid out of the principal or income of the Trust,
or partly out of principal and partly out of income, as they
deem fair, all expenses, fees, charges, taxes and liabilities
incurred or arising in connection with the Trust, or in
connection with the management thereof, including, but not
limited to, the Trustees' compensation and such expenses and
charges for the services of the Trust's officers, employees,
investment adviser or manager, principal underwriter,
auditor, counsel, custodian, transfer agent, Shareholder
services agent and such other agents or independent
contractors, and such other expenses and charges, as the
Trustees may deem necessary or proper to incur, provided,
however, that all expenses, fees, charges, taxes and
liabilities incurred or arising in connection with a
particular series of Shares, as determined by the Trustees,
shall be payable solely out of the assets of that series.
Ownership of Assets of the Trust
Section 5. Title to all of the assets of each series of
Shares and of the Trust shall at all times be considered as
vested in the Trustees.
Advisory, Management and Distribution
Section 6. Subject to a favorable Majority Shareholder
Vote, the Trustees may, at any time and from time to time,
contract for exclusive or nonexclusive advisory and/or
management services with Stein Roe & Farnham Incorporated, or
any other partnership, corporation, trust, association or
other organization (the "Adviser"), every such contract to
comply with such requirements and restrictions as may be set
forth in the By-Laws; and any such contract may contain such
other terms interpretive of or in addition to said
requirements and restrictions as the Trustees may determine,
including, without limitation, authority to determine from
time to time what investments shall be purchased, held, sold
or exchanged and what portion, if any, of the assets of the
Trust shall be held uninvested, and to make changes
<PAGE> 9
in the Trust's investments. The Trustees may also, at any
time and from time to time, contract with the Adviser or any
other corporation, trust, association or other organization,
appointing it exclusive or nonexclusive distributor or
principal underwriter for the Shares, every such contract to
comply with such requirements and restrictions as may be set
forth in the By-Laws; and any such contract may contain such
other terms interpretive of or in addition to said
requirements and restrictions as the Trustees may determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the
Trust is a shareholder, director, officer, partner, trustee,
employee, manager, adviser, principal underwriter or
distributor or agent of or for any corporation, trust,
association or other organization, or of or for any parent or
affiliate of any organization, with which an advisory or
management contract, or principal underwriter's or
distributor's contract, or transfer, shareholder services or
other agency contract may have been or may hereafter be made,
or that any organization, or any parent or affiliate thereof,
is a Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other
organization with which an advisory or management contract or
principal underwriter's or distributor's contract, or
transfer, Shareholder services or other agency contract may
have been or may hereafter be made also has an advisory or
management contract, or principal underwriter's or
distributor's contract, or transfer, shareholder services or
other agency contract with one or more other corporations,
trusts, associations or other organizations, or has other
business or interests
shall not affect the validity of any such contract or
disqualify any Shareholder, Trustee or officer of the Trust
from voting upon or executing the same or create any
liability or accountability to the Trust or its Shareholders.
ARTICLE V
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Voting Powers
Section 1. The Shareholders shall have power to vote
only (i) for the election of Trustees as provided in Article
IV, Section 1, (ii) with respect to any Adviser as provided
in Article IV, Section 6, (iii) with respect to any
termination of this Trust to the extent and as provided in
Article IX, Section 4, (iv) with respect to any amendment of
this Declaration of Trust to the extent and as provided in
Article IX, Section 7, and (v) with respect to such
additional matters relating to the Trust as may be required
by law, this Declaration of Trust, the By-Laws or any
registration of the Trust with the Securities and Exchange
Commission (or
<PAGE> 10
any successor agency) or any state, or as the Trustees may
consider necessary or desirable. 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).
Notwithstanding any other provision of this Declaration of
Trust, on any matter submitted to a vote of Shareholders, all
Shares of the Trust then entitled to vote shall be voted in
the aggregate as a single class without regard to series or
class except: (1) when required by the 1940 Act or when the
Trustees shall have determined that the matter affects one or
more series or classes materially differently, Shares shall
be voted by individual series or class; and (2) when the
Trustees have determined that the matter affects only the
interests of one or more series or classes, then only
Shareholders of such series or classes shall be entitled to
vote thereon. There shall be no cumulative voting in the
election of Trustees.
Shares may be voted in person or by proxy. A proxy with
respect to Shares held in the name of two or more persons
shall be valid if executed by any one of them unless at or
prior to exercise of the proxy the Trust receives a specific
written notice to the contrary from any one of them. A proxy
purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its
exercise and the burden of proving invalidity shall rest on
the challenger. The placing of a shareholder's name on a
proxy pursuant to telephone or electronically transmitted
instructions obtained pursuant to procedures reasonably
designed to verify that such instructions have been
authorized by such shareholder shall constitute execution of
such proxy by or on behalf of such shareholder in writing.
At all meetings of Shareholders, unless inspectors of
election have been appointed, all questions relating to the
qualification of voters and the validity of proxies and the
acceptance or rejection of votes shall be decided by the
chairman of the meeting. Unless otherwise specified in the
proxy, the proxy shall apply to all Shares of each series of
the Trust owned by the Shareholder.
Until Shares are issued, the Trustees may exercise all
rights of Shareholders and may take any action required by
law, this Declaration of Trust or the By-Laws to be taken by
Shareholders.
Voting Power and Meetings
Section 2. Meetings of Shareholders of the Trust or of
any series or class may be called by the Trustees or such
other person or persons as may be specified in the By-Laws
and held from time to time for the purpose of taking action
upon any matter requiring the vote or the authority of the
Shareholders of the Trust or any series or class as herein
provided or upon any other matter deemed by the Trustees to
be necessary or desirable. Meetings of Shareholders of the
Trust or of any series or class shall be called by the
Trustees or such other person or persons as may be specified
in the By-Laws upon written application. The
<PAGE> 11
Shareholders shall be entitled to at least seven days'
written notice of any meeting of the Shareholders.
Quorum and Required Vote
Section 3. Shares representing thirty percent of the
votes entitled to vote shall be a quorum for the transaction
of business at a Shareholders' meeting, except that where any
provision of law or of this Declaration of Trust permits or
requires that holders of any series or class shall vote as a
series or class, then Shares representing thirty percent of
the votes of that series or class entitled to vote shall be
necessary to constitute a quorum for the transaction of
business by that series or class. Any lesser number,
however, shall be sufficient for adjournments. Any adjourned
session or sessions may be held within a reasonable time
after the date set for the original meeting without the
necessity of further notice. Except when a larger vote is
required by any provision of this Declaration of Trust or the
By-Laws, Shares representing a majority of the votes voted
shall decide any questions and a plurality shall elect a
Trustee, provided that where any provision of law or of this
Declaration of Trust permits or requires that the holders of
any series or class shall vote as a series or class, then
Shares representing a majority of the votes of that series or
class voted on the matter (or a plurality with respect to the
election of a Trustee) shall decide that matter insofar as
that series or class is concerned.
Action by Written Consent
Section 4. Any action taken by Shareholders may be
taken without a meeting if a majority of Shareholders
entitled to vote on the matter (or such larger proportion
thereof as shall be required by any express provision of this
Declaration of Trust or the By-Laws) consent to the action in
writing and such written consents are filed with the records
of the meetings of Shareholders. Such consent shall be
treated for all purposes as a vote taken at a meeting of
Shareholders.
Additional Provisions
Section 5. The ByLaws may include further provisions
for Shareholders' votes and meetings and related matters.
