1933 Act Registration No. 333-19181
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. 4 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 5 [X]
STEIN ROE TRUST
(Exact Name of Registrant as Specified in Charter)
One South Wacker Drive, Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: 1-800-338-2550
Heidi J. Walter Cameron S. Avery
Vice-President and Secretary Bell, Boyd & Lloyd
Stein Roe Trust Three First National Plaza
One South Wacker Drive 70 W. Madison Street, Suite 3300
Chicago, Illinois 60606 Chicago, Illinois 60602
(Name and Address of Agents for Service)
It is proposed that this filing will become effective (check
appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on November 1, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
Registrant has previously elected to register 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.
This Registration Statement has also been signed by SR&F Base Trust as
it relates to Stein Roe Institutional Client High Yield Fund.
<PAGE>
STEIN ROE TRUST
CROSS REFERENCE SHEET
ITEM
NO. CAPTION
- ----- -------
PART A (PROSPECTUS)
1 Front cover
2 Fee Table; Summary
3 (a) Financial Highlights
(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 Manager
(d) Inapplicable
(e) Management--Transfer Agent
(f) Management--Fees and Expenses; Financial Highlights; Fee
Table
(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) Inapplicable
(e) For More Information
(f) Distributions and Income Taxes
(g) Distributions and Income Taxes
(h) Master Fund/Feeder Fund: Structure and Risk Factors
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) Inapplicable
(g) Inapplicable
8 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 Principal Shareholders
16(a) Investment Advisory Services; Management; see prospectus:
Management, Fee Table
(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) Inapplicable
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(a) Inapplicable
(b) Investment Performance
23 Financial Statements
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>
STEIN ROE
INSTITUTIONAL CLIENT FUNDS
Prospectus
Nov. 1, 1998
Stein Roe Institutional Client High Yield Fund
[LOGO] STEIN ROE & FARNHAM INSTITUTIONAL ASSET MANAGEMENT
<PAGE>
Prospectus Nov. 1, 1998
Stein Roe Mutual Funds
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.
The Fund seeks to achieve its objective by investing all of its
net investable assets in SR&F High Yield Portfolio, which has the
same investment objective and substantially the same investment
policies as the Fund. The 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. The investment experience of the Fund will correspond
to that of the Portfolio. (See Investment Policies, Risks and
Investment Considerations, Master Fund/Feeder Fund: Structure and
Risk Factors, and Appendix.)
The Fund is a "no-load" fund. There are no sales or redemption
charges, and the Fund has no 12b-1 plan. The Fund is a series of
Stein Roe Trust and the Portfolio is a series of SR&F Base Trust.
Each Trust is an open-end management investment company.
Shares of the 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 the Fund. Please read it carefully and retain it for
future reference.
A Statement of Additional Information dated Nov. 1, 1998,
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 and the most recent financial
statements may be obtained without charge by writing to Stein Roe
Funds, Suite 3200, One South Wacker Drive, Chicago, Illinois
60606, or by calling 800-322-1130.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
TABLE OF CONTENTS
Page
Summary........................................2
Fee Table .....................................3
Financial Highlights...........................4
The Fund.......................................5
Investment Policies............................5
Portfolio Investments and Strategies...........7
Investment Restrictions ......................12
Risks and Investment Considerations ..........12
How to Purchase Shares........................14
How to Redeem Shares .........................14
Net Asset Value ..............................14
Distributions and Income Taxes................15
Investment Return.............................16
Management ...................................17
Organization and Description of Shares........18
Master Fund/Feeder Fund: Structure
and Risk Factors............................19
For More Information .........................21
Appendix......................................21
SUMMARY
Stein Roe Institutional Client High Yield Fund (the "Fund") is a
series of Stein Roe Trust (the "Trust"), an open-end management
investment company organized as a Massachusetts business trust.
The 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 the Fund are not qualified for
sale.
Investment Objective and Policies. The Fund invests all of its
net investable assets in SR&F High Yield Portfolio (the
"Portfolio"). The Portfolio invests in a diversified portfolio of
securities in accordance with the identical investment objective
and substantially the same investment policies as those of the
Fund. The Portfolio seeks total return by investing for a high
level of current income and capital growth. The 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 objective and
policies, please see Investment Policies and Portfolio Investments
and Strategies. There is, of course, no assurance that the Fund
and the Portfolio will achieve their common investment objective.
Investment Risks. The risks inherent in the Fund depend primarily
upon the term and quality of the obligations in the investment
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 the 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 the Fund
can be assured. The 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. The 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 Fund
shares 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 the Portfolio. In addition,
it provides administrative services to the Fund and the 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 Dividends 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) 0.00%
12b-1 Fees None
Other Expenses (after fee waiver) 0.50%
-----
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 years 10 years
------ ------- ------- --------
$5 $16 $28 $63
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 the Fund. The information in the
table is based upon actual expenses incurred in the last fiscal
year. The figures assume that the percentage amounts listed under
Annual Fund Operating Expenses remain the same during each of the
periods, that all income dividends and capital gains distributions
are reinvested in additional Fund shares, and that, for purposes
of fee breakpoints, the net assets remain at the same level as in
the last fiscal year.
From time to time, the Adviser may voluntarily waive a portion of
its fees payable by the Fund and the Fund's pro rata share of the
fees and expenses payable by the Portfolio. The Adviser has
agreed to voluntarily waive such fees to the extent the ordinary
operating expenses of the Fund exceed 0.50% of its annual average
net assets. This commitment will be reviewed by the Adviser on
Jan. 31, 2000, at which time the commitment could be continued or
terminated. In addition, the commitment is subject to earlier
review and possible termination by the Adviser on 30 days' notice
to the Fund. Absent such expense undertaking, the Management and
Administrative Fees, Other Expenses and Total Fund Operating
Expenses would have been 0.65%, 0.63% and 1.28%, respectively.
Any such fee waiver will lower the Fund's overall expense ratio
and increase its overall return to investors. (Also see
Management-Fees and Expenses.)
The Fund pays the Adviser an administrative fee based on its
average daily net assets and the Portfolio pays the Adviser a
management fee based on its average daily net assets. The Fee
Table summarizes the expenses of both the Fund and the Portfolio.
Fees and expenses are described under Management. The Fund bears
its proportionate share of Portfolio expenses. The trustees of
the Trust have considered whether the annual operating expenses of
the Fund, including its proportionate share of the expenses of the
Portfolio, would be more or less than if the Fund invested
directly in the securities held by the Portfolio. The trustees
concluded that the 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 the 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.
FINANCIAL HIGHLIGHTS
The table below reflects the results of operations of the Fund on
a per-share basis and has been audited by Ernst & Young LLP,
independent auditors. The auditors' report was unqualified. The
table should be read in conjunction with the Fund's financial
statements and notes thereto. The annual report may be obtained
from the Trust without charge upon request.
Year Ended
June 30, Period Ended
1998 June 30, 1997 (c)
--------- ----------------
Net Asset Value, Beginning of Period $10.21 $10.00
------ ------
Income from Investment Operations
Net investment income 0.88 0.33
Net realized and unrealized
gains on investments 0.58 0.21
------ ------
Total from investment operations 1.46 0.54
------ ------
Distributions
Net investment income (0.88) (0.33)
Net realized gains (0.14) --
------ ------
Total distributions (1.02) (0.33)
------ ------
Net Asset Value, End of Period $10.65 $10.21
====== ======
Ratio of net expenses to average
net assets (a) 0.50% 0.50% (d)
Ratio of net investment income
to average net assets (b) 8.31% 8.76% (d)
Total return (b) 14.88% 5.48%
Net assets, end of period (000
omitted) $35,157 $25,674
_____________
(a) If the Fund had paid all of its expenses and there had been no
reimbursement by the Adviser, this ratio would have been 1.28%
for the year ended June 30, 1998 and 2.59% for the period
ended June 30, 1997.
(b) Computed giving effect to the Adviser's expense limitation
undertaking.
(c) From commencement of operations on February 14, 1997.
(d) Annualized.
THE FUND
Stein Roe Institutional Client High Yield Fund (the "Fund") is a
no-load "mutual fund." The Fund does not impose commissions or
charges when shares are purchased or redeemed. The Fund is a
series of Stein Roe Trust (the "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 the Portfolio and administrative
services to the Fund and the Portfolio.
Rather than invest in securities directly, the Fund seeks to
achieve its investment objective by using the "master fund/feeder
fund" structure. Under that structure, the Fund and other
investment companies with the same investment objective invest
their assets in another investment company having the same
investment objective and substantially the same investment
policies as the Fund. The purpose of such an arrangement is to
achieve greater operational efficiencies and reduce costs. The
Fund invests all of its net investable assets in SR&F High Yield
Portfolio (the "Portfolio"), which is a series of SR&F Base Trust.
(See Master Fund/Feeder Fund: Structure and Risk Factors.)
INVESTMENT POLICIES
The Fund and the 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. The Fund seeks to
achieve its objective by investing all of its assets in the
Portfolio. The investment policies of the Portfolio are
substantially identical to those of the Fund.
The Portfolio invests principally in high-yield, high-risk medium-
and lower-quality debt securities. The medium- and lower-quality
debt securities in which the Portfolio invests 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 Moody's Investors Service, Inc.
("Moody's").
Under normal circumstances, at least 65% of the Portfolio's assets
will be invested in high-yield, high-risk medium- and lower-
quality debt securities rated lower than Baa by Moody's and 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." 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. Some issuers of debt
securities choose not to have their securities rated by a rating
service, and the Portfolio may invest in unrated securities that
the Adviser has researched and believes are suitable for
investment. The Portfolio may invest in debt obligations that are
in default, but such obligations are not expected to exceed 10% of
assets.
The 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. The Portfolio may also invest in higher-quality debt
securities. Under normal market conditions, however, the
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. The 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. The 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 the
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.
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 the 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.
For the fiscal year ended June 30, 1998, the investment portfolio
was invested, on average, as follows: high-quality short-term
instruments, 2.1%; BBB, 1.2%; BB, 18.2%; B, 63.6%; and CCC and
below or unrated, 14.9%. The ratings are based on a dollar-
weighted average, computed quarterly, and reflect the higher of
S&P or Moody's ratings. The ratings do not necessarily reflect
the current or future composition of the Portfolio.
PORTFOLIO INVESTMENTS AND STRATEGIES
Foreign Securities. The 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. The Portfolio may invest in
sponsored or unsponsored ADRs. In addition to, or in lieu of,
such direct investment, the 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, the 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, the 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"). The 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 (including options and futures)
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. The 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. 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, prepayment risks, and yield characteristics.
Mortgage-backed securities involve the risk of prepayment of the
underlying mortgages at a faster or slower rate than the
established schedule. Prepayments generally increase with falling
interest rates and decrease with rising rates, but they also are
influenced by economic, social, and market factors. If mortgages
are prepaid during periods of declining interest rates, there
would be a resulting loss of the full-term benefit of any premium
paid on purchase of the securities, and the proceeds of prepayment
would likely be invested at lower interest rates. The Portfolio
tends to invest in CMOs of classes known as planned amortization
classes ("PACs") which have prepayment protection features tending
to make them less susceptible to price volatility.
Non-mortgage asset-backed securities usually have less prepayment
risk than mortgage-backed securities, but have the risk that the
collateral will not be available to support payments on the
underlying loans 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.
REMICs. The Portfolio may invest in real estate mortgage
investment conduits ("REMICs"). REMICs, which were authorized
under the Tax Reform Act of 1986, are private entities formed for
the purpose of holding a fixed pool of mortgages secured by an
interest in real property. REMICs are similar to CMOs in that
they issue multiple classes of securities. A REMIC is a CMO that
qualifies for special tax treatment under the Internal Revenue
Code and invests in certain mortgages principally secured by
interests in real property. Investors may purchase beneficial
interests in REMICs, which are known as "regular" interests, or
"residual" interests. Guaranteed REMIC pass-through certificates
("REMIC Certificates") issued by FNMA or FHLMC represent
beneficial ownership interests in a REMIC trust consisting
principally of mortgage loans or FNMA-, FHLMC- or GNMA-guaranteed
mortgage pass-through certificates. For FHLMC REMIC Certificates,
FHLMC guarantees the timely payment of interest and also
guarantees the payment of principal as payments are required to be
made on the underlying mortgage participation certificates. FNMA
REMIC Certificates are issued and guaranteed as to timely
distribution and principal and interest by FNMA.
Floating Rate Instruments. The 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%. The
Portfolio does not intend to invest more than 5% of its net assets
in floating rate instruments.
Futures and Options. The 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. The 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. The
Portfolio may write a call or put option only if the option is
covered. As the writer of a covered call option, the 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 the
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,
the 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 the Portfolio. The 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. The 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, the 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. The Portfolio may participate in an interfund lending
program, subject to certain restrictions described in the
Statement of Additional Information.
When-Issued and Delayed-Delivery Securities; Standby Commitments.
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. The 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 the 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 the Portfolio on the sales
proceeds of the dollar roll.
The Portfolio may also invest in securities purchased on a standby
commitment basis, which is a delayed-delivery agreement in which
the Portfolio binds itself to accept delivery of a security at the
option of the other party to the agreement.
PIK and Zero Coupon Bonds. The 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 the
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 Portfolio 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 it 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.
Rule 144A Securities. The 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 the 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 the
restriction of investing no more than 10% of 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, the Portfolio's holdings of illiquid securities
would be reviewed to determine what, if any, steps are required to
assure that the 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 assets invested
in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities. The 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. In attempting to attain its objective, the
Portfolio may sell 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 the Portfolio will be from five to ten years, the
Adviser may adjust the average effective maturity 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
may vary from year to year. 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
Each of the Fund and the Portfolio is diversified as that term is
defined in the Investment Company Act of 1940.
Neither the Fund nor the 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, the Fund may invest all of its
assets in another investment company (such as the Portfolio)
having the identical investment objective under a master
fund/feeder fund structure.
- --------------
/1/ A repurchase agreement involves a sale of securities to the
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.
- --------------
Although neither the Fund nor the Portfolio may make loans, each
may (1) purchase money market instruments and enter into
repurchase agreements; (2) acquire publicly distributed or
privately placed debt securities; (3) lend portfolio securities
under certain conditions; and (4) participate in an interfund
lending program with other Stein Roe Funds and Portfolios.
Neither may borrow money, except for nonleveraging, 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 second and third paragraphs under
Investment Restrictions (but not the footnote) are fundamental
policies of the Fund and the Portfolio./2/ The Statement of
Additional Information contains all of the investment
restrictions.
- --------------
/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 the Fund depend primarily upon the term and
quality of the obligations in the investment portfolio, as well as
on market conditions. Although the Portfolio seeks to reduce risk
by investing in a diversified portfolio, this does not eliminate
all risk. The 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 vary over time,
no specific yield on shares of the 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
the 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, different
accounting, auditing and financial reporting standards, different
settlement practices, 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 nonresidents may apply,
including imposition of exchange controls and withholding taxes on
dividends, and seizure or nationalization of investments owned by
nonresidents. Foreign investments also tend to involve higher
transaction and custody costs.
The 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 the Fund or the Portfolio will
achieve its objective, nor can the Portfolio assure that payments
of interest and principal on portfolio securities will be made
when due. If the rating of a portfolio security is lost or
reduced, the Portfolio would not be required to sell the security,
but the Adviser would consider such a change in deciding whether
to retain the security in the investment portfolio.
The investment objective of the Fund and the Portfolio is not
fundamental and may be changed by the respective Board of Trustees
without a vote of shareholders.
Year 2000 Compliance. Like other investment companies, financial
and business organizations and individuals around the world, the
Fund could be adversely affected if the computer systems used by
the Adviser and other service providers do not properly process
and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000
Problem." The Fund's Adviser, administrator, distributor and
transfer agent ("Liberty Companies") are taking steps that they
believe are reasonably designed to address the Year 2000 problem,
including working with vendors who furnish services, software and
systems to the Fund, to provide that date-related information and
data can be properly processed after January 1, 2000. Many Fund
service providers and vendors, including the Liberty Companies,
are in the process of making Year 2000 modifications to their
software and systems and believe that such modifications will be
completed on a timely basis prior to January 1, 2000. The Fund
will not pay the cost of these modifications. However, no
assurances can be given that all modifications required to ensure
proper data processing and calculation on and after January 1,
2000 will be timely made or that services to the Fund will not be
adversely affected.
HOW TO PURCHASE SHARES
Shares of the Fund are intended primarily for investors who are
(or through purchase of Fund shares become) clients of the
Adviser'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 $250,000 and the minimum subsequent investment is $10,000. For
more information on how to purchase Fund shares, please call Stein
Roe Retirement Services at 800-322-1130. The Trust reserves the
right to waive or lower its investment minimums for any reason.
Conditions of Purchase. Each purchase order for the Fund must be
accepted by an authorized officer of the Trust or its authorized
agent and is not binding until accepted and entered on the books
of the Fund. Once your purchase order has been accepted, you may
not cancel or revoke it; you may, however, redeem the shares. The
Trust reserves the right not to accept any purchase order that it
determines not to be in the best interests of the Trust or of the
Fund's shareholders.
Purchase Price and Effective Date. Each purchase of the 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 the Fund.
HOW TO REDEEM SHARES
Fund shares 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 the Trust.
Redemption instructions may not be cancelled or revoked once they
have been received and accepted by the Trust. The 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 the 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. The Trust will generally mail
payment for shares redeemed within seven days after proper
instructions are received.
The 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 $250,000. 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 the Fund's shares is the net
asset value per share. The Fund determines the net asset value of
its shares as of the close of regular session 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. 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 the Fund should be determined
on any such day, in which case the determination will be made at
3:00 p.m., Central time. The Portfolio allocates net asset value,
income, and expenses to the Fund and any other of its feeder funds
in proportion to their respective interests in the Portfolio.
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 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.
We value a security at fair value if the value of the security has
been materially affected by events that have occurred after the
close of the market on whatever exchange the security is traded.
In this circumstance, we use fair value pricing to protect long-
term investors from the actions of short-term investors who might
buy or redeem shares in an attempt to profit from short-term
market movements.
DISTRIBUTIONS AND INCOME TAXES
Distributions. Income dividends are declared each business day,
paid monthly, and confirmed at least quarterly. The 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
12-month period ended October 31 in that year. It intends to
distribute any undistributed net investment income and net
realized capital gains in the following year.
All income dividends and capital gains distributions will be
reinvested in additional shares unless you elect to have
distributions paid in cash. Reinvestment normally occurs on the
payable date. The Trust reserves the right to reinvest the
proceeds and future distributions in additional shares of the 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
gains. Distributions of net long-term capital gains will be
taxable to you as long-term capital gains 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 gains
distributions you have received with respect to those shares.
