Securities Act Registration No. 333-___
Investment Company Act File No. 811-08953
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [ ]
STEIN ROE FLOATING RATE INCOME TRUST
(Registrant)
One South Wacker Drive
Chicago, Illinois 60606
Telephone number: 800-338-0593
Heidi J. Walter Cameron S. Avery
Stein Roe Floating Rate Bell, Boyd & Lloyd
Income Trust Three First National Plaza
One South Wacker Drive 70 West Madison Street, Suite 3300
Chicago, Illinois 60606 Chicago, Illinois 60602-4207
(Agents for service)
Approximate date of proposed public offering: As soon as
practicable after the effective date of this registration
statement.
If any securities being registered on this form will be offered on
a delayed or continuous basis in reliance on rule 415 under the
Securities Act of 1933, other than securities offered in
connection with a dividend reinvestment plan, check the following
box. [x]
________________________
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Proposed Proposed
Title of Amount of Maximum Maximum
Securities Shares Offering Aggregate Amount of
Being Being Price Offering Registration
Registered Registered per Unit Price(1) Fee(1)
- ----------------- ---------- -------- ----------- ------------
Common Shares
of Beneficial
Interest 10,000,000 $10.00 $100,000,000 $29,500
- --------
(1) Estimated solely for the purpose of calculating the
registration fee.
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date
until the registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall
become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
This Registration Statement has also been signed by Stein Roe
Floating Rate Limited Liability Company.
<PAGE>
STEIN ROE FLOATING RATE INCOME TRUST
Cross reference sheet pursuant to rule 495(a) of Regulation C
Item No. Location or caption
References are to captions within the
part of the registration statement to
which the particular item relates
except as otherwise indicated
Part A (Prospectus)
Stein Roe Floating Rate Income Trust
1. Outside Front Cover Cover Page
2. Cover Pages; Other Offering Cover Page; Outside Back Cover
Information
3. Fee Table and Synopsis Fund Expenses; Prospectus Summary
4. Financial Highlights Not applicable
5. Plan of Distribution Cover Page; Use of Proceeds; How
to Purchase Shares
6. Selling Shareholders Not applicable
7. Use of Proceeds Use of Proceeds; Investment
Objective and Policies; How the
Portfolio Invests; Special Risk
Considerations; Other Investment
Practices
8. General Description of the
Registrant Prospectus Summary; The Fund;
Investment Objectives and
Policies; How the Portfolio
Invests; Special Risk
Considerations; Other Investment
Practice; How to Purchase Shares;
Organization and Description of
Shares; Master Fund/Feeder Fund:
Structure and Risk Factors
9. Management Management of the Fund;
Organization and Description of
Shares; Master Fund/Feeder Fund:
Structure and Risk Factors
10. Capital Stock; Long-Term
Debt and Other Securities The Fund; Distributions and Income
Taxes; Periodic Tender Offers;
Organization and Description of
Shares
11. Defaults and Arrears on
Senior Securities Not applicable
12. Legal Proceedings Not applicable
13. Table of Contents of the
Statement of Additional
Information Statement of Additional
Information Table of Contents
Part B (Statement of Additional Information)
Stein Roe Floating Rate Income Trust
14. Cover Page Cover Page
15. Table of Contents Table of Contents
16. General Information and
History Not applicable
17. Investment Objective and
Policies Investment Policies; Portfolio
Investments and Strategies;
Investment Restrictions
18. Management Management
19. Control Persons and
Principal Holders of
Securities Principal Shareholders
20. Investment Advisory and
Other Services Investment Advisory Services;
Bookkeeping and Accounting;
Distributor; Transfer Agent;
Custodian
21. Brokerage Allocation and
Other Practices Portfolio Transactions
22. Tax Status Additional Income Tax
Considerations
23. Financial Statements Financial Statements
Part C (Other Information)
24 Financial Statements and Exhibits
25 Marketing Arrangements
26 Other Expenses of Issuance and Distribution
27 Persons Controlled By or Under Common Control With
Registrant
28 Number of Holders of Securities
29 Indemnification
30 Business and Other Connections of Investment Adviser
31 Location of Accounts and Records
32 Management Services
33 Undertakings
<PAGE>
SUBJECT TO COMPLETION--DATED AUGUST __, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR
TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION,
OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
---------
STEIN ROE FLOATING RATE INCOME TRUST
THIS PROSPECTUS IS DATED _____________, 1998
Stein Roe Floating Rate Income Trust (the "Fund") is a newly
organized non-diversified, closed-end management investment
company. The Fund's investment objective is to provide a high
level of current income, consistent with preservation of capital.
The Fund is engaged in a continuous public offering of its shares
at the next determined net asset value per share without a sales
charge. The Fund currently seeks to achieve its objective by
investing its net investable assets in Stein Roe Floating Rate
Limited Liability Company (the "Portfolio"), a non-diversified,
closed-end management investment company, which has the same
investment objective as the Fund, rather than investing directly
in and managing its own portfolio of securities.
The Portfolio invests primarily in a portfolio of interests
in floating or variable rate senior loans to corporations,
partnerships and other entities that operate in a variety of
industries and geographic regions. Although the Portfolio's net
asset value per share will vary, the Portfolio's policy of
acquiring interests in floating or variable rate senior loans is
expected to minimize fluctuations in the Portfolio's net asset
value as a result of changes in interest rates. The Portfolio's
net asset value may be affected by defaults by or changes in the
credit quality of borrowers with respect to senior loan interests
in which the Portfolio invests. Fluctuations in the net asset
value per share of the Portfolio will cause fluctuations in the
net asset value per share of the Fund.
The investment adviser to the Fund and to the Portfolio is
Stein Roe & Farnham Incorporated (the "Adviser"). An investment
in the Fund may not be appropriate for all investors and there is
no assurance that the Portfolio or the Fund will achieve its
investment objective. (See "Investment Objective and Policies,"
"Special Risk Considerations," and "Master Fund/Feeder Fund:
Structure and Risk Factors.")
In order to provide liquidity to shareholders, the Fund will
make offers on a quarterly basis ("Tender Offer") to repurchase
between 5% and 25% of its outstanding common shares of beneficial
interest ("Shares") at the then current net asset value of the
Shares. Shares will be repurchased at the net asset value
determined as of the close of business on the day the Tender Offer
ends or within a maximum of fourteen days after the Tender Offer
ends as described in "Periodic Tender Offers." Each Tender Offer
will last for between three weeks and six weeks. Shareholders
will be notified in writing at the beginning of each Tender Offer.
A Tender Offer is expected to end near the end of _________, 1998,
and every three months after ___________, 1998.
The Fund is offered to directors, officers and employees of
Liberty Financial Companies, Inc. and its subsidiaries, including
their immediate family members, to the trustees of the Fund, and
to clients of Stein Roe Private Capital Management.
The Fund does not intend to list the Shares on any national
securities exchange. Shares of the Fund have no history of public
trading, and there is not expected to be any secondary trading
market in the Shares. Therefore, an investment in the Shares
should be considered illiquid. (See "Special Risk
Considerations.")
Shares of the Fund are not deposits or obligations of, nor
guaranteed or endorsed by, any bank or depository institution;
further, such Shares are not federally insured by the Federal
Deposit Insurance Corporation, The Federal Reserve Board, or any
other government agency. Shares of the Fund involve investment
risks, including the possible loss of principal.
The Prospectus sets forth concisely the information that a
prospective investor should know before investing in Shares of the
Fund. Please read and retain this Prospectus for future
reference. A Statement of Additional Information regarding the
Fund dated the date of this Prospectus has been filed with the
Securities and Exchange Commission ("SEC") and can be obtained
without charge by calling 1-800-322-0593. A table of contents to
the Statement of Additional Information is located at page __ of
this Prospectus. This Prospectus incorporates by reference the
entire Statement of Additional Information (together with any
supplement to it). The Statement of Additional Information and
other related materials are available at the SEC's internet web
site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Price To Sales Proceeds To
Public (1) Load (2) Fund (3)
--------- -------- ----------
Per Share $ 10.00 None $ 10.00
Total $100,000,000 None $100,000,000
____________________________
(1) The Shares are offered on a best efforts basis at a price
equal to net asset value, which initially is $10.00 per Share.
(2) Liberty Funds Distributor, Inc. will pay all distribution
costs from its own assets.
(3) Assuming the sale of all Shares registered hereby.
TABLE OF CONTENTS
Page
Fund Expenses..........................................3
Prospectus Summary.....................................4
The Fund...............................................8
Investment Objectives and Policies.....................8
Use of Proceeds........................................9
How the Portfolio Invests..............................9
Special Risk Considerations...........................18
Other Investment Practices............................21
Distributions and Income Taxes........................26
Management of the Fund................................28
Periodic Tender Offers................................30
How to Purchase Shares................................33
Shareholder Services..................................34
Net Asset Value.......................................35
Performance Information...............................36
Organization and Description of Shares................37
Master Fund/Feeder Fund: Structure and Risk Factors...38
Appendix--Ratings.....................................40
Statement of Additional Information Table of Contents.44
FUND EXPENSES
The following tables are intended to assist investors in
understanding the various costs and expenses directly or
indirectly associated with investing in the Fund. Because neither
the Portfolio nor the Fund has an operating history, the
information set forth below is based on estimated amounts for the
fiscal year ending June 30, 1999 after expense reimbursement.
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
Estimated Annual Fund Operating Expenses
Management and Administrative Fees (after
reimbursement) 0.80%
12b-1 Fees None
Interest Payments on Borrowed Funds None
Other Expenses 0.50%
Total Fund Operating Expenses -----
(after reimbursement) 1.30%
=====
Example
You would pay the following expenses on a $1,000 investment
in the Fund, assuming a 5% annual return:
1 year 3 years 5 years 10 years
------ ------- ------- --------
$13 $41 $71 $157
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 table is
based upon an estimate of expenses, assuming net assets of $50
million. The figures assume that the percentage amounts listed
under Annual Fund Operating Expenses remain the same during each
of the periods and that all income dividends and capital gains
distributions are reinvested in additional Shares.
From time to time, the Advisor may voluntarily undertake to
reimburse the Fund for a portion of its operating expenses. The
Adviser has undertaken to reimburse the Fund for its operating
expenses to the extent that such expenses exceed 1.30% of its
average annual net assets. This commitment expires ___________,
subject to earlier termination by the Adviser on 30 days' notice
to the Fund. Absent such reimbursement, the Management and
Administrative Fees and Total Operating Expenses would be 1.10%
and 1.60%, respectively. Any such reimbursement will lower the
Fund's overall expense ratio and increase its overall return to
investors. (Also, see "Management-Fees and Expenses").
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.
PROSPECTUS SUMMARY
The Fund. Stein Roe Floating Rate Income Trust (the "Fund")
is a newly organized non-diversified, closed-end management
investment company, organized as a Massachusetts business trust on
August 13, 1998 and managed by the Board of Trustees. (See "The
Fund.") 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 Stein Roe
Floating Rate Limited Liability Company (the "Portfolio"), a non-
diversified closed-end management investment company organized as
a Delaware limited liability company and managed by the Board of
Managers. The persons who serve as trustees on the Board of the
Fund are the same persons who serve as Managers on the Board of
the Portfolio.
Continuous Offering. The Fund is engaged in a continuous
public offering of its Shares at the next determined net asset
value per share without a sales charge. The minimum initial
investment is $2,500 and the minimum subsequent investment is
$100. The minimum initial investment for tax-sheltered retirement
plans is $___. The Fund does not intend to list the Shares on any
national securities exchange. The Fund will make quarterly Tender
Offers for all or a portion of its Shares, as discussed below in
this Prospectus Summary under "Periodic Tender Offers." An
investment in the Shares should be considered illiquid. (See also
"The Fund," "How to Purchase Shares" and "Periodic Tender
Offers.")
Investment Objective and Policies. The investment objective
of the Fund and of the Portfolio is to provide a high level of
current income, consistent with preservation of capital. To
achieve this objective the Portfolio invests primarily in a
portfolio of interests in floating or variable rate senior loans
("Senior Loans") to corporations, partnerships and other entities
("Borrowers") that operate in a variety of industries and
geographic regions (including domestic and foreign entities). An
investment in the Fund may not be appropriate for all investors
and is not intended to be a complete investment program. No
assurance can be given that the Portfolio or the Fund will achieve
its investment objective.
Under normal market conditions, at least 80% of the
Portfolio's total assets will be invested in Senior Loans of
domestic Borrowers or foreign Borrowers (so long as Senior Loans
to such foreign Borrowers are U.S. dollar denominated and payments
of interest and repayments of principal pursuant to such Senior
Loans are required to be made in U.S. dollars). Although most
Senior Loans are secured, the Portfolio may invest up to 20% of
its total assets in interests in Senior Loans that are not secured
by any collateral and in other permitted investments (as described
below).
In addition, during normal market conditions, the Portfolio
may invest up to 20% of its total assets (including assets
maintained by the Portfolio as a reserve against any additional
loan commitments) in (i) high quality, short-term debt securities
with remaining maturities of one year or less and (ii) warrants,
equity securities and, in limited circumstances, junior debt
securities acquired in connection with the Portfolio's investments
in Senior Loans.
How the Portfolio Invests
Senior Loans. Senior Loans generally are arranged through
private negotiations between a Borrower and several financial
institutions ("Lenders") represented in each case by one or more
such Lenders acting as agent ("Agent") of the several Lenders. On
behalf of the several Lenders, the Agent is primarily responsible
for negotiating the loan agreement ("Loan Agreement") that
establishes the relative terms and conditions of the Senior Loan
and rights of the Borrower and the several Lenders. Senior Loans
in which the Portfolio will purchase interests generally pay
interest at rates that are periodically redetermined by reference
to a base lending rate plus a premium. These base lending rates
are generally the prime rate offered by one or more major United
States banks ("Prime Rate"), the London Inter-Bank Offered Rate
("LIBOR"), the Certificate of Deposit ("CD") rate or other base
lending rates used by commercial lenders.