<PAGE> 12
ARTICLE VI
DISTRIBUTIONS, REDEMPTIONS AND REPURCHASES,
AND DETERMINATION OF NET ASSET VALUE
Distributions
Section 1. The Trustees may, but need not, each year
distribute to the Shareholders of each series or class such
income and gains, accrued or realized, as the Trustees may
determine, after providing for actual and accrued expenses
and liabilities (including such reserves as the Trustees may
establish) determined in accordance with good accounting
practices. The Trustees shall have full discretion to
determine which items shall be treated as income and which
items as capital and their determination shall be binding
upon the Shareholders. Distributions of each year's income
of each series, if any be made, may be made in one or more
payments, which shall be in Shares, in cash or otherwise and
on a date or dates and as of a record date or dates
determined by the Trustees. At any time and from time to
time in their discretion, the Trustees may distribute to the
Shareholders of any one or more series or classes as of a
record date or dates determined by the Trustees, in Shares,
in cash or otherwise, all or part of any gains realized on
the sale or disposition of property of the series or
otherwise, or all or part of any other principal of the Trust
attributable to the series. In the case of any series not
divided into two or more classes of Shares, each distribution
pursuant to this Section 1 shall be made ratably according to
the number of Shares of the series held by the several
Shareholders on the applicable record date thereof, provided
that no distribution need be made on Shares purchased
pursuant to orders received, or for which payment is made,
after such time or times as the Trustees may determine. In
the case of any series divided into two or more classes, each
distribution pursuant to this Section 1 may be made in whole
or in such parts as the Trustees may determine to the
Shareholders of any one or more classes, and the distribution
to the Shareholders of any class shall be made ratably
according to the number of Shares of the class (but need not
be made ratably according to the number of Shares of the
series, considered without regard to class) held by the
several Shareholders on the record date thereof, provided
that no distribution need be made on Shares purchased
pursuant to orders received, or for which payment is made,
after such time or times as the Trustees may determine. Any
such distribution paid in Shares will be paid at the net
asset value thereof as determined in accordance with Section
7 of this Article VI.
Redemptions and Repurchases
Section 2. Any holder of Shares of the Trust may by
presentation of a written request, together with his or her
certificates, if any, for such Shares, in proper form for
transfer, at the office of the Trust or at a principal office
of a transfer agent appointed by the Trust, redeem his or her
Shares for the net asset value thereof determined and
computed in accordance with the provisions of this Section 2
and the provisions of Section 7 of this Article VI.
<PAGE> 13
Upon receipt by the Trust or its transfer agent of such
written request for redemption of Shares, such Shares shall
be redeemed at the net asset value per share of the
appropriate series next determined after such Shares are
tendered in proper order for transfer to the Trust or
determined as of such other time fixed by the Trustees as may
be permitted or required by the 1940 Act, provided that no
such tender shall be required in the case of Shares for which
a certificate or certificates have not been issued, and in
such case such Shares shall be redeemed at the net asset
value per share of the appropriate series next determined
after such request has been received or determined at such
other time fixed by the Trustees as may be permitted or
required by the 1940 Act.
The obligation of the Trust to redeem its Shares of each
series or class as set forth above in this Section 2 shall be
subject to the conditions that during any time of emergency,
as hereinafter defined, such obligation may be suspended by
the Trust by or under authority of the Trustees for such
period or periods during such time of emergency as shall be
determined by or under authority of the Trustees. If there
is such a suspension, any Shareholder may withdraw any demand
for redemption and any tender of Shares which has been
received by the Trust during any such period and any tender
of Shares, the applicable net asset value of which would but
for such suspension be calculated as of a time during such
period. Upon such withdrawal, the Trust shall return to the
Shareholder the certificates therefor, if any. For the
purposes of any such suspension, "time of emergency" shall
mean, either with respect to all Shares or any series of
Shares, any period during which:
a. the New York Stock Exchange is closed other than for
customary weekend and holiday closings; or
b. the Trustees or authorized officers of the Trust
shall have determined, in compliance with any applicable
rules and regulations of the Securities and Exchange
Commission, either that trading on the New York Stock
Exchange is restricted, or that an emergency exists as a
result of which (i) disposal by the Trust of securities owned
by it is not reasonably practicable or (ii) it is not
reasonably practicable for the Trust fairly to determine the
current value of its net assets; or
c. the suspension or postponement of such obligations
is permitted by order of the Securities and Exchange
Commission.
The Trust may also purchase, repurchase or redeem Shares
in accordance with such other methods, upon such other terms
and subject to such other conditions as the Trustees may from
time to time authorize at a price not exceeding the net asset
value of such Shares in effect when the purchase or
repurchase or any contract to purchase or repurchase is made.
<PAGE> 14
Payment in Kind
Section 3. Subject to any generally applicable
limitation imposed by the Trustees, any payment on redemption
of Shares may, if authorized by the Trustees, be made wholly
or partly in kind, instead of in cash. Such payment in kind
shall be made by distributing securities or other property
constituting, in the opinion of the Trustees, a fair
representation of the various types of securities and other
property then held by the series of Shares being redeemed
(but not necessarily involving a portion of each of the
series' holdings) and taken at their value used in
determining the net asset value of the Shares in respect of
which payment is made.
Redemptions at the Option of the Trust
Section 4. The Trust shall have the right at its option
and at any time to redeem Shares of any Shareholder at the
net asset value thereof as determined in accordance with
Section 7 of Article VI of this Declaration of Trust: (i) if
at such time such Shareholder owns fewer Shares than, or
Shares having an aggregate net asset value of less than, an
amount determined from time to time by the Trustees; or (ii)
to the extent that such Shareholder owns Shares of a
particular series of Shares equal to or in excess of a
percentage of the outstanding Shares of that series
(determined without regard to class) determined from time to
time by the Trustees; or (iii) to the extent that such
Shareholder owns Shares of the Trust representing a
percentage equal to or in excess of such percentage of the
aggregate number of outstanding Shares of the Trust or the
aggregate net asset value of the Trust determined from time
to time by the Trustees.
Dividends, Distributions, Redemptions and Repurchases
Section 5. No dividend or distribution (including,
without limitation, any distribution paid upon termination of
the Trust or of any series) with respect to, nor any
redemption or repurchase of, the Shares of any series (or of
any class) shall be effected by the Trust other than from the
assets of such series (or of the series of which such class
is a part).
Additional Provisions Relating to Redemptions and
Repurchases
Section 6. The completion of redemption of Shares shall
constitute a full discharge of the Trust and the Trustees
with respect to such shares, and the Trustees may require
that any certificate or certificates issued by the Trust to
evidence the ownership of such Shares shall be surrendered to
the Trustees for cancellation or notation.
<PAGE> 15
Determination of Net Asset Value
Section 7. The term "net asset value" of the Shares of
each series or class shall mean: (i) the value of all the
assets of such series or class; (ii) less the total
liabilities of such series or class; (iii) divided by the
number of Shares of such series or class outstanding, in each
case at the time of each determination. The "number of
Shares of such series or class outstanding" for the purposes
of such computation shall be exclusive of any Shares of such
series or class to be redeemed and not then redeemed as to
which the redemption price has been determined, but shall
include Shares of such series or class presented for
repurchase and not then repurchased and Shares of such series
or class to be redeemed and not then redeemed as to which the
redemption price has not been determined and Shares of such
series or class the sale of which has been confirmed. Any
fractions involved in the computation of net asset value per
share shall be adjusted to the nearer cent unless the
Trustees shall determine to adjust such fractions to a
fraction of a cent.
The Trustees, or any officer or officers or agent of
this Trust designated for the purpose by the Trustees, shall
determine the net asset value of the Shares of each series or
class, and the Trustees shall fix the times as of which the
net asset value of the Shares of each series or class shall
be determined and shall fix the periods during which any such
net asset value shall be effective as to sales, redemptions
and repurchases of, and other transactions in, the Shares of
such series or class, except as such times and periods for
any such transaction may be fixed by other provisions of this
Declaration of Trust or by the By-Laws.