For federal income tax purposes, the Fund is treated as a separate
taxable entity distinct from any other series of the Trust. It
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 gains 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 the 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 the 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 the Fund's yield or total return with those of
alternative investments should consider differences between the
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 no guarantee of future
results. To obtain current yield or total return information, you
may call 800-322-1130.
MANAGEMENT
Trustees and Investment Adviser. The Board of Trustees of the
Trust and the Board of SR&F Base Trust have overall management
responsibility for the Fund and the Portfolio, respectively. See
Management in the Statement of Additional Information for the
names of and other information about the trustees and officers.
Since the Trust and SR&F Base Trust have the same trustees, the
trustees have adopted conflict of interest procedures to monitor
and address potential conflicts between the interests of the Fund
and the Portfolio.
The Adviser, Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, Illinois 60606, is responsible for managing the
investment portfolio of the Portfolio and the business affairs of
the Fund, the Portfolio, the Trust and SR&F 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 (or its predecessor) has advised and managed
mutual funds since 1949. The Adviser is a wholly owned indirect
subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which in turn is a majority owned indirect subsidiary
of Liberty Mutual Insurance Company.
The Adviser's mutual funds and institutional asset management
businesses are managed together with its affiliate, Colonial
Management Associates, Inc. ("CMA"). A single management team
includes employees of each company. CMA is a registered
investment adviser serving mutual funds and institutions. Certain
officers of CMA also are officers of the Adviser in their roles as
managers of the combined business. CMA shares personnel,
facilities and systems with the Adviser that the Adviser uses in
providing services to the Fund.
Portfolio Manager. Stephen F. Lockman became portfolio manager of
the Portfolio in 1997. He had been associate portfolio manager of
the Portfolio since its inception in 1996 and of Stein Roe Income
Fund since 1995. Mr. Lockman joined the Adviser in 1994. Mr.
Lockman previously served as portfolio manager for the Illinois
State Board of Investment from 1987 to 1994. A chartered
financial analyst, Mr. Lockman earned a bachelor's degree from the
University of Illinois and a master's degree from DePaul
University. As of June 30, 1998, he was responsible for managing
$526 million in mutual fund net assets for the Adviser.
Fees and Expenses. The Adviser is entitled to receive a monthly
administrative fee from the 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 the
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.
Under a separate agreement with each Trust, the Adviser provides
certain accounting and bookkeeping services to the Fund and the
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 the Trust for the transfer of
shares, disbursement of dividends, and maintenance of shareholder
accounting records.
Distributor. Fund shares are distributed by Liberty Funds
Distributor, Inc. (the "Distributor"), One Financial Center,
Boston, Massachusetts 02111. The Distributor is a subsidiary of
Colonial Management Associates, Inc., which is an indirect
subsidiary of Liberty Financial. Fund shares are offered for sale
without any sales commissions or charges to the Fund or its
shareholders. All distribution and promotional expenses are paid
by the Adviser, including payments to the Distributor for sales of
Fund shares. All Fund correspondence (including purchase and
redemption orders) should be mailed to SteinRoe Services Inc.,
P.O. Box 8900, Boston, Massachusetts 02205.
Custodian. State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
the Fund and the Portfolio. 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
The 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 the
Trust's shareholders or its trustees. The Trust may issue an
unlimited number of shares, in one or more series as the Board may
authorize. Currently, the Fund is the only series authorized and
outstanding.
Under Massachusetts law, shareholders of a Massachusetts business
trust such as the Trust could, in some circumstances, be held
personally liable for unsatisfied obligations of the trust. The
Declaration of Trust provides that persons extending credit to,
contracting with, or having any claim against the Trust or any
particular series shall look only to the assets of the Trust or of
the respective series for payment under such credit, contract or
claim, and that the shareholders, trustees and officers shall have
no personal liability therefor. The Declaration of Trust requires
that notice of such disclaimer of liability be given in each
contract, instrument or undertaking executed or made on behalf of
the Trust. The Declaration of Trust provides for indemnification
of any shareholder against any loss and expense arising from
personal liability solely by reason of being or having been a
shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is believed to be remote,
because it would be limited to circumstances in which the
disclaimer was inoperative and the Trust was unable to meet its
obligations.
The risk of a particular series incurring financial loss on
account of unsatisfied liability of another series of the Trust
also is believed to be remote, because it would be limited to
claims to which the disclaimer did not apply and to circumstances
in which the other series was unable to meet its obligations.
As a business trust, the Trust is not required to hold annual
shareholder meetings. However, special meetings may be called for
purposes such as electing or removing trustees, changing
fundamental policies, or approving an investment advisory
contract.
MASTER FUND/FEEDER FUND: STRUCTURE AND RISK FACTORS
The Fund, an open-end management investment company, seeks to
achieve its objective by investing all of its assets in another
mutual fund having an investment objective identical to that of
the Fund. The initial shareholder of the Fund approved this
policy of permitting the Fund to act as a feeder fund by investing
in the Portfolio. Please refer to Investment Policies, Portfolio
Investments and Strategies, and Investment Restrictions for a
description of the investment objectives, policies, and
restrictions of the Fund and the Portfolio. The management fees
and expenses of both the Fund and the Portfolio are described
under Fee Table and Management. The 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 law trust organized under
an Agreement and Declaration of Trust ("Declaration of Trust")
dated Aug. 23, 1993. The Declaration of Trust of Base Trust
provides that the Fund and other investors in the Portfolio will
each be liable for all obligations of the Portfolio that are not
satisfied by the Portfolio. However, the risk of the Fund
incurring financial loss on account of such liability is limited
to circumstances in which both inadequate insurance existed and
the Portfolio itself were unable to meet its obligations.
Accordingly, the trustees of the Trust believe that neither the
Fund nor its shareholders will be adversely affected by reason of
the Fund's investing in the Portfolio.
The Declaration of Trust of Base Trust provides that the Portfolio
will terminate 120 days after the withdrawal of the Fund or any
other investor in the Portfolio, unless the remaining investors
vote to agree to continue the business of the Portfolio. The
trustees of the Trust may vote the Fund's interests in the
Portfolio for such continuation without approval of the Fund's
shareholders.
The common investment objective of the Fund and the Portfolio is
non-fundamental and may be changed without shareholder approval,
subject, however, to at least 30 days' advance written notice to
the Fund's shareholders.
The fundamental policies of the Fund and the corresponding
fundamental policies of the Portfolio can be changed only with
shareholder approval.
If the Fund, as a Portfolio investor, is requested to vote on a
proposed change in fundamental policy of the Portfolio or any
other matter pertaining to the Portfolio (other than continuation
of the business of the Portfolio after withdrawal of another
investor), the Fund will solicit proxies from its shareholders and
vote its interest in the Portfolio for and against such matters
proportionately to the instructions to vote for and against such
matters received from Fund shareholders. The Fund will vote
shares for which it receives no voting instructions in the same
proportion as the shares for which it receives voting
instructions. There can be no assurance that any matter receiving
a majority of votes cast by Fund shareholders will receive a
majority of votes cast by all the Portfolio investors. If other
investors hold a majority interest in the Portfolio, they could
have voting control over the Portfolio.
In the event that the Portfolio's fundamental policies were
changed so as to be inconsistent with those of the Fund, the Board
of Trustees of the Trust would consider what action might be
taken, including changes to the Fund's fundamental policies,
withdrawal of the Fund's assets from the Portfolio and investment
of such assets in another pooled investment entity, or the
retention of another investment adviser. Any of these actions
would require the approval of the Fund's shareholders. The Fund's
inability to find a substitute master fund or comparable
investment management could have a significant impact upon its
shareholders' investments. Any withdrawal of the Fund's assets
could result in a distribution in kind of portfolio securities (as
opposed to a cash distribution) to the Fund. Should such a
distribution occur, the Fund could incur brokerage fees or other
transaction costs in converting such securities to cash. In
addition, a distribution in kind could result in a less
diversified portfolio of investments for the Fund and could affect
the liquidity of the Fund.
Each investor in the Portfolio, including the Fund, may add to or
reduce its investment in the Portfolio on each day the NYSE is
open for business. The investor's percentage of the aggregate
interests in the Portfolio will be computed as the percentage
equal to the fraction (i) the numerator of which is the beginning
of the day value of such investor's investment in the Portfolio on
such day plus or minus, as the case may be, the amount of any
additions to or withdrawals from the investor's investment in the
Portfolio effected on such day; and (ii) the denominator of which
is the aggregate beginning of the day net asset value of the
Portfolio on such day plus or minus, as the case may be, the
amount of the net additions to or withdrawals from the aggregate
investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio as of the close
of business.
Base Trust may permit other investment companies and/or other
institutional investors to invest in the Portfolio, but members of
the general public may not invest directly in the Portfolio.
Other investors in the Portfolio are not required to sell their
shares at the same public offering price as the Fund, could incur
different administrative fees and expenses than the 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 the Portfolio. Investment by such other investors
in the 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
the Portfolio could result in untimely liquidations of the
Portfolio's security holdings, loss of investment flexibility, and
increases in the operating expenses of the Portfolio as a
percentage of its net assets. As a result, the Portfolio's
security holdings may become less diverse, resulting in increased
risk.
Information regarding any other investors in the Portfolio 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 Retirement Services at 800-322-1130 for more
information about the 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 the 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'. 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.
_________________________
Stein Roe & Farnham Incorporated
One South Wacker Drive
Chicago, IL 60606-4685
1-800-322-1130
www.steinroe.com
Liberty Funds Distributor, Inc., Distributor
<PAGE>
Statement of Additional Information Dated Nov. 1, 1998
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 Fund's Prospectus dated Nov. 1, 1998 and any
supplements thereto. The Prospectus may be obtained at no charge
by telephoning Stein Roe Retirement Services at 800-322-1130.
TABLE OF CONTENTS
Page
General Information and History.................................2
Investment Policies.............................................2
Portfolio Investments and Strategies............................4
Investment Restrictions........................................20
Additional Investment Considerations...........................23
Purchases and Redemptions......................................24
Management.....................................................25
Financial Statements...........................................27
Principal Shareholders.........................................27
Investment Advisory Services...................................28
Distributor....................................................30
Transfer Agent.................................................30
Custodian......................................................30
Independent Auditors...........................................31
Portfolio Transactions.........................................31
Additional Income Tax Considerations...........................33
Investment Performance.........................................34
GENERAL INFORMATION AND HISTORY
Stein Roe Institutional Client High Yield Fund (the "Fund")
is a series of Stein Roe Trust (the "Trust"). The Fund invests
all of its net investable assets in shares of SR&F High Yield
Portfolio (the "Portfolio"), which is a series of shares of SR&F
Base Trust.
Currently the Fund is the only series of the Trust authorized
and outstanding. Each share of a series, without par value, 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, the Trust is not
required to hold annual shareholder meetings. However, special
meetings may be called for purposes such as electing or removing
trustees, changing fundamental policies, or approving an
investment advisory contract. If requested to do so by the
holders of at least 10% of its outstanding shares, the Trust will
call a special meeting for the purpose of voting upon the question
of removal of a trustee or trustees and will assist in the
communications with other shareholders as required by Section
16(c) of the Investment Company Act of 1940. All shares of the
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 the
Fund and the Portfolio and provides investment advisory services
to the Portfolio.
Special Considerations Regarding Master Fund/Feeder Fund Structure
Rather than invest in securities directly, the Fund seeks to
achieve its objective by pooling its assets with those of other
investment companies for investment in another mutual fund having
the same investment objective and substantially the same
investment policies. 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
Master Fund/Feeder Fund: Structure and Risk Factors.
INVESTMENT POLICIES
The following information supplements the discussion of the
investment objective and policies of the Fund and the Portfolio
described in the Prospectus. In pursuing its objective, the
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." /2/
- -----------
/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.
- ------------
The Fund seeks to achieve its objective by investing all of
its assets in the Portfolio. The investment objective and
policies of the Fund and the Portfolio are substantially
identical. The Portfolio seeks total return by investing for a
high level of current income and capital growth.
The Portfolio invests principally in high-yield, high-risk
medium- and lower-quality debt securities. The medium- and lower-
quality debt securities in which the 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 the Portfolio's
assets will be invested in high-yield, high-risk medium- and
lower-quality debt securities rated lower than Baa by Moody's and
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
the Portfolio may invest in unrated securities that the Adviser
has researched and believes are suitable for investment. The
Portfolio may invest in debt obligations that are in default, but
such obligations are not expected to exceed 10% of the Portfolio's
assets.
The 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. The Portfolio may also invest in higher-quality debt
securities. Under normal market conditions, however, the
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. The 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. The 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 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 the
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 the 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, the 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 using them is
more efficient or less costly than direct investment that cannot
be readily established directly due to portfolio size, cash
availability, or other factors. They also may be used in an
effort to enhance portfolio returns.
The successful use of Derivatives depends on the 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.
The 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
The 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, prepayment risks and yield
characteristics. Mortgage-backed securities involve the risk of
prepayment on the underlying mortgages at a faster or slower rate
than the established schedule. Prepayments generally increase
with falling interest rates and decrease with rising rates but
they also are influenced by economic, social and market factors.
If mortgages are prepaid during periods of declining interest
rates, there would be a resulting loss of the full-term benefit of
any premium paid by the Portfolio on purchase of the CMO, and the
proceeds of prepayment would likely be invested at lower interest
rates. The Portfolio intends to invest in CMOs of classes known
as planned amortization classes ("PACs") which have prepayment
protection features tending to make them less susceptible to price
volatility.
Non-mortgage asset-backed securities usually have less
prepayment risk than mortgage-backed securities, but have the risk
that the collateral will not be available to support payments on
the underlying loans 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.
REMICs
The Portfolio may invest in real estate mortgage investment
conduits ("REMICs"). REMICs, which were authorized under the Tax
Reform Act of 1986, are private entities formed for the purpose of
holding a fixed pool of mortgages secured by an interest in real
property. REMICs are similar to CMOs in that they issue multiple
classes of securities. A REMIC is a CMO that qualifies for
special tax treatment under the Internal Revenue Code and invests
in certain mortgages principally secured by interests in real
property. Investors may purchase beneficial interests in REMICs,
which are known as "regular" interests, or "residual" interests.
Guaranteed REMIC pass-through certificates ("REMIC Certificates")
issued by FNMA or FHLMC represent beneficial ownership interests
in a REMIC trust consisting principally of mortgage loans or FNMA-
, FHLMC- or GNMA-guaranteed mortgage pass-through certificates.
For FHLMC REMIC Certificates, FHLMC guarantees the timely payment
of interest and also guarantees the payment of principal as
payments are required to be made on the underlying mortgage
participation certificates. FNMA REMIC Certificates are issued
and guaranteed as to timely distribution and principal and
interest by FNMA.
Floating Rate Instruments
The 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%. The 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, the
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 the Portfolio. The 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. the 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, the 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 it 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.
Repurchase Agreements
The Portfolio may invest in repurchase agreements, provided
that it will not invest more than 10% of net assets in repurchase
agreements maturing in more than seven days and any other illiquid
securities. A repurchase agreement is a sale of securities to the
Portfolio in which the seller agrees to repurchase the securities
at a higher price, which includes an amount representing interest
on the purchase price, within a specified time. In the event of
bankruptcy of the seller, the Portfolio could experience both
losses and delays in liquidating its collateral.
When-Issued and Delayed-Delivery Securities; Reverse Repurchase
Agreements; Standby Commitments
The Portfolio may purchase instruments on a when-issued or
delayed-delivery basis. Although payment terms are established at
the time the 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. The 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.
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 the 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 the Portfolio to buy a
security. A dollar roll transaction involves the following risks:
if the broker-dealer to whom the Portfolio sells the security
becomes insolvent, the 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 the Portfolio is required to repurchase may be worth less
than a security which it originally held; and the return earned by
the Portfolio with the proceeds of a dollar roll may not exceed
transaction costs.
The Portfolio may enter into reverse repurchase agreements
with banks and securities dealers. A reverse repurchase agreement
is a repurchase agreement in which the 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 the 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 the 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 the 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
the Portfolio because the other party to the standby agreement
generally will not be obligated to deliver the security, but the
Portfolio will be obligated to accept it if delivered. Depending
on market conditions, the 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 the
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 the 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 the Portfolio actually obtains the
security.
Short Sales Against the Box
The 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. The
Portfolio may make short sales of securities only if at all times
when a short position is open it owns at least an equal amount of
such securities or securities convertible into or exchangeable for
securities of the same issue as, and equal in amount to, the
securities sold short, at no additional cost.
In a short sale against the box, the Portfolio does not
deliver from its portfolio the securities sold. Instead, the
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 the Portfolio, to the
purchaser of such securities. The 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, the Portfolio must
deposit and continuously maintain in a separate account with its
custodian an equivalent amount of the securities sold short or
securities convertible into or exchangeable for such securities at
no additional cost. The Portfolio is said to have a short
position in the securities sold until it delivers to the broker-
dealer the securities sold. The 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 the 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 the Portfolio owns, either directly
or indirectly, and, in the case where the 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 the Portfolio replaces the borrowed security,
the Portfolio will incur a loss and if the price declines during
this period, the 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 the Portfolio may have to
pay in connection with such short sale. Certain provisions of the
Internal Revenue Code may limit the degree to which the Portfolio
is able to enter into short sales. There is no limitation on the
amount of the 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. The 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, the
Fund and the 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, the Fund and the Portfolio may lend money to
and borrow money from other mutual funds advised by the Adviser.
They will borrow through the program when borrowing is necessary
and appropriate and the costs are equal to or lower than the costs
of bank loans.
PIK and Zero Coupon Bonds
The 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 the 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 to the
Prospectus. The rated debt securities described under Investment
Policies include securities given a rating conditionally by
Moody's or provisionally by S&P. If the rating of a security is
withdrawn or reduced, the Portfolio is not required to sell the
security, but the Adviser will consider such fact in determining
whether to 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, the Portfolio will attempt to use comparable
ratings as standards for its investments in debt securities in
accordance with its investment policies.
Foreign Securities
The 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.
The 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.
The 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, 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 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 the 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.
The 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 the 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 the 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. The 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 the Portfolio may hedge all or part of its foreign
currency exposure through the use of a basket of currencies or a
proxy currency where such currencies or currency act as an
effective proxy for other currencies. In such a case, the
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
the Portfolio. The Portfolio may not engage in "speculative"
currency exchange transactions.
At the maturity of a forward contract to deliver a particular
currency, the 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 the
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 it is obligated to
deliver and if a decision is made to sell the security and make
delivery of the currency. Conversely, it may be necessary to sell
on the spot market some of the currency received upon the sale of
the portfolio security if its market value exceeds the amount of
currency the Portfolio is obligated to deliver.