Participations and Assignments. The Portfolio may invest in
participations ("Participations") in Senior Loans, may purchase
assignments ("Assignments") of portions of Senior Loans from third
parties and may act as one of the group of Lenders originating a
Senior Loan (an "Original Lender"). When the Portfolio purchases
a Participation, the Portfolio will typically enter into a
contractual relationship with the Lender selling the
Participation, but not with the Borrower. As a result, the
Portfolio will assume the credit risk of both the Borrower and the
Lender selling the Participation, and the Portfolio may not
directly benefit from the collateral supporting the Senior Loan in
which it has purchased the Participation. The Portfolio will
purchase a Participation only when the Lender selling the
Participation, and any other institution interpositioned between
such Lender and the Portfolio, at the time of investment have
outstanding debt obligations rated investment grade (BBB or A-3 or
higher by Standard & Poor's Corporation ("S&P") or Baa or P-3 or
higher by Moody's Investors Service ("Moody's")) or determined by
the Adviser to be of comparable quality. Further, the Portfolio
will not purchase interests in Senior Loans unless such Agent,
Lender or interpositioned institution has entered into an
agreement that provides for the holding of payments on the Senior
Loan for the benefit of, or the prompt disbursement of payments
to, the Portfolio. With respect to any given Senior Loan, the
rights of the Portfolio when it acquires a Participation may be
different from, and more limited than, the rights of Original
Lenders or of persons who acquire an Assignment. The Portfolio
may pay a fee or forgo a portion of interest payments to the
Lender selling a Participation or Assignment pursuant to the terms
of such Participation or Assignment.
Portfolio Maturity. The Senior Loans in the Portfolio's
investment portfolio will at all times have a dollar-weighted
average time until next interest rate redetermination of 90 days
or less. Because of prepayment provisions, the actual remaining
maturity of Senior Loans may vary substantially from the stated
maturity of such loans. The Portfolio estimates actual average
maturity of Senior Loans in the portfolio will be approximately
18-24 months.
Defensive Investment Policy. If the Adviser determines that
market conditions temporarily warrant a defensive investment
policy, the Portfolio may, subject to its ability to liquidate its
relatively illiquid portfolio of Senior Loans, invest up to 100%
of its assets in cash and high quality, short-term securities.
The Portfolio may also lend its portfolio securities to other
parties and may enter into repurchase and reverse repurchase
agreements for securities, subject to certain restrictions. For
further discussion of the Portfolio's investment objective and
policies and its investment practices and the associated
considerations, see "Investment Objective and Policies," "How the
Fund Invests," "Other Investment Practices," and "Special Risk
Considerations."
Investment Adviser. Stein Roe & Farnham Incorporated (the
"Adviser") is responsible for managing the investment portfolio of
the Portfolio and the business affairs of the Fund. (See
"Management of the Fund.")
Periodic Tender Offers. The Fund has adopted a fundamental
policy to offer each quarter to repurchase a specified percentage
(between 5% and 25%) of the Shares then outstanding. In response
to each Tender Offer, shareholders may choose to tender their
Shares to the Fund for repurchase. Tender Offers occur at a price
per share equal to the net asset value per share determined as of
the close of business (3:00 p.m., Central time) on the day the
Tender Offer ends or within a maximum of fourteen days after the
Tender Offer ends as described in "Periodic Tender Offers." Each
Tender Offer will last for between three and six weeks, as stated
in a written notice to each Shareholder at the beginning of each
Tender Offer. If a Tender Offer is oversubscribed, the Fund will
repurchase Shares pro rata and may keep purchasing up to an
additional 2% of outstanding Shares. (See "The Fund," "How to
Purchase Shares" and "Periodic Tender Offers.")
Special Risk Considerations
Net Asset Value Fluctuations. The Portfolio's net asset
value per share is expected to be relatively stable during normal
market conditions because the Portfolio's assets will consist
primarily of floating rate Senior Loans and short-term
instruments. Nevertheless, there are circumstances that could
cause a decline in the Portfolio's net asset value per share and a
corresponding decline in the Fund's net asset value. The
Portfolio is not a money market fund and its net asset value will
fluctuate. As a newly organized entity, the Portfolio has no
operating history.
Risks Associated with Senior Loans. Investments in Senior
Loans involve certain risks, including, among other things, risks
of nonpayment of principal
and interest; collateral impairment; non-diversification and
Borrower industry concentration; and that there is not a fully
liquid market for Senior Loans, which may impair the Portfolio's
ability to obtain full value for Senior Loans sold. In addition,
shareholders' ability to liquidate their investments will be
subject to the limits on periodic Tender Offers.
The Portfolio may invest all or substantially all of its
assets in Senior Loans or other securities that are rated below
investment grade, or in comparable unrated securities. Senior
Loans made in connection with recapitalizations, acquisitions,
leveraged buy-outs, and refinancings are subject to greater credit
risks than other Senior Loans in which the Portfolio may invest.
It is expected that the Portfolio's Senior Loans will consist
primarily of such Senior Loans. These credit risks include the
possibility of a default on the Senior Loan or bankruptcy of the
Borrower. The value of these Senior Loans is subject to a greater
degree of volatility in response to interest rate fluctuations and
these Senior Loans may be less liquid than other Senior Loans.
Risks Associated with Closed-End Funds. The Fund is a
closed-end investment company designed primarily for long-term
investors and not as a trading vehicle. The Fund does not intend
to list the Shares for trading on any national securities
exchange. There is not expected to be any secondary trading
market in the Shares and an investment in the Shares should be
considered illiquid. The shares of closed-end investment
companies often trade at a discount from their net asset values
and, in the unlikely event that a secondary market for the Shares
were to develop, the Shares likewise may trade at a discount from
net asset value.
Risks Associated with Tender Offers. Under certain limited
circumstances, the Fund may suspend or postpone a quarterly Tender
Offer for the repurchase of Shares from the Fund's shareholders.
(The Fund must meet certain regulatory requirements and must give
notice to shareholders in order to suspend or postpone a Tender
Offer.) In that event, shareholders will likely be unable to sell
their Shares. The Fund, the Adviser and Liberty Funds
Distributor, Inc. (the "Distributor") are prohibited from making a
market in Shares as long as the Fund continues to publicly offer
Shares.
THE FUND
The Fund is a newly organized non-diversified, closed-end
management investment company organized as a Massachusetts
business trust and managed by the Board of Trustees. The Fund is
engaged in a continuous public offering of the Shares at the next
determined net asset value per share without a sales charge. The
Fund's principal office is located at One South Wacker Drive,
Chicago, Illinois 60606-4685 and its telephone number is 1-800-
322-0593.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide a high level of
current income, consistent with preservation of capital. 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 the
Portfolio, a non-diversified, closed-end management investment
company managed by the Board of Managers. The Portfolio seeks to
achieve its objective through investment primarily in a
professionally managed portfolio of interests in Senior Loans to
Borrowers that operate in a variety of industries and geographic
regions (including domestic and foreign entities). Although the
Portfolio's net asset value per share will vary, the Portfolio's
policy of acquiring interests in floating or variable rate Senior
Loans is expected to minimize the fluctuations in the Fund's net
asset value per share as a result of changes in interest rates.
The Fund's net asset value may be affected by changes in the
credit quality of Borrowers with respect to Senior Loan interests
in which the Portfolio invests.
Under normal market conditions, the Portfolio will invest at
least 80% of its total assets (either as an Original Lender or as
a purchaser of an Assignment or Participation) in Senior Loans of
domestic Borrowers or foreign Borrowers (so long as Senior Loans
to such foreign Borrowers are U.S. dollar denominated and payments
of interest and repayments of principal pursuant to such Senior
Loans are required to be made in U.S. dollars). Investment in
non-U.S. issuers involves special risks, including that non-U.S.
issuers may be subject to less rigorous accounting and reporting
requirements than are U.S. issuers, less rigorous regulatory
requirements, differing legal systems and laws relating to
creditors' rights, the potential inability to enforce legal
judgments and the potential for political, social and economic
adversities. Although most Senior Loans are collateralized, the
Portfolio may invest up to 20% of its total assets (valued at time
of investment) in Senior Loans that are not secured by any
collateral.
During normal market conditions, the Portfolio may invest up
to 20% of its total assets (including assets maintained by the
Portfolio as a reserve against any additional loan commitments) in
(i) high quality, short-term debt securities with remaining
maturities of one year or less and (ii) warrants, equity
securities and junior debt securities acquired in connection with
the Portfolio's investments in Senior Loans. Such high quality,
short-term securities may include commercial paper rated at least
Baa, P-3 or higher by Moody's or BBB, A-3 or higher by S&P (or if
unrated, determined by the Adviser to be of comparable quality),
interests in short-term loans and short-term loan participations
of Borrowers having short-term debt obligations rated or a short-
term credit rating at least in such rating categories (or having
no such rating, determined by the Adviser to be of comparable
quality), certificates of deposit and bankers' acceptances and
securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities. Such high quality, short-term
securities may pay interest at rates that are periodically
redetermined or may pay interest at fixed rates.
An investment in the Fund may not be appropriate for all
investors and is not intended to be a complete investment program.
No assurance can be given that the Portfolio or the Fund will
achieve its investment objective.
USE OF PROCEEDS
The net proceeds from the sale of the Shares offered hereby
will be invested in accordance with the Fund's investment
objective and policies. Pending investment by the Portfolio, the
proceeds may be invested in high quality, short-term securities.
It is expected that the proceeds will be fully invested in
accordance with the Fund's investment objectives and policies
within six months after the commencement of this offering.
HOW THE PORTFOLIO INVESTS
Senior Loans. Senior Loans generally are arranged through
private negotiations between a Borrower and Lenders represented in
each case by one or more Agents of the several Lenders. On behalf
of the several Lenders, the Agent, which is frequently the
commercial bank or other entity that originates the Senior Loan
and the person that invites other parties to join the lending
syndicate, will be primarily responsible for negotiating the Loan
Agreement that establishes the relative terms, conditions and
rights of the Borrower and the several Lenders. In larger
transactions it is common to have several Agents; however,
generally only one such Agent has primary responsibility for
documentation and administration of a Senior Loan. The typical
practice of an Agent or a Lender in relying exclusively or
primarily on reports from the Borrower may involve a risk of fraud
by the Borrower.
In a typical Senior Loan, the Agent administers the terms of
the Loan Agreement and is responsible for the collection of
principal and interest and fee payments from the Borrower and the
apportionment of those payments to the credit of all lenders that
are parties to the Loan Agreement. The Portfolio generally will
rely on the Agent to collect its portion of the payments on a
Senior Loan. Furthermore, the Portfolio will rely on the Agent to
use appropriate creditor remedies against the Borrower.
Typically, under a Loan Agreement, the Agent is given broad
discretion in monitoring the Borrower's performance under the Loan
Agreement and is obligated to use only the same care it would use
in the management of its own property. Upon an event of default,
the Agent typically will act to enforce the Loan Agreement after
instruction from lenders holding a majority of the Senior Loan.
The Borrower compensates the Agent for the Agent's services. This
compensation may include special fees paid on structuring and
funding the Senior Loan and other fees paid on a continuing basis.
It is anticipated that the proceeds of the Senior Loans in
which the Portfolio will acquire interests primarily will be used
to finance leveraged buyouts, recapitalizations, mergers,
acquisitions, stock repurchases, and, to a lesser extent, to
finance internal growth and for other corporate purposes of
Borrowers. Senior Loans have the most senior position in a
Borrower's capital structure, although some Senior Loans may hold
an equal ranking with other senior securities of the Borrower.
The capital structure of a Borrower may include Senior Loans,
senior and junior subordinated debt (which may include "junk
bonds"), preferred stock and common stock issued by the Borrower,
typically in descending order of seniority with respect to claims
on the Borrower's assets. Senior and junior subordinated debt is
collectively referred to in this Prospectus as "junior debt
securities." Senior Loans generally are secured by specific
collateral, which may include guarantees.
To the extent that the Portfolio invests a portion of its
assets in Senior Loans that are not secured by specific
collateral, the Portfolio will not enjoy the benefits associated
with collateralization with respect to such Senior Loans and such
Senior Loans may pose a greater risk of nonpayment of interest or
loss of principal than do collateralized Senior Loans. As
discussed below, the Portfolio may also acquire warrants, equity
securities and junior debt securities issued by the Borrower or
its affiliates as part of a package of investments in the Borrower
or its affiliates. Warrants, equity securities, and junior debt
securities will not be treated as Senior Loans and thus assets
invested in such securities will not count toward the 80% of the
Portfolio's total assets that normally will be invested in Senior
Loans. The Portfolio may acquire interests in warrants, other
equity securities or junior debt securities through a negotiated
restructuring of a Senior Loan or in a bankruptcy proceeding of
the Borrower.
In order to borrow money pursuant to a collateralized Senior
Loan, a Borrower will typically, for the term of the Senior Loan,
pledge as collateral assets, including but not limited to,
accounts receivable, inventory, buildings, other real estate,
trademarks, franchises and common and preferred stock in its
subsidiaries. In addition, in the case of some Senior Loans,
there may be additional collateral pledged in the form of
guarantees by and/or securities of affiliates of the Borrowers.