In valuing the portfolio investments of any series or
class for determination of net asset value per share of such
series or class:
(a) Each security for which market quotations are
readily available shall be valued at current market value
determined by methods specified by the Board of Trustees;
(b) Each other security, including any security within
(a) for which the specified price does not appear to
represent a dependable quotation for such security as of the
time of valuation, shall be valued at a fair value as
determined in good faith by the Trustees;
(c) Any cash on hand shall be valued at the face amount
thereof;
(d) Any cash on deposit, accounts receivable, and cash
dividends and interest declared or accrued and not yet
received, any prepaid expenses, and any other current asset
shall be valued at the face amount thereof, unless the
Trustees shall determine that any such item is not worth its
face amount, in which case such asset shall be valued at a
fair value determined in good faith by the Trustees; and
<PAGE> 16
(e) Any other asset shall be valued at a fair value
determined in good faith by the Trustees.
Notwithstanding the foregoing, short-term debt obligations,
commercial paper and repurchase agreements may be, but need
not be, valued on the basis of quoted yields for securities
of comparable maturity, quality and type, or on the basis of
amortized cost.
Liabilities of any series or class for accounts payable
for investments purchased and for Shares tendered for
redemption and not then redeemed as to which the redemption
price has been determined shall be stated at the amounts
payable therefor. In determining the net asset value of any
series or class, the person or persons making such
determination on behalf of the Trust may include in
liabilities such reserves, estimated accrued expenses and
contingencies as such person or persons may in its, his or
their best judgment deem fair and reasonable under the
circumstances. Any income dividends and gains distributions
payable by the Trust shall be deducted as of such time or
times on the record date therefor as the Trustees shall
determine.
The manner of determining the net assets of any series
or class or of determining the net asset value of the Shares
of any series or class may from time to time be altered as
necessary or desirable in the judgment of the Trustees to
conform to any other method prescribed or permitted by any
applicable law or regulation.
Determinations under this Section 7 made in good faith
and in accordance with the provisions of the 1940 Act shall
be binding on all parties concerned.
ARTICLE VII
COMPENSATION AND LIMITATION
OF LIABILITY OF TRUSTEES
Compensation
Section 1. The Trustees as such shall be entitled to
reasonable compensation from the Trust; they may fix the
amount of their compensation. Nothing herein shall in any
way prevent the employment of any Trustee for advisory,
management, legal, accounting, investment banking or other
services and payment for the same by the Trust.
Limitation of Liability
Section 2. The Trustees shall not be responsible or
liable in any event for any neglect or wrongdoing of any
officer, agent, employee, adviser or principal underwriter of
the Trust, nor shall any Trustee be responsible for the act
or omission of any other Trustee, but nothing herein
contained shall protect any Trustee against any liability to
which he or she would
<PAGE> 17
otherwise be subject by reason of wilful misfeasance, bad
faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
Every note, bond, contract, instrument, certificate,
Share or undertaking and every other act or thing whatsoever
executed or done by or on behalf of the Trust or the Trustees
or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or
with respect to their or his or her capacity as Trustees or
Trustee, and such Trustees or Trustee shall not be personally
liable thereon.
ARTICLE VIII
INDEMNIFICATION
Trustees, Officers, etc.
Section 1. The Trust shall indemnify each of its
Trustees and officers (including persons who serve at the
Trust's request as directors, officers or trustees of another
organization in which the Trust has any interest as a
shareholder, creditor or otherwise) (hereinafter referred to
as a "Covered Person") against all liabilities and expenses,
including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and
counsel fees reasonably incurred by any Covered Person in
connection with the defense or disposition of any action,
suit or other proceeding, whether civil, criminal,
administrative or investigative, and any appeal therefrom,
before any court or administrative or legislative body, in
which such Covered Person may be or may have been involved as
a party or otherwise or with which such person may be or may
have been threatened, while in office or thereafter, by
reason of being or having been such a Covered Person, except
that no Covered Person shall be indemnified against any
liability to the Trust or its Shareholders to which such
Covered Person would otherwise be subject by reason of wilful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such
Covered Person's office.
Expenses, including counsel fees so incurred by any such
Covered Person (but excluding amounts paid in satisfaction of
judgments, in compromise or as fines or penalties), may be
paid from time to time by the Trust in advance of the final
disposition of any such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such Covered
Person to repay amounts so paid to the Trust if it is
ultimately determined that indemnification of such expenses
is not authorized under this Article, provided that (a) such
Covered Person shall provide security for his undertaking,
(b) the Trust shall be insured against losses arising by
reason of such Covered Person's failure to fulfill his
undertaking or (c) a majority of the Trustees who are
disinterested persons and who are not Interested Persons
(provided that a majority of such Trustees then in office act
on the matter), or independent legal counsel in a written
opinion, shall determine, based on a review of readily
available facts (but not a full
<PAGE> 18
trial-type inquiry), that there is reason to believe such
Covered Person ultimately will be entitled to
indemnification.
Compromise Payment
Section 2. As to any matter disposed of (whether by a
compromise payment, pursuant to a consent decree or
otherwise) without an adjudication in a decision on the
merits by a court, or by any other body before which the
proceeding was brought, that such Covered Person is liable to
the Trust or its Shareholders by reason of wilful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such
Covered Person's office, indemnification shall be provided if
(a) approved as in the best interest of the Trust, after
notice that it involves such indemnification, by at least a
majority of the Trustees who are disinterested persons and
are not Interested Persons (provided that a majority of such
Trustees then in office act on the matter), upon a
determination, based upon a review of readily available facts
(but not a full trial-type inquiry) that such Covered Person
is not liable to the Trust or its Shareholders by reason of
wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such
Covered Person's office, or (b) there has been obtained an
opinion in writing of independent legal counsel, based upon a
review of readily available facts (but not a full-trial type
inquiry) to the effect that such indemnification would not
protect such Covered Person against any liability to the
Trust to which such Covered Person would otherwise be subject
by reason of wilful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct
of his office.
Any approval pursuant to this Section shall not prevent
the recovery from any Covered Person of any amount paid to
such Covered Person in accordance with this Section as
indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction to have been
liable to the Trust or its Shareholders by reason of wilful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such
Covered Person's office.
Indemnification Not Exclusive; Definitions
Section 3. The right of indemnification hereby provided
shall not be exclusive of or affect any other rights to which
any such Covered Person may be entitled. As used in this
Article VIII, the term "Covered Person" shall include such
person's heirs, executors and administrators, and a
"disinterested person" is a person against whom none of the
actions, suits or other proceedings in question or another
action, suit or other proceeding on the same or similar
grounds is then or has been pending. Nothing contained in
this article shall affect any rights to indemnification to
which personnel of the Trust, other than Trustees and
officers, and other persons may be entitled by contract or
otherwise under law, nor the power of the Trust to purchase
and maintain liability insurance on behalf of such persons.
<PAGE> 19
Shareholders
Section 4. In case any Shareholder or former
Shareholder shall be held to be personally liable solely by
reason of his or her being or having been a Shareholder and
not because of his or her acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his or her
heirs, executors, administrators or other legal
representatives or, in the case of a corporation or other
entity, its corporate or other general successor) shall be
entitled to be held harmless from and indemnified against all
loss and expense arising from such liability, but only out of
the assets of the particular series of Shares of which he or
she is or was a Shareholder.
ARTICLE IX
MISCELLANEOUS
Trustees, Shareholders, etc. Not Personally Liable; Notice
Section 1. All persons extending credit to, contracting
with or having any claim against the Trust or a particular
series of Shares shall look only to the assets of the Trust
or the assets of that particular series of Shares for payment
under such credit, contract or claim; and neither the
Shareholders nor the Trustees, nor any of the Trust's
officers, employees or agents, whether past, present or
future, shall be personally liable therefor. Nothing in this
Declaration of Trust shall protect any Trustee against any
liability to which such Trustee would otherwise be subject by
reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
the office of Trustee.
Every note, bond, contract, instrument, certificate or
undertaking made or issued by the Trustees or by any officers
or officer shall give notice that this Declaration of Trust
is on file with the Secretary of State of The Commonwealth of
Massachusetts and shall recite that the same was executed or
made by or on behalf of the Trust or by them as Trustees or
Trustee or as officers or officer and not individually and
that the obligations of such instrument are not binding upon
any of them or the Shareholders individually but are binding
only upon the assets and property of the Trust, and may
contain such further recital as he or she or they may deem
appropriate, but the omission thereof shall not operate to
bind any Trustees or Trustee or officers or officer or
Shareholders or Shareholder individually.