If the Portfolio retains the portfolio security and engages
in an offsetting transaction, it will incur a gain or a loss to
the extent that there has been movement in forward contract
prices. If the 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
the 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, the 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, the 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 the Portfolio of unrealized profits or
force the 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 the Portfolio to hedge against a devaluation that is
so generally anticipated that the Portfolio is not able to
contract to sell the currency at a price above the devaluation
level it anticipates. The cost to the 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. The Portfolio may invest in
debt instruments denominated in foreign currencies. In addition
to, or in lieu of, such direct investment, the 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.
The 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 the 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
the Portfolio having a value at least equal to such accrued excess
will be segregated on the books of the Portfolio and held by the
custodian for the duration of the swap.
The 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
The 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 the 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 the 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, the Portfolio's holdings of illiquid securities
would be reviewed to determine what, if any, steps are required to
assure that the 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 assets invested
in illiquid securities if qualified institutional buyers are
unwilling to purchase such securities. The 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 the 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
The 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.)
The 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 the 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 the Portfolio expires, it realizes a
capital gain equal to the premium received at the time the option
was written. If an option purchased by the Portfolio expires, it
realizes a capital loss equal to the premium paid.
Prior to the earlier of exercise or expiration, an option may
be closed out by an offsetting purchase or sale of an option of
the same series (type, exchange, underlying security or index,
exercise price, and expiration). There can be no assurance,
however, that a closing purchase or sale transaction can be
effected when the Portfolio desires.
The 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, the 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, the Portfolio will realize a capital
gain or, if it is less, it will realize a capital loss. The
principal factors affecting the market value of a put or a call
option include supply and demand, interest rates, the current
market price of the underlying security or index in relation to
the exercise price of the option, the volatility of the underlying
security or index, and the time remaining until the expiration
date.
A put or call option purchased by the Portfolio is an asset
of the Portfolio, valued initially at the premium paid for the
option. The premium received for an option written by the
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 the Portfolio seeks to close out an option position. If the
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 the 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, the 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 the
Portfolio, it would not be able to close out the option. If
restrictions on exercise were imposed, the Portfolio might be
unable to exercise an option it has purchased.
Futures Contracts and Options on Futures Contracts
The 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.
- --------------
The 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. The 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 its securities or
the price of the securities that it intends to purchase. Although
other techniques could be used to reduce exposure to security
price, interest rate and currency fluctuations, the Portfolio may
be able to achieve its exposure more effectively and perhaps at a
lower cost by using futures contracts and futures options.
The 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 accurate
predictions of changes in the level and direction of security
prices, interest rates, currency exchange rates and other factors.
Should those predictions be incorrect, the return might have been
better had the transaction not been attempted; however, in the
absence of the ability to use futures contracts, the 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, the
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 the Portfolio upon termination of the
contract, assuming all contractual obligations have been
satisfied. The Portfolio expects to earn interest income on its
initial margin deposits. A futures contract held by the Portfolio
is valued daily at the official settlement price of the exchange
on which it is traded. Each day the 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 the Portfolio
does not represent a borrowing or loan by the Portfolio but is
instead settlement between the 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, the Portfolio will mark-to-market its open futures
positions.
The 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 the 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, the Portfolio realizes a
capital gain, or if it is more, it realizes a capital loss.
Conversely, if an offsetting sale price is more than the original
purchase price, the Portfolio realizes a capital gain, or if it is
less, it 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 the Portfolio seeks to close out a futures or a
futures option position. The 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,
the Portfolio may also use those investment vehicles, provided the
Board of Trustees determines that their use is consistent with the
investment objective.
The Portfolio will not enter into a futures contract or
purchase an option thereon if, immediately thereafter, the initial
margin deposits for futures contracts held plus premiums paid for
open futures option positions, less the amount by which any such
positions are "in-the-money," /3/ would exceed 5% of its 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, the 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, the 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 the Portfolio.
The 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 the 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," the 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 the 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%].
Taxation of Options and Futures
If the 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 the 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 the 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 the 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 the 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 the
Portfolio delivers securities under a futures contract, it also
realizes a capital gain or loss on those securities.
For federal income tax purposes, the 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 the 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 to continue to qualify for federal income tax
treatment as a regulated investment company, at least 90% of 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). Any net gain
realized from futures (or futures options) contracts will be
considered gain from the sale of securities and therefore be
qualifying income for purposes of the 90% requirement.
The Fund distributes to shareholders annually any net capital
gains that have been recognized for federal income tax purposes
(including year-end mark-to-market gains) on options and futures
transactions. Such distributions are combined with distributions
of capital gains realized on the other investments and
shareholders are advised of the nature of the payments.
The Taxpayer Relief Act of 1997 (the "Act") imposed
constructive sale treatment for federal income tax purposes on
certain hedging strategies with respect to appreciated securities.
Under these rules, taxpayers will recognize gain, but not loss,
with respect to securities if they enter into short sales of
"offsetting notional principal contracts" (as defined by the Act)
or futures or "forward contracts" (as defined by the Act) with
respect to the same or substantially identical property, or if
they enter into such transactions and then acquire the same or
substantially identical property. These changes generally apply
to constructive sales after June 8, 1997. Furthermore, the
Secretary of the Treasury is authorized to promulgate regulations
that will treat as constructive sales certain transactions that
have substantially the same effect as short sales, offsetting
notional principal contracts, and futures or forward contracts to
deliver the same or substantially similar property.
INVESTMENT RESTRICTIONS
The Fund and the Portfolio operate under the following
investment restrictions. The Fund and the 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 [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 [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, [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 nonleveraging,
temporary or emergency purposes, (b) engage in reverse repurchase
agreements and make other borrowings, provided that the
combination of (a) and (b) shall not exceed 33 1/3% of the value
of its total assets (including the amount borrowed) less
liabilities (other than borrowings) or such other percentage
permitted by law, and (c) enter into futures and options
transactions; it may borrow from banks, other Stein Roe Funds and
Portfolios, and other persons to the extent permitted by
applicable law;
(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, [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," 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.
The Fund and the 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 the
Fund 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, the Fund and the 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, the Portfolio intends to operate within the
applicable limitations under Section 12(d)(1)(A) of that Act.
- ------------------
(C) 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;
(D) purchase shares of other open-end investment companies,
except in connection with a merger, consolidation, acquisition, or
reorganization;
(E) 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;
(F) 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;
(G) write an option on a security unless the option is issued
by the Options Clearing Corporation, an exchange, or similar
entity;
(H) invest in limited partnerships in real estate unless they
are readily marketable;
(I) 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;
(J) 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;
(K) 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.
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 January, the third Monday in February, Good
Friday, the last Monday in May, Independence Day, Labor Day,
Thanksgiving, and Christmas. If one of these holidays falls on a
Saturday or Sunday, the NYSE will be closed on the preceding
Friday or the following Monday, respectively. Net asset value
will not be determined on days when the NYSE is closed unless, in
the judgment of the Board of Trustees, net asset value should be
determined on any such day, in which case the determination will
be made at 3:00 p.m., Central time.
The 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.
The 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 the 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, the 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 $250,000. 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
$250,000 before the redemption is processed. The Agreement and
Declaration of Trust also authorizes the Trust to redeem shares
under certain other circumstances as may be specified by the Board
of Trustees.
MANAGEMENT
The following table sets forth certain information with
respect to trustees and officers of the Trust:
<TABLE>
<CAPTION>
Position(s) held Principal occupation(s)
Name with the Trust during past five years
- ------------------ ------------------------ -----------------------------------
<S> <C> <C>
William D. Andrews, 51 (4) Executive Vice-President Executive vice president of Stein Roe
& Farnham Incorporated (the
"Adviser")
Gary A. Anetsberger, 42(4) Senior Vice-President Chief financial officer and chief
administrative officer of the Mutual
Funds division of the Adviser; senior
vice president of the Adviser since
April 1996; vice president of the
Adviser prior thereto
William W. Boyd, 71 Trustee Chairman and director of
(2) (3)(4) Sterling Plumbing (manufacturer of
plumbing products)
Thomas W. Butch, 41 (1)(2) Trustee; President President of the Mutual Funds
division and director of the Adviser
since March 1998; senior vice
president of the Adviser from Sept.
1994 to March 1998; first vice
president, corporate communications,
of Mellon Bank Corporation prior
thereto
Kevin M. Carome, 42 Vice-President; General Counsel and (since Feb. 1995)
Assistant Secretary Vice President of Liberty Financial
Companies, Inc.; General Counsel and
Secretary of the Adviser since Jan.
1998
Lindsay Cook, 46 (1)(4) Trustee Executive vice president of Liberty
Financial Companies, Inc. (the
indirect parent of the Adviser) since
March 1997; senior vice president
prior thereto
Douglas A. Hacker,43(3)(4) Trustee Senior vice president and chief
financial officer of UAL, Inc.
(airline) since July 1994; senior
vice president - finance of UAL,
Inc. prior thereto
Loren A. Hansen, 49 (4) Executive Vice-President Chief investment officer/equity of
Colonial Management Associates, Inc.
since 1997; executive vice president
of the Adviser since Dec. 1995; vice
president of The Northern Trust
(bank) prior thereto
Janet Langford Kelly,40 Trustee Senior vice president, secretary and
(3)(4) general counsel of Sara Lee
Corporation (branded, packaged,
consumer-products manufacturer) since
1995; partner, Sidley & Austin (law
firm) prior thereto
Michael T. Kennedy, 36 Vice-President Senior vice president of the Adviser
since Oct. 1994; vice president of
the Adviser prior thereto
Stephen F. Lockman, 37 Vice-President Senior vice president, portfolio
manager, and credit analyst of the
Adviser since 1994; portfolio manager
for Illinois State Board of
Investment prior thereto
Lynn C. Maddox, 57 Vice-President Senior vice president of the Adviser
Jane M. Naeseth, 48 Vice-President Senior vice president of the Adviser
Charles R. Nelson, 56 Trustee Van Voorhis Professor of Political
(3)(4) Economy of the University of
Washington
Nicolette D. Parrish,48(4) Vice-President; Senior legal assistant for the
Assistant Secretary Adviser
Sharon R. Robertson, 36(4) Controller Accounting manager for the Adviser's
Mutual Funds division
Janet B. Rysz, 43 (4) Assistant Secretary Senior legal assistant and assistant
secretary of the Adviser
Thomas C. Theobald, 61 Trustee Managing director, 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, 1987-1994
Scott E. Volk, 27 (4) Treasurer Financial reporting manager for the
Adviser's Mutual Funds division since
Oct. 1997; senior auditor with Ernst
& Young LLP from Sept. 1993 to April
1996 and from Oct. 1996 to Sept.
1997; financial analyst with John
Nuveen & Company Inc. from May 1996
to Sept. 1996
Heidi J. Walter, 31 (4) Vice-President; Vice president of the Adviser since
Secretary March 1998; senior legal counsel for
the Adviser since Feb. 1998; legal
counsel for the Adviser from March
1995 to Jan. 1998; associate with
Beeler Schad & Diamond, PC (law firm)
prior thereto
Hans P. Ziegler, 57 (4) Executive Vice-President Chief executive officer of the
Adviser since May 1994; president of
the Investment Counsel division of
the Adviser prior thereto
Margaret O. Zwick, 32 (4) Assistant Treasurer Project manager for the Adviser's
Mutual Funds division since April
1997; compliance manager, Aug. 1995
to April 1997; compliance accountant,
Jan. 1995 to July 1995; section
manager, Jan. 1994 to Jan. 1995;
supervisor prior thereto
<FN>
______________________
(1) Trustee who is an "interested person" of the 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 SR&F Base Trust.
</TABLE>
Certain of the trustees and officers of the Trust and SR&F
Base Trust are trustees or officers of other investment companies
managed by the Adviser. Mr. Anetsberger, Mr. Butch, and Ms.
Walter are also officers of Liberty Funds Distributor, Inc., the
Fund's distributor. The address of Mr. Boyd is 2900 Golf Road,
Rolling Meadows, Illinois 60008; that of Mr. Cook is 600 Atlantic
Avenue, Boston, Massachusetts 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. 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 other officers is
One South Wacker Drive, Chicago, Illinois 60606.
Officers and trustees affiliated with the Adviser serve
without any compensation from the Trust. In compensation for
their services to the Trust, trustees who are not "interested
persons" of the Trust or the Adviser are paid an annual retainer
plus an attendance fee for each meeting of the Board or standing
committee thereof attended. The Trust has no retirement or
pension plan. The following table sets forth compensation paid
during the fiscal year ended June 30, 1998 to each of the
trustees:
Compensation from the
Stein Roe Fund Complex*
-----------------------
Aggregate Compensation Total Average
Name of Trustee from the Trust Compensation Per Series
- ------------------- -------------------- ------------ ----------
Timothy K. Armour** -0- -0- -0-
Thomas W. Butch** -0- -0- -0-
Lindsay Cook -0- -0- -0-
Kenneth L. Block** $ 4,000 $ 49,000 $ 1,114
William W. Boyd 7,350 124,552 2,831
Douglas A. Hacker 6,850 120,198 2,732
Janet Langford Kelly 6,850 117,000 2,659
Francis W. Morley** 4,000 49,000 1,114
Charles R. Nelson 7,350 124,202 2,823
Thomas C. Theobald 6,850 120,198 2,732
_______________
* At June 30, 1998, the Stein Roe Fund Complex consisted of one
series of the Trust, four series of Stein Roe Income Trust,
four series of Stein Roe Municipal Trust, 11 series of Stein
Roe Investment Trust, 10 series of Stein Roe Advisor Trust, one
series of Stein Roe Institutional Trust, and 13 series of SR&F
Base Trust.
** Messrs. Block and Morley retired as trustees on Dec. 31, 1997.
Mr. Armour resigned as a trustee and Mr. Butch was elected a
trustee on April 14, 1998.
FINANCIAL STATEMENTS
Please refer to the June 30, 1998 Financial Statements
(statements of assets and liabilities and schedule of investments
as of June 30, 1998 and the statements of operations, changes in
net assets, and notes thereto) and the report of independent
auditors contained in the Fund's June 30, 1998 Annual Report. The
Financial Statements and the report of independent auditors (but
no other material from the Annual Report) are incorporated herein
by reference. The Annual Report may be obtained at no charge by
telephoning 800-338-2550.
PRINCIPAL SHAREHOLDERS
As of Sept. 30, 1998, the only persons known by the Trust to
own of record or "beneficially" 5% or more of outstanding shares
of the Fund within the definition of that term as contained in
Rule 13d-3 under the Securities Exchange Act of 1934 were as
follows:
Approximate % of
Name and Address Outstanding Shares Held
- ------------------------------------ -----------------------
Covenant Benevolent Institution 40.98%
5145 North California
Chicago, IL 60625
Fireman's Annuity & Benefit Fund of Chicago 49.16
1 North Franklin, Suite 2550
Chicago, IL 60606
John W Anderson Foundation 9.52
402 Wall Street
Valparaiso, IN 46383
As of Sept. 30, 1998, 3,333,181 shares, or approximately 98.9% of
outstanding shares, were held by clients of the Adviser in their
client accounts. The Adviser may have discretionary authority
over such shares and, accordingly, they could be deemed to be
owned "beneficially" by the Adviser under Rule 13d-3. However,
the Adviser disclaims actual beneficial ownership of such shares.
No shares were held by trustees and officers of the Trust.
INVESTMENT ADVISORY SERVICES
Stein Roe & Farnham Incorporated provides administrative
services to the Fund and the Portfolio and portfolio management
services to the Portfolio. The Adviser is a wholly owned
subsidiary of SteinRoe Services Inc. ("SSI"), the Fund's transfer
agent, which is a wholly owned subsidiary of Liberty Financial
Companies, Inc. ("Liberty Financial"), which is a majority owned
subsidiary of LFC 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, C. Allen
Merritt, Jr., Thomas W. Butch, and Hans P. Ziegler. Mr. Leibler
is President and Chief Executive Officer of Liberty Financial; Mr.
Merritt is Chief Operating Officer of Liberty Financial; Mr. Butch
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 and Merritt is Federal Reserve Plaza,
Boston, Massachusetts 02210; and that of Messrs. Butch 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, 1998, the Adviser managed
over $29.1 billion in assets: over $11.2 billion in equities and
over $17.9 billion in fixed income securities (including $1.7
billion in municipal securities). The $29.1 billion in managed
assets included over $9.3 billion held by open-end mutual funds
managed by the Adviser (approximately 14% of the mutual fund
assets were held by clients of the Adviser). These mutual funds
were owned by over 289,000 shareholders. The $9.3 billion in
mutual fund assets included over $748 million in over 42,000 IRA
accounts. In managing those assets, the Adviser utilizes a
proprietary computer-based information system that maintains and
regularly updates information for approximately 9,000 companies.
The Adviser also monitors over 1,400 issues via a proprietary
credit analysis system. At June 30, 1998, the Adviser employed 18
research analysts and 55 account managers. The average
investment-related experience of these individuals was 24 years.
Please refer to the descriptions 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 table below shows gross fees paid and any expense
reimbursements by the Adviser:
Year Ended Year Ended
Type of Payment 6/30/98 6/30/97
------------------ ---------- ----------
Institutional Client
High Yield Fund Administrative fee $ 46,114 $ 6,454
Reimbursement 240,886 90,036
High Yield Portfolio Management fee 307,472 52,997
The Adviser provides office space and executive and other
personnel to the Fund and bears any sales or promotional expenses.
The Fund pays all expenses other than those paid by the Adviser,
including but not limited to printing and postage charges,
securities registration and custodian fees, and expenses
incidental to its organization.
The 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 the 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 the Fund under that agreement for
such year. In addition, in the interest of further limiting the
Fund's expenses, the Adviser may voluntarily waive its fees and/or
absorb certain its expenses, as described in the Prospectus under
Fee Table. Any such reimbursements will enhance the yield of the
Fund.
The 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 SR&F Base Trust or any shareholder 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 its obligations and
duties under that agreement.
Any expenses that are attributable solely to the
organization, operation, or business of a series of the Trust are
paid solely out of the assets of that series. Any expenses
incurred by the Trust that are not solely attributable to a
particular series are apportioned in such manner as the Adviser
determines is fair and appropriate, unless otherwise specified by
the Board of Trustees.
Bookkeeping and Accounting Agreement
Pursuant to a separate agreement with the Trust, the Adviser
receives a fee for performing certain bookkeeping and accounting
services. For these services, the Adviser receives an annual fee
of $25,000 per series plus .0025 of 1% of average net assets over
$50 million. During the fiscal years ended June 30, 1998 and
1997, the Adviser received aggregate fees of $24,999 and $9,524,
respectively, for services performed under this agreement.