In certain instances, a collateralized Senior Loan may be secured
only by stock in the Borrower or its subsidiaries. Collateral may
consist of assets that are not readily liquidated, and there is no
assurance that the liquidation of such assets would satisfy fully
a Borrower's obligations under a Senior Loan. Similarly, in the
event of bankruptcy proceedings involving the Borrower, the
Lenders may be delayed or prevented from liquidating collateral or
may choose not to do so as part of their participation in a plan
of reorganization of the Borrower.
Loan Agreements may also include various restrictive
covenants designed to limit the activities of the Borrower in an
effort to protect the right of the Lenders to receive timely
payments of interest on and repayment of principal of the Senior
Loans. Restrictive covenants may include mandatory prepayment
provisions related to excess cash flows and typically include
restrictions on dividend payments, specific mandatory minimum
financial ratios, limits on total debt and other financial tests.
Breach of such a covenant, if not waived by the Lenders, is
generally an event of default under the applicable Loan Agreement
and may give the Lenders the right to accelerate principal and
interest payments. The Adviser will consider the terms of such
restrictive covenants in deciding whether to invest in Senior
Loans for the Portfolio's investment portfolio. When the
Portfolio holds a Participation in a Senior Loan it may not have
the right to vote to waive enforcement of a restrictive covenant
breached by a Borrower. Lenders voting in connection with a
potential waiver of a restrictive covenant may have interests
different from those of the Portfolio and such Lenders will not
consider the interests of the Portfolio in connection with their
votes.
Senior Loans in which the Portfolio will invest generally pay
interest at rates that are periodically redetermined by reference
to a base lending rate plus a premium. These base lending rates
generally are the prime rate offered by one or more major United
States banks (the "Prime Rate"), the London Inter-
Bank Offered Rate ("LIBOR"), the certificate of deposit ("CD")
rate or other base lending rates used by commercial lenders.
LIBOR, as provided for in Loan Agreements, is an average of the
interest rates quoted by several designated banks as the rates at
which such banks would offer to pay interest to major financial
institutional depositors in the London interbank market on U.S.
dollar denominated deposits for a specified period of time. The
CD rate, as generally provided for in Loan Agreements, is the
average rate paid on large certificates of deposit traded in the
secondary market. Senior Loans traditionally have been structured
so that Borrowers pay higher premiums when they elect LIBOR, in
order to permit lenders to obtain generally consistent yields on
Senior Loans, regardless of whether Borrowers select the LIBOR
option, or the Prime Rate option. In recent years, however, the
differential between the lower LIBOR base rates and the higher
Prime Rate base rates prevailing in the commercial bank markets
has widened to the point where the higher Margins paid by
Borrowers for LIBOR pricing options do not currently compensate
for the differential between the Prime Rate and the LIBOR rate.
Consequently, Borrowers have increasingly selected the LIBOR-based
pricing option, resulting in a yield on Senior Loans that is
consistently lower than the yield available from the Prime Rate-
based pricing option. This trend will significantly limit the
ability of the Portfolio to achieve a net return to shareholders
that consistently approximates the average published Prime Rate of
leading U.S. banks.
Participations and Assignments. The Portfolio may invest in
Participations in Senior Loans, may purchase Assignments of
portions of Senior Loans from third parties and may act as one of
the group of Original Lenders.
The Portfolio may invest up to 100% of its assets in
Participations. The selling Lenders and other persons
interpositioned between such Lenders and the Portfolio with
respect to Participations will likely conduct their principal
business activities in the banking, finance and financial services
industries. Although, as discussed below, the Portfolio has taken
measures that it believes significantly reduce its exposure to
risks associated with Participations, the Portfolio may be more
susceptible than an investment company that does not invest in
Participations in Senior Loans to any single economic, political
or regulatory occurrence affecting these industries. Persons
engaged in these industries may be more susceptible than are
persons engaged in some other industries to, among other things,
fluctuations in interest rates, changes in the Federal Open Market
Committee's monetary policy, governmental regulations concerning
such industries and concerning capital raising activities
generally and fluctuations in the financial markets generally.
Participation by the Portfolio in a Lender's portion of a
Senior Loan typically will result in the Portfolio having a
contractual relationship only with such Lender, not with the
Borrower. As a result, the Portfolio may have the right to
receive payments of principal, interest and any fees to which it
is entitled only from the Lender selling the Participation and
only upon receipt by such Lender of such payments from the
Borrower. In connection with purchasing Participations, the
Portfolio generally will have no right to enforce compliance by
the Borrower with the terms of the Loan Agreement, nor any rights
with respect to any funds acquired by other Lenders through set-
off against the Borrower, and the Portfolio may not directly
benefit from the collateral supporting the Senior Loan in which it
has purchased the Participation. As a result, the Portfolio may
assume the credit risk of both the Borrower and the Lender selling
the Participation. In the event of the insolvency of the Lender
selling a Participation, the Portfolio may be treated as a general
creditor of the Lender, and may not benefit from any set-off
between the Lender and the Borrower. In an effort to minimize
such risks, the Portfolio will only acquire Participations if the
Lender selling the Participation, and any other institution
interpositioned between the Portfolio and the Lender, (i) at the
time of investment has outstanding debt or deposit obligations
rated investment grade (BBB or A-3 or higher by S&P or Baa or P-3
or higher by Moody's) or determined by the Adviser to be of
comparable quality and (ii) has entered into an agreement that
provides for the holding of payments on the Senior Loan for the
benefit of, or the prompt disbursement of payments to, the
Portfolio. Long-term debt rated BBB by S&P is regarded by S&P as
having adequate capacity to pay interest and repay principal and
debt rated Baa by Moody's is regarded by Moody's as a medium grade
obligation; i.e., it is neither highly protected nor poorly
secured. The Portfolio ordinarily will purchase a Participation
only if, at the time of such purchase, the Portfolio believes that
the party from whom it is purchasing such Participation is
retaining an interest in the underlying Senior Loan. In the event
that the Portfolio does not so believe, it will only purchase such
a Participation if, in addition to the requirements set forth
above, the party from whom the Portfolio is purchasing such
Participation (i) is a bank, a member of a national securities
exchange or other entity designated in the Investment Company Act
of 1940, as amended (the "1940 Act"), as qualified to serve as a
custodian for a registered investment company and (ii) has been
approved as a custodian by the Board of the Portfolio (a
"Designated Custodian").
The Portfolio may also purchase Assignments from Lenders.
The purchaser of an Assignment typically succeeds to all the
rights and obligations under the Loan Agreement of the assigning
Lender and becomes a Lender under the Loan Agreement with the same
rights and obligations as the assigning Lender.
Original Lender Transactions. When the Portfolio is an
Original Lender originating a Senior Loan it may share in a fee
paid by the Borrower to the Original Lenders. The Portfolio will
never act as the Agent or principal negotiator or administrator of
a Senior Loan. When the Portfolio is a Lender, it will have a
direct contractual relationship with the Borrower, may enforce
compliance by the Borrower with the terms of the Loan Agreement
and may under contractual arrangements among the Lenders have
rights with respect to any funds acquired by other Lenders through
set-off. A Lender also has full voting and consent rights under
the applicable Loan Agreement. Action subject to Lender vote or
consent generally requires the vote or consent of the holders of
some specified percentage of the outstanding principal amount of
the Senior Loan. Certain decisions, such as reducing the amount
or increasing the time for payment of interest on or repayment of
principal of a Senior Loan, or releasing collateral therefor,
frequently require the unanimous vote or consent of all Lenders
affected.
The Portfolio will purchase an Assignment or act as a Lender
with respect to a syndicated Senior Loan only where the Agent with
respect to the Senior Loan at the time of investment has
outstanding debt or deposit obligations rated investment grade
(BBB or A-3 or higher by S&P or Baa or P-3 or higher by Moody's)
or determined by the Adviser to be of comparable quality. In
addition, the Portfolio will purchase a Participation only where
the Lender selling the Participation, and any other institution
interpositioned between the Lender and the Portfolio at the time
of investment, have outstanding debt obligations rated investment
grade or determined by the Adviser to be of comparable quality.
Further, the Portfolio will not purchase Participations in a
Senior Loan unless the Agent, Lender or any other interpositioned
institution has entered into an agreement that provides for the
holding of payments on the Senior Loan for the benefit of, or the
prompt disbursement of payments to, the Portfolio.
Loan Agreements typically provide for the termination of the
Agent's agency status in the event that it fails to act as
required under the relevant Loan Agreement, becomes insolvent,
enters FDIC receivership, or if not FDIC insured, enters into
bankruptcy. Should an Agent, Lender or any other interpositioned
institution with respect to an Assignment interpositioned between
the Portfolio and the Borrower become insolvent or enter FDIC
receivership or bankruptcy, any interest in the Senior Loan of any
such interpositioned institution and any loan payment held by any
such interpositioned institution for the benefit of the Portfolio
should not be included in the estate of such interpositioned
institution. If, however, any such amount were included in such
interpositioned institution's estate, the Portfolio would incur
certain costs and delays in realizing payment or could suffer a
loss of principal or interest. In such event, the Portfolio could
experience a decrease in net asset value.
Portfolio Maturity. The Portfolio is not subject to any
restrictions with respect to the maturity of Senior Loans held in
its portfolio. It is currently anticipated that the Portfolio's
assets invested in Senior Loans will consist of Senior Loans with
stated maturities of between three and ten years, inclusive, and
with rates of interest that are redetermined either daily,
monthly, quarterly, semi-annually or annually. Investment in
Senior Loans with longer interest rate redetermination periods may
increase fluctuations in the Portfolio's net asset value as a
result of changes in interest rates. The Senior Loans in the
Portfolio's investment portfolio will at all times have a dollar-
weighted average time until the next interest rate redetermination
of 90 days or less. As a result, as short-term interest rates
increase, interest payable to the Portfolio from its investments
in Senior Loans should increase, and as short-term interest rates
decrease, interest payable to the Portfolio from its investments
in Senior Loans should decrease. The amount of time required to
pass before the Portfolio will realize the effects of changing
short-term market interest rates on its portfolio will vary with
the dollar-weighted average time until the next interest rate
redetermination on the Senior Loans in the Portfolio's investment
portfolio. The Portfolio may utilize certain investment practices
to, among other things, shorten the effective interest rate
redetermination period of Senior Loans in its portfolio. In such
event, the Portfolio will consider such shortened period to be the
interest rate redetermination period of the Senior Loan; provided,
however, that the Portfolio will not invest in Senior Loans that
permit the Borrower to select an interest rate redetermination
period in excess of one year. Because most Senior Loans in the
Portfolio's investment portfolio will be subject to mandatory
and/or optional prepayment and there may be significant economic
incentives for a Borrower to prepay its loans, prepayments of
Senior Loans in the Portfolio's investment portfolio may occur.
Accordingly, the actual remaining maturity of the Portfolio's
investment portfolio invested in Senior Loans may vary
substantially from the average stated maturity of the Senior Loans
held in the Portfolio's investment portfolio. As a result of
expected prepayments from time to time of Senior Loans in the
investment portfolio, the Portfolio estimates that the actual
average maturity of the Senior Loans held in its portfolio will be
approximately 18-24 months.
Net Asset Value Fluctuation. When prevailing interest rates
decline, the value of a portfolio invested in fixed-rate
obligations can be expected to rise. Conversely, when prevailing
interest rates rise, the value of a portfolio invested in fixed-
rate obligations can be expected to decline. Although the
Portfolio's net asset value will vary, the Adviser expects the
Portfolio's policy of acquiring interests in floating or variable
rate Senior Loans to minimize fluctuations in net asset value as a
result of changes in interest rates. Accordingly, the Adviser
expects the value of the investment portfolio to fluctuate
significantly less than a portfolio of fixed-rate, longer term
obligations as a result of interest rate changes. However,
changes in prevailing interest rates can be expected to cause some
fluctuation in the Portfolio's net asset value. In addition to
changes in interest rates, defaults by or changes in the credit
quality of Borrowers will also affect the Portfolio's net asset
value. Further, a default or serious deterioration in the credit
quality of a Borrower could cause a prolonged or permanent
decrease in the Portfolio's net asset value. Fluctuations in the
net asset value of the Portfolio will cause fluctuations in the
net asset value of the Fund. Use of a line of credit referred to
herein may magnify fluctuations in net asset value of the Fund.
Debt Restructuring. The Portfolio may purchase and retain in
its portfolio an interest in a Senior Loan to a Borrower that has
filed for protection under the federal bankruptcy laws or has had
an involuntary bankruptcy petition filed against it by its
creditors. The Adviser's decision to purchase or retain such an
interest will depend on its assessment of the suitability of such
investment for the Portfolio, the Borrower's ability to meet debt
service on Senior Loan interests, the likely duration, if any, of
a lapse in the scheduled repayment of principal and prevailing
interest rates. At times, in connection with the restructuring of
a Senior Loan either outside of bankruptcy court or in the context
of bankruptcy court proceedings, the Portfolio may determine or be
required to accept equity securities or junior debt securities in
exchange for all or a portion of a Senior Loan interest.
Depending upon, among other things, the Adviser's evaluation of
the potential value of such securities in relation to the price
that could be obtained by the Portfolio at any given time upon
sale thereof, the Portfolio may determine to hold such securities
in its portfolio. Any equity security or junior debt security
held by the Portfolio will not be treated as a Senior Loan and
thus will not count toward the 80% of the Portfolio's total assets
that normally will be invested in Senior Loans.