Trustee's Good Faith Action, Expert Advice, No Bond or Surety
Section 2. The exercise by the Trustees of their powers
and discretions hereunder shall be binding upon everyone
interested. A Trustee shall be liable for his or her own
wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office
of Trustee, and for nothing else, and shall not be liable for
errors of judgment or mistakes of fact or law. The Trustees
may take advice of counsel or other experts
<PAGE> 20
with respect to the meaning and operation of this Declaration
of Trust, and shall be under no liability for any act or
omission in accordance with such advice or for failing to
follow such advice. The Trustees shall not be required to
give any bond as such, nor any surety if a bond is required.
Liability of Third Persons Dealing with Trustees
Section 3. No person dealing with the Trustees shall be
bound to make any inquiry concerning the validity of any
transaction made or to be made by the Trustees or to see to
the application of any payments made or property transferred
to the Trust or upon its order.
Duration and Termination of Trust
Section 4. Unless terminated as provided herein, the
Trust shall continue without limitation of time. The Trust
may be terminated at any time by vote of Shareholders holding
at least two-thirds of the Shares of each series entitled to
vote or by the Trustees by written notice to the
Shareholders. Any series of Shares may be terminated at any
time by vote of Shareholders holding at least two-thirds of
the votes represented by the outstanding Shares of such
series entitled to vote or by the Trustees by written notice
to the Shareholders of such series.
Upon termination of the Trust or of any one or more
series of Shares, after paying or otherwise providing for all
charges, taxes, expenses and liabilities, whether due or
accrued or anticipated as may be determined by the Trustees,
the Trust shall in accordance with such procedures as the
Trustees consider appropriate reduce the remaining assets to
distributable form in cash or shares or other securities, or
any combination thereof, and distribute the proceeds to the
Shareholders of the series involved, ratably according to the
number of Shares of such series held by the several
Shareholders of such series on the date of termination,
except to the extent otherwise required or permitted by the
preferences and special or relative rights and privileges of
any classes of Shares of that series, provided that any
distribution to the Shareholders of a particular class of
Shares shall be made to such Shareholders pro rata in
proportion to the number of Shares of such class held by each
of them.
Filing of Copies, References, Headings
Section 5. The original or a copy of this instrument
and of each amendment hereto shall be kept at the office of
the Trust where it may be inspected by any Shareholder. A
copy of this instrument and of each amendment hereto shall be
filed by the Trust with the Secretary of State of The
Commonwealth of Massachusetts and with the Clerk of the City
of Boston, as well as any other governmental office where
such filing may from time to time be required. Anyone
dealing with the Trust may rely on a certificate by an
officer of the Trust as to whether or not any such amendments
have been made and as to any matters in connection with the
Trust hereunder; and, with the same effect as if it were the
original, may rely on a copy
<PAGE> 21
certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and
in any such amendment, references to this instrument, and all
expressions such as "herein," "hereof" and "hereunder," shall
be deemed to refer to this instrument as amended or affected
by any such amendments. Headings are placed herein for
convenience of reference only and shall not be taken as a
part hereof or control or affect the meaning, construction or
effect of this instrument. This instrument may be executed
in any number of counterparts, each of which shall be deemed
an original.
Applicable Law
Section 6. This Declaration of Trust is made in The
Commonwealth of Massachusetts, and it is created under and is
to be governed by and construed and administered according to
the laws of said Commonwealth. The Trust shall be of the
type commonly called a Massachusetts business trust, and
without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a
trust.
Amendments
Section 7. This Declaration of Trust may be amended at
any time by an instrument in writing signed by a majority of
the then Trustees when authorized so to do by a vote of the
holders of a majority of the votes represented by outstanding
Shares entitled to vote, except that an amendment which shall
affect the holders of one or more series or classes of Shares
but not the holders of all outstanding series and classes
shall be authorized by vote of holders of a majority of the
votes represented by outstanding Shares entitled to vote of
each series and class affected and no vote of Shareholders of
a series or class not affected shall be required. Amendments
having the purpose of changing the name of the Trust or of
supplying any omission, curing any ambiguity or curing,
correcting or supplementing any defective or inconsistent
provision contained herein shall not require authorization by
Shareholder vote.
<PAGE> 22
IN WITNESS WHEREOF the undersigned has hereunto set his hand
in the City of Boston, Massachusetts for himself and his
assigns, as of this 31st day of July, 1996.
ANTONIO DE SPIRITO, III
Antonio DeSpirito, III
One International Place
Boston, MA 02110
THE COMMONWEALTH OF MASSACHUSETTS
Boston ss. July 31, 1996
Then personally appeared the above-named Trustee and
acknowledged the foregoing instrument to be his free act and
deed, before me,
DIANE ROTONDI
Notary Public
My commission expires: 9/23/99
(Notary's Seal)
The address of the Trust is One South Wacker Drive, Chicago,
Illinois 60606
The Resident Agent is CT Corporation, 2 Oliver Street,
Boston, MA 02109.
EXHIBIT 2
STEIN ROE TRUST
BY-LAWS
<PAGE>
ARTICLE I. AGREEMENT AND DECLARATION OF TRUST,
LOCATION OF OFFICES AND SEAL.............................1
Section 1.01. Agreement and Declaration of Trust........1
Section 1.02. Principal Office..........................1
Section 1.03. Seal......................................1
ARTICLE II. BOARD OF TRUSTEES...............................1
Section 2.01. Number and Term of Office.................1
Section 2.02. Power to Declare Dividends................1
Section 2.03. Annual and Regular Meetings...............2
Section 2.04. Special Meetings..........................3
Section 2.05. Notice....................................3
Section 2.06. Waiver of Notice..........................3
Section 2.07. Quorum and Voting.........................3
Section 2.08. Action Without a Meeting..................3
ARTICLE III. EXECUTIVE COMMITTEE AND OTHER COMMITTEES.......3
Section 3.01. How Constituted...........................3
Section 3.02. Powers of the Executive Committee.........4
Section 3.03. Other Committees of the Board of Trustees.4
Section 3.04. Proceedings, Quorum and Manner of Acting..4
Section 3.05. Other Committees..........................4
Section 3.06. Action Without a Meeting..................4
Section 3.07. Waiver of Notice..........................4
ARTICLE IV. OFFICERS........................................5
Section 4.01. General...................................5
Section 4.02. Election, Term of Office and
Qualifications.........................5
Section 4.03. Resignation...............................5
Section 4.04. Removal...................................5
Section 4.05. Vacancies and Newly Created Offices.......5
Section 4.06. Chairman of the Board.....................6
Section 4.07. President.................................6
Section 4.08. Executive Vice-Presidents and Vice-
Presidents.............................6
Section 4.09. Senior Vice-President.....................6
Section 4.10. Treasurer and Assistant Treasurers........6
Section 4.11. Secretary and Assistant Secretaries.......7
Section 4.12. Controller and Assistant Controllers......7
Section 4.13. Subordinate Officers......................7
Section 4.14. Remuneration..............................7
Section 4.15. Surety Bonds..............................7
ARTICLE V. CUSTODY OF SECURITIES............................8
Section 5.01. Employment of a Custodian.................8
Section 5.02. Provisions of Custodian Contract..........8
Section 5.03. Action upon Termination of Custodian
Contract................................9
ARTICLE VI. EXECUTION OF INSTRUMENTS, RIGHTS AS SECURITY
HOLDER........................................9
Section 6.01. General...................................9
Section 6.02. Checks, Notes, Drafts, Etc................9
Section 6.03. Rights as Security Holder................10
ARTICLE VII. SHARES OF BENEFICIAL INTEREST.................10
Section 7.01. Certificates.............................10
Section 7.02. Uncertificated Shares....................10
Section 7.03. Transfers of Shares......................10
Section 7.04. Registered Shareholders..................11
Section 7.05. Transfer Agents and Registrars...........11
Section 7.06. Fixing of Record Date....................11
Section 7.07. Lost, Stolen, or Destroyed Certificates..11
Section 7.08. Resumption of Issuance of Certificates/
Cancellation of Certificates............12
ARTICLE VIII. FISCAL YEAR, ACCOUNTANT......................12
Section 8.01. Fiscal Year..............................12
Section 8.02. Accountants..............................12
ARTICLE IX. AMENDMENTS.....................................12
Section 9.01. General..................................12
Section 9.02. By Shareholders Only.....................12
ARTICLE X. MISCELLANEOUS...................................13
Section 10.01. Restrictions and Limitations............13
<PAGE> 1
STEIN ROE TRUST
BY-LAWS
(By-Laws Adopted by Board of Trustees on July 31, 1996)
ARTICLE I. AGREEMENT AND DECLARATION OF TRUST, LOCATION OF
OFFICES AND SEAL
Section 1.01. Agreement and Declaration of Trust.