DISTRIBUTOR
Shares of the Fund are distributed by Liberty Funds
Distributor, Inc. ("Distributor"), One Financial Center, Boston,
MA 02111, under a Distribution Agreement. The Distributor is a
subsidiary of Colonial Management Associates, Inc., which is an
indirect subsidiary of Liberty Financial.
The Distribution Agreement continues in effect from year to
year, provided such continuance is approved annually (1) by a
majority of the trustees or by a majority of the outstanding
voting securities of the Trust, and (2) by a majority of the
trustees who are not parties to the Agreement or interested
persons of any such party. The Trust has agreed to pay all
expenses in connection with registration of its shares with the
Securities and Exchange Commission and auditing and filing fees in
connection with registration of its shares under the various state
blue sky laws and assumes the cost of preparation of prospectuses
and other expenses.
As agent, the Distributor offers Fund shares 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 the
Fund. The distributor offers shares only on a best-efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for the Trust,
as described under Management in the Prospectus. For performing
these services, SSI receives from the Fund a fee based on an
annual rate of .05 of 1% of its average daily net assets. The
Board of Trustees believes the charges by SSI are comparable to
those of other companies performing similar services. (See
Investment Advisory Services.) Under a separate agreement, SSI
provides certain investor accounting services to the Portfolio.
CUSTODIAN
State Street Bank and Trust Company (the "Bank"), 225
Franklin Street, Boston, Massachusetts 02101, is the custodian for
the Trust and SR&F 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 Bank does not exercise any
supervisory function in such matters as purchase and sale of
portfolio securities, payment of dividends, or payment of
expenses.
Portfolio securities purchased in the U.S. are maintained in
the custody of the Bank or of other domestic banks or
depositories. Portfolio securities purchased outside of the U.S.
are maintained in the custody of foreign banks and trust companies
that are members of the Bank's Global Custody Network and foreign
depositories ("foreign sub-custodians"). Each of the domestic and
foreign custodial institutions holding portfolio securities has
been approved by the Board of Trustees in accordance with
regulations under the Investment Company Act of 1940.
Each Board of Trustees reviews, at least annually, whether it
is in the best interests of the Fund, the 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.
The Fund and the Portfolio may invest in obligations of the
Bank and may purchase or sell securities from or to the Bank.
INDEPENDENT AUDITORS
The independent auditors for the Trust and the 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 the
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 the Portfolio.
Transactions placed through dealers reflect the spread between the
bid and asked prices. Occasionally, the Portfolio may make
purchases of underwritten issues at prices that include
underwriting discounts or selling concessions.
The Adviser's overriding objective in selecting brokers and
dealers to effect portfolio transactions is to seek the best
combination of net price and execution. The best net price,
giving effect to brokerage commissions, if any, is an important
factor in this decision; however, a number of other judgmental
factors may also enter into the decision. These factors include
the Adviser's knowledge of negotiated commission rates currently
available and other current transaction costs; the nature of the
security being purchased or sold; the size of the transaction; the
desired timing of the transaction; the activity existing and
expected in the market for the particular security;
confidentiality; the execution, clearance and settlement
capabilities of the broker or dealer selected and others
considered; the Adviser's knowledge of the financial condition of
the broker or dealer selected and such other brokers and dealers;
and the Adviser's knowledge of actual or apparent operation
problems of any broker or dealer. Recognizing the value of these
factors, the Adviser may cause a client to pay a brokerage
commission in excess of that which another broker may have charged
for effecting the same transaction.
The Adviser has established internal policies for the
guidance of its trading personnel, specifying minimum and maximum
commissions to be paid for various types and sizes of transactions
and effected for clients in those cases where the Adviser has
discretion to select the broker or dealer by which the transaction
is to be executed. Transactions which vary from the guidelines
are subject to periodic supervisory review. These guidelines are
reviewed and periodically adjusted, and the general level of
brokerage commissions paid is periodically reviewed by the
Adviser. Evaluations of the reasonableness of brokerage
commissions, based on the factors described in the preceding
paragraph, are made by the Adviser's trading personnel while
effecting portfolio transactions. The general level of brokerage
commissions paid is reviewed by the Adviser, and reports are made
annually to the Board of Trustees.
Where more than one broker or dealer is believed to be
capable of providing a combination of best net price and execution
with respect to a particular portfolio transaction, the Adviser
often selects a broker or dealer that has furnished it with
investment research products or services such as: economic,
industry or company research reports or investment
recommendations; subscriptions to financial publications or
research data compilations; compilations of securities prices,
earnings, dividends, and similar data; computerized data bases;
quotation equipment and services; research or analytical computer
software and services; or services of economic and other
consultants. Such selections are not made pursuant to any
agreement or understanding with any of the brokers or dealers.
However, the Adviser does in some instances request a broker to
provide a specific research or brokerage product or service which
may be proprietary to the broker or produced by a third party and
made available by the broker and, in such instances, the broker in
agreeing to provide the research or brokerage product or service
frequently will indicate to the Adviser a specific or minimum
amount of commissions which it expects to receive by reason of its
provision of the product or service. The Adviser does not agree
with any broker to direct such specific or minimum amounts of
commissions; however, the Adviser does maintain an internal
procedure to identify those brokers who provide it with research
products or services and the value of such products or services,
and the Adviser endeavors to direct sufficient commissions on
client transactions (including commissions on transactions in
fixed income securities effected on an agency basis and, in the
case of transactions for certain types of clients, dealer selling
concessions on new issues of securities) to ensure the continued
receipt of research products or services the Adviser believes are
useful.
In a few instances, the Adviser receives from a broker a
product or service which is used by the Adviser both for
investment research and for administrative, marketing, or other
non-research or brokerage purposes. In such an instance, the
Adviser makes a good faith effort to determine the relative
proportion of its use of such product or service which is for
investment research or brokerage, and that portion of the cost of
obtaining such product or service may be defrayed through
brokerage commissions generated by client transactions, while the
remaining portion of the costs of obtaining the product or service
is paid by the Adviser in cash. The Adviser may also receive
research in connection with selling concessions and designations
in fixed income offerings.
For the fiscal years ended June 30, 1997 and 1998, the
Portfolio paid no brokerage commissions on futures transactions or
any other transactions.
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 the Association of the National
Association of Securities Dealers ("NASD").
The Trust has arranged for its custodian to act as a
soliciting dealer to accept any fees available to the custodian as
a soliciting dealer in connection with any tender offer for
portfolio securities. The custodian will credit any such fees
received against its custodial fees.
During the last fiscal year, the Portfolio held securities
issued by one its regular broker-dealers or the parent of such
broker-dealer that derives more than 15% of gross revenue from
securities-related activities. Such holdings were as follows at
June 30, 1998:
Value of Securities Held
Broker-Dealer (in thousands)
- ----------------------------------------- -----------------------
Associates Corporation of North America $2,085
ADDITIONAL INCOME TAX CONSIDERATIONS
The Fund and the Portfolio intend to comply with the special
provisions of the Internal Revenue Code that relieve it of federal
income tax to the extent of 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.
The Fund expects that none of its dividends will qualify for
the deduction for dividends received by corporate shareholders.
INVESTMENT PERFORMANCE
The 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.
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.
For example, the Yield of the Fund for the 30-day period ended
June 30, 1998 was 8.74%.
--------------
The 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. 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.
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).
For example, for a $1,000 investment in Institutional Client
High Yield Fund, the "Total Return," the "Total Return
Percentage," and the "Average Annual Total Return" at June 30,
1998 were:
Total Total Return Average Annual
Return Percentage Total Return
------- ------------ ---------------
1 year $1,149 14.88% 14.88%
Life of Fund* 1,212 21.17 15.01
_______
*Since commencement of operations on Feb. 14, 1997.
Investment performance figures assume reinvestment of all
dividends and distributions and do not take into account any
federal, state, or local income taxes which shareholders must pay
on a current basis. They are not necessarily indicative of future
results. The performance of the Fund is a result of conditions in
the securities markets, portfolio management, and operating
expenses. Although investment performance information is useful
in reviewing the Fund's performance and in providing some basis
for comparison with other investment alternatives, it should not
be used for comparison with other investments using different
reinvestment assumptions or time periods.
The Fund may note its mention in newspapers, magazines, or
other media from time to time. However, the Fund assumes no
responsibility for the accuracy of such data. Newspapers and
magazines that might mention the 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
In advertising and sales literature, the 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
the. Comparison of the Fund to an alternative investment should
be made with consideration of differences in features and expected
performance. All of the indexes and averages noted below will be
obtained from the indicated sources or reporting services, which
the Fund believes to be generally accurate.
The Fund may compare its performance to the Consumer Price
Index (All Urban), a widely-recognized measure of inflation.
The performance of the Fund may be compared to the following
benchmarks:
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 Morningstar averages are unweighted averages of total
return performance of mutual funds as classified, calculated, and
published by this independent service that monitors the
performance of mutual funds. The Fund may also use comparative
performance as computed in a ranking by this service or category
averages and rankings provided by another independent service.
Should this service reclassify the 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, the Fund may also cite
its rating, recognition, or other mention by Morningstar or any
other entity. Morningstar's rating system is based on risk-
adjusted total return performance and is expressed in a star-
rating format. The risk-adjusted number is computed by
subtracting a fund's risk score (which is a function of its
monthly returns less the 3-month T-bill return) from its load-
adjusted total return score. This numerical score is then
translated into rating categories, with the top 10% labeled five
star, the next 22.5% labeled four star, the next 35% labeled three
star, the next 22.5% labeled two star, and the bottom 10% one
star. A high rating reflects either above-average returns or
below-average risk, or both.
Of course, past performance is not indicative of future
results.
----------------
To illustrate the historical returns on various types of
financial assets, the 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
---------------
The Fund may also use hypothetical returns to be used as an
example in a mix of asset allocation strategies. One such example
is reflected in the chart below, which shows the effect of tax
deferral on a hypothetical investment. This chart assumes that an
investor invested $2,000 a year on Jan. 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, the 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.
----------
<PAGE>
PART C. OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) 1. Financial statements included in Part A of this
Registration Statement: Financial Highlights.
2. Financial statements included in Part B of this
Registration Statement: The following financial statements
are incorporated by reference to Registrant's June 30, 1998
annual report: Schedule of investments at June 30, 1998 of
SR&F High Yield Portfolio; and statements of assets and
liabilities as of June 30, 1998, statements of operations
for the period ended June 30, 1998, statements of changes
in net assets for the two periods ended June 30, 1998,
notes thereto and report of independent auditors of Stein
Roe Institutional Client High Yield Fund and SR&F High
Yield Portfolio.
(b) Exhibits: [Note: As used herein, the terms "Pre-Effective
Amendment" and "PEA" refer, respectively, to a pre-effective
amendment and a post-effective amendment to the Registration
Statement of the Registrant on Form N-1A under the Securities
Act of 1933, No. 333-19181.]
1. Agreement and Declaration of Trust. (Exhibit 1 to Pre-
Effective Amendment.)*
2. (a) By-Laws of Registrant. (Exhibit 2 to Pre-Effective
Amendment.)*
(b) Amendment to By-Laws dated February 4, 1998.
3. None.
4. None.
5. None.
6. Underwriting agreement between Registrant and Liberty
Financial Investments Inc. dated January 1, 1998.
7. None.
8. Custodian contract between Registrant and State Street Bank
and Trust Company dated February 13, 1997. (Exhibit 8 to
PEA #1.)*
9. (a) Transfer agency agreement between Registrant and Stein-
Roe Services Inc. dated February 14, 1997. (Exhibit
9(a) to PEA #1.)*
(b) Administrative agreement between Registrant and Stein
Roe & Farnham Incorporated dated February 14, 1997.
(Exhibit 9(b) to PEA #1.)*
(c) Accounting and bookkeeping agreement between Registrant
and Stein Roe & Farnham Incorporated dated February 14,
1997. (Exhibit 9(c) to PEA #1.)*
(d) Sub-transfer agent agreement between Registrant and
Colonial Investors Service Center, Inc. as amended
through April 30, 1998.
10. Opinion and consent of Bell, Boyd & Lloyd. (Exhibit 10 to
Pre-Effective Amendment.)*
11. Consent of Ernst & Young LLP.
12. None.
13. Subscription agreement. (Exhibit 13 to Pre-Effective
Amendment.)*
14. None.
15. None.
16. Schedule for computation of yield and total return of
Stein Roe Institutional Client High Yield Fund. (Exhibit
16 to PEA #2.)*
17. Financial data schedule--Stein Roe Institutional Client
High Yield Fund.
18. Inapplicable.
_____________
* Incorporated by reference.
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 July 31, 1998
--------------- ------------------------
Stein Roe Institutional Client
High Yield Fund 4
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
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. In
accordance with Section 17(h) of the 1940 Act, Article VIII shall
not protect any person against any liability to Registrant or its
shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office.
Unless otherwise permitted under the 1940 Act,
(i) Article 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 willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in
the conduct of his office;
(ii) in the absence of a final decision on the merits by a
court or other body before whom a proceeding was brought that a
Covered Person was not liable to the Registrant or its shareholders
by reason of willful 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 willful 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 willful
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 willful 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 willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the
conduct of his office or (2) protect its investment adviser or
principal underwriter, if any, against any liability to Registrant
or its shareholders to which such person would otherwise be
subject by reason of willful misfeasance, bad faith, or gross
negligence, in the performance of its duties, or by reason of its
reckless disregard of its duties and obligations under its
contract or agreement with the Registrant; for this purpose the
Registrant will rely on an allocation of premiums determined by
the insurance company.
Registrant, its trustees, officers, employees and representatives
and each person, if any, who controls the Registrant within the
meaning of Section 15 of the Securities Act of 1933 are
indemnified by the distributor of Registrant's shares (the
"distributor"), pursuant to the terms of the distribution
agreement, which governs the distribution of Registrant's shares,
against any and all losses, liabilities, damages, claims and
expenses arising out of the acquisition of any shares of the
Registrant by any person which (i) may be based upon any wrongful
act by the distributor or any of the distributor's directors,
officers, employees or representatives or (ii) may be based upon
any untrue or alleged untrue statement of a material fact
contained in a registration statement, prospectus, statement of
additional information, shareholder report or other information
covering shares of the Registrant filed or made public by the
Registrant or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
therein not misleading if such statement or omission was made in
reliance upon information furnished to the Registrant by the
distributor in writing. In no case does the distributor's
indemnity indemnify an indemnified party against any liability to
which such indemnified party would otherwise be subject by reason
of willful misfeasance, bad faith, or negligence in the
performance of its or his duties or by reason of its or his
reckless disregard of its or his obligations and duties under the
distribution agreement.
ITEM 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,
and other 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 and Liberty Variable Investment Trust, which are 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
Kenneth J. Kozanda Vice President; Treasurer
Kenneth R. Leibler Director
C. Allen Merritt, Jr. Director; Vice President
Heidi J. Walter Vice President; Secretary
Hans P. Ziegler Director; President; Chairman
SR&F BASE TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Sr. Vice-President Treasurer
Thomas W. Butch President; Trustee Executive V-P
Kevin M. Carome Vice-President; Asst. Secy.
Loren A. Hansen Executive Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
STEIN ROE INCOME TRUST; STEIN ROE INSTITUTIONAL TRUST; AND
STEIN ROE TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Sr. Vice-President Treasurer
Thomas W. Butch President; Trustee Exec. V-P; V-P
Kevin M. Carome Vice-President; Asst. Secy.
Loren A. Hansen Executive Vice-President
Michael T. Kennedy Vice-President
Stephen F. Lockman Vice-President
Steven P. Luetger Vice-President
Lynn C. Maddox Vice-President
Jane M. Naeseth Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
STEIN ROE INVESTMENT TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Sr. Vice-President Treasurer
David P. Brady Vice-President
Thomas W. Butch President; Trustee Exec. V-P; V-P
Daniel K. Cantor Vice-President
Kevin M. Carome Vice-President; Asst. Secy.
E. Bruce Dunn Vice-President
Erik P. Gustafson Vice-President
Loren A. Hansen Executive Vice-President
David P. Harris Vice-President
Harvey B. Hirschhorn Vice-President
Eric S. Maddix Vice-President
Lynn C. Maddox Vice-President
Arthur J. McQueen Vice-President
M. Gerard Sandel Vice-President
Gloria J. Santella Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
STEIN ROE ADVISOR TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Sr. Vice-President Treasurer
David P. Brady Vice-President
Thomas W. Butch President; Trustee Exec. V-P; V-P
Daniel K. Cantor Vice-President
Kevin M. Carome Vice-President; Asst. Secy.
E. Bruce Dunn Vice-President
Erik P. Gustafson Vice-President
Loren A. Hansen Executive Vice-President
David P. Harris Vice-President
Harvey B. Hirschhorn Vice-President
Michael T. Kennedy Vice-President
Stephen F. Lockman Vice-President
Eric S. Maddix Vice-President
Lynn C. Maddox Vice-President
Arthur J. McQueen Vice-President
M. Gerard Sandel Vice-President
Gloria J. Santella Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
STEIN ROE MUNICIPAL TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Sr. Vice-President Treasurer
Thomas W. Butch President; Trustee Exec. V-P; V-P
Kevin M. Carome Vice-President; Asst. Secy.
Joanne T. Costopoulos Vice-President
Loren A. Hansen Executive Vice-President
Lynn C. Maddox Vice-President
Veronica M. Wallace Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
STEINROE VARIABLE INVESTMENT TRUST
Gary A. Anetsberger Treasurer
Kevin M. Carome Assistant Secretary
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
William M. Wadden IV Vice President
LFC UTILITIES TRUST
Gary A. Anetsberger Vice President
Ophelia L. Barsketis Vice President
Deborah A. Jansen Vice President
LIBERTY VARIABLE INVESTMENT TRUST
Ophelia L. Barsketis Vice President
Deborah A. Jansen Vice President
Kevin M. Carome Secretary
STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior Vice-President
Thomas W. Butch President; Manager
Kevin M. Carome Vice-President; Assistant Secretary
Loren A. Hansen Executive Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
STEIN ROE FLOATING RATE INCOME TRUST; STEIN ROE INSTITUTIONAL
FLOATING RATE INCOME TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior Vice-President
Thomas W. Butch President; Trustee
Kevin M. Carome Vice-President; Assistant Secretary
Brian W. Good Vice-President
James R. Fellows Vice-President
Loren A. Hansen Executive Vice-President
Heidi J. Walter Vice-President; Secretary
Hans P. Ziegler Executive Vice-President
ITEM 29. PRINCIPAL UNDERWRITERS.