Borrower Credit Ratings. Senior Loans historically have not
been rated by nationally recognized statistical rating
organizations, such as S&P or Moody's. Because of the senior
capital structure position of Senior Loans and the collateralized
or guaranteed nature of most Senior Loans, the Portfolio and the
Adviser believe that ratings of other securities issued by a
Borrower do not necessarily reflect adequately the relative
quality of a Borrower's Senior Loans. Therefore, although the
Adviser may consider such ratings in determining whether to invest
in a particular Senior Loan, the Adviser is not required to
consider such ratings and such ratings will not be the
determinative factor in the Adviser's analysis. The Portfolio may
invest a substantial portion of its assets in Senior Loans to
Borrowers having outstanding debt securities rated below
investment grade by a nationally recognized statistical rating
organization (or unrated but of comparable quality to such
securities). Debt securities rated below investment grade (or
unrated but of comparable quality) commonly are referred to as
"junk bonds." The Portfolio will invest only in those Senior
Loans with respect to which the Borrower, in the judgment of the
Adviser, demonstrates one or more of the following
characteristics: sufficient cash flow to service debt; adequate
liquidity; successful operating history; strong competitive
position; experienced management; and, with respect to
collateralized Senior Loans, collateral coverage that equals or
exceeds the outstanding principal amount of the Senior Loan. In
addition, the Adviser will consider, and may rely in part, on the
analyses performed by the Agent and other Lenders, including such
persons' determinations with respect to collateral securing a
Senior Loan.
Fees. The Portfolio may be required to pay or may receive
various fees and commissions in connection with purchasing,
selling and holding interests in Senior Loans. The fees normally
paid by Borrowers may include three types: facility fees,
commitment fees and prepayment penalties. Facility fees are paid
to the Lenders upon origination of a Senior Loan. Commitment fees
are paid to Lenders on an ongoing basis based upon the undrawn
portion committed by the Lenders of the underlying Senior Loan.
Lenders may receive prepayment penalties when a Borrower prepays
all or part of a Senior Loan. The Portfolio will receive these
fees directly from the Borrower if the Portfolio is an Original
Lender, or, in the case of commitment fees and prepayment
penalties, if the Portfolio acquires an interest in a Senior Loan
by way of Assignment. Whether or not the Portfolio receives a
facility fee from the Lender in the case of an Assignment, or any
fees in the case of a Participation, depends upon negotiations
between the Portfolio and the Lender selling such interests. When
the Portfolio is an assignee, it may be required to pay a fee, or
forgo a portion of interest and any fees payable to it, to the
Lender selling the Assignment. Occasionally, the assignor will
pay a fee to the assignee based on the portion of the principal
amount of the Senior Loan that is being assigned. A Lender
selling a Participation to the Portfolio may deduct a portion of
the interest and any fees payable to the Portfolio as an
administrative fee prior to payment thereof to the Portfolio. The
Portfolio may be required to pay over or pass along to a purchaser
of an interest in a Senior Loan from the Portfolio a portion of
any fees that the Portfolio would otherwise be entitled to.
Prepayments. Pursuant to the relevant Loan Agreement, a
Borrower may be required in certain circumstances, and may have
the option at any time, to prepay the principal amount of a Senior
Loan, often without incurring a prepayment penalty. Because the
interest rates on Senior Loans are periodically redetermined at
relatively short intervals, the Portfolio and the Adviser believe
that the prepayment of, and subsequent reinvestment by the
Portfolio in, Senior Loans will not have a materially adverse
impact on the yield on the Portfolio's investment portfolio and
may have a beneficial impact on income due to receipt of
prepayment penalties, if any, and any facility fees earned in
connection with reinvestment.
Commitments to Make Additional Payments. A Lender may have
certain obligations pursuant to a Loan Agreement, which may
include the obligation to make additional loans in certain
circumstances. The Portfolio currently intends to reserve against
any such contingent obligation by segregating a sufficient amount
of cash, liquid securities and liquid Senior Loans. The Portfolio
will not purchase interests in Senior Loans that would require the
Portfolio to make any such additional loans if the aggregate of
such additional loan commitments would exceed 20% of the
Portfolio's total assets or would cause the Portfolio to fail to
meet the diversification requirements set forth under the heading
"Investment Restrictions" in the Statement of Additional
Information.
Bridge Financing. The Portfolio may acquire interests in
Senior Loans that are designed to provide temporary or "bridge"
financing to a Borrower pending the sale of identified assets or
the arrangement of longer-term loans or the issuance and sale of
debt obligations. A Borrower's use of a bridge loan involves a
risk that the Borrower may be unable to locate permanent financing
to replace the bridge loan, which may impair the Borrower's
perceived credit worthiness.
Other Securities. The Portfolio will acquire such warrants,
equity securities and junior debt securities only as an incident
to the purchase or intended purchase of interests in
collateralized Senior Loans. The Portfolio generally will acquire
interests in warrants, equity securities and junior debt
securities only when the Adviser believes that the relative value
being given by the Portfolio in exchange for such interests is
substantially outweighed by the potential value of such
instruments. Investment in warrants, equity securities and junior
debt securities entail certain risks in addition to those
associated with investments in Senior Loans. Warrants and equity
securities have a subordinate claim on a Borrower's assets as
compared with debt securities and junior debt securities have a
subordinate claim on such assets as compared with Senior Loans.
As such, the values of warrants and equity securities generally
are more dependent on the financial condition of the Borrower and
less dependent on fluctuations in interest rates than are the
values of many debt securities. The values of warrants, equity
securities and junior debt securities may be more volatile than
those of Senior Loans and thus may have an adverse impact on the
ability of the Portfolio to minimize fluctuations in its net asset
value.
Defensive Investment Policy. If the Adviser determines that
market conditions temporarily warrant a defensive investment
policy, the Portfolio may invest, subject to its ability to
liquidate its relatively illiquid portfolio of Senior Loans, up to
100% of its assets in cash and high quality, short-term debt
securities. The Portfolio may also lend its portfolio securities
to other parties and may enter into repurchase and reverse
repurchase agreements for securities, subject to certain
restrictions. For further discussion of the Portfolio's
investment objective and policies and its investment practices and
the associated considerations, see "Other Investment Practices."
Fundamental Restrictions and Policies. Each of the Portfolio
and the Fund has adopted certain fundamental investment
restrictions and policies which may not be changed unless
authorized by a shareholder vote. These are set forth in the
Statement of Additional Information. Among these fundamental
restrictions, the Portfolio and the Fund may not purchase any
security if, as a result of the purchase, more than 25% of the
Fund's or the Portfolio's total assets (taken at current value)
would be invested in the securities of Borrowers and other issuers
having their principal business activities in the same industry
(the electric, gas, water and telephone utility industries being
treated as separate industries for the purpose of this
restriction). However, there is no limitation on purchasing
securities the issuer of which is deemed to be in the financial
institutions industry, which includes commercial banks, thrift
institutions, insurance companies and finance companies. There is
no limitation with respect to obligations issued or guaranteed by
the U.S. Government or any of its agencies or instrumentalities.
Except for the fundamental restrictions and policies set forth as
such in the Fund's Statement of Additional Information, the
Portfolio's and the Fund's investment objective and policies are
not fundamental policies and accordingly may be changed by the
Board without obtaining the approval of shareholders.
SPECIAL RISK CONSIDERATIONS
The Fund and the Portfolio are both closed-end investment
companies with no history of operations. The Fund is designed
primarily for long-term investors and not as a trading vehicle.
Ongoing Monitoring. On behalf of the several Lenders, the
Agent generally will be required to administer and manage the
Senior Loan and, with respect to collateralized Senior Loans, to
service or monitor the collateral. In this connection, the
valuation of assets pledged as collateral will reflect market
value and the Agent may rely on independent appraisals as to the
value of specific collateral. The Agent, however, may not obtain
an independent appraisal as to the value of assets pledged as
collateral in all cases. The Portfolio normally will rely
primarily on the Agent (where the Portfolio is an Original Lender
or owns an Assignment) or the selling Lender (where the Portfolio
owns a Participation) to collect principal of and interest on a
Senior Loan. Furthermore, the Portfolio usually will rely on the
Agent (where the Portfolio is an Original Lender or owns an
Assignment) or the selling Lender (where the Portfolio owns a
Participation) to monitor compliance by the Borrower with the
restrictive covenants in the Loan Agreement and notify the
Portfolio of any adverse change in the Borrower's financial
condition or any declaration of insolvency. Collateralized Senior
Loans will frequently be secured by all assets of the Borrower
that qualify as collateral, which may include common stock of the
Borrower or its subsidiaries. Additionally, the terms of the Loan
Agreement may require the Borrower to pledge additional collateral
to secure the Senior Loan, and enable the Agent, upon proper
authorization of the Lenders, to take possession of and liquidate
the collateral and to distribute the liquidation proceeds pro rata
among the Lenders. If the terms of a Senior Loan do not require
the Borrower to pledge additional collateral in the event of a
decline in the value of the original collateral, the Portfolio
will be exposed to the risk that the value of the collateral will
not at all times equal or exceed the amount of the Borrower's
obligations under the Senior Loan. Lenders that have sold
Participation interests in such Senior Loan will distribute
liquidation proceeds received by the Lenders pro rata among the
holders of such Participations. The Adviser will also monitor
these aspects of the Portfolio's investments and, where the
Portfolio is an Original Lender or owns an Assignment, will be
directly involved with the Agent and the other Lenders regarding
the exercise of credit remedies.
Non-Payment. Senior Loans, like other corporate debt
obligations, are subject to the risk of non-payment of scheduled
interest or principal. Such non-payment would result in a
reduction of income to the Portfolio, a reduction in the value of
the Senior Loan experiencing non-payment and a potential decrease
in the net asset value of the Portfolio. The Portfolio generally
will invest in collateralized Senior Loans only if the Adviser
believes the value of the collateral, which may include
guarantees, exceeds the principal amount of the Senior Loan at the
time of initial investment. However, there can be no assurance
that the liquidation of any such collateral would satisfy the
Borrower's obligation in the event of non-payment of scheduled
interest or principal payments, or that such collateral could be
readily liquidated. Moreover, as a practical matter, most
Borrowers cannot satisfy their debts by selling their assets.
Borrowers pay their debts from the cash flow they generate. This
is particularly the case for Borrowers that are highly leveraged.
Many of the Senior Loans purchased by the Portfolio will be to
highly leveraged Borrowers. If the Borrower's cash flow is
insufficient to pay its debts as they come due, the Borrower is
far more likely to seek to restructure its debts than it is to
sell off assets to pay its Senior Loans. Borrowers may try to
restructure their debts either by seeking protection from
creditors under Chapter 11 of the federal Bankruptcy Code or
negotiating a work out. In the event of bankruptcy of a Borrower,
the Portfolio could experience delays or limitations with respect
to its ability to realize the benefits of the collateral securing
a Senior Loan. To the extent that a Senior Loan is collateralized
by stock in the Borrower or its subsidiaries, such stock may lose
all or substantially all of its value in the event of bankruptcy
of the Borrower. The Agent generally is responsible for
determining that the Lenders have obtained a perfected security
interest in the collateral securing the Senior Loan. If a
Borrower files for protection from creditors under Chapter 11 of
the Bankruptcy Code, the Code will impose an automatic stay that
prohibits the Agent from liquidating collateral. The Agent may
ask the bankruptcy court to lift the stay. As a practical matter,
the court is unlikely to lift the stay if it concludes that the
Borrower has a chance to emerge from the reorganization
proceedings and the collateral is likely to hold most of its
value. If the Lenders have a good security interest, the Senior
Loan will be treated as a separate class in the reorganization
proceedings and will retain a priority interest in the collateral.
Chapter 11 reorganization plans typically are the product of
negotiation among the Borrower and the various creditor classes.
Successful negotiations may require the Lenders to extend the time
for repayment, change the interest rate or accept some
consideration in the form of junior debt or equity securities. A
work out outside of bankruptcy may produce similar concessions by
senior lenders.
Some Senior Loans in which the Portfolio may invest are
subject to the risk that a court, pursuant to fraudulent
conveyance or other similar laws, could subordinate such Senior
Loans to current or future indebtedness of the Borrower or take
other action detrimental to the holders of Senior Loans, such as
the Portfolio, including, under certain circumstances,
invalidating such Senior Loans. Lenders commonly have certain
obligations pursuant to the Loan Agreement, which may include the
obligation to make additional loans or release collateral in
certain circumstances.
Ratings. The types of Senior Loans in which the Portfolio
will invest historically have not been rated by a nationally
recognized statistical rating organization, have not been
registered with the SEC or any state securities commission and
have not been listed on any national securities exchange.
Although the Portfolio will generally have access to financial and
other information made available to the Lenders in connection with
Senior Loans, the amount of public information available with
respect to Senior Loans will generally be less extensive than that
available for rated, registered or exchange listed securities. As
a result, the performance of the Portfolio and its ability to meet
its investment objective is more dependent on the analytical
ability of the Adviser than would be the case for an investment
company that invest primarily in rated, registered or exchange
listed securities.
Restrictions on Resale. Senior Loans, at present, generally
are not readily marketable and may be subject to restrictions on
resale. Interests in Senior Loans generally are not listed on any
national securities exchange or automated quotation system and no
active market may exist for many of the Senior Loans in which the
Portfolio may invest. To the extent that a secondary market may
exist for certain of the Senior Loans in which the Portfolio
invests, such market may be subject to irregular trading activity,
wide bid/ask spreads and extended trade settlement periods. The
Portfolio has no limitation on the amount of its assets that may
be invested in securities that are not readily marketable or are
subject to restrictions on resale. Because a substantial portion
of the Portfolio's assets may be invested in Senior Loan
interests, the ability of the Portfolio to dispose of its
investments in a timely fashion and at a fair price may be
restricted, and the Portfolio and holders of Shares may suffer
capital losses as a result. However, many of the Senior Loans in
which the Portfolio expects to purchase interests are of a
relatively large principal amount and are held by a relatively
large number of owners which should, in the Adviser's opinion,
enhance the relative liquidity of such interests. The risks
associated with illiquidity are particularly acute in situations
where the Portfolio's operations require cash, such as when the
Portfolio tenders for its Shares, and may result in the Portfolio
borrowing to meet short-term cash requirements.