These By-Laws shall be subject to the Agreement and
Declaration of Trust as now in effect or hereinafter amended
("Declaration of Trust") of Stein Roe Trust, a Massachusetts
business trust established by the Declaration of Trust (the
"Trust").
Section 1.02. Principal Office. A principal office of
the Trust shall be located in Boston, Massachusetts. The
Trust may also maintain a principal office in the City of
Chicago, State of Illinois. The Trust may, in addition,
establish and maintain such other offices and places of
business as the Board of Trustees may from time to time
determine.
Section 1.03. Seal. The seal of the Trust shall be
circular in form and shall bear the name of the Trust, the
word "Massachusetts," and the year of its organization. The
form of the seal shall be subject to alteration by the Board
of Trustees and the seal may be used by causing it or a
facsimile to be impressed or affixed or printed or otherwise
reproduced. Any officer or Trustee of the Trust shall have
authority to affix the seal of the Trust to any document
requiring the same. Unless otherwise required by the Board
of Trustees, the seal shall not be necessary to be placed on,
and its absence shall not impair the validity of, any
document, instrument or other paper executed and delivered by
or on behalf of the Trust.
ARTICLE II. BOARD OF TRUSTEES
Section 2.01. Number and Term of Office. The Board of
Trustees shall initially consist of the initial sole Trustee,
which number may be increased or subsequently decreased by a
resolution of a majority of the entire Board of Trustees,
provided that the number of Trustees shall not be less than
one nor more than twenty-one, except that subsequent to any
sale of Shares pursuant to a public offering, there shall not
be less than three Trustees. Each Trustee (whenever
selected) shall hold office until the next meeting of
shareholders called for the purposes of electing Trustees and
until his successor is elected and qualified or until his
earlier death, resignation, or removal. Each Trustee shall
retire on December 31 of the year during which the Trustee
becomes age 72.
Section 2.02. Power to Declare Dividends.
(a) The Board of Trustees, from time to time as it may
deem advisable, may declare and pay dividends to the
shareholders of any series of the Trust in cash or other
property of that series, out of any source available to that
series for
<PAGE>
dividends, according to the respective rights and interests
of shareholders of that series and in accordance with the
applicable provisions of the Declaration of Trust.
(b) The Board of Trustees may prescribe from time to
time that dividends declared on shares of a series may be
payable at the election of any of the shareholders of that
series (exercisable before the declaration of the dividend),
either in cash or in shares of that series; provided that the
net asset value of the shares received by a shareholder
electing to receive dividends in shares (determined as of
such time as the Board of Trustees shall have prescribed in
accordance with the Declaration of Trust) shall not exceed
the full amount of cash to which the shareholder would be
entitled if he elected to receive cash.
(c) The Board of Trustees shall cause any dividend
payment to shareholders of a series to be accompanied by a
written statement if wholly or partly from any source other
than:
(i) such series' accumulated undistributed net income
[determined in accordance with generally accepted
accounting principles and the rules and
regulations then in effect of the Securities and
Exchange Commission or any other governmental
body having similar jurisdiction over the Trust
(the "SEC")] and not including profits or losses
realized upon the sale of securities or other
properties of the series; or
(ii) the series' net income so determined for the
current or preceding fiscal year.
Such statement shall adequately disclose the source or
sources of such payment and the basis of calculation and
shall be in such form as the SEC may prescribe.
Section 2.03. Annual and Regular Meetings. Annual and
regular meetings of the Board of Trustees may be held without
call or notice and at such places at such times as the Board
of Trustees may from time to time determine provided that
notice of the first regular meeting following any such
determination shall be given to absent Trustees. Members of
the Board of Trustees or any committee designated thereby may
participate in a meeting of such Board or committee by means
of a conference telephone or other communications equipment,
by means of which all persons participating in the meeting
can hear each other at the same time. Participation by such
means shall constitute presence in person at a meeting;
provided, however, that the Board of Trustees shall not enter
into, renew, or perform any contract or agreement, written or
oral, whereby a person undertakes regularly to serve or act
as investment adviser with respect to any series of the Trust
unless the terms of such contract or agreement and any
renewal thereof have been approved by the vote of a majority
of Trustees who are not parties to such contract or agreement
or interested persons of any such party, which votes shall be
cast at a meeting called for the purpose of voting on such
approval at which such persons are physically present.
<PAGE>
Section 2.04. Special Meetings. Special meetings of
the Board of Trustees shall be held whenever called and at
such place and time determined by the President, Executive
Vice-President or Secretary (or, in the absence or disability
of the President, Executive Vice-President and Secretary, by
any Vice-President), or a majority of the Trustees then in
office, at the time and place specified in the respective
notices or waivers of notice of such meetings.
Section 2.05. Notice. If notice of a meeting of the
Board of Trustees is required or desired to be given, notice
stating the time and place shall be mailed to each Trustee at
his residence or regular place of business at least five days
before the day on which the meeting is to be held or caused
to be delivered to him personally or to be transmitted to him
by telephone, telegraph, cable, or wireless at least one day
before the meeting.
Section 2.06. Waiver of Notice. No notice required or
desired to be given of any meeting need be given to any
Trustee who attends such meeting in person or to any Trustee
who waives notice of such meeting in writing (which waiver
shall be filed with records of such meeting), whether before
or after the time of the meeting.
Section 2.07. Quorum and Voting. At all meetings of
the Board of Trustees, the presence of one-third of the
number of Trustees then in office shall constitute a quorum
for the transaction of business; provided, however, a quorum
shall not be less than the lesser of two Trustees or 100% of
all Trustees then in office. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting
without further notice, from time to time, until a quorum
shall be present. The action of a majority of the Trustees
present at a meeting at which a quorum is present shall be
the action of the Board of Trustees, unless the concurrence
of a greater proportion is required for such action by law,
by the Declaration of Trust, or by these By- Laws.
Section 2.08. Action Without a Meeting. Any action
required or permitted to be taken at any meeting of the Board
of Trustees may be taken without a meeting, if written
consents thereto are signed by a majority of the members of
the Board, unless the consent of a larger number is required
pursuant to applicable law in which case the consents of such
number shall be required, and such written consents are filed
with the minutes of proceedings of the Board of Trustees.
ARTICLE III. EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted. By resolution adopted
by the Board of Trustees, the Board may designate one or more
committees, including an Executive Committee, each of which
shall consist of at least two Trustees. Each member of a
committee shall be a Trustee and shall hold office during the
pleasure of the Board.
<PAGE>
Section 3.02. Powers of the Executive Committee.
Unless otherwise provided by resolution of the Board of
Trustees, the Executive Committee shall have and may exercise
all powers of the Board of Trustees in the management of the
business and affairs of the Trust that may lawfully be
exercised by an executive committee, except the power to
recommend to shareholders any matter requiring shareholder
approval, amend the Declaration of Trust or By-Laws, or
approve any merger or share exchange that does not require
shareholder approval.