Registrant's principal underwriter, Liberty Funds Distributor,
Inc., a subsidiary of Colonial Management Associates, Inc., also
acts in the same capacity to Colonial Trust I, Colonial Trust II,
Colonial Trust III, Colonial Trust IV, Colonial Trust V, Colonial
Trust VI, Colonial Trust VII, Stein Roe Advisor Trust, Stein Roe
Income Trust, Stein Roe Municipal Trust, Stein Roe Institutional
Trust and Stein Roe Investment Trust; and sponsor for Colony
Growth Plans (public offering of which was discontinued on June
14, 197l). The table below lists each director or officer of
Liberty Funds Distributor, Inc.
Position and Offices Positions and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
- -------------------- --------------------- --------------
Anderson, Judith Vice President None
Anetsberger, Gary A. Senior Vice President Senior V-P
Babbitt, Debra VP & Compliance Officer None
Ballou, Rich Vice President None
Balzano, Christine R. Vice President None
Bartlett, John Managing Director None
Blumenfeld, Alex Vice President None
Brown, Beth Vice President None
Burtman, Tracy Vice President None
Butch, Thomas W. Senior Vice President Pres., Trustee
Campbell, Patrick Vice President None
Chrzanowski, Daniel Vice President None
Claiborne, Douglas Vice President None
Clapp, Elizabeth A. Senior Vice President None
Conlin, Nancy L. Director, Clerk None
Davey, Cynthia Sr. Vice President None
Desilets, Marian Vice President None
Devaney, James Vice President None
DiMaio, Steve Vice President None
Downey, Christopher Vice President None
Emerson, Kim P. Vice President None
Erickson, Cynthia G. Senior Vice President None
Evans, C. Frazier Managing Director None
Feldman, David Senior Vice President None
Fifield, Robert Vice President None
Gauger, Richard Vice President None
Gerokoulis, Stephen A. Senior Vice President None
Gibson, Stephen E. Director, Chairman of Board None
Goldberg, Matthew Vice President None
Geunard, Brian Vice President None
Harrington, Tom Sr. Vice President None
Harris, Carla L. Vice President None
Hodgkins, Joseph Sr. Vice President None
Hussey, Robert Senior Vice President None
Iudice, Jr., Philip Treasurer and CFO None
Jones, Cynthia Vice President None
Jones, Jonathan Vice President None
Karagiannis, Marilyn Managing Director None
Kelley, Terry M. Vice President None
Kelson, David W. Senior Vice President None
Libutti, Chris Vice President None
McCombe, Gregory Senior Vice President None
McKenzie, Mary Vice President None
Menchin, Catherine Vice President None
Miller, Anthony Vice President None
Moberly, Ann R. Senior Vice President None
Morner, Patrick Vice President None
Morse, Jonathan Vice President None
O'Shea, Kevin Managing Director None
Piken, Keith Vice President None
Pollard, Brian S. Vice President None
Predmore, Tracy Vice President None
Quirk, Frank Vice President None
Reed, Christopher B. Senior Vice President None
Riegel, Joyce B. Vice President None
Robb, Douglas Vice President None
Sandberg, Travis Vice President None
Scarlott, Rebecca Vice President None
Schulman, David Vice President None
Scoon, Davey Director None
Scott, Michael W. Senior Vice President None
Sideropoulos, Lou Vice President None
Smith, Darren Vice President None
Studer, Eric Vice President None
Sutton, R. Andrew Vice President None
Tambone, James Chief Executive Officer None
Tasiopoulos, Lou President None
Tuttle, Brian Vice President None
Van Etten, Keith Vice President None
Villanova, Paul Vice President None
Wallace, John Vice President None
Walter, Heidi J. Vice President V-P & Secy.
Wess, Valerie Vice President None
Young, Deborah Vice President None
- ---------
* The address of Ms. Harris, Ms. Riegel, Ms. Walter, and Messrs.
Anetsberger, Butch and Pollard is One South Wacker Drive, Chicago,
IL 60606. The address of each other director and officer is One
Financial Center, Boston, MA 02111.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Registrant maintains the records required to be maintained by it
under Rules 31a-1(a), 31a-1(b), and 31a-2(a) under the Investment
Company Act of 1940 at its principal executive offices at One
South Wacker Drive, Chicago, Illinois 60606. Certain records,
including records relating to Registrant's shareholders and the
physical possession of its securities, may be maintained pursuant
to Rule 31a-3 at the main office of Registrant's transfer agent or
custodian.
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the latest annual report to
shareholders upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it
meets all of the requirements for effectiveness of this
registration statement pursuant to Rule 485(b) under the Securities
Act of 1933 and has duly caused this amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Chicago and State of Illinois on
the 29th day of October, 1998.
STEIN ROE TRUST
By THOMAS W. BUTCH
Thomas W. Butch
President
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated:
Signature* Title Date
- ------------------------ --------------------- --------------
THOMAS W. BUTCH President and Trustee Oct. 29, 1998
Thomas W. Butch
Principal Executive Officer
GARY A. ANETSBERGER Senior Vice-President Oct. 29, 1998
Gary A. Anetsberger
Principal Financial Officer
SHARON R. ROBERTSON Controller Oct. 29, 1998
Sharon R. Robertson
Principal Accounting Officer
WILLIAM W. BOYD Trustee Oct. 29, 1998
William W. Boyd
LINDSAY COOK Trustee Oct. 29, 1998
Lindsay Cook
DOUGLAS A. HACKER Trustee Oct. 29, 1998
Douglas A. Hacker
JANET LANGFORD KELLY Trustee Oct. 29, 1998
Janet Langford Kelly
CHARLES R. NELSON Trustee Oct. 29, 1998
Charles R. Nelson
THOMAS C. THEOBALD Trustee Oct. 29, 1998
Thomas C. Theobald
*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 AMENDMENT
Exhibit
Number Description
- ------- -------------
2(b) Amendment to By-Laws
6 Underwriting Agreement
9(d) Sub-transfer Agency Agreement
11 Consent of Ernst & Young LLP
17 Financial data schedule of Stein Roe Institutional Client
High Yield Fund
<PAGE>
Exhibit 2(b)
CERTIFICATE
I, Nicolette D. Parrish, hereby certify that I am the
duly elected and acting Assistant Secretary of Stein Roe
Trust (the "Trust") and that the following is a true and
correct copy of a certain resolution duly adopted by
the Board of Trustees of the Trust at a meeting held in
accordance with the By-Laws on February 4, 1998, and that
such resolution is still in full force and effect:
RESOLVED, that Section 2.01 of the By-Laws is
amended and restated as follows:
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. 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 74.
The initial Trustee shall be the person designated in
the Declaration of Trust.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seals of said Trust this 5th day of February, 1998.
NICOLETTE D. PARRISH
Assistant Secretary
(SEAL)
<PAGE>
EXHIBIT (e)(1)
UNDERWRITING AGREEMENT BETWEEN
STEIN ROE INCOME TRUST
STEIN ROE INVESTMENT TRUST
STEIN ROE MUNICIPAL TRUST
STEIN ROE TRUST
STEIN ROE INSTITUTIONAL TRUST
AND LIBERTY FINANCIAL INVESTMENTS, INC.
THIS UNDERWRITING AGREEMENT ("Agreement"), made as of
the 1st day of January 1998 by and between Stein Roe Income
Trust, Stein Roe Investment Trust, Stein Roe Municipal
Trust, Stein Roe Trust and Stein Roe Institutional Trust,
each a business trust organized and existing under the laws
of the Commonwealth of Massachusetts (hereinafter
collectively referred to as the "Fund"), and Liberty
Financial Investments, Inc., a corporation organized and
existing under the laws of the State of Delaware
(hereinafter call the "Distributor").
WITNESSETH:
WHEREAS, the Fund is engaged in business as an open-end
management investment company registered under the
Investment Company Act of 1940, as amended ("ICA-40"); and
WHEREAS, the Distributor is registered as a broker-
dealer under the Securities Exchange Act of 1934, as amended
("SEA-34") and, the laws of each state (including the
District of Columbia and Puerto Rico) in which it engages in
business to the extent such law requires, and is a member of
the National Association of Securities Dealers ("NASD")
(such registrations and membership are referred to
collectively as the "Registrations"); and
WHEREAS, the Fund desires the Distributor to act as the
distributor in the public offering of its shares of
beneficial interest (hereinafter called "Shares");
WHEREAS, the Fund shall pay all charges of its
transfer, shareholder recordkeeping, dividend disbursing and
redemption agents, if any; all expenses of notices, proxy
solicitation material and reports to shareholders; all
expenses of preparation and printing of annual or more
frequent revisions of the Fund's Prospectus and Statement of
Additional Information and of supplying copies thereof to
shareholders; all expenses of registering and maintaining
the registration of the Fund under ICA-40 and of the Fund's
Shares under the Securities Act of 1933, as amended ("SA-
33"); all expenses of qualifying and maintaining
qualification of such Fund and of the Fund's Shares for sale
under securities laws of various states or other
jurisdictions and of registration and qualification of the
Fund under all laws applicable to the Fund or its business
activities;
WHEREAS, Stein Roe & Farnham Incorporated, investment
adviser to the Funds, shall pay all expenses incurred in the
sale and promotion of the Fund;
NOW, THEREFORE, in consideration of the premises and
the mutual promises hereinafter set forth, the parties
hereto agree as follows:
1. Appointment. The Fund appoints Distributor to act
as principal underwriter (as such term is defined in
Sections 2(a)(29) of ICA-40) of its Shares.
2. Delivery of Fund Documents. The Fund has furnished
Distributor with properly certified or authenticated copies
of each of the following in effect on the date hereof and
shall furnish Distributor from time to time properly
certified or authenticated copies of all amendments or
supplements thereto:
(a) Agreement and Declaration of Trust;
(b) By-Laws;
(c) Resolutions of the Board of Trustees of the Fund
(hereinafter referred to as the "Board") selecting
Distributor as distributor and approving this form
of agreement and authorizing its execution.
The Fund shall furnish Distributor promptly with copies
of any registration statements filed by it with the
Securities and Exchange Commission ("SEC") under SA-33 or
ICA-40, together with any financial statements and exhibits
included therein, and all amendments or supplements thereto
hereafter filed.
The Fund also shall furnish Distributor such other
certificates or documents which Distributor may from time to
time, in its discretion, reasonably deem necessary or
appropriate in the proper performance of its duties.
3. Solicitation of Orders for Purchase of Shares.
(a) Subject to the provisions of Paragraphs 4, 5 and 7
hereof, and to such minimum purchase requirements as may
from time to time be indicated in the Fund's Prospectus,
Distributor is authorized to solicit, as agent on behalf of
the Fund, unconditional orders for purchases of the Fund's
Shares authorized for issuance and registered under SA-33,
provided that:
(1) Distributor shall act solely as a disclosed agent
on behalf of and for the account of the Fund;
(2) In all cases except for orders transmitted through
the FundSERV/NSCC system, the Fund or its transfer
agent shall receive directly from investors all
payments for the purchase of the Fund's Shares and
also shall pay directly to shareholders amounts
due to them for the redemption or repurchase of
all the Fund's Shares with Distributor having no
rights or duties to accept such payment or to
effect such redemptions or repurchases;
(3) The Distributor shall receive directly from
financial intermediaries which trade through the
FundSERV/NSCC system all payments for the purchase
of the Fund's Shares and shall also cause to be
paid directly to such intermediaries amounts due
to them for the redemption or repurchase of all
the Fund's Shares. The Distributor shall be
acting as the Fund's agent in accepting payment
for the orders and not be acting in a principal
capacity.
(4) Distributor shall confirm all orders received for
purchase of the Fund's Shares which confirmation
shall clearly state (i) that Distributor is acting
as agent of the Fund in the transaction (ii) that
all certificates for redemption, remittances, and
registration instructions should be sent directly
to the Fund, and (iii) the Fund's mailing address;
(5) Distributor shall have no liability for payment
for purchases of the Fund's Shares it sells as
agent; and
(5) Each order to purchase Shares of the Fund received
by Distributor shall be subject to acceptance by
an officer of the Fund in Chicago and entry of the
order on the Fund's records or shareholder
accounts and is not binding until so accepted and
entered.
The purchase price to the public of the Fund's Shares
shall be the public offering price as defined in Paragraph 6
hereof.
(b) In consideration of the rights granted to the
Distributor under this Agreement, Distributor will use its
best efforts (but only in states in which Distributor may
lawfully do so) to solicit from investors unconditional
orders to purchase Shares of the Fund. The Fund shall make
available to the Distributor without cost to the Distributor
such number of copies of the Fund's currently effective
Prospectus and Statement of Additional Information and
copies of all information, financial statements and other
papers which the Distributor may reasonably request for use
in connection with the distribution of Shares.
3.A. Selling Agreements. Distributor is authorized,
as agent on behalf of each Fund, to enter into agreements
with other broker-dealers providing for the solicitation of
unconditional orders for purchases of Fund's Shares
authorized for issuance and registered under SA-33. All
such agreements shall be either in the form of agreement
attached hereto or in such other form as may be approved by
the officers of the Fund ("Selling Agreement"). All
solicitations made by other broker-dealers pursuant to a
Selling Agreement shall be subject to the same terms of this
Agreement which apply to solicitations made by Distributor.
4. Solicitation of Orders to Purchase Shares by Fund.
The rights granted to the Distributor shall be non-exclusive
in that the Fund reserves the right to solicit purchases
from, and sell its Shares to, investors. Further, the Fund
reserves the right to issue Shares in connection with the
merger or consolidation of any other investment company,
trust or personal holding company with the Fund, or the
Fund's acquisition, by the purchase or otherwise, of all or
substantially all of the assets of an investment company,
trust or personal holding company, or substantially all of
the outstanding shares or interests of any such entity. Any
right granted to Distributor to solicit purchases of Shares
will not apply to Shares that may be offered by the Fund to
shareholders by virtue of their being shareholders of the
Fund.
5. Shares Covered by this Agreement. This Agreement
relates to the solicitation of orders to purchase Shares
that are duly authorized and registered and available for
sale by the Fund, including redeemed or repurchased Shares
if and to the extent that they may be legally sold and if,
but only if, the Fund authorizes the Distributor to sell
them.
6. Public Offering Price. All solicitations by the
Distributor pursuant to this Agreement shall be for orders
to purchase Shares of the Fund at the public offering price.
The public offering price for each accepted subscription for
the Fund's Shares will be the net asset value per share next
determined by the Fund after it accepts such subscription.
The net asset value per share shall be determined in the
manner provided in the Fund's Agreement and Declaration of
Trust as now in effect or as they may be amended, and as
reflected in the Fund's then current Prospectus and
Statement of Additional Information.
7. Suspension of Sales. If and whenever the
determination of the Fund's net asset value is suspended and
until such suspension is terminated, no further orders for
Shares shall be accepted by the Fund except such
unconditional orders placed with the Fund and accepted by it
before the suspension. In addition, the Fund reserves the
right to suspend sales of Shares if, in the judgement of the
Board of the Fund, it is in the best interest of the Fund to
do so, such suspension to continue for such period as may be
determined by the Board of the Fund; and in that event, (i)
at the direction of the Fund, Distributor shall suspend its
solicitation of orders to purchase Shares of the Fund until
otherwise instructed by the Fund and (ii) no orders to
purchase Shares shall be accepted by the Fund while such
suspension remains in effect unless otherwise directed by
its Board.
8. Authorized Representations. No Fund is authorized
by the Distributor to give on behalf of the Distributor any
information or to make any representations other than the
information and representations contained in the Fund's
registration statement filed with the SEC under SA-33 and/or
ICA-40 as it may be amended from time to time.
Distributor is not authorized by the Fund to give on
behalf of the Fund any information or to make any
representations in connection with the sale of Shares other
than the information and representations contained in the
Fund's registration statement filed with the SEC under SA-33
and/or ICA-40, covering Shares, as such registration
statement or the Fund's prospectus may be amended or
supplemented from time to time, or contained in shareholder
reports or other material that may be prepared by or on
behalf of the Fund or approved by the Fund for the
Distributor's use. No person other than Distributor is
authorized to act as principal underwriter (as such term is
defined in ICA-40, as amended) for the Funds.
9. Registration of Additional Shares. The Fund hereby
agrees to register either (i) an indefinite number of Shares
pursuant to Rule 24f-2 under ICA-40, or (ii) a definite
number of Shares as the Fund shall deem advisable pursuant
to Rule 24e-2 under ICA-40, as amended. The Fund will, in
cooperation with the Distributor, take such action as may be
necessary from time to time to qualify the Shares (so
registered or otherwise qualified for sale under SA-33), in
any state mutually agreeable to the Distributor and the
Fund, and to maintain such qualification; provided, however,
that nothing herein shall be deemed to prevent the Fund from
registering its shares without approval of the Distributor
in any state it deems appropriate.
10. Conformity With Law. Distributor agrees that in
soliciting orders to purchase Shares it shall duly conform
in all respects with applicable federal and state laws and
the rules and regulations of the NASD. Distributor will use
its best efforts to maintain its Registrations in good
standing during the term of this Agreement and will promptly
notify the Fund and Stein Roe & Farnham Incorporated in the
event of the suspension or termination of any of the
Registrations.
11. Independent Contractor. Distributor shall be an
independent contractor and neither the Distributor, nor any
of its officers, directors, employees, or representatives is
or shall be an employee of the Fund in the performance of
Distributor's duties hereunder. Distributor shall be
responsible for its own conduct and the employment, control,
and conduct of its agents and employees and for injury to
such agents or employees or to others through its agents and
employees and agrees to pay all employee taxes thereunder.
12. Indemnification. Distributor agrees to indemnify
and hold harmless the Fund and each of the members of its
Board and its officers, employees and representatives and
each person, if any, who controls the Fund within the
meaning of Section 15 of SA-33 against any and all losses,
liabilities, damages, claims and expenses (including the
reasonable costs of investigating or defending any alleged
loss, liability, damage, claim or expense and reasonable
legal counsel fees incurred in connection therewith) to
which the Fund or such of the members of its Board and of
its officers, employees, representatives, or controlling
person or persons may become subject under SA-33, under any
other statute, at common law, or otherwise, arising out of
the acquisition of any Shares of the Fund by any person
which (i) may be based upon any wrongful act by Distributor
or any of Distributor's directors, officers, employees or
representatives, or (ii) may be based upon any untrue
statement 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 Fund filed or made public
by the Fund 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 statements therein not misleading if such statement
or omission was made in reliance upon information furnished
to the Fund by Distributor in writing. In no case (i) is
Distributor's indemnity in favor of the Fund, or any person
indemnified, to be deemed to protect the Fund or such
indemnified person against any liability to which the Fund
or such person would otherwise be subject by reason of
willful misfeasance, bad faith, or negligence in the
performance of its or his duties or by reason of its or his
reckless disregard of its or his obligations and duties
under this Agreement or (ii) is Distributor to be liable
under its indemnity agreement contained in this paragraph
with respect to any claim made against the Fund or any
person indemnified unless the Fund or such person, as the
case may be, shall have notified Distributor in writing of
the claim within a reasonable time after the summons, or
other first written notification, giving information of the
nature of the claim served upon the Fund or upon such person
(or after the Fund or such person shall have received notice
of such service on any designated agent). However, failure
to notify Distributor of any such claim shall not relieve
Distributor from any liability which Distributor may have to
the Fund or any person against whom such action is brought
otherwise than on account of Distributor's indemnity
agreement contained in this Paragraph.