Legislation. To the extent that legislation or state or
federal regulators impose additional requirements or restrictions
with respect to the ability of financial institutions to make
loans in connection with highly leveraged transactions, the
availability of Senior Loan interests for investment by the
Portfolio may be adversely affected. In addition, such
requirements or restrictions may reduce or eliminate sources of
financing for certain Borrowers. Further, to the extent that
legislation or federal or state regulators require such
institutions to dispose of Senior Loan interests relating to
highly leveraged transactions or subject such Senior Loan
interests to increased regulatory scrutiny, such financial
institutions may determine to sell such Senior Loan interests in a
manner that results in a price that, in the opinion of the
Adviser, is not indicative of fair value. Were the Portfolio to
attempt to sell a Senior Loan interest at a time when a financial
institution was engaging in such a sale with respect to the Senior
Loan interest, the price at which the Portfolio could consummate
such a sale might be adversely affected.
Non-Diversification. The Portfolio has registered as a "non-
diversified" investment company so that, subject to its investment
restrictions, it will be able to invest more than 5% of the value
of its assets in the obligations of any single issuer, including
Senior Loans of a single Borrower or Participations purchased from
a single Lender. (See "Investment Restrictions" in the Statement
of Additional Information.) The Portfolio does not intend,
however, to invest more than 5% of the value of its assets in
interests in Senior Loans of a single Borrower. To the extent the
Portfolio invests a relatively high percentage of its assets in
obligations of a limited number of issuers, the Portfolio will be
more susceptible than a more widely diversified investment company
to the consequences of any single corporate, economic, political
or regulatory occurrence.
Other Practices. The Portfolio may use various investment
practices that involve special considerations, including engaging
in interest rate and other hedging transactions, lending its
portfolio securities, entering into when-issued and delayed-
delivery transactions and entering into repurchase and reverse
repurchase agreements. For further discussion of these practices
and associated special considerations, see "Other Investment
Practices."
OTHER INVESTMENT PRACTICES
Miscellaneous. In connection with the investment objective
and policies described above, the Portfolio may: engage in
interest rate and other hedging transactions, lend portfolio
holdings, purchase and sell interests in Senior Loans and other
portfolio debt securities on a "when-issued" or "delayed-
delivery" basis, and enter into repurchase and reverse repurchase
agreements. These investment practices involve certain special
risk considerations. The Adviser may use some or all of the
following investment practices when, in the opinion of the
Adviser, their use is appropriate. Although the Adviser believes
that these investment practices may further the Portfolio's
investment objective, no assurance can be given that the
utilization of these investment practices will achieve that
result.
Structured Notes. The Portfolio may invest up to 5% of its
total assets in structured notes, including "total rate of return
swap" with rates of return determined by reference to the total
rate of return on one or more loans referenced in such notes. The
rate of return on the structured note may be determined by
applying a multiplier to the rate of total return on the
referenced loan or loans. Application of a multiplier is
comparable to the use of financial leverage, a speculative
technique. Leverage magnifies the potential for gain and the risk
of loss, because a relatively small decline in the value of a
referenced note could result in a relatively large loss in the
value of a structured note. Structured notes are treated as
Senior Loans for purposes of the Portfolio's policy of normally
investing at least 80% of its assets in Senior Loans.
Borrowing. The Portfolio is authorized to borrow money for
the purpose of obtaining short-term credits in connection with
Tender Offers by the Portfolio for its shares, to finance
investments and for temporary, extraordinary or emergency
purposes. Under the requirements of the 1940 Act, the Portfolio,
immediately after any such borrowings, must have an asset coverage
of at least 300%. Asset coverage is the ratio which the value of
the total assets of the Portfolio, less all liabilities and
indebtedness not represented by senior securities (as that term is
defined in the 1940 Act), bears to the aggregate amount of any
such borrowings by the Portfolio. The rights of any lenders to
the Portfolio to receive payments of interest on and repayments of
principal of such borrowings will be senior to those of the
holders of Shares, and the terms of any such borrowings may
contain provisions which limit certain activities of the
Portfolio, including the payment of dividends to holders of
Portfolio shares in certain circumstances. Further, the terms of
any such borrowings may, and the provisions of the 1940 Act do (in
certain circumstances), grant lenders certain voting rights in the
event of default in the payment of interest or repayment of
principal. In the event that such provisions would impair the
Portfolio's status as a regulated investment company, the
Portfolio, subject to its ability to liquidate its relatively
illiquid portfolio, intends to repay the borrowings. Interest
payments and fees incurred in connection with any such borrowings
will reduce the amount of net income available for payment to the
holders of Portfolio shares. The Portfolio may enter into an
agreement with a financial institution providing for an unsecured
discretionary credit facility (the "Facility"), the proceeds of
which may be used to finance, in part, repurchases. (See
"Periodic Tender Offers.")
Interest Rate Swaps and Other Hedging Transactions. The
Portfolio may enter into various interest rate hedging and risk
management transactions. Certain of these interest rate hedging
and risk management transactions may be considered to involve
derivative instruments. A derivative is a financial instrument
whose performance is derived at least in part from the performance
of an underlying index, security or asset. The values of certain
derivatives can be affected dramatically by even small market
movements, sometimes in ways that are difficult to predict. There
are many different types of derivatives with many different uses.
The Portfolio expects to enter into these transactions primarily
to seek to preserve a return on a particular investment or portion
of its portfolio, and may also enter into such transactions to
seek to protect against decreases in the anticipated rate of
return on floating or variable rate financial instruments the
Portfolio owns or anticipates purchasing at a later date, or for
other risk management strategies such as managing the effective
dollar-weighted average duration of the investment portfolio. In
addition, the Portfolio may also engage in hedging transactions to
seek to protect the value of its portfolio against declines in net
asset value resulting from changes in interest rates or other
market changes. The Portfolio does not intend to engage in such
transactions to enhance the yield on its portfolio. Market
conditions will determine whether and in what circumstances the
Portfolio would employ any hedging and risk management techniques.
The Portfolio will not engage in any of the transactions for
speculative purposes and will use them only as a means to hedge or
manage the risks associated with assets held in, or anticipated to
be purchased for, the investment portfolio or obligations incurred
by the Portfolio. The successful utilization of hedging and risk
management transactions requires skills different from those
needed in the selection of portfolio securities. The Adviser
believes that it possesses the skills necessary for the successful
utilization of hedging and risk management transactions. The
Portfolio will incur brokerage and other costs in connection with
its hedging transactions.
The Portfolio may enter into interest rate swaps or purchase
or sell interest rate caps or floors. The Portfolio will not sell
interest rate caps or floors that it does not own. Interest rate
swaps involve the exchange by the Portfolio with another party of
their respective obligations to pay or receive interest; e.g., an
exchange of an obligation to make floating rate payments for an
obligation to make fixed rate payments. For example, the
Portfolio may seek to shorten the effective interest rate
redetermination period of a Senior Loan to a Borrower that has
selected an interest rate redetermination period of one year. The
Portfolio could exchange the Borrower's obligation to make fixed
rate payments for one year for an obligation to make payments that
readjust monthly. In such event, the Portfolio would consider the
interest rate redetermination period of such Senior Loan to be the
shorter period.
The purchase of an interest rate cap entitles the purchaser,
to the extent that a specified index exceeds a predetermined
interest rate, to receive payments of interest at the difference
between the index and the predetermined rate on a notional
principal amount (the reference amount with respect to which
interest obligations are determined although no actual exchange of
principal occurs) from the party selling such interest rate cap.
The purchase of an interest rate floor entitles the purchaser, to
the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest at the difference
between the index and the predetermined rate on a notional
principal amount from the party selling such interest rate floor.
The Portfolio will not enter into swaps, caps or floors, if, on a
net basis, the aggregate notional principal amount with respect to
such agreements exceeds the net assets of the Portfolio.
In circumstances in which the Adviser anticipates that
interest rates will decline, the Portfolio might, for example,
enter into an interest rate swap as the floating rate payor or,
alternatively, purchase an interest rate floor. In the case of
purchasing an interest rate floor, if interest rates declined
below the floor rate, the Portfolio would receive payments from
its counterparty which would wholly or partially offset the
decrease in the payments it would receive with respect to the
portfolio assets being hedged. In the case where the Portfolio
purchases such an interest rate swap, if the floating rate
payments fell below the level of the fixed rate payment set in the
swap agreement, the Portfolio's counterparty would pay the
Portfolio amounts equal to interest computed at the difference
between the fixed and floating rates over the notional principal
amount. Such payments would offset or partially offset the
decrease in the payments the Portfolio would receive with respect
to floating rate portfolio assets being hedged.
The successful use of swaps, caps and floors to preserve the
rate of return on a portfolio of financial instruments depends on
the Adviser's ability to predict correctly the direction and
extent of movements in interest rates. Although the Adviser
believes that use of the hedging and risk management techniques
described above will benefit the Portfolio, if the Adviser's
judgment about the direction or extent of the movement in interest
rates is incorrect, the Portfolio's overall performance would be
worse than if it had not entered into any such transaction. For
example, if the Portfolio had purchased an interest rate swap or
an interest rate floor to hedge against its expectation that
interest rates would decline but instead interest rates rose, the
Portfolio would lose part or all of the benefit of the increased
payments it would receive as a result of the rising interest rates
because it would have to pay amounts to its counterparty under the
swap agreement or would have paid the purchase price of the
interest rate floor.
Inasmuch as these hedging transactions are entered into for
good-faith risk management purposes, the Adviser and the Portfolio
believe such obligations do not constitute senior securities. The
Portfolio will usually enter into interest rate swaps on a net
basis; i.e., where the two parties make net payments with the
Portfolio receiving or paying, as the case may be, only the net
amount of the two payments. The net amount of the excess, if any,
of the Portfolio's obligations over its entitlements with respect
to each interest rate swap will be accrued and an amount of cash
or liquid securities having an aggregate net asset value at least
equal to the accrued excess will be maintained. If the Portfolio
enters into a swap on other than a net basis, the Portfolio will
maintain the full amount of the Portfolio's obligations under each
such swap. Accordingly, the Portfolio does not treat swaps as
senior securities. The Portfolio may enter into swaps, caps and
floors with member banks of the Federal Reserve System, members of
the New York Stock Exchange or other entities determined to be
creditworthy by the Adviser, pursuant to procedures adopted and
reviewed on an ongoing basis by the Board. If a default occurs by
the other party to such transactions, the Portfolio will have
contractual remedies pursuant to the agreements related to the
transaction, but such remedies may be subject to bankruptcy and
insolvency laws that could affect the Portfolio's rights as a
creditor. The swap market has grown substantially in recent years
with a large number of banks and financial services firms acting
both as principals and as agents utilizing standardized swap
documentation. As a result, the swap market has become relatively
liquid. Caps and floors are more recent innovations and they are
less liquid than swaps. There can be no assurance, however, that
the Portfolio will be able to enter into interest rate swaps or to
purchase interest rate caps or floors at prices or on terms the
Adviser believes are advantageous to the Portfolio. In addition,
although the terms of interest rate swaps, caps and floors may
provide for termination, there can be no assurance that the
Portfolio will be able to terminate an interest rate swap or to
sell or offset interest rate caps or floors that it has purchased.
New financial products continue to be developed and the
Portfolio may invest in any such products as may be developed to
the extent consistent with its investment objective and the
regulatory and federal tax requirements applicable to investment
companies.
Lending of Portfolio Holdings. The Portfolio may seek to
increase its income by lending financial instruments in its
portfolio in accordance with present regulatory policies,
including those of the Board of Governors of the Federal Reserve
System and the SEC. Such loans may be made, without limit, to
brokers, dealers, banks or other recognized institutional
Borrowers of financial instruments and would be required to be
secured continuously by collateral, including cash, cash
equivalents or U.S. Treasury bills maintained on a current basis
at an amount at least equal to the market value of the financial
instruments loaned. The Portfolio would have the right to call a
loan and obtain the financial instruments loaned at any time on
five days' notice. For the duration of a loan, the Portfolio
would continue to receive the equivalent of the interest paid by
the issuer on the financial instruments loaned and also would
receive compensation from the investment of the collateral. The
Portfolio would not have the right to vote any financial
instruments having voting rights during the existence of the loan,
but the Portfolio could call the loan in anticipation of an
important vote to be taken among holders of the financial
instruments or in anticipation of the giving or withholding of
their consent on a material matter affecting the financial
instruments. As with other extensions of credit, risks of delay
in recovery or even loss of rights in the collateral exist should
the Borrower of the financial instruments fail financially.
However, the loans would be made only to firms deemed by the
Adviser to be of good standing and when, in the judgment of the
Adviser, the consideration that can be earned currently from loans
of this type justifies the attendant risk. The creditworthiness
of firms to which the Portfolio lends its portfolio holdings will
be monitored on an ongoing basis by the Adviser pursuant to
procedures adopted and reviewed, on an ongoing basis, by the
Board. No specific limitation exists as to the percentage of the
Portfolio's assets that the Portfolio may lend.