Section 3.03. Other Committees of the Board of
Trustees. To the extent provided by resolution of the Board,
other committees of the Board shall have and may exercise any
of the powers that may lawfully be granted to the Executive
Committee.
Section 3.04. Proceedings, Quorum and Manner of Acting.
In the absence of appropriate resolution of the Board of
Trustees, each committee may adopt such rules and regulations
governing its proceedings, quorum and manner of acting as it
shall deem proper and desirable, provided that the quorum
shall not be less than two Trustees except that, in the case
of a committee (other than the Executive Committee)
consisting of two Trustees, one Trustee shall constitute a
quorum unless the Board by resolution specifies that a quorum
for that committee shall consist of two Trustees. In the
absence of any member of any such committee, the members
thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of
Trustees to act in the place of such absent member.
Section 3.05. Other Committees. The Board of Trustees
may appoint other committees, each consisting of one or more
persons, who need not be Trustees. Each such committee shall
have such powers and perform such duties as may be assigned
to it from time to time by the Board of Trustees, but shall
not exercise any power which may lawfully be exercised only
by the Board of Trustees or a committee thereof.
Section 3.06. Action Without a Meeting. Any action
required or permitted to be taken at any meeting of any
committee may be taken without a meeting, if written consents
thereto are signed by a majority of the members of the
committee unless the consent of a larger number is required
pursuant to applicable law in which case the consents of such
number shall be required, and such written consents are filed
with the minutes of proceedings of the Board of Trustees or
of the committee.
Section 3.07. Waiver of Notice. Whenever any notice of
the time, place or purpose of any meeting of any committee is
required to be given under the provisions of any applicable
law or under the provisions of the Declaration of Trust or
these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice and filed with the
records of the meeting, whether before or after the holding
of such meeting, or actual attendance at the meeting in
person, shall be deemed equivalent to the giving of such
notice to such persons.
<PAGE>
ARTICLE IV. OFFICERS
Section 4.01. General. The officers of the Trust shall
be a President, a Secretary, a Senior Vice-President, a
Treasurer and a Controller, and may include one or more
Executive Vice-Presidents, Vice-Presidents, Assistant
Secretaries, Assistant Treasurers or Assistant Controllers
and such other officers as may be appointed in accordance
with the provisions of Section 4.13 hereof. The Board of
Trustees may elect, but shall not be required to elect, a
Chairman of the Board.
Section 4.02. Election, Term of Office and
Qualifications. The officers of the Trust (except those
appointed pursuant to Section 4.13 hereof) shall be chosen by
the Board of Trustees at its first meeting or such subsequent
meetings as shall be held prior to its first annual meeting
and thereafter annually. If any officers are not chosen at
any annual meeting, such officers may be chosen at any
subsequent regular or special meeting of the Board. Except
as provided in Sections 4.03, 4.04 and 4.05 hereof, each
officer chosen by the Board of Trustees shall hold office
until the next annual meeting of the Board of Trustees and
until his successor shall have been chosen and qualified or
until his earlier death. Any person may hold one or more
offices of the Trust except the offices of President and
Vice-President, but no officer shall execute, acknowledge, or
verify an instrument in more than one capacity, if such
instrument is required by law, by the Declaration of Trust,
or by these By-Laws to be executed, acknowledged or verified
by two or more officers. The Chairman of the Board, if any,
shall be chosen from among the Trustees of the Trust and may
hold such office only so long as he continues to be a
Trustee. No other officer need be a Trustee.
Section 4.03. Resignation. Any officer may resign his
office at any time by delivering a written resignation to the
Board of Trustees, the President, the Secretary, or any
Assistant Secretary. Unless otherwise specified therein,
such resignation shall take effect upon delivery.
Section 4.04. Removal. Any officer may be removed from
office, whenever in the Board's judgment the best interest of
the Trust will be served thereby, by the vote of a majority
of the Board of Trustees given at any regular or special
meeting. In addition, any officer or agent appointed in
accordance with the provisions of Section 4.13 hereof may be
removed, either with or without cause, by any officer upon
whom such power of removal shall have been conferred by the
Board of Trustees.
Section 4.05. Vacancies and Newly Created Offices. If
any vacancy shall occur in any office by reason of death,
resignation, removal, disqualification, or other cause, or if
any new office shall be created, such vacancy or newly
created office may be filled by the Board of Trustees at any
regular or special meeting or, in the case of any office
created pursuant to Section 4.13 hereof, by any officer upon
whom such power shall have been conferred by the Board of
Trustees. An officer chosen by the Board of Trustees to fill
a vacancy or a newly created office shall serve until the
next annual meeting of the Board of Trustees and until his
<PAGE>
successor shall have been chosen and qualified or until his
earlier death, resignation or removal.
Section 4.06. Chairman of the Board. In the absence or
disability of the President, the Chairman of the Board, if
there be such an officer, shall preside at all shareholders'
meetings and at all meetings of the Board of Trustees. He
shall have such other powers and perform such other duties as
may be assigned to him from time to time by the Board of
Trustees.
Section 4.07. President. The President shall be the
chief executive officer and shall preside at all
shareholders' meetings and at all meetings of the Board of
Trustees. Subject to the supervision of the Board of
Trustees, he shall have the general charge of the business,
affairs and property of the Trust and general supervision
over its other officers, employees and agents.
Section 4.08. Executive Vice-Presidents and Vice-
Presidents. The Board of Trustees may from time to time
elect one or more Executive Vice-Presidents and one or more
Vice-Presidents, who shall have such powers and perform such
duties as from time to time may be assigned to them by the
Board of Trustees or the President. At the request of the
President, the Executive Vice-President, and if no Executive
Vice-President is present or able, the Vice-President may
perform all the duties of the President and, when so acting,
shall have all the powers of and be subject to all the
restrictions upon the President. If there are two or more
Executive Vice-Presidents or Vice-Presidents, the earliest
elected to the more senior office present and able shall
perform the duties of the President in his absence or
disability.
Section 4.09. Senior Vice-President. The Senior Vice-
President shall be the principal financial officer of the
Trust and shall have general charge of the finances and books
of account of the Trust. Except as otherwise provided by the
Board of Trustees, he shall have general supervision of the
funds and property of the Trust and of the performance by the
Custodian of its duties with respect thereto. He shall
render to the Board of Trustees, whenever directed by the
Board, an account of the financial condition of the Trust and
of all his transactions as Senior Vice-President; and as soon
as possible after the close of each fiscal year he shall make
and submit to the Board of Trustees a like report for such
fiscal year. He shall perform all the acts incidental to the
office of Senior Vice-President, subject to the control of
the Board of Trustees. At the request of any Executive Vice-
President, or if no Executive Vice-President is present or
able, the Senior Vice-President may perform all of the duties
of the Executive Vice-President (except to the extent that
such duties have otherwise been delegated by or pursuant to
these By-Laws) and, when so acting, shall have all the powers
of and be subject to all the restrictions upon the Executive
Vice-President.
Section 4.10. Treasurer and Assistant Treasurers. The
Treasurer and any Assistant Treasurer may perform such duties
of the Senior Vice-President as the Senior Vice-President or
the Board of Trustees may assign, and, in the absence of
<PAGE>
the Senior Vice-President, may perform all the duties of the
Senior Vice-President.
Section 4.11. Secretary and Assistant Secretaries. The
Secretary shall attend to the giving and serving of all
notices of the Trust and shall record all proceedings of the
meetings of the shareholders, Trustees, the Executive
Committee and other committees, in a book to be kept for that
purpose. He shall keep in safe custody the seal of the
Trust, and shall have charge of the records of the Trust,
including the share books and such other books and papers as
the Board of Trustees may direct and such books, reports,
certificates and other documents required by law to be kept,
all of which shall, at all reasonable times, be open to
inspection by any Trustee. He shall perform all the acts
incidental to the office of Secretary, subject to the control
of the Board of Trustees.