Distributor shall be entitled to participate, at its
own expense, in the defense, or, if Distributor so elects,
to assume the defense of any suit brought to enforce any
such claim but, if Distributor elects to assume the defense,
such defense shall be conducted by legal counsel chosen by
Distributor and satisfactory to the persons indemnified who
are defendants in the suit. In the event that Distributor
elects to assume the defense of any such suit and retain
such legal counsel, persons indemnified who are defendants
in the suit shall bear the fees and expenses of any
additional legal counsel retained by them. If Distributor
does not elect to assume the defense of any such suit,
Distributor will reimburse persons indemnified who are
defendants in such suit for the reasonable fees of any legal
counsel retained by them in such litigation.
The Fund agrees to indemnify and hold harmless
Distributor and each of its directors, officers, employees,
and representatives and each person, if any, who controls
Distributor within the meaning of Section 15 of SA-33
against any and all losses, liabilities, damages, claims or
expenses (including the damage, claim or expense and
reasonable legal counsel fees incurred in connection
therewith) to which Distributor or such of its directors,
officers, employees, representatives or controlling person
or persons may become subject under SA-33, under any other
statute, at common law, or otherwise arising out of the
acquisition of any Shares by any person which (i) may be
based upon any wrongful act by the Fund or any of the
members of the Fund's Board, or the Fund's officers,
employees or representatives other than Distributor, or (ii)
may be based upon any untrue statement 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
filed or made public by the Fund 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 statements therein not misleading
unless such statement or omission was made in reliance upon
information furnished by Distributor to the Fund. In no
case (i) is the Fund's indemnity in favor of the Distributor
or any person indemnified to be deemed to protect the
Distributor or such indemnified person against any liability
to which Distributor or such indemnified person would
otherwise be subject by reason of willful misfeasance, bad
faith, or negligence in the performance of its or his duties
or by reason of its or his reckless disregard of its or his
obligations and duties under this Agreement, or (ii) is the
Fund to be liable under its indemnity agreement contained in
this Paragraph with respect to any claim made against
Distributor or any person indemnified unless Distributor, or
such person, as the case may be, shall have notified the
Fund in writing of the claim within a reasonable time after
the summons, or other first written notification, giving
information of the nature of the claim served upon
Distributor or upon such person (or after Distributor or
such person shall have received notice of such service on
any designated agent). However, failure to notify a Fund of
any such claim shall not relieve the Fund from any liability
which the Fund may have to Distributor or any person against
whom such action is brought otherwise than on account of the
Fund's indemnity agreement contained in this Paragraph.
The Fund shall be entitled to participate, at its own
expense, in the defense or, if the Fund so elects, to assume
the defense of any suit brought to enforce such claim but,
if the Fund elects to assume the defense, such defense shall
be conducted by legal counsel chosen by the Fund and
satisfactory to the persons indemnified who are defendants
in the suit. In the event that the Fund elects to assume
the defense of any such suit and retain such legal counsel,
the persons indemnified who are defendants in the suit shall
bear the fees and expenses of any additional legal counsel
retained by them. If the Fund does not elect to assume the
defense of any such suit, the Fund will reimburse the
persons indemnified who are defendants in such suit for the
reasonable fees and expenses of any legal counsel retained
by them in such litigation.
13. Duration and Termination of this Agreement. With
respect to the Fund and the Distributor, this Agreement
shall become effective upon its execution ("Effective Date")
and unless terminated as provided herein, shall remain in
effect through June 30, 1998, and from year to year
thereafter, but only so long as such continuance is
specifically approved at least annually (a) by a vote of
majority of the members of the Board of the Fund who are not
interested persons of the Distributor or of the Fund, voting
in person at a meeting called for the purpose of voting on
such approval, and (b) by the vote of either the Board of
the Fund or a majority of the outstanding shares of the
Fund. This Agreement may be terminated by and between an
individual Fund and Distributor at any time, without the
payment of any penalty (a) on 60 days' written notice, by
the Board of the Fund or by a vote of a majority of the
outstanding Shares of the Fund, or by Distributor, or (b)
immediately, on written notice by the Board of the Fund, in
the event of termination or suspension of any of the
Registrations. This Agreement will automatically terminate
in the event of its assignment. In interpreting the
provisions of this Paragraph 13, the definitions contained
in Section 2(a) of ICA-40 (particularly the definitions of
"interested person", "assignment", and "majority of the
outstanding shares") shall be applied.
14. Amendment of this Agreement. No provision of this
Agreement may be changed, waived, discharged, or terminated
orally, but only by an instrument in writing signed by each
party against which enforcement of the change, waiver,
discharge, or termination is sought. If the Fund should at
any time deem it necessary or advisable in the best
interests of the Fund that any amendment of this Agreement
be made in order to comply with the recommendations or
requirements of the SEC or any other governmental authority
or to obtain any advantage under state or Federal tax laws
and notifies Distributor of the form of such amendment, and
the reasons therefor, and if Distributor should decline to
assent to such amendment, the Fund may terminate this
Agreement forthwith. If Distributor should at any time
request that a change be made in the Fund's Agreement and
Declaration of Trust or By-Laws or in its methods of doing
business, in order to comply with any requirements of
Federal law or regulations of the SEC, or of a national
securities association of which Distributor is or may be a
member, relating to the sale of Shares, and the Fund should
not make such necessary changes within a reasonable time,
Distributor may terminate this Agreement forthwith.
15. Liability. It is understood and expressly
stipulated that neither the shareholders of the Fund nor the
members of the Board of the Fund shall be personally liable
hereunder. The obligations of the Fund are not personally
binding upon, nor shall resort to the private property of,
any of the members of the Board of the Fund, nor of the
shareholders, officers, employees or agents of the Fund, but
only the Fund's property shall be bound. A copy of the
Declaration of Trust and of each amendment thereto has been
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.
16. Miscellaneous. The captions in this Agreement are
included for convenience or reference only, and in no way
define or limit any of the provisions hereof or otherwise
affect their construction or effect. This Agreement may be
executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
17. Notice. Any notice required or permitted to be
given by a party to this Agreement or to any other party
hereunder shall be deemed sufficient if delivered in person
or sent by registered or certified mail, postage prepaid,
addressed by the party giving notice to each such other
party at the address provided below or to the last address
furnished by each such other party to the party giving
notice.
If to the Fund: One South Wacker Drive
Chicago, Illinois 60606
Attn: Secretary
If to Distributor: One Financial Center
Boston, Massachusetts 02111
Attn: Secretary
If to Stein Roe & Farnham
Incorporated: One South Wacker Drive
Chicago, Illinois 60606
Attn: Secretary
LIBERTY FINANCIAL INVESTMENTS, INC.
By: TIMOTHY K. ARMOUR
ATTEST:
MARJORIE M. PLUSKOTA
Assistant Clerk
STEIN ROE INCOME TRUST
STEIN ROE INVESTMENT TRUST
STEIN ROE MUNICIPAL TRUST
STEIN ROE TRUST
STEIN ROE INSTITUTIONAL TRUST
By: HANS P. ZIEGLER
ATTEST:
NICOLETTE D. PARRISH
Asst. Secretary
ACKNOWLEDGED BY: STEIN ROE & FARNHAM INCORPORATED
By: HANS P. ZIEGLER
Chief Executive Officer
ATTEST:
NICOLETTE D. PARRISH
Asst. Secretary
<PAGE>
Revised Exhibit A to Underwriting Agreement
Between Stein Roe Investment Trust, Stein Roe Income Trust,
Stein Roe Municipal Trust, Stein Roe Trust and Stein Roe
Institutional Trust and
Liberty Financial Investments, Inc.
STEIN ROE INCOME TRUST STEIN ROE INVESTMENT TRUST
Stein Roe Income Fund Stein Roe Growth & Income Fund
Stein Roe High Yield Fund Stein Roe International Fund
Stein Roe Intermediate Bond Stein Roe Young Investor Fund
Fund Stein Roe Special Venture Fund
Stein Roe Cash Reserves Fund Stein Roe Balanced Fund
Stein Roe Growth Stock Fund
Stein Roe Capital
Opportunities Fund
STEIN ROE MUNICIPAL TRUST Stein Roe Special Fund
Stein Roe Managed Municipals Stein Roe Emerging Markets
Fund Fund
Stein Roe Municipal Money Stein Roe Growth
Market Fund Opportunities Fund
Stein Roe High Yield Municipals
Fund
Stein Roe Intermediate
Municipals Fund
STEIN ROE INSTITUTIONAL TRUST
Stein Roe Institutional High Yield Fund
STEIN ROE TRUST
Stein Roe Institutional Client High Yield Fund
<PAGE>
Date _____________
LIBERTY FINANCIAL INVESTMENTS, INC.
STEIN ROE ____ FUND
SELLING AGREEMENT
Dear Sirs:
As the principal underwriter of Stein Roe ____ Fund
(the "Fund"), a series of Stein Roe _____ Trust (the
"Trust"), a Massachusetts business trust registered under
the Investment Company Act of 1940 as an open-end investment
company, we invite you as agent for your customer to
participate in the distribution of shares of beneficial
interest in the Fund ("Shares"), subject to the following
terms and conditions:
1. We hereby grant to you the right to make Shares
available to, and to solicit orders to purchase Shares by,
the public, subject to applicable federal and state law, the
Agreement and Declaration of Trust and By-laws of the Trust,
and the current Prospectus and Statement of Additional
Information relating to the Fund attached hereto (the
"Prospectus"). You will forward to us or to the Trust's
transfer agent, as we may direct from time to time, all
orders for the purchase of Shares obtained by you, subject
to such terms and conditions as to the form of payment,
minimum initial and subsequent purchase and otherwise, and
in accordance with such procedures and directions, as we may
specify from time to time. All orders are subject to
acceptance by an authorized officer of the Trust in Chicago
and the Trust reserves the right in its sole discretion to
reject any order. Share purchases are not binding on the
Trust until accepted and entered on the books of the Fund.
No Share purchase shall be effective until payment is
received by the Trust in the form of Federal funds. If a
Share purchase by check is cancelled because the check does
not clear, you will be responsible for any loss to the Fund
or to us resulting therefrom.
2. The public offering price of the Shares shall be
the net asset value per share of the outstanding Shares
determined in accordance with the then current Prospectus.
No sales charge shall apply.
3. As used in this Agreement, the term "Registration
Statement" with regard to the Fund shall mean the
Registration Statement most recently filed by the Trust with
the Securities and Exchange Commission and effective under
the Securities Act of 1933, as such Registration Statement
is amended by any amendments thereto at the time in effect,
and the terms "prospectus" and "statement of additional
information" with regard to the Fund shall mean the form of
prospectus and statement of additional information relating
to the Fund as attached hereto filed by the Trust as part of
the Registration Statement, as such form of prospectus and
statement of additional information may be amended or
supplemented from time to time.
4. You hereby represent that you are and will remain
during the term of this Agreement duly registered as a
broker-dealer under the Securities Exchange Act of 1934 and
under the securities laws of each state where your
activities require such registration, and that you are and
will remain during the term of this Agreement a member in
good standing of the National Association of Securities
Dealers, Inc. ("NASD"). In the conduct of your activities
hereunder, you will abide by all applicable rules and
regulations of the NASD, including, without limitation, Rule
26 of the Rules of Fair Practice of the NASD as in effect
form time to time, and all applicable federal and state
securities laws, including without limitation, the
prospectus delivery requirements of the Securities Act of
1933.
5. This Agreement is subject to the right of the Trust
at any time to withdraw all offerings of the Shares by
written notice to us at our principal office. You
acknowledge that the Trust will not issue certificates
representing Shares.
6. Your obligations under this Agreement are not to be
deemed exclusive, and you shall be free to render similar
services to others so long as your services hereunder are
not impaired thereby.
7. You will sell Shares only to residents of states or
other jurisdictions where we have notified you that the
Shares have been registered or qualified for sale to the
public or are exempt from such qualification or
registration. Neither we nor the Trust will have any
obligation to register or qualify the Shares in any
particular jurisdiction. We shall not be liable or
responsible for the issue, form validity, enforceability or
value of the Shares or for any matter in connection
therewith, except lack of good faith on our part, and no
obligation not expressly assumed by us in this Agreement
shall be implied therefrom. Nothing herein contained,
however, shall be deemed to be a condition, stipulation or
provision binding any person acquiring any Shares to waive
compliance with any provision of the Securities Act of 1933,
or to relieve the parties hereto from any liability arising
thereunder.
8. You are not authorized to make any representations
concerning the Fund, the Trust or the Shares except those
contained in the then current prospectus and statement of
additional information relating to the Fund, or printed
information issued by the Trust or by us as information
supplemental to such prospectus and statement of additional
information. We will supply you with a reasonable number of
copies of the then current prospectus and statement of
additional information of the Fund, and reasonable
quantities of any supplemental sales literature, sales
bulletins, and additional information as may be issued by us
or the Trust. You will not use any advertising or sales
material relating to the Fund other than materials supplied
by the Trust or us, unless such other material is approved
in writing by us in advance of such use.
9. You will not have any authority to act as agent for
the Trust, for us or for any other dealer. All transactions
between you and us contemplated by this Agreement shall be
as agents.
10. Either party to this Agreement may terminate this
Agreement by giving written notice to the other. Such
notice shall be deemed to have been given on the date on
which it is either delivered personally to the other party,
is mailed postpaid or delivered by telecopier to the other
party at its address listed below. This Agreement may be
amended by us at any time, and your placing of an order
after the effective date of any such amendment shall
constitute your acceptance thereof.
Liberty Financial Investments, Inc. Dealer
One Financial Center ________________
Boston, Massachusetts 02211 ________________
Attention: ________________ ________________
Telecopier: _______________
with copy to:
Stein Roe _____ Trust
One South Wacker Drive
Chicago, Illinois 60606
Attention: Secretary
Telecopier: ________
11. This Agreement constitutes the entire agreement
between you and us relating to the subject matter hereof and
supersedes all prior or written agreements between us. This
Agreement shall be construed in accordance with the laws of
the Commonwealth of Massachusetts and shall be binding upon
both parties hereto when signed by us and accepted by you in
the space provided below.
Very truly yours,
LIBERTY FINANCIAL INVESTMENTS, INC.
BY: ____________________
The undersigned hereby accepts your invitation to
participate in the distribution of Shares and agrees to each
of the terms and conditions set forth in this letter.
___________________________
Dealer
Date: ____________________ By: _______________________
(Signature of Officer)
Pay Office of Dealer:
__________________________ ___________________________
Street Address (Print Name of Officer)
__________________________
City/State/Zip
__________________________
Telephone Number
<PAGE>
EXHIBIT (h)(4)
SUB-TRANSFER AGENT AGREEMENT
Agreement dated as of July 3, 1996, between SteinRoe
Services Inc. ("SSI"), a Massachusetts corporation, for
itself and on behalf SteinRoe Municipal Trust, SteinRoe
Income Trust and SteinRoe Investment Trust, each a
Massachusetts business trust (all referred to herein as the
"Trust") comprised of the series of portfolios listed in
Schedule A (as the same may from time to time be amended to
add or to delete one or more series, all referred to herein
as the "Fund"), and Colonial Investors Service Center, Inc.
("CISC"), a Massachusetts corporation.
WHEREAS, the Trust has appointed SSI as Transfer Agent,
Registrar and Dividend Disbursing Agent for the Fund, a
registered investment company, pursuant to Restated Agency
Agreement dated August 1, 1995 ("Transfer Agent Agreement");
WHEREAS, SSI is a registered transfer agent duly
authorized to appoint CISC as its agent for purposes of
performing certain transfer agency, registration and dividend
disbursement services in respect of the Trust;
WHEREAS, CISC desires to accept such appointment and to
perform such services upon the terms and subject to the
conditions set forth herein; and
WHEREAS, Stein Roe & Farnham, Inc. ("SRF") is the
investment adviser to the Fund and Liberty Securities
Corporation is the principal underwriter of its shares.
NOW THEREFORE, in consideration of the mutual promises
and covenants set forth herein, the parties hereto agree as
follows:
1. Appointment. SSI hereby appoints CISC to act as its
agent in respect of the purchase, redemption and transfer of
Fund shares and dividend disbursing services in connection
with such shares other than with respect to Fund shares (a)
held under Stein Roe Counselor [service mark] for which SSI
shall perform such services and (b) held in omnibus accounts
with respect to which such services are performed by third
party financial institutions as described in the Fund's
Prospectus from time to time. CISC accepts such appointments
and will perform the duties and functions described herein in
the manner hereinafter set forth. In respect of its duties
and obligations pursuant to this Agreement, CISC will act as
agent of SSI and not as agent of the Trust nor the Fund.
CISC agrees to provide the necessary facilities,
equipment and personnel to perform its duties and obligations
hereunder in accordance with the practice of transfer agents
of investment companies registered with the Securities and
Exchange Commission and in compliance with all laws
applicable to mutual fund transfer agents and the Fund.
<PAGE> 2
CISC agrees that it shall perform usual and ordinary
services as transfer agent, registrar and dividend disbursing
agent, which are necessary and appropriate for investment
companies registered with the Securities and Exchange
Commission, except as otherwise specifically excluded herein,
including but not limited to: receiving and processing
payments for purchases of Fund shares, opening shareholder
accounts, receiving and processing requests for liquidation
of Fund shares , transferring and canceling stock
certificates, maintaining all shareholder accounts, preparing
annual shareholder meetings lists, corresponding with
shareholders regarding transaction rejections, providing
order room services to brokers, withholding taxes on
accounts, disbursing income dividends and capital gains
distributions, preparing and filing U.S. Treasury Department
Form 1099 for shareholders, preparing and mailing
confirmation forms to shareholders for all purchases and
liquidations of Fund shares and other confirmable
transactions in shareholder accounts, recording reinvestment
of dividends and distributions in Fund shares, and causing
liquidation of shares and disbursements to be made to
withdrawal plan holders. The services to be performed by
CISC under this Agreement may be set forth in a procedures
manual and other documents as mutually agreed to by CISC and
SSI. Specifically excluded from the services to be provided
by CISC are the following: mailing proxy materials,
receiving and tabulating proxies, mailing shareholder reports
and prospectuses, account research, shareholder
correspondence and telephone services regarding general
inquiries, information requests and all other matters except
transaction rejections, all of which SRS agrees to continue
to perform directly on behalf of the Trust and the Fund.