"When-issued" and "Delayed-delivery" Transactions. The
Portfolio may also purchase and sell interests in Senior Loans and
other portfolio securities on a "when-issued" and "delayed-
delivery" basis. No income accrues to the Portfolio on such
interests or securities in connection with such purchase
transactions prior to the date the Portfolio actually takes
delivery of such interests or securities. These transactions are
subject to market fluctuation; the value of the interests in
Senior Loans and other portfolio debt securities at delivery may
be more or less than their purchase price, and yields generally
available on such interests or securities when delivery occurs may
be higher or lower than yields on the interests or securities
obtained pursuant to such transactions. Because the Portfolio
relies on the buyer or seller, as the case may be, to consummate
the transaction, failure by the other party to complete the
transaction may result in the Portfolio missing the opportunity of
obtaining a price or yield considered to be advantageous. When
the Portfolio is the buyer in such a transaction, however, it will
maintain cash or liquid securities having an aggregate value equal
to the amount of such purchase commitments until
payment is made. The Portfolio will make commitments to purchase
such interests or securities on such basis only with the intention
of actually acquiring these interests or securities, but the
Portfolio may sell such interests or securities prior to the
settlement date if such sale is considered to be advisable. To
the extent the Portfolio engages in "when-issued" and "delayed-
delivery" transactions, it will do so for the purpose of acquiring
interests or securities for the Portfolio's investment portfolio
consistent with the Portfolio's investment objective and policies
and not for the purpose of investment leverage. No specific
limitation exists as to the percentage of the Portfolio's assets
that may be used to acquire securities on a "when-issued" or
"delayed-delivery" basis.
Repurchase Agreements. The Portfolio may enter into
repurchase agreements (a purchase of, and a simultaneous
commitment to resell, a financial instrument at an agreed-upon
price on an agreed-upon date) only with member banks of the
Federal Reserve System and member firms of the New York Stock
Exchange. When participating in repurchase agreements, the
Portfolio buys securities from a seller (e.g., a bank or brokerage
firm) with the agreement that the seller will repurchase the
securities at a higher price at a later date. Such transactions
afford an opportunity for the Portfolio to earn a return on
available cash at minimal market risk, although the Portfolio may
be subject to various delays and risks of loss if the vendor is
unable to meet its obligation to repurchase. Under the 1940 Act,
repurchase agreement are deemed to be collateralized loans of
money by the Portfolio to the seller. In evaluating whether to
enter into a repurchase agreement, the Adviser will consider
carefully the creditworthiness of the vendor. If the member bank
or member firm that is the party to the repurchase agreement
petitions for bankruptcy or otherwise becomes subject to the U.S.
Bankruptcy Code, the law regarding the rights of the Portfolio is
unsettled. The securities underlying a repurchase agreement will
be marked to market every business day so that the value of the
collateral is at least equal to the value of the loan, including
the accrued interest thereon, and the Adviser will monitor the
value of the collateral. No specific limitation exists as to the
percentage of the Portfolio's assets that may be used to
participate in repurchase agreements.
Reverse Repurchase Agreements. The Portfolio may enter into
reverse repurchase agreements with respect to debt obligations
that could otherwise be sold by the Portfolio. A reverse
repurchase agreement is an instrument under which the Portfolio
may sell an underlying debt security and simultaneously obtain the
commitment of the purchaser (a commercial bank or a broker or
dealer) to sell the security back to the Portfolio at an agreed-
upon price on an agreed-upon date. The Portfolio will maintain
cash or liquid securities in an amount sufficient to cover its
obligations with respect to reverse repurchase agreements. The
Portfolio receives payment for such securities only upon physical
delivery or evidence of book entry transfer by its custodian. SEC
regulations require either that securities sold by the Portfolio
under a reverse repurchase agreement be segregated pending
repurchase or that the proceeds be segregated on the Portfolio's
books and records pending repurchase. Reverse repurchase
agreements could involve certain risks in the event of default or
insolvency of the other party, including possible delays or
restrictions upon the Portfolio's ability to dispose of the
underlying securities. An additional risk is that the market
value of securities sold by the Portfolio under a reverse
repurchase agreement could decline below the price at which the
Portfolio is obligated to repurchase them. Reverse repurchase
agreements will be considered borrowings by the Portfolio and as
such would be subject to the restrictions on borrowing described
in the Statement of Additional Information under "Investment
Restrictions." The Portfolio will not hold more than 5% of the
value of its total assets in reverse repurchase agreements as of
the time the agreement is entered into.
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 Adviser is taking steps that it believes
are reasonably designed to address the Year 2000 Problem with
respect to computer systems that it uses and to obtain reasonable
assurances that comparable steps are being taken by the Fund's
other major service providers. At this time, there can be no
assurance that these steps will be sufficient to avoid any adverse
impact to the Fund.
DISTRIBUTIONS AND INCOME TAXES
Distributions. Income dividends are declared each business
day, paid monthly, and confirmed at least quarterly. Capital
gains, if any, are distributed at least annually, usually in
December. Shares accrue dividends as long as they are issued and
outstanding (i.e., from the date net asset value is determined for
the purchase order to the Redemption Pricing Date of the Tender
Offer in which the Shares are accepted for repurchase by the
Fund).
Dividend payments are not guaranteed and may vary with each
payment. The Fund does not pay "interest" or guarantee any fixed
rate of return.
All of your income dividends and capital gains distributions
will be reinvested in additional Shares unless you elect to have
distributions either (1) paid by check; (2) deposited by
electronic transfer into your bank account; (3) applied to
purchase shares in your account with another Stein Roe Fund; or
(4) applied to purchase shares in a Stein Roe Fund account of
another person. (See "Shareholder Services.") Reinvestment
normally occurs on the payable date. If a shareholder elected to
receive dividends and/or capital gains distributions in cash and
the postal or other delivery service selected by the transfer
agent is unable to deliver checks to the shareholder's address of
record, such shareholder's distribution option will automatically
be converted to having all dividends and other distributions
reinvested in additional Shares. The Fund reserves the right to
reinvest the proceeds and future distributions in additional
Shares if checks mailed to you for distributions are returned as
undeliverable or are not presented for payment within six months.
No interest will accrue on amounts represented by uncashed
distribution or redemption checks. Until such time as the Fund is
fully invested, distributions will be less than they might
otherwise be.
The Fund is authorized to borrow money subject to certain
restrictions. (See "Other Investment Practices.") Under the 1940
Act, the Fund may not declare any dividend or other distribution
on its Shares unless the Fund has, at the time of declaration,
asset coverage of at least 300% of its aggregate indebtedness,
after deducting the amount of the distribution. This limitation
may impair the Fund's ability to maintain its qualification for
taxation as a regulated investment company.
Income Taxes. The Fund intends to satisfy those requirements
relating to the sources of its income, the distribution of its
income, and the diversification of its assets necessary to qualify
for the special tax treatment afforded to regulated investment
companies under the Internal Revenue Code (the "Code") and thereby
be relieved of federal income or excise taxes to the extent that
it distributes its net investment income and net realized capital
gains to shareholders in accordance with the timing requirements
imposed by the Code. For a detailed discussion of tax issues
pertaining to the Fund, see "Additional Income Tax Considerations"
in the Statement of Additional Information.
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 for tax purposes. If you are not subject to tax on
your income, you will not be required to pay tax on these amounts.
A holder of Shares who, pursuant to a Tender Offer, tenders
all of his or her Shares (and is not considered to own any other
Shares pursuant to attribution rules contained in the Code) may
realize a taxable gain or loss depending upon the shareholder's
basis in the Shares. Such gain or loss realized on the
disposition of Shares (whether pursuant to a Tender Offer or in
connection with a sale or other taxable disposition of Shares in a
secondary market) generally will be treated as long-term capital
gain or loss if the Shares have been held as a capital asset for
more than one year and as short-
term capital gain or loss if held as a capital asset for one year
or less. Starting in 2001, net long-term capital gains realized
upon the disposition of Shares held longer than five years will be
subject to a lower maximum capital gains tax rate than is
currently available. If Shares are sold at a loss after being
held for six months or less, the loss will be treated as long-
term-instead of short-term-capital loss to the extent of any
capital gain distributions received on those Shares. All or a
portion of any loss realized on a sale or exchange of Shares of
the Fund will be disallowed if the shareholder acquires other
Shares within 30 days before or after the disposition. In such a
case, the basis of the Shares acquired will be adjusted to reflect
the disallowed loss.
Different tax consequences may apply to tendering
shareholders other than fully-tendering shareholders described in
the previous paragraph and to non-tendering shareholders in
connection with the Tender Offer. For example, if a shareholder
tenders fewer than all Shares owned by or attributed to him or
her, the proceeds received could be treated as a taxable dividend,
a return of capital, or capital gain depending on the portion of
Shares tendered, the Fund's earnings and profits, and the
shareholder's basis in the tendered Shares. Moreover, when a
shareholder tenders fewer than all Shares owned pursuant to a
Tender Offer, there is a remote possibility that non-tendering
shareholders may be considered to have received a deemed
distribution that is taxable to them in whole or in part. You may
wish to consult your tax advisor prior to tendering.
Backup Withholding. The Fund may be required to withhold
federal income tax ("backup withholding") from certain payments to
a shareholder-generally redemption proceeds. Backup withholding
may be required if:
- - the shareholder fails to furnish its properly certified Social
Security or other tax identification number;
- - the shareholder fails to certify that its tax identification
number is correct or that it is not subject to backup
withholding due to the underreporting of certain income;
- - the Internal Revenue Service ("IRS") informs the Fund that the
shareholder's tax identification number is incorrect.
These certifications are contained in the application that
you should complete and return when you open an account. The Fund
must promptly pay to the IRS all amounts withheld. Therefore, it
is usually not possible for the Fund to reimburse you for amounts
withheld. You may, however, claim the amount withheld as a credit
on your federal income tax return.
The federal income tax discussion set forth above is for
general information only. Prospective investors should consult
their advisors regarding the specific federal and state tax
consequences of purchasing, holding and disposing of Shares, as
well as the effects of other state, local and foreign tax laws and
any proposed tax law changes.
MANAGEMENT OF THE FUND
Board of Trustees and Adviser. The Board of Trustees of the
Fund has overall management responsibility for the Fund; the Board
of Managers of the Portfolio has overall management responsibility
for the Portfolio. See "Management" in the Statement of
Additional Information for the names of and other information
about the trustees, managers and officers. Since the Fund and the
Portfolio have the same Board members, they 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, subject to the direction of their respective Boards.
The Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940. The Adviser and its predecessor
have 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 and its predecessor have been providing investment
advisory services since 1932. The Adviser acts as investment
adviser to wealthy individuals, trustees, pensions and profit
sharing plans, charitable organizations and other institutional
investors. As of June 30, 1998 the Adviser managed over $29
billion in assets.
Portfolio Management. Brian W. Good is a vice president of
the Adviser, and James R. Fellows is vice president of the
Adviser. Mr. Good and Mr. Fellows have been primarily responsible
for the day to day management of the Fund's and the Portfolio's
investment portfolio since the Fund's and the Portfolio's
commencement of investment operation. Mr. Fellows and Mr. Good
have both been employed by the Adviser since April 1998. Prior
thereto, Mr. Good was vice president and portfolio manager at Van
Kampen American Capital and Mr. Fellows was vice president and
senior credit analyst at Van Kampen American Capital.
Fees and Expenses. The Adviser provides administrative
services to the Fund and the Portfolio and portfolio management
services to the Portfolio. The Adviser is entitled to receive a
monthly administrative fee from the Fund, computed and accrued
daily, based on an annual rate of 0.25% of average net assets and
a monthly management fee from the Portfolio, computed and accrued
daily, based on an annual rate of 0.85% of average net assets of
the Portfolio. However, the Adviser may voluntarily waive a
portion of its fees.
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 and
securities registration and custodian fees and expenses incidental
to its organization.
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 Fund for the transfer of
Shares, disbursement of dividends, and maintenance of shareholder
accounting records. Under a separate agreement, SSI also provides
certain investor accounting services to the Portfolio.
Distributor. The Shares of the Fund are offered for sale
through Liberty Funds Distributor, Inc. ("Distributor") without
any sales commissions or charges to the Fund or to its
subsidiaries. The Distributor is a wholly owned indirect
subsidiary of Liberty Financial. The business address of the
Distributor is One Financial Center, Boston, Massachusetts 02111;
however, all Fund correspondence should be mailed to SteinRoe
Services Inc. at P.O. Box 8900, Boston, Massachusetts 02205. All
distribution and promotional expenses are paid by the Adviser,
including payments to the Distributor for sales of Fund Shares.
Custodian. State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02101, is the custodian of the Fund
and has custody of the securities and cash of the Fund. The
custodian, among other things, attends to the collection of
principal and income and payment for and collection of proceeds of
securities bought and sold by the Fund.
PERIODIC TENDER OFFERS
The Board has adopted share repurchase policies as
fundamental policies. Those policies, which may not be changed
without the vote of the holders of a majority of the Fund's
outstanding voting securities, provide that each quarter, the Fund
intends to make a Tender Offer to repurchase a portion of the
outstanding Shares from shareholders who request repurchases. The
price of the repurchases of Shares normally will be the net asset
value per share determined as of the close of business (3:00 p.m.,
Central time) on the date the Tender Offer ends or within a
maximum of fourteen days after the Tender Offer ends as described
below.