Any Assistant Secretary may perform such duties of the
Secretary as the Secretary or the Board of Trustees may
assign, and, in the absence of the Secretary, he may perform
all the duties of the Secretary.
Section 4.12. Controller and Assistant Controllers.
The Controller shall be the chief accounting officer of the
Trust. He shall direct the preparation and maintenance, on a
current basis, of such accounting books, records and reports
as may be necessary to permit the directors, officers and
executives of the Trust or as may be required by law. He
shall perform all the acts incidental to the office of
Controller, subject to the control of the Board of Trustees,
the Executive Vice-President or the Senior Vice-President.
Any Assistant Controller may perform such duties of the
Controller as the Controller or the Board of Trustees may
assign, of the Controller.
Section 4.13. Subordinate Officers. The Board of
Trustees from time to time may appoint such other officers or
agents as it may deem advisable, each of whom shall have such
title, hold office for such period, have such authority and
perform such duties as the Board of Trustees may determine.
The Board of Trustees from time to time may delegate to one
or more officers or agents the power to appoint any such
subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties.
Section 4.14. Remuneration. The salaries, if any, or
other compensation of the officers of the Trust shall be
fixed from time to time by resolution of the Board of
Trustees, except that the Board of Trustees may by resolution
delegate to any person or group of persons the power to fix
the salaries or other compensation of any subordinate
officers or agents appointed in accordance with the
provisions of Section 4.13 hereof.
Section 4.15. Surety Bonds. The Board of Trustees may
require any officer or agent of the Trust to execute a bond
to the Trust [including, without limitation, any bond
required by the Investment Company Act of 1940, or any rule
or regulation thereunder, all as now in effect or as
hereafter amended or added (the
<PAGE>
"1940 Act") and the rules and regulations of the SEC] in such
sum and with such surety or sureties as the Board of Trustees
may determine, conditioned upon the faithful performance of
his duties to the Trust, including responsibility for
negligence and for the accounting of any of the Trust's
property, funds, or securities that may come into his hands.
ARTICLE V. CUSTODY OF SECURITIES
Section 5.01. Employment of a Custodian. The Trust
shall place and at all times maintain in the custody of a
Custodian (including any sub-custodian for the Custodian) all
securities owned by the Trust and cash representing the
proceeds from sales of securities owned by the Trust and of
capital stock or other units of beneficial interest issued to
the Trust, payments of principal upon securities owned by the
Trust, or capital distribution in respect to capital stock or
other units of beneficial interest owned by the Trust,
pursuant to a written contract with such Custodian. The
Custodian shall be a bank or trust company having not less
than $2,000,000 aggregate capital, surplus and undivided
profits (as shown in its last published report).
Section 5.02. Provisions of Custodian Contract. The
Custodian contract shall be upon such terms and conditions
and may provide for such compensation as the Board of
Trustees deems necessary or appropriate, provided such
contract shall further provide that the Custodian shall
deliver securities owned by the Trust only upon sale of such
securities for the account of the Trust and receipt of
payment therefor by the Custodian or when such securities may
be called, redeemed, retired, or otherwise become payable.
Such limitations shall not prevent:
(a) the delivery of securities for examination to the
broker selling the same in accord with the "street delivery"
custom whereby such securities are delivered to such broker
in exchange for a delivery receipt exchanged on the same day
for an uncertified check of such broker to be presented on
the same day for certification;
(b) the delivery of securities of an issuer in exchange
for or for conversion into other securities alone or cash and
other securities, pursuant to any plan of merger,
consolidation, reorganization, recapitalization, or
readjustment of the securities of such issuer;
(c) the conversion by the Custodian of securities owned
by the Trust, pursuant to the provisions of such securities,
into other securities;
(d) the surrender by the Custodian of warrants, rights,
or similar securities owned by the Trust in the exercise of
such warrants, rights, or similar securities, or the
surrender of interim receipts or temporary securities for
definitive securities;
<PAGE>
(e) the delivery of securities as collateral on
borrowing effected by the Trust; or
(f) the delivery of securities owned by the Trust as a
redemption in kind of securities issued by the Trust.
The Custodian shall deliver funds of the Trust for the
purchase of securities for the portfolio of the Trust only
upon the delivery of such securities to the Custodian, but
such limitation shall not prevent the release of funds by the
Custodian for redemption of shares issued by the Trust, for
payment of interest, dividend disbursements, taxes or
management fees, for payments in connection with the
conversion, exchange or surrender of securities owned by the
Trust as set forth in subparagraphs (b), (c) and (d) above or
for operating expenses of the Trust.
The term "security" shall be broadly construed and shall
include, without limitation, the various types of securities
set forth in Section 3(a)(10) of the Securities Exchange Act
of 1934.
Section 5.03. Action upon Termination of Custodian
Contract. The contract of employment of the Custodian may be
terminated by either party on 60 days' written notice to the
other party. Upon termination of the Custodian contract,
resignation of the Custodian, or inability of the Custodian
to continue to serve, the Board of Trustees shall use its
best efforts to obtain a successor custodian. If a successor
custodian is found, the Trust shall require the retiring
Custodian to deliver the cash and securities owned by the
Trust directly to the successor custodian. In the event that
no successor custodian which has the required qualifications
and is willing to serve can be found, the Board of Trustees
shall call a special meeting of the shareholders to submit to
the shareholders, before delivery of the cash and securities
owned by the Trust to other than a successor custodian, the
question of whether the Trust shall function without a
custodian or shall be liquidated.
ARTICLE VI. EXECUTION OF INSTRUMENTS, RIGHTS AS
SECURITY HOLDER
Section 6.01. General. All deeds, documents,
transfers, contracts, agreements and other instruments
requiring execution by the Trust shall be signed by the
President, the Executive Vice-President, the Senior Vice-
President, the Controller, the Secretary, or the Treasurer,
or as the Board of Trustees may otherwise, from time to time,
authorize. Any such authorization may be general or confined
to specific instances.
Section 6.02. Checks, Notes, Drafts, Etc. Except as
otherwise authorized by the Board of Trustees, all checks and
drafts for the payment of money shall be signed in the name
of the Trust by the Custodian, and all requisitions or orders
for the payment of money by the Custodian or for the issue of
checks and drafts therefor, all promissory notes, all
assignments of shares or securities standing in
<PAGE>
the name of the Trust and all requisitions or orders for the
assignment of shares or securities standing in the name of
the Custodian or its nominee, or for the execution of powers
to transfer the same, shall be signed in the name of the
Trust by not less than two of its officers. Promissory
notes, checks, or drafts payable to the Trust may be endorsed
only to the order of the Custodian or its agent.
Section 6.03. Rights as Security Holder. Unless
otherwise ordered by the Board of Trustees, any officer shall
have full power and authority on behalf of the Trust to (1)
exercise (or waive) any and all rights, powers and privileges
incident to the ownership of any securities or other
obligations which may be owned by the Trust; and (2) attend
and to act and to vote, or in the name of the Trust to
execute proxies to vote, at any meeting of security holders
of any company in which the Trust may hold securities. At
any such meeting, any officer shall possess and may exercise
(in person or by proxy) any and all rights, powers and
privileges incident to the ownership of such securities.
ARTICLE VII. SHARES OF BENEFICIAL INTEREST
Section 7.01. Certificates. The Trust shall not issue
share certificates unless the Trustees so authorize. In the
event that certificates are issued, each certificate will be
valid if signed by the President or a Vice-President and
countersigned by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer and sealed with the
seal. The signatures may be either manual or facsimile
signatures and the seal may be either facsimile or any other
form of seal. In case any officer who has signed any
certificate ceases to be an officer of the Trust before the
certificate was issued, the certificate nevertheless has the
same effect as if the officer had not ceased to be such
officer as of the date of its issue.
Section 7.02. Uncertificated Shares. The Trust's share
ledger shall be deemed to represent and certify the number of
full and/or fractional shares of a series owned of record by
a shareholder in those instances where a certificate for such
shares has not been issued.