2. Fees and Charges. SSI will pay CISC for the services
provided hereunder in accordance with and in the manner set
forth in Schedule B to this Agreement.
3. Representations and Warranties of CISC. CISC
represents and warrants to SSI that:
(a) It is a corporation duly organized and existing in
good standing under the laws of the Commonwealth of
Massachusetts;
(b) It is duly qualified to carry on its business in the
Commonwealth of Massachusetts;
(c) It is empowered under applicable state and federal
laws and by its Articles of Organization and By-Laws
to enter into and perform the services contemplated
by this Agreement and it is in compliance and shall
continue during the term of this Agreement to be in
compliance with all such applicable laws;
(d) All requisite corporate proceedings have been taken
to authorize it to enter into and perform this
Agreement;
(e) It has and shall continue to have and maintain the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement; and
<PAGE> 3
(f) It has filed a Registration Statement on SEC Form TA-
1 and will file timely an amendment to same
respecting this Sub-Transfer Agent Agreement with the
Securities and Exchange Commission, it is duly
registered as a transfer agent as provided in Section
17Ac of the Securities and Exchange Act of 1934, and
it will remain so registered and will comply with all
state and federal laws and regulations relating to
transfer agents throughout the term of this
Agreement.
4. Representations and Warranties of SSI. SSI
represents and warrants to CISC that:
(a) It is a corporation duly organized and existing in
good standing under the laws of the Commonwealth of
Massachusetts;
(b) It is duly qualified to carry on its business in the
State of Illinois;
(c) It is empowered under applicable state and federal
laws and by its Articles of Organization and By-Laws
to enter into and perform the services contemplated
in this Agreement and in the Transfer Agent Agreement
and it is in compliance and shall continue during the
term of this Agreement to be in compliance with the
Transfer Agent Agreement and all such applicable
laws;
(d) All requisite corporate proceedings have been taken
to authorize it to enter into and perform this
Agreement;
(e) It has and shall continue to have and maintain the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement and the Transfer Agent Agreement; and
(f) It has filed a Registration Statement on SEC Form TA-
1 and will file timely an amendment to same
respecting this Sub-Transfer Agent Agreement with the
Securities and Exchange Commission; it is duly
registered as a Transfer Agent as provided in Section
17Ac of the Securities Exchange Act of 1934; and it
will remain so registered and comply with all state
and federal laws and regulations relating to transfer
agents throughout the term of this Agreement.
5. Representations and Warranties of the Trust. The
Trust represents and warrants to CISC that:
(a) It is a business trust duly organized and existing
and in good standing under the laws of the State of
Massachusetts;
(b) The Fund is an open-end diversified management
investment company registered under the Investment
Company Act of 1940;
<PAGE> 4
(c) Registration statements under the Securities Act of
1933 and applicable state laws are currently
effective and will remain effective at all times with
respect to all shares of the Fund being offered for
sale;
(d) The Trust is empowered under applicable laws and
regulations and by its Agreement and Declaration of
Trust and By-Laws to enter into and perform this
Agreement; and
(e) All requisite proceedings and actions have been
taken to authorize it to enter into and perform this
Agreement.
6. Copies of Documents. SSI promptly from time to time
will furnish CISC with copies of the following Trust and Fund
documents and all amendments or supplements thereto: the
Agreement and Declaration of Trust ; the By-Laws; and the
Registration Statement under Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended,
together with any other information reasonably requested by
CISC. The Prospectus and Statement of Additional Information
contained in such Registration Statement, as from time to
time amended and supplemented, are herein collectively
referred to as the "Fund's Prospectus."
On or before the date of effectiveness of this
Agreement, or as soon thereafter as is reasonably
practicable, and from time-to-time thereafter, SSI will
furnish CISC with certified copies of the resolutions of the
Trustees of the Trust authorizing this Agreement and
designating authorized persons to give instructions to CISC;
if applicable, a specimen of the certificate for shares of
the Fund in the form approved by the Trustees of the Trust,
with a certificate of the Secretary of the Trust as to such
approval; and certificates as to any change in any officer,
director, or authorized person of the SSI and the Trust.
7. Share Certificates. The Fund has resolved that all
of the Fund's shares shall hereafter be issued in
uncertificated form. Thus, CISC shall not be responsible for
the issuance of certificates representing shares in the Fund.
However, CISC shall maintain a record of each certificate
previously issued and outstanding, the number of shares
represented thereby, and the holder of record of such shares.
8. Lost or Destroyed Certificates. In case of the
alleged loss or destruction of any share certificate, no new
certificate shall be issued in lieu thereof, unless there
shall first be furnished to CISC an affidavit of loss or non-
receipt by the holder of shares with respect to which a
certificate has been lost or destroyed, supported by an
appropriate bond paid for by the shareholder which is
satisfactory to CISC and issued by a surety company
satisfactory to CISC. CISC shall place and maintain stop
transfer instructions on all lost certificates as to which it
receives notice.
9. Receipt of Funds for Investment. CISC will maintain
one or more accounts with The First National Bank of Boston
("Bank"),in the name of SSI into which
<PAGE> 5
it will deposit funds payable to CISC or SSI as agent for, or
otherwise identified as being for the account of, the Trust
or the Fund.
10. Shareholder Accounts. Upon receipt of any funds
referred to in paragraph 9, CISC will compute the number of
shares purchased by the shareholder according to the net
asset value of Fund shares determined in accordance with
applicable federal laws and regulations and as described in
the Prospectus of the Fund and:
(a) In the case of a new shareholder, open and maintain
an open account for such shareholder in the name or
names set forth in the subscription application form;
(b) Send to the shareholder a confirmation indicating the
amount of full and fractional shares purchased (in
the case of fractional shares, rounded to three
decimal places) and the price per share;
(c) In the case of a request to establish a plan or
program being offered by the Fund's Prospectus, open
and maintain such plan or program for the shareholder
in accordance with the terms thereof; and
(d) Perform such other services and initiate and maintain
such other books and records as are customarily
undertaken by transfer agents in maintaining
shareholder accounts for registered investment
company investors;
all subject to requirements set forth in the Fund's
Prospectus with respect to rejection of orders.
For closed accounts, CISC will maintain account records
through June of the calendar year following the year in which
the account is closed, or such other period of time as CISC
and SSI shall mutually agree in writing from time to time.
11. Unpaid Checks; Accounts Assigned for Collection.
If any check or other order for payment of money on the
account of any shareholder or new investor is returned unpaid
for any reason, CISC will:
(a) Give prompt notification to SRS of such non-payment
by facsimile sent prior to 9 a.m. E.S.T.; and
(b) Upon SSI's written instruction, received by facsimile
delivery not later than 11 a.m. E.S.T., authorize
payment of such order notwithstanding insufficient
shareholder account funds, on the condition that SSI
shall indemnify CISC and payor bank in respect of
such payment.
12. Dividends and Distributions. SSI will promptly
notify CISC of the declaration of any dividend or
distribution with respect to Fund shares, the amount of
<PAGE> 6
such dividend or distribution, the date each such dividend or
distribution shall be paid, and the record date for
determination of shareholders entitled to receive such
dividend or distribution. As dividend disbursing agent, CISC
will, on or before the payment date of any such dividend or
distribution, notify the Trust's custodian of the estimated
amount of cash required to pay such dividend or distribution,
and the Trust agrees that on or before the mailing date of
such dividend or distribution it will instruct its custodian
to make available to CISC sufficient funds in the dividend
and distribution account maintained by CISC with the Bank.
As dividend disbursing agent, CISC will prepare and
distribute to shareholders any funds to which they are
entitled by reason of any dividend or distribution and, in
the case of shareholders entitled to receive additional
shares by reason of any such dividend or distribution, CISC
will make appropriate credits to their accounts and cause to
be prepared and mailed to shareholders confirmation
statements and, of such additional shares. CISC will maintain
all records necessary to reflect the crediting of dividends
and distributions which are reinvested in shares of the Fund.
13. Redemptions. CISC will receive and process for
redemption in accordance with the Fund's Prospectus, share
certificates and requests for redemption of shares as
follows:
(a) If such certificate or request complies with
standards for redemption, CISC will, in accordance
with the Fund's current Prospectus, pay to the
shareholder from funds deposited by the Fund from
time to time in the redemption account maintained by
CISC with the Bank, the appropriate redemption price
as set forth in the Fund's Prospectus; and
(b) If such certificate or request does not comply with
the standards for redemption, CISC will promptly
notify the shareholder and shall effect the
redemption at the price in effect at the time of
receipt of documents complying with the standard.
14. Transfer and Exchanges. CISC will review and
process transfers of shares of the Fund and to the extent, if
any, permitted in the Prospectus of the Fund, exchanges
between series of the Trust received by CISC. If shares to
be transferred are represented by outstanding certificates,
CISC will, upon surrender to it of the certificates in proper
form for transfer, credit the same to the transferee on its
books. If shares are to be exchanged for shares of another
Fund, CISC will process such exchange in the same manner as a
redemption and sale of shares, in accordance with the Fund's
Prospectus may in its.
15. Plans. CISC will process such plans or programs
for investing in shares, and such systematic withdrawal
plans, as are provided for in the Fund's Prospectus.
16. Tax Returns and Reports. CISC will prepare and
file tax returns and reports with the Internal Revenue
Service and any other federal, state or local governmental
agency which may require such filings, including state
abandoned
<PAGE> 7
property laws, and conduct appropriate communications
relating thereto, and, if required, mail to shareholders such
forms for reporting dividends and distributions paid by the
Fund as are required by applicable laws, rules and
regulations, and CISC will withhold such sums as are required
to be withheld under applicable Federal and state income tax
laws, rules and regulations. CISC will periodically provide
SSI with reports showing dividends and distributions paid and
any amounts withheld. CISC will also make reasonable attempt
to obtain such tax withholding information from shareholders
as is required to be obtained on behalf of the Trust under
applicable federal or state laws.
17. Record Keeping. CISC will maintain records, which
at all times will be the property of the Trust and available
for inspection by SSI, showing for each shareholder's account
the following information and such other information as CISC
and SSI shall mutually agree in writing from time to time:
(a) Name, address, and United States taxpayer
identification or Social Security number, if provided
(or amounts withheld with respect to dividends and
distributions on shares if a taxpayer identification
or Social Security number is not provided);
(b) Number of shares held for which certificates have not
been issued and for which certificates have been
issued;
(c) Historical information regarding the account of each
shareholder, including dividends and distributions
paid, if any, gross proceeds of sales transactions,
and the date and price for transactions on a
shareholder's account;
(d) Any stop or restraining order placed against a
shareholder's account of which SSI has notified CISI;
(e) Information with respect to withholdings of taxes as
required under applicable Federal and state laws and
regulations;
(f) Any capital gain or dividend reinvestment order and
plan application relating to the current maintenance
of a shareholder's account; and
(g) Any instructions as to record addresses and any
correspondence or instructions relating to the
current maintenance of a shareholder's account.
SSI hereby agrees that CISC shall have no liability or
obligation with respect to the accuracy or completeness of
shareholder account information received by CISC on or about
the Operational Date.
<PAGE> 8
By mutual agreement of CISC and SSI, CISC shall
administer a program whereby reasonable attempt is made to
identify current address information from shareholders whose
mail from the Trust is returned.
CISC shall maintain at its expense those records
necessary to carry out its duties under this Agreement. In
addition, CISC shall maintain at its expense for periods
prescribed by law all records which the Fund or CISC is
required to keep and maintain pursuant to any applicable
statute, rule or regulation, including without limitation
Rule 31(a)-1 under the Investment Company Act of 1940,
relating to the maintenance of records in connection with the
services to be provided hereunder. Upon mutual agreement of
CISC and SSI, CISC shall also maintain other records
requested from time to time by SSI, at SSI's expense.
At the end of the period in which records must be
retained by law, such records and documents will either be
provided to the Trust or destroyed in accordance with prior
written authorization from the Trust.
18. Retirement Plan Services. CISC shall provide sub-
accounting services for retirement plan shareholders
representing group relationships with special recordkeeping
needs.
19. Other Information Furnished. CISC will furnish to
SSI such other information, including shareholder lists and
statistical information as may be agreed upon from time to
time between CISC and SSI. CISC shall notify SSI and the
Trust of any request or demand to inspect the share records
of the Fund, and will not permit or refuse such inspection
until receipt of written instructions from the Trust as to
such permission or refusal unless required by law.
CISC shall provide to the Trust any results of studies
and evaluations of systems of internal accounting controls
performed for the purpose of meeting the requirements of
Regulation 240.17Ad-13(a) of the Securities Exchange Act of
1934.
20. Shareholder Inquiries. CISC will not respond to
written correspondence from fund shareholders or others
relating to the Fund other than those regarding transaction
rejections and clarification of transaction instructions, but
shall forward all such correspondence to SSI.
21. Communications to Shareholders and Meetings. CISC
will determine all shareholders entitled to receive, and will
cause to be addressed and mailed, all communications by the
Fund to its shareholders, including quarterly and annual
reports, proxy material for meetings, and periodic
communications. CISC will cause to be received, examined and
tabulated return proxy cards for meetings of shareholders and
certify the vote to the Trust Fund.
22. Other Services by CISC. CISC shall provide SSI,
with the following additional services:
<PAGE> 9
(a) All CTRAN, CIMAGE, Price Waterhouse Blue Sky 2, and
Pegashares functionality and enhancements (on a
remote basis) as they now exist and as they are
developed and made available to CISC clients;
(b) Initial programs and report enhancements to the CTRAN
System which are necessary to accommodate the Fund as
a no-load fund group;
(c) Development, systems training, technical support,
implementation, and maintenance of special programs
and systems to enhance overall shareholder servicing
capability;
(d) Product and system training for personnel of
institutional servicing agents.
23. Insurance. CISC will not reduce or allow to lapse
any of its insurance coverages from time to time in effect,
including but not limited to errors and omissions, fidelity
bond and electronic data processing coverage, without the
prior written consent of SSI. Attached as Schedule D to this
Agreement is a list of the insurance coverage which CISC has
in effect as of the date of execution of this Agreement and,
if different, will have in effect on the Operational Date.
24. Duty of Care and Indemnification. CISC will at all
times use reasonable care, due diligence and act in good
faith in performing its duties hereunder. CISC will not be
liable or responsible for delays or errors by reason of
circumstances beyond its control, including without
limitation acts of civil or military authority, national or
state emergencies, labor difficulties, fire, mechanical
breakdown, flood or catastrophe, acts of God, insurrection,
war, riots or failure of transportation, communication or
power supply.
CISC may rely on certifications of those individuals
designated as authorized persons to give instructions to CISC
as to proceedings or facts in connection with any action
taken by the shareholders of the Fund or Trustees of the
Trust, and upon instructions not inconsistent with this
Agreement from individuals who have been so authorized. Upon
receiving authorization from an individual designated as an
authorized person to give instructions to CISC, CISC may
apply to counsel for the Trust, or counsel for SSI or the
Fund's investment adviser, at the Fund's expense, for advice.
With respect to any action reasonably taken on the basis of
such certifications or instructions or in accordance with the
advice of counsel of the Trust, or counsel for SSI or the
Fund's investment adviser, the Fund will indemnify and hold
harmless CSC from any and all losses, claims, damages,
liabilities and expenses (including reasonable counsel fees
and expenses).
SSI will indemnify CISC against and hold CISC harmless
from any and all losses, claims, damages, liabilities and
expenses (including reasonable counsel fees and expenses) in
respect of any claim, demand, action or suit not resulting
from CISC's bad faith, negligence, lack of due diligence or
willful misconduct and arising out of, or in connection with
its duties under this Agreement.
<PAGE> 10
CISC shall indemnify SSI against and hold SSI harmless
from any and all losses, claims, damages, liabilities and
expenses (including reasonable counsel fees and expenses) in
respect to any claim, demand, action or suit resulting from
CISC's bad faith, negligence, lack of due diligence or
willful misconduct, and arising out of, or in connection
with, its duties under this Agreement. For purposes of this
Sub-Transfer Agent Agreement, "lack of due diligence" shall
mean the processing by CISC of a Fund share transaction in
accordance with a practice that is not substantially in
compliance with (1) a transaction processing practice of SSI
approved by Fund Trustees, (2) insurance coverages, or (3)
generally accepted industry practices of mutual fund agents.
CISC shall also be indemnified and held harmless by SSI
against any loss, claim, damage, liability and expenses
(including reasonable counsel fees and expenses) by reason of
any act done by it in good faith with due diligence and in
reasonable reliance upon any instrument or certificate for
shares reasonably believed by it (a) to be genuine and (b) to
be signed, countersigned or executed by any person or persons
authorized to sign, countersign, or execute such instrument
or certificate.
In addition, SSI will indemnify and hold CISC harmless
against any loss, claim, damage, liability and expense
(including reasonable counsel fees and expenses) in respect
of any claim, demand, action or suit as a result of the
negligence of the Fund, Trust SRF or SSI, or as a result of
CISC's acting upon any instructions reasonably believed by
CISC to have been executed or orally communicated by a duly
authorized officer or employee of the Fund, Trust SRF or SSI,
or as a result of acting in reliance upon written or oral
advice reasonably believed by CISC to have been given by
counsel for the Fund, Trust SRF or SSI.
In any case in which a party to this Agreement may be
asked to indemnify or hold harmless the other party hereto,
the party seeking indemnification shall advise the other
party of all pertinent facts concerning the situation giving
rise to the claim or potential claim for indemnification, and
each party shall use reasonable care to identify and notify
the other promptly concerning any situation which presents or
appears likely to present a claim for indemnification.
Prior to admitting to or agreeing to settle any claim subject
to this Section, each party shall give the other reasonable
opportunity to defend against said claim in either party's
name.
25. Employees. CISC and SSI are separately
responsible for the employment, control and conduct of their
respective agents and employees and for injury to such agents
or employees or to others caused by such agents or employees.
CISC and SSI severally assume full responsibility for their
respective agents and employees under applicable statues and
agree to pay all employer taxes thereunder. The conduct of
their respective agents and employees shall be included in
any reference to the conduct of CISC or SSI for all purposes
hereunder.
26. Termination and Amendment. This Agreement shall
continue in effect for eighteen (18) months from the
Operational Date, and will automatically be
<PAGE> 11
renewed for successive one year terms thereafter. After
eighteen (18) months from the Operational Date the Agreement
may be terminated at any time by not less than one hundred
eighty (180) days written notice. Upon termination hereof,
SSI shall pay CISC such compensation as may be due to CISC as
of the date of such termination for services rendered and
expenses incurred, as described in Schedule B. This
Agreement may be modified or amended from time to time by
mutual agreement between SSI and CISC.