Repurchase Procedure. At the beginning of each Tender Offer,
the Fund's shareholders will be notified in writing about the
Tender Offer, how they may request that the Fund repurchase their
Shares and the deadline for shareholders to provide their
repurchase requests to the Distributor (the "Repurchase Request
Deadline"), which is the date the Tender Offer ends. The time
between the notification of the shareholders and the Repurchase
Request Deadline may vary from no more than six weeks to no less
than three weeks. For each Tender Offer the Fund will establish
the Repurchase Request Deadline based on factors, such as market
conditions, liquidity of the Fund's assets and shareholder
servicing considerations. The repurchase price of the Shares will
be the net asset value as of the close of the NYSE on the date on
which the repurchase price of Shares will be determined (the
"Repurchase Pricing Date"). It is anticipated that normally the
Repurchase Pricing Date will be the same date as the Repurchase
Request Deadline, and if so, the Repurchase Request Deadline will
be set for a time no later than the close of the NYSE on such
date. The Fund has determined that the Repurchase Pricing Date
may occur no later than the fourteenth day after the Repurchase
Request Deadline or the next business day if the fourteenth day is
not a business day. Within such fourteen day period, the Fund may
use an earlier Repurchase Pricing Date under certain
circumstances.
The Board may establish other policies for repurchases of
Shares that are consistent with the 1940 Act and other pertinent
laws. Shares tendered by shareholders by any Repurchase Request
Deadline will be repurchased subject to the aggregate repurchase
amounts established for that Repurchase Request Deadline.
Repurchase proceeds will be paid to shareholders in cash within
seven days after each Repurchase Pricing Date. The end of the
seven days is referred to as the "Repurchase Payment Deadline."
Repurchase Amounts. The Board, in its sole discretion, will
determine the number of Shares that the Fund will offer to
repurchase (the "Tender Offer Amount") for a given Repurchase
Request Deadline. However, the Tender Offer Amount will be at
least 5% and no more than 25% of the total number of Shares
outstanding on the Repurchase Request Deadline. The first Tender
Offer is expected to end near the end of _________, 1998, and
every three months thereafter. Prior to the notification of the
Repurchase Request Deadline, the Board will determine in its sole
discretion the percentage at which the Tender Offer Amount will be
set.
If shareholders tender more than the Tender Offer Amount for
a given Tender Offer, the Fund may repurchase an additional amount
of Shares of up to 2% of the Shares outstanding on the Repurchase
Request Deadline. If the Fund determines not to repurchase more
than the Tender Offer Amount, or if the Fund determines to
repurchase the additional 2% of the Shares outstanding, but Fund
shareholders tender Shares in an amount exceeding the Repurchase
Offer Amount plus 2% of the Shares outstanding on the Repurchase
Request Deadline, the Fund will repurchase the Shares on a pro
rata basis. The Fund may, however, accept all Shares tendered by
shareholders who own less than one hundred Shares and who tender
all their Shares, before accepting on a pro rata basis Shares
tendered by other shareholders.
Notices to Shareholders. Notice of each quarterly Tender
Offer (and any additional discretionary repurchase offers) will be
given to each beneficial owner of Shares between twenty-one (21)
and forty-two (42) days before each Repurchase Request Deadline.
The notice will contain information shareholders should consider
in deciding whether or not to tender their Shares. The notice
will also include detailed instructions on how to tender Shares.
The notice will state the Tender Offer Amount. The notice will
also identify the dates of the Repurchase Request Deadline,
scheduled Repurchase Pricing Date, and scheduled Repurchase
Payment Deadline. The notice will describe the risk of
fluctuation in the net asset value between the Repurchase Request
Deadline and the Repurchase Pricing Date, if such dates do not
coincide, and the possibility that the Fund may use an earlier
Repurchase Pricing Date than the scheduled Repurchase Pricing Date
under certain circumstances. The notice will describe (i) the
procedures for shareholders to tender their Shares, (ii) the
procedures for the Fund to repurchase Shares on a pro rata basis,
(iii) the circumstances in which the Fund may suspend or postpone
a Tender Offer, and (iv) the procedures that will enable
shareholders to withdraw or modify their tenders of Shares until
the Repurchase Request Deadline. The notice will set forth the
net asset value of the Shares to be repurchased no more than seven
days before the date of notification, and how shareholders may
ascertain the net asset value after the notification date.
Repurchase Price. The current net asset value of the Shares
is computed daily. The Board has determined that the time at
which the net asset value will be computed will be as of the close
of regular session trading on the NYSE. You may call 1-800-322-
0593 to learn the net asset value per share. The notice of the
repurchase offer will also provide information concerning the net
asset value per share, such as the net asset value as of a recent
date or a sampling of recent net asset values, and a toll-free
number for information regarding the Tender Offer.
Suspension or Postponement of Repurchase Offer. The Fund
will not suspend or postpone a Tender Offer unless a majority of
the Board, including a majority of the Board who are not
"interested persons" of the Fund, as defined in the 1940 Act,
votes to do so. In addition, the Fund will not delay a Tender
Offer unless so required by certain regulatory requirements
described in the notice of the Tender Offer are met. Shareholders
will receive notice of any suspension or postponement and a notice
of any renewed repurchase offer after a suspension or
postponement.
Although the Board believes that Tender Offers for the Shares
generally would increase the liquidity of the Shares, the
acquisition of Shares by the Fund will decrease the total assets
of the Fund and, therefore, have the effect of increasing the
Fund's expense ratio. Because of the nature of the Fund's
investment objective and polices and the Fund's portfolio, the
Adviser anticipates potential difficulty in disposing of portfolio
securities in order to consummate Tender Offers for the Shares.
Liquidity Requirements. The Fund and the Portfolio must
maintain liquid assets equal to their repurchase Tender Offer
Amount from the time that the notice is sent to shareholders until
the Repurchase Pricing Date. The Fund and the Portfolio will
ensure that a percentage of their respective net assets equal to
at least 100 percent of the Tender Offer Amount consists of assets
(a) that can be sold or disposed of in the ordinary course of
business at approximately the price at which the Fund or the
Portfolio, as applicable, has valued the investment within the
time period between the Repurchase Request Deadline and the
Repurchase Payment Deadline; or (b) that mature by the Repurchase
Payment Deadline.
The Boards of the Fund and the Portfolio have adopted
procedures that are reasonably designed to ensure that the assets
of the Fund and the Portfolio are sufficiently liquid so that the
Fund and the Portfolio can comply with the Repurchase Policy and
the liquidity requirements described in the previous paragraph.
If, at any time, the Fund or the Portfolio falls out of compliance
with these liquidity requirements, their respective Boards will
take whatever action they deem appropriate to ensure compliance.
The Fund intends to satisfy the liquidity requirements with
cash on hand, cash raised through borrowings, and Senior Loans.
There is some risk that the need to sell Senior Loans to fund
Tender Offers may affect the market for those Senior Loans. In
turn, this could diminish the Fund's net asset value.
HOW TO PURCHASE SHARES
The Fund is engaged in a continuous public offering of its
Shares at the next determined net asset values per share without a
sales charge. Shares may be purchased through the Distributor.
The Fund is offered to directors, officers and employees of
Liberty Financial Companies, Inc. and its subsidiaries, including
their immediate family members, to the trustees of the Fund, and
to clients of Stein Roe Private Capital Management. The Fund does
not intend to list the Shares on any national securities exchange.
You may purchase Shares by check, by wire or electronic
transfer. The initial purchase minimum per Fund account is
$10,000. Subsequent purchases must be at least $1,000. If you
wish to purchase Shares to be held by a tax-
sheltered retirement plan sponsored by the Adviser, you must
obtain special forms for those plans. (See "Shareholder
Services.")
By Check. To make an initial purchase of Shares by check,
please complete and sign the application and mail it, together
with a check made payable to Stein Roe Mutual Funds, to SteinRoe
Services Inc., P. O. Box 8900, Boston, Massachusetts 02205.
You may make subsequent investments by submitting a check
along with either the stub from your Fund account confirmation
statement or a note indicating the amount of the purchase, your
account number, and the name in which your account is registered.
Money orders will not be accepted for initial purchases into new
accounts. Credit card convenience checks will not be accepted for
initial and subsequent purchases into your account. Each
individual check submitted for purchase must be at least $1,000,
and the Fund generally will not cash, drafts, third or fourth
party checks, or checks drawn on banks outside the United States.
Should an order to purchase Shares of the Fund be cancelled
because your check does not clear, you will be responsible for any
resulting loss incurred by the Fund.
By Wire. You may also pay for Shares by instructing your
bank to wire federal funds (monies of member banks within the
Federal Reserve System) to the Fund at the First National Bank of
Boston. Your bank may charge you a fee for sending the wire. If
you are opening a new account by wire transfer, you must first
call 800-338-0593 to request an account number and furnish your
Social Security or other tax identification number. The Fund will
not be responsible for the consequences of delays, including
delays in the banking or Federal Reserve wire systems. Your bank
must include the full name(s) in which your account is registered
and your Fund account number, and should address its wire as
follows:
First National Bank of Boston
Boston, Massachusetts
ABA Routing No. 011000390
Attention: SteinRoe Services Inc.
Acct. No. 560-99696
Stein Roe Floating Rate Income Trust; Fund No. __
Account of (exact name(s) in registration)
Shareholder Account No. ______________
By Electronic Transfer. You may also make subsequent
investments by an electronic transfer of funds from your bank
account. Electronic transfer allows you to make purchases at your
request ("Special Investments") by calling 800-
338-0593 or at prescheduled intervals ("Regular Investments").
(See "Shareholder Services.") Electronic transfer purchases are
subject to a $50 minimum and a $100,000 maximum. You may not open
a new account through electronic transfer. Should an order to
purchase Shares of the Fund be cancelled because your electronic
transfer does not clear, you will be responsible for any resulting
loss incurred by the Fund.
Conditions of Purchase. Each purchase order for the Fund
must be accepted by an authorized officer of the Fund or its
authorized agent or designee 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. The Fund reserves
the right not to accept any purchase order that it determines not
to be in the best interests of the Fund. The Fund also reserves
the right to waive or lower its investment minimums for any
reason. The Fund does not issue certificates for Shares.
SHAREHOLDER SERVICES
Reporting to Shareholders. The Fund will send semi-annual
and annual reports to shareholders. These reports will include
financial statements audited by the Fund's independent auditors.
The Fund will provide shareholders with information necessary
to prepare federal and state tax returns shortly after the end of
the calendar year.
The Fund will describe the Tender Offer policy in its annual
report to shareholders. The annual report will also disclose the
number of Tender Offers conducted each year, the amount of each
Tender Offer, and the extent to which the Fund repurchased Shares
in an oversubscribed Tender Offer.
Tax-Sheltered Retirement Plans. Booklets describing the
following programs and special forms necessary for establishing
them are available on request:
Prototype Money Purchase Pension and Profit Sharing Plans for
self-employed individuals, partnerships and corporations.
Simplified Employee Pension Plans permitting employers to
provide retirement benefits to their employees by utilizing IRAs
while minimizing administration and reporting requirements.
The purchase of Shares of the Fund may be limited by the
plans' provisions and does not itself establish such plans.
Shareholders considering establishing a retirement plan or
purchasing any Fund Shares in connection with a retirement plan
should consult with their attorney or tax advisor with respect to
plan requirements and tax aspects
pertaining to the shareholder.
The illiquid nature of the Fund's Shares may affect the
nature of distributions from tax-sheltered retirement plans and
may affect the ability of participants in such plans to roll over
assets to other tax-sheltered retirement plans.
NET ASSET VALUE
The purchase or redemption price of the Fund's Shares is its
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
New York Stock Exchange ("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. The
Portfolio allocates net asset value, income, and expenses to its
feeder funds in proportion to their respective interests in the
Portfolio. Net asset value will not be determined on days when
the NYSE is closed unless, in the judgment of the Board, the net
asset value of a Fund should be determined on any such day, in
which case the determination will be made at 3:00 p.m., Central
time. The value of the Portfolio will be determined by the
Adviser, following guidelines established and periodically
reviewed by the Board. Interests in Senior Loans will be valued
by the Adviser on behalf of the Portfolio on the basis of market
quotations and transactions in instruments which the Adviser
believes maybe comparable to Senior Loan interests with respect to
the following characteristics: credit quality, interest rate,
interest rate redetermination period and maturity. Such
instruments may include commercial paper, negotiable certificates
of deposit and short-term variable rate securities which have
adjustment periods comparable to the Senior Loan interests in the
Portfolio. In determining the relationship between such
instruments and the Senior Loan interests in the Portfolio, the
Adviser will consider on an ongoing basis, among other factors,
(i) the creditworthiness of the Borrower and (ii)the current
interest rate, the period until next interest rate redetermination
and maturity of such Senior Loan interests. It is expected that
the Fund's net asset value will fluctuate as a function of
interest rate and credit factors. Because of the short-term
nature of such instruments, however, the Fund's net asset value is
expected to fluctuate less in response to changes in interest
rates than the net asset values of investment companies with
portfolios consisting primarily of fixed-income or longer-term
securities. The Adviser believes that Lenders selling Senior Loan
interests or otherwise involved in a Senior Loan transaction may
tend, in valuing Senior Loan interests for their own account, to
be less sensitive to interest rate and credit quality changes and,
accordingly, the Adviser does not intend to rely solely on such
valuations in valuing the Senior Loan interests for the
Portfolio's account. In addition, because a secondary trading
market in Senior Loans has not yet fully developed, in valuing
Senior Loans, the Adviser may not rely solely on, but may
consider, to the extent the Adviser believes such information to
be reliable, prices or quotations provided by banks, dealers or
pricing services with respect to secondary market transactions in
Senior Loans. To the extent that an active secondary market in
Senior Loan interests develops to a reliable degree, the Adviser
may rely to an increasing extent on such market prices and
quotations in valuing the Senior Loan interests in the Portfolio.