Section 7.03. Transfers of Shares. Shares of any
series of the Trust shall be transferable on the books of the
Trust at the request of the record holder thereof in person
or by a duly authorized attorney, upon presentation to the
Trust or its transfer agent of a duly executed assignment or
authority to transfer, or proper evidence of succession, and,
if the shares are represented by a certificate, a duly
endorsed certificate or certificates of shares surrendered
for cancellation, and with such proof of the authenticity of
the signatures as the Trust or its transfer agent may
reasonably require, provided, whether or not such shares are
represented by any certificate or certificates of shares,
that:
(a) the Trust has no duty to inquire into adverse claims
or has discharged any such duty;
(b) any applicable law relating to the collection of
taxes has been complied with; and
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(c) the transfer is in fact rightful or is to a bona
fide purchaser.
The transfer shall be recorded on the books of the Trust
and the old certificates, if any, shall be cancelled.
Section 7.04. Registered Shareholders. The Trust shall
be entitled to treat the holder of record of shares of each
series as the holder in fact thereof and, accordingly, shall
not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person,
whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Commonwealth of
Massachusetts.
Section 7.05. Transfer Agents and Registrars. The
Board of Trustees may, from time to time, appoint or remove
transfer agents and/or registrars of transfers of shares of
the Trust, and it may appoint the same person as both
transfer agent and registrar. Upon any such appointment
being made, all certificates representing shares thereafter
issued shall be countersigned by one of such transfer agents
or by one of such registrars of transfers or by both and
shall not be valid unless so countersigned. If the same
person shall be both transfer agent and registrar, only one
countersignature by such person shall be required.
Section 7.06. Fixing of Record Date. The Board of
Trustees may fix in advance a date as a record date for the
determination of the shareholders of any series entitled to
notice of or to vote at any meeting of such shareholders or
any adjournment thereof, or to express consent to Trust
action in writing without a meeting, or to receive payment of
any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change,
conversion, or exchange of shares of such series, or for the
purpose of any other lawful action, provided that such record
date shall not be a date more than 60 days, and, in the case
of a meeting of shareholders, not less than 10 days, prior to
the date on which the particular action requiring such
determination of shareholders of such series is to be taken.
In such case only such shareholders as shall be shareholders
of record of such series on the record date so fixed shall be
entitled to such notice of, and to vote at, such meeting or
adjournment, or to give such consent, or to receive payment
of such dividend or other distribution, or to receive such
allotment of rights, or to exercise such rights, or to take
such other action, as the case may be, notwithstanding any
transfer or redemption of any shares of such series on the
books of the Trust after any such record date. If no record
date has been fixed for the determination of shareholders,
the record date for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the day on which notice
of the meeting is mailed, which shall not be more than 60
days before the meeting, or, if notice is waived by all
shareholders entitled thereto, at the close of business on
the tenth day before the day on which the meeting is held.
Section 7.07. Lost, Stolen, or Destroyed Certificates.
Before transferring on the books of the Trust shares
represented by a certificate that is alleged to have been
lost, stolen, or destroyed, the Board of Trustees or any
officer authorized by the Board may, in its or his
discretion, require the owner of the lost, stolen, or
destroyed certificate (or his legal representative) to give
the Trust a bond or other indemnity, in such form and in such
amount as of the Board or any such officer may direct and
with such surety or sureties as may be satisfactory to the
Board or any such officer, sufficient to indemnify the Trust
against any claim that may be made against it on account of
the alleged loss, theft, or destruction of any such
certificate.
Section 7.08. Resumption of Issuance of
Certificates/Cancellation of Certificates. The Trustees may
at any time resume the issuance of share certificates. The
Trustees may, by written notice to each shareholder, require
the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not
affect the ownership of shares in the Trust.
ARTICLE VIII. FISCAL YEAR, ACCOUNTANT
Section 8.01. Fiscal Year. The fiscal year of each
series of shares of the Trust shall be established by the
Board of Trustees.
Section 8.02. Accountants. For each series of the
shares of the Trust, the Trust shall employ an independent
public accountant or firm of independent public accountants
as the Accountant for such series to examine and certify or
issue its report on the financial statements of that series
of the Trust. Each Accountant's certificates and reports
shall be addressed both to the Board of Trustees and to the
shareholders of the applicable series.
ARTICLE IX. AMENDMENTS
Section 9.01. General. Except as provided in Section
9.02 hereof, all By-Laws of the Trust, whether adopted by the
Board of Trustees or the shareholders, shall be subject to
amendment, alteration, or repeal, and new By-Laws may be
made, by the affirmative vote of either:
(a) the holders of record of a majority of the votes
represented by outstanding shares of the Trust entitled to
vote at any meeting, the notice or waiver of notice of which
shall have specified or summarized the proposed amendment,
alteration, repeal, or new By-Law; or
(b) a majority of the Trustees, at any regular or
special meeting.
Section 9.02. By Shareholders Only.
(a) No amendment of any section of these By-Laws shall
be made except by the shareholders of the Trust, if the By-
Laws provide that such section may not be amended, altered or
repealed except by the shareholders.
<PAGE>
(b) From and after the issue of any shares of the Trust
to the public, no amendment of this Article IX or Article X
shall be made except by the shareholders of the Trust.
ARTICLE X. MISCELLANEOUS
Section 10.01. Restrictions and Limitations.
(a) Except as hereinafter provided, no officer or
Trustee of the Trust, no officer, director, or stockholder
(or partner of a stockholder) of the investment adviser of
the Trust (as that term is defined in the 1940 Act) or of any
underwriter of the Trust, and no investment adviser or
underwriter of the Trust shall take long or short positions
in the securities issued by the Trust. The foregoing
provision shall not prevent the purchase from the Trust of
shares of any series issued by the Trust by any person at the
price available to shareholders of the Trust generally at the
time of such purchase, or as described in the current
Prospectus of the Trust, or prior to commencement of the
public offering of shares of the Trust, at the net asset
value of such shares.
(b) The Trust shall not lend assets of the Trust to any
officer or Trustee of the Trust or to any officer, director,
or stockholder (or partner of a stockholder) of, or person
financially interested in, the investment adviser or any
underwriter of the Trust, or to the investment adviser of the
Trust or to any underwriter of the Trust.
(c) The Trust shall not restrict the transferability or
negotiability of the shares of the Trust, except in
conformity with the statements with respect thereto contained
in the Trust's Registration Statement, and not in
contravention of such rules and regulations as the SEC may
prescribe.
(d) The Trust shall not permit any officer or Trustee of
the Trust, or any officer, director, or stockholder (or
partner of a stockholder) of the investment adviser or any
underwriter of the Trust to deal for or on behalf of the
Trust with himself as principal or agent, or with any
partnership, association, or trust in which he has a
financial interest; provided that the foregoing provisions
shall not prevent (1) officers and Trustees of the Trust from
buying, holding, redeeming, or selling shares in the Trust,
or from being officers, directors, or stockholders (or
partners of a stockholder) of or otherwise financially
interested in the investment adviser or any underwriter of
the Trust; (2) purchases or sales of securities or other
property by the Trust from or to an affiliated person or to
the investment adviser or any underwriter of the Trust, if
such transactions are not prohibited by the 1940 Act or have
been exempted by SEC order from the prohibitions of the 1940
Act; (3) purchases of investments for the portfolio of the
Trust through a securities dealer who is, or one or more of
whose partners, stockholders, officers, or directors is, an
officer or Trustee of the Trust, if such transactions are
handled in the capacity of broker only and commissions
charged do not exceed customary brokerage charges for such
services; (4) employment of legal counsel, registrar,
transfer agent, dividend disbursing agent, or custodian who
is, or has a partner,
<PAGE>
stockholder, officer, or director who is, an officer or
Trustee of the Trust, if only customary fees are charged for
services to the Trust; (5) sharing statistical, research,
legal and management expenses and office hire and expenses
with any other investment company in which an officer or
Trustee of the Trust is an officer, trustee, or director or
otherwise financially interested.
END OF BY-LAWS