27. Successors. In the event that in connection with
termination of this Agreement a successor to any of CISC's
duties or responsibilities hereunder is designated by SSI by
written notice to CISC, CISC shall promptly at the expense of
SSI, transfer to such successor, or if no successor is
designated, transfer to the Trust, a certificate list of the
shareholders of the Fund (with name, address and taxpayer
identification or Social Security number), a historical
record of the account of each shareholder and the status
thereof, all other relevant books, records, correspondence
and other data established or maintained by CISC under this
Agreement in machine readable form and will cooperate in the
transfer of such duties and responsibilities, and in the
establishment of books, records and other data by such
successor. CISC shall be entitled to reimbursement of its
reasonable out-of-pocket expenses in respect of assistance
provided in accordance with the preceding sentence.
28. Miscellaneous. This Agreement shall be construed
in accordance with and governed by the laws of The
Commonwealth of Massachusetts.
The captions in this Agreement are included for
convenience of reference only and in no way define or limit
any of the provisions of this Agreement or otherwise affect
their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which
shall be deemed an original, but all of which taken together
shall constitute one and the same instrument.
CISC shall keep confidential all records and information
provided to CISC by the Trust, SSI, SRF, and prior, present
or prospective shareholders of the Fund, except, after notice
to SSI , to the extent disclosures are required by this
Agreement, by the Fund's registration statement, or by a
reasonable request or a valid subpoena or warrant issued by a
court, state or federal agency or other governmental
authority.
Neither CISC nor SSI may use each other's name in any
written material without written consent of such other party,
provided , however, that such consent shall not unreasonably
withheld. CISC and SSI hereby consent to all uses of their
respective names which refer in accurate terms to appointment
and duties under this Agreement or which are required by any
governmental or regulatory authority including required
filings. SSI, SRF, the Trust and the Fund consent to use of
their respective names and logos by CISC for shareholder
correspondence and statements
This Agreement shall be binding upon and shall inure to
the benefit of SSI and CISC and their respective successors
and assigns. Neither SSI nor CISC shall assign this
<PAGE> 12
Agreement nor its rights and obligations under this Agreement
without the express written consent of the other party.
This Agreement may be amended only in writing by mutual
agreement of the parties.
Any notice and other instrument in writing authorized or
required by this Agreement t be given to SSI or CISC shall
sufficiently be given if addressed to that party and mailed
or delivered to it as its office set for the below or at such
other place as it may from time to time designate in writing.
SSI, the Trust and the Fund:
SteinRoe Services Inc.
One South Wacker Drive
Suite 3300
Chicago, Illinois 60606
Attn: Jilaine Hummel Bauer, Esq.
CISC:
Colonial Investors Service Center, Inc.
One Financial Center
Boston, Massachusetts 02111
Attn: Mary McKenzie; with a separate copy to
Attn: Nancy L. Conlin, Esq., Legal Department
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and sealed as of the date first
above written.
STEINROE SERVICES INC.
By: TIMOTHY K. ARMOUR
Name:
Title: Vice President
COLONIAL INVESTORS SERVICE CENTER, INC.
By: D.S. SCOON
Name: Davey S. Scoon
Title: President
Assented to on behalf of Trust and Stein Roe Mutual Funds:
STEIN ROE INCOME TRUST
STEIN ROE INVESTMENT TRUST
STEIN ROE MUNICIPAL TRUST
By: TIMOTHY K. ARMOUR
Name: Timothy K. Armour
Title: President
<PAGE>
SCHEDULE A
Stein Roe Mutual Funds (the "Fund"), consists of the
following series of portfolios:
Stein Roe Investment Trust
- --------------------------
Stein Roe Growth & Income Fund
Stein Roe International Fund
Stein Roe Young Investor Fund
Stein Roe Balanced Fund
Stein Roe Growth Stock Fund
Stein Roe Capital Opportunities Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Income Trust
- ----------------------
Stein Roe Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe Cash Reserves Fund
Stein Roe Government Reserves Fund
Stein Roe Limited Maturity Income Fund
Stein Roe Municipal Trust
- -------------------------
Stein Roe Intermediate Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Municipal Money Market Fund
Stein Roe Managed Municipals Fund
<PAGE>
SCHEDULE B
This Schedule B is attached to and is part of a certain
Sub-Transfer Agent Agreement ("Agreement") dated July 3, 1996
between SteinRoe Services Inc. ("SSI") and Colonial Investors
Center, Inc. ("CISC").
A. SSI will pay CISC for services rendered under the
Agreement and in accordance with a negotiated allocation of
revenues and reimbursement of costs as follows:
1. As of the Operational Date, CISC and SSI shall agree upon
a fixed monthly per account fee to be paid under the
Agreement, which shall be in an amount equal to 1/12 (a) the
estimated total, determined on an annualized basis, of (1)
all incremental costs incurred by CISC in connection with the
sub-transfer agency relationship, plus (2) 1/2 the net
economic benefit derived by Liberty Financial Companies, the
parent company of both CISC and SSI, as a result of the sub-
transfer agency relationship, (b) divided by the number of
shareholder accounts to be serviced by CISC pursuant to the
Agreement as of the Operational Date.
2. For the first eighteen (18) months of the Agreement, SSI
shall pay CISC, monthly in arrears, commencing with the first
day of August, 1996, and on the first day of each month
thereafter, the greater of (a) the product of the fixed per
account fee determined as provided in paragraph 1. above
multiplied by the number of shareholder accounts serviced by
CISC pursuant to the Agreement as of the end of the preceding
month, and (b) 1/12 the annualized estimated total costs and
benefit determined pursuant to (a) of paragraph 1. above.
All estimates under this paragraph shall be determined no
later than September 30, 1996. The annual fee for the first
eighteen months shall not be less than $1.4 million.
3. Commencing January 1, 1998, and during each calendar year
thereafter, SSI shall pay CISC a fee equal to CISC's budgeted
annual per account expense of providing services pursuant to
the Agreement. Said fee shall be paid monthly in arrears, on
the first day of each month, in an amount equal to the
product of 1/12 the budgeted annual per account fee
multiplied by the number of shareholder accounts serviced by
CISC pursuant to the Agreement as of the end of the preceding
month. All budgeted numbers under this paragraph shall be
determined no later than November 30 each year.
B. The Fund shall be credited each month with balance
credits earned on all Fund cash balances.
Upon thirty (30) days' notice to SSI, CISC may increase
the fees it charges to the extent the cost to CISC of
providing services increases (i) because of changes in the
Fund's Prospectus, or (ii) on account of any change after the
date hereof in law or regulations governing performance of
obligations hereunder.
Fees for any additional services not provided herein, ad
hoc reports or special programming requirements to be
provided by CISC shall be agreed upon by SSI and CISC at such
time as CISC agrees to provide any such services.
In addition to paying CISC fees as described herein, SSI
agrees to reimburse CISC for any and all out-of-pocket
expenses and charges in performing services under the
Agreement (other than charges for normal data processing
services and related software, equipment and facilities)
including, but not limited to, mailing service, postage,
printing of shareholder statements, the cost of any and all
forms of the Trust and other materials used in communicating
with shareholders of the Trust, the cost of any equipment or
service used for communicating with the Trust's custodian
bank or other agent of the Trust, and all costs of telephone
communication with or on behalf of shareholders allocated in
a manner mutually acceptable to CISC and SSI.
<PAGE>
SCHEDULE C
SRS and CSC hereby agree that the date on which the
complete services began ("Operational Date") under the Sub-
Transfer Agent Agreement between them dated July 3, 1996, is:
July , 1996
STEINROE SERVICES INC.
By:________________________________________
Name:
Title: Vice President
COLONIAL INVESTORS SERVICE CENTER, INC.
By:________________________________________
Name:
Title:
<PAGE>
AMENDMENT TO
SUB-TRANSFER AGENT AGREEMENT
This Amendment dated as of January 1, 1997, and
effective that date unless otherwise indicated below, amends
the agreement dated as of July 3, 1996 (the "Agreement"),
between SteinRoe Services Inc.("SSI"), Stein Roe Municipal
Trust, Stein Roe Income Trust and Stein Roe Investment Trust
(collectively the "Trust") and Colonial Investors Service
Center, Inc. ("CISC") to add Stein Roe Advisor Trust
(effective February 14, 1997), Stein Roe Institutional Trust
(effective January 2, 1997) and Stein Roe Trust (effective
February 14, 1997), comprised of the Series listed on
Schedule A, as amended, and assenting parties to the
contract and to add new series of the existing Trusts. The
amended Schedule A is as follows:
STEIN ROE INCOME TRUST
Stein Roe Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe High Yield Fund
STEIN ROE MUNICIPAL TRUST
Stein Roe Intermediate Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Managed Municipals Fund
STEIN ROE INVESTMENT TRUST
Stein Roe International Fund
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
Stein Roe Young Investor Fund
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Emerging Markets Fund
STEIN ROE ADVISOR TRUST
Stein Roe Advisor Balanced Fund
Stein Roe Advisor Growth & Income Fund
Stein Roe Advisor Growth Stock Fund
Stein Roe Advisor International Fund
Stein Roe Advisor Special Fund
Stein Roe Advisor Special Venture Fund
Stein Roe Advisor Young Investor Fund
STEIN ROE INSTITUTIONAL TRUST
Stein Roe Institutional High Yield Fund
STEIN ROE TRUST
Stein Roe Institutional Client High Yield Fund
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and sealed as of the date
first above written.
SteinRoe Services Inc.
By: HEIDI J. WALTER
Name: Heidi J. Walter
Title: Vice President
Colonial Investors Service Center, Inc.
By: MARY DILLON MCKENZIE
Name: Mary Dillon McKenzie
Title: Senior Vice President
Assented to on behalf of Trust and Stein Roe Mutual Funds:
Stein Roe Income Trust
Stein Roe Investment Trust
Stein Roe Municipal Trust
Stein Roe Advisor Trust
Stein Roe Institutional Trust
Stein Roe Trust
By: JILAINE HUMMEL BAUER
Name: Jilaine Hummel Bauer
Title: Executive Vice President and Secretary
<PAGE>
AMENDMENT TO
SUB-TRANSFER AGENT AGREEMENT
This Amendment dated as of June 30, 1997, amends
the agreement dated as of July 3, 1996 (the "Agreement"),
between SteinRoe Services Inc.("SSI"), Stein Roe Municipal
Trust, Stein Roe Income Trust, Stein Roe Investment Trust,
Stein Roe Advisor Trust, Stein Roe Trust and Stein Roe
Institutional Trust (collectively the "Trust") and Colonial
Investors Service Center, Inc. ("CISC") to add additional
series of the existing Trusts. The amended Schedule A is as
follows:
STEIN ROE INCOME TRUST
Stein Roe Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe High Yield Fund
Stein Roe Cash Reserves Fund
Stein Roe Government Reserves Fund
STEIN ROE MUNICIPAL TRUST
Stein Roe Intermediate Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe Municipal Money Market Fund
STEIN ROE INVESTMENT TRUST
Stein Roe International Fund
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
Stein Roe Young Investor Fund
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Emerging Markets Fund
Stein Roe Capital Opportunities Fund
Stein Roe Growth Opportunities Fund
STEIN ROE ADVISOR TRUST
Stein Roe Advisor Balanced Fund
Stein Roe Advisor Growth & Income Fund
Stein Roe Advisor Growth Stock Fund
Stein Roe Advisor International Fund
Stein Roe Advisor Special Fund
Stein Roe Advisor Special Venture Fund
Stein Roe Advisor Young Investor Fund
STEIN ROE INSTITUTIONAL TRUST
Stein Roe Institutional High Yield Fund
STEIN ROE TRUST
Stein Roe Institutional Client High Yield Fund
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and sealed as of the date
first above written.
SteinRoe Services Inc.
By: HEIDI J. WALTER
Name: Heidi J. Walter
Title: Vice President
Colonial Investors Service Center, Inc.
By: JOHN W. BYRNE
Name: John W. Byrne
Title: Vice President
Assented to on behalf of Trust and Stein Roe Mutual Funds:
Stein Roe Income Trust
Stein Roe Investment Trust
Stein Roe Municipal Trust
Stein Roe Advisor Trust
Stein Roe Institutional Trust
Stein Roe Trust
By: HEIDI J. WALTER
Name: Heidi J. Walter
Title: Vice President
<PAGE>
AMENDMENT TO
SUB-TRANSFER AGENT AGREEMENT
This Amendment dated as of October 15, 1997, amends
the agreement dated as of July 3, 1996 (the "Agreement"),
between SteinRoe Services Inc.("SSI"), Stein Roe Municipal
Trust, Stein Roe Income Trust, Stein Roe Investment Trust,
Stein Roe Advisor Trust, Stein Roe Trust and Stein Roe
Institutional Trust (collectively the "Trust") and Colonial
Investors Service Center, Inc. ("CISC") to remove Stein Roe
Advisor Trust as a party to this agreement. The amended
Schedule A is as follows:
STEIN ROE INCOME TRUST
Stein Roe Income Fund
Stein Roe Government Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe High Yield Fund
Stein Roe Cash Reserves Fund
Stein Roe Government Reserves Fund
STEIN ROE MUNICIPAL TRUST
Stein Roe Intermediate Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe Municipal Money Market Fund
STEIN ROE INVESTMENT TRUST
Stein Roe International Fund
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
Stein Roe Young Investor Fund
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Emerging Markets Fund
Stein Roe Capital Opportunities Fund
Stein Roe Growth Opportunities Fund
STEIN ROE INSTITUTIONAL TRUST
Stein Roe Institutional High Yield Fund
STEIN ROE TRUST
Stein Roe Institutional Client High Yield Fund
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and sealed as of the date
first above written.
SteinRoe Services Inc.
By: HANS P. ZIEGLER
Name:
Title:
Colonial Investors Service Center, Inc.
By: MARY D. MCKENZIE
Name: Mary D. McKenzie
Title: President
Assented to on behalf of Trust and Stein Roe Mutual Funds:
Stein Roe Income Trust
Stein Roe Investment Trust
Stein Roe Municipal Trust
Stein Roe Advisor Trust
Stein Roe Institutional Trust
Stein Roe Trust
By: HANS P. ZIEGLER
Name:
Title:
<PAGE>
AMENDMENT TO
SUB-TRANSFER AGENT AGREEMENT
This Amendment dated as of October 17, 1997, amends
the agreement dated as of July 3, 1996 (the "Agreement"),
between SteinRoe Services Inc.("SSI"), Stein Roe Municipal
Trust, Stein Roe Income Trust, Stein Roe Investment Trust,
Stein Roe Trust and Stein Roe Institutional Trust
(collectively the "Trust") and Colonial Investors Service
Center, Inc. ("CISC") to remove two series of Income Trust
from Schedule A. The amended Schedule A is as follows:
STEIN ROE INCOME TRUST
Stein Roe Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe High Yield Fund
Stein Roe Cash Reserves Fund
STEIN ROE MUNICIPAL TRUST
Stein Roe Intermediate Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe Municipal Money Market Fund
STEIN ROE INVESTMENT TRUST
Stein Roe International Fund
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
Stein Roe Young Investor Fund
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Emerging Markets Fund
Stein Roe Capital Opportunities Fund
Stein Roe Growth Opportunities Fund
STEIN ROE INSTITUTIONAL TRUST
Stein Roe Institutional High Yield Fund
STEIN ROE TRUST
Stein Roe Institutional Client High Yield Fund
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and sealed as of the date
first above written.
SteinRoe Services Inc.
By: ANNE E. MARCEL
Name: Anne E. Marcel
Title: Vice President
Colonial Investors Service Center, Inc.
By: MARY D. MCKENZIE
Name: Mary D. McKenzie
Title: President
Assented to on behalf of Trust and Stein Roe Mutual Funds:
Stein Roe Income Trust
Stein Roe Investment Trust
Stein Roe Municipal Trust
Stein Roe Advisor Trust
Stein Roe Institutional Trust
Stein Roe Trust
By: THOMAS W. BUTCH
Name: Thomas W. Butch
Title: Vice President
<PAGE>
AMENDMENT TO
SUB-TRANSFER AGENT AGREEMENT
This Amendment dated as of April 30, 1998, amends
the agreement dated as of July 3, 1996 (the "Agreement"),
between SteinRoe Services Inc.("SSI"), Stein Roe Municipal
Trust, Stein Roe Income Trust, Stein Roe Investment Trust,
Stein Roe Trust and Stein Roe Institutional Trust
(collectively the "Trust") and Colonial Investors Service
Center, Inc. ("CISC") to add one series of Investment Trust
to Schedule A. The amended Schedule A is as follows:
STEIN ROE INCOME TRUST
Stein Roe Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe High Yield Fund
Stein Roe Cash Reserves Fund
STEIN ROE MUNICIPAL TRUST
Stein Roe Intermediate Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe Municipal Money Market Fund
STEIN ROE INVESTMENT TRUST
Stein Roe International Fund
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
Stein Roe Young Investor Fund
Stein Roe Growth Stock Fund
Stein Roe Special Fund
Stein Roe Special Venture Fund
Stein Roe Emerging Markets Fund
Stein Roe Capital Opportunities Fund
Stein Roe Growth Opportunities Fund
Stein Roe Large Company Focus Fund
STEIN ROE INSTITUTIONAL TRUST
Stein Roe Institutional High Yield Fund
STEIN ROE TRUST
Stein Roe Institutional Client High Yield Fund
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and sealed as of the date
first above written.
SteinRoe Services Inc.
By: HANS P. ZIEGLER
Name:
Title:
Colonial Investors Service Center, Inc.
By: MARY D. MCKENZIE
Name: Mary D. McKenzie
Title: President
Assented to on behalf of Trust and Stein Roe Mutual Funds:
Stein Roe Income Trust
Stein Roe Investment Trust
Stein Roe Municipal Trust
Stein Roe Advisor Trust
Stein Roe Institutional Trust
Stein Roe Trust
By: HANS P. ZIEGLER
Name:
Title:
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions
"Financial Highlights" and "Independent Auditors" and to the use
of our report dated August 14, 1998 with respect to Stein Roe
Institutional Client High Yield Fund and SR&F High Yield Portfolio
in the Registration Statement (Form N-1A) of Stein Roe Trust and
related Prospectus and Statement of Additional Information of
Stein Roe Institutional Client High Yield Fund, filed with the
Securities and Exchange Commission in this Post-Effective
Amendment No. 4 to the Registration Statement under the Securities
Act of 1933 (Registration No. 333-19181) and in this Amendment No.
5 to the Registration Statement under the Investment Company Act
of 1940 (Registration No. 811-07997).
ERNST & YOUNG LLP
Chicago, Illinois
October 21, 1998
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<NAME> STEIN ROE INSTITUTIONAL CLIENT HIGH YIELD FUND
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