In light of the senior nature of Senior Loan interests included in
the Portfolio and taking into account the Portfolio's access to
non-public information with respect to Borrowers relating to such
Senior Loan interests, the Adviser does not currently believe that
consideration on a systematic basis of ratings provided by any
nationally recognized statistical rating organization or price
fluctuations with respect to long- or short-term debt of such
Borrowers subordinate to the Senior Loans of such Borrowers is
necessary for the determination of the value of such Senior Loan
interests. Accordingly, the Adviser generally does not
systematically consider (but may consider in certain instances)
and, in any event, does not rely upon such ratings or price
fluctuations in determining the value of Senior Loan interests in
the Portfolio. Other portfolio securities (other than short-term
obligations, but including listed issues) may be valued on the
basis of prices furnished by one or more pricing services that
determine prices for normal, institutional-size trading units of
such securities using market information, transactions for
comparable securities and various relationships between securities
which are generally recognized by institutional traders. In
certain circumstances, portfolio securities will be valued at the
last sale price on the exchange that is the primary market for
such securities, or the last quoted bid price for those securities
for which the over-the-counter market is the primary market or for
listed securities in which there were no sales during the day.
The value of interest rate swaps will be determined in accordance
with a discounted present value formula and then confirmed by
obtaining a bank quotation. Short-term debt securities with
remaining maturities of 60 days or less are valued at their
amortized cost, which does not take into account unrealized gains
or losses. The Board believes that the amortized cost represents
a fair value for such securities. Short-term debt securities with
remaining maturities of more than 60 days for which market
quotations are not readily available are valued by use of a matrix
prepared by the Adviser based on quotations for comparable
securities. Other assets and securities held by the Portfolio for
which these valuation methods do not produce a fair value are
valued by a method that the Board believes will determine a fair
value.
PERFORMANCE INFORMATION
The Fund seeks to provide an effective yield that is higher
than other short-term instrument alternatives. From time to time,
the Fund may include its current and/or effective yield based on
various specific time periods. Yields will fluctuate from time to
time and are not necessarily representative of future results.
The current yield is calculated by annualizing the most
recent monthly distribution (i.e., multiplying the distribution
amount by 365/31 for a 31 day month) and dividing the product by
the current maximum offering price. The effective yield is
calculated by dividing the current yield by 365/31 and adding 1.
The resulting quotient is then taken to the 365/31st power and
reduced by 1. The result is the effective yield.
On occasion, the Fund may compare its yield to: (a) LIBOR,
quoted daily in the Wall Street Journal; (b) the CD Rate as quoted
daily in the Wall Street Journal as the average of top rates paid
by major New York banks on primary new issues of negotiable CDs,
usually on amounts of $1 million or more; (c) the Prime Rate,
quoted daily in The Wall Street Journal as the base rate on
corporate loans at large U.S. money center commercial banks; (d)
one or more averages compiled by Donoghue's Money Fund Report, a
widely recognized independent publication that monitors the
performance of money market mutual funds; (e) the average yield
reported by the Bank Rate Monitor National IndexTM for money
market deposit accounts offered by the 100 leading banks and
thrift institutions in the ten largest standard metropolitan
statistical areas; (f) yield data published by Lipper Analytical
Services, Inc.; (g) the yield on an investment in 90-day Treasury
bills on a rolling basis, assuming quarterly compounding; or (h)
the yield on an index of loan funds comprised of all continually
offered closed-end bank loan funds, as categorized by Lipper (the
"loan fund index"). In addition, the Fund may compare the Prime
Rate, the Donoghue's averages and the other yield data described
above to each other. Yield comparisons should not be considered
indicative of the Fund's yield or relative performance for any
future period.
Advertisements and communications to present or prospective
shareholders also may cite a total return for any period. Total
return is calculated by subtracting the net asset value of a
single purchase of Shares at a given date from the net asset value
of those Shares (assuming reinvestment of distributions) or a
later date. The difference divided by the original net asset
value is the total return. The Fund may include information about
the total return on the loan fund index, and compare that to the
total return of the Fund and other indices.
All dividends and distributions are assumed to be reinvested
in additional Shares of the Fund at net asset value. Therefore,
the calculation of the Fund's total return and effective yield
reflects the effect of compounding. The calculation of total
return, current yield and effective yield does not reflect the
amount of any shareholder income tax liability, which would reduce
the performance quoted. If the Fund's fees or expenses are waived
or reimbursed, the Fund's performance will be higher.
Finally, the Fund may include information on the history of
its net asset value per share and the net asset value per share of
the loan fund index, including comparisons between them, in
advertisements and other material furnished to present and
prospective shareholders. Information about the performance of
the Fund or other investments is not necessarily indicative of
future performance and should not be considered a representative
of what an investor's yield or total return may be in the future.
ORGANIZATION AND DESCRIPTION OF SHARES
The Fund is a Massachusetts business trust organized under an
Agreement and Declaration of Trust ("Declaration of Trust") dated
August 13, 1998, 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 Fund's
shareholders or its Trustees. The Fund may issue an unlimited
number of shares, in one or more series as the Board may
authorize. Currently, one series is authorized and outstanding.
Under Massachusetts law, shareholders of a Massachusetts
business trust such as the Fund 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 Fund shall
look only to its assets for payment under such credit, contract or
claim, and that the shareholders, trustees and officers of the
Fund 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 Fund. 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 Fund
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 Fund
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.
The Shares are not, and are not expect to be, listed for
trading on any national securities exchange nor, to the Fund's
knowledge, is there, or is there expected to be, any secondary
trading market in the Shares.
Anti-Takeover Provisions in the Declaration of Trust. The
Fund's Declaration of Trust includes provisions that could have
the effect of limiting the ability of other entities or persons to
acquire control of the Fund. In addition, in the event a
secondary market were to develop in the Shares, such provisions
could have the effect of depriving holders of Shares of an
opportunity to sell their Shares at a premium over prevailing
market prices.
The Declaration of Trust requires the favorable vote of the
holders of not less than three-fourths of the outstanding Shares
then entitled to vote to authorize certain transactions, unless at
least three-fourths of the members of the Board then in office and
at least three-fourths of the non-interested Trustees who have
acted in such capacities for at least 12 months (or since
commencement of operation if that period is less than 12 months)
authorize such transaction and then only a vote of the majority of
the holders of the outstanding Shares then entitled to vote is
required.
The Board has determined that the voting requirements
described above, which are greater than the minimum requirements
under Massachusetts law or the 1940 Act, are in the best interests
of shareholders generally. Reference should be made to the
Declaration of Trust on file with the SEC for the full text of
these provisions.
MASTER FUND/FEEDER FUND: STRUCTURE AND RISK FACTORS
The Fund seeks to achieve its objective by investing all of
its assets in another closed-end 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 Objective and Policies" for a description of the
investment objectives, policies, and restrictions of the
Portfolio. The management and expenses of both the Fund and the
Portfolio are described under "Fund Expenses" and "Management of
the Fund-Fees and Expenses." 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.
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 a 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 the Fund's 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 the Fund's shareholders will receive a
majority of votes cast by all 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 the Fund 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 would
incur brokerage fees or other transaction costs in converting such
securities to cash. In addition, a distribution in kind could
result in a less diversified portfolio of the Fund and could
affect the liquidity of the Fund.
The Portfolio may permit other investment companies and/or
other institutional investors to invest, 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 Stein Roe Floating Rate Limited
Liability Company, Suite 3200, One South Wacker Drive, Chicago,
Illinois 60606 or by calling 800-338-0593. The Adviser may
provide administrative or other services to one or more such
investors.
APPENDIX-RATINGS
Ratings in General. A rating of a rating service represents
the service's opinion as to the credit quality of the security
being rated. However, the ratings are general and are not
absolute standards of quality or guarantees as to the
creditworthiness of an issuer. Consequently, the Adviser believes
that the quality of debt securities 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 ratings categories. Foreign debt is rated on the
same basis as domestic debt measuring the creditworthiness of the
issuer; ratings of foreign debt do not take into account currency
exchange and related uncertainties.
The "r" is attached to highlight derivative, hybrid, and
certain other obligations that S&P believes may experience high
volatility or high variability in expected returns due to non-
credit risks. Examples of such obligations are: securities whose
principal or interest return is indexed to equities, commodities,
or currencies; certain swaps and options; and interest only and
principal only mortgage securities. The absence of an "r" symbol
should not be taken as an indication that an obligation will
exhibit no volatility or variability in total return.
Commercial Paper Ratings
Ratings by Moody's. Moody's employs the following three
designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its commercial paper
obligations are supported by the credit of another entity or
entities, Moody's, in assigning ratings to such issuers, evaluates
the financial strength of the indicated affiliated corporations,
commercial banks, insurance companies, foreign governments or
other entities, but only as one factor in the total rating
assessment.
Ratings By S&P. A brief description of the applicable rating
symbols and their meaning follows:
A. Issues assigned this highest rating are regarded as
having the greatest capacity for timely payment. Issues in this
category are further refined with the designations 1, 2, and 3 to
indicate the relative degree of safety.
A-1. This designation indicates that the degree of safety
regarding timely payment is very strong. Those issues determined
to possess overwhelming safety characteristics will be denoted
with a plus (+) sign designation.
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
Page
The Fund................................................2
Investment Policies.....................................2
Portfolio Investments and Strategies....................3
Investment Restrictions................................11
Tender Offers Fundamental Policy.......................14
Management.............................................14
Principal Shareholders.................................17
Investment Advisory Services...........................17
Distributor............................................19
Transfer Agent.........................................19
Custodian..............................................20
Independent Auditors...................................20
Portfolio Transactions.................................20
Additional Income Tax Considerations...................22
Investment Performance.................................22
Financial Statements...................................23
<PAGE>
Statement of Additional Information Dated _______, 1998
STEIN ROE FLOATING RATE INCOME TRUST
Suite 3200, One South Wacker Drive, Chicago, Illinois 60606
800-338-0593
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 _______, 1998 and any
supplements thereto. A Prospectus may be obtained at no charge by
telephoning 800-338-0593.
TABLE OF CONTENTS
Page
The Fund................................................2
Investment Policies.....................................2
Portfolio Investments and Strategies....................3
Investment Restrictions................................11
Tender Offers Fundamental Policy.......................14
Management.............................................14
Principal Shareholders.................................17
Investment Advisory Services...........................17
Distributor............................................19
Transfer Agent.........................................19
Custodian..............................................20
Independent Auditors...................................20
Portfolio Transactions.................................20
Additional Income Tax Considerations...................22
Investment Performance.................................22
Financial Statements...................................23
<PAGE>
THE FUND
Stein Roe Floating Rate Income Trust (the "Fund") is a newly
organized non-diversified, closed-end management investment
company. The Fund is engaged in a continuous public offering of
its Shares at the next determined net asset value per share
without a sales charge. The Fund will make Tender Offers on a
quarterly basis to repurchase between 5% and 25% of its
outstanding Shares at the then current net asset value of the
Shares. The Fund's principal office is located at Suite 3200 One
South Wacker Drive, Chicago, Illinois 60606, and its telephone
number is 1-800-322-0593. Capitalized terms used in this
Statement of Additional Information and not otherwise defined have
the meanings given them in the Fund's Prospectus.
Stein Roe & Farnham Incorporated (the "Adviser") provides
administrative and accounting and recordkeeping services to the
Fund and the Portfolio (described below) 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 Stein Roe Floating
Rate Limited Liability Company (the "Portfolio"), which has 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. 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 objectives and policies of the Fund and of the
Portfolio described in the Prospectus. In pursuing its objective,
the Fund and the Portfolio will invest as described below and may
employ the investment techniques described in the Prospectus and
elsewhere in this Statement of Additional Information. The
investment objective of the Fund and of the Portfolio is a non-
fundamental policy and may be changed by the Board without the
approval of a "majority of the outstanding voting securities" /1/
of that Fund or Portfolio, as applicable.
- -----------
/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 investment objective of the Fund and of the Portfolio is
to provide a high level of current income, consistent with
preservation of capital. To achieve this objective the Portfolio
invests primarily in a portfolio of Senior Loans to Borrowers that
operate in a variety of industries and geographic regions
(including domestic and foreign entities).
Under normal market conditions, at least 80% of the
Portfolio's total assets will be invested in Senior Loans of
domestic Borrowers or foreign Borrowers (so long as Senior Loans
to such foreign Borrowers are U.S. dollar denominated and payments
of interest and repayments of principal pursuant to such Senior
Loans are required to be made in U.S. dollars). Although most
Senior Loans are secured, the Portfolio may invest up to 20% of
its total assets in interests in Senior Loans that are not secured
by any collateral and in other permitted investments (as described
below).
In addition, during normal market conditions, the Portfolio
may invest up to 20% of its total assets (including assets
maintained by the Portfolio as a reserve against any additional
loan commitments) in (i) high quality, short-term debt securities
with remaining maturities of one year or less and (ii) warrants,
equity securities and, in limited circumstances, junior debt
securities acquired in connection with the Portfolio's investments
in Senior Loans. Such high quality, short-term securities may
include commercial paper rated at least Baa, P-3 or higher by
Moody's Investors Service ("Moody's") or BBB, A-3 or higher by
Standard & Poor's Corporation ("S&P") (or if unrated, determined
by the Adviser to be of comparable quality), interests in short-
term loans and short-term loan participations of Borrowers having
short-term debt obligations rated or a short-term credit rating at
least in such rating categories (or having no such rating,
determined by the Adviser to be of comparable quality),
certificates of deposit and bankers' acceptances and securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Such high quality, short-term securities may
pay interest at rates that are periodically redetermined or may
pay interest at fixed rates. For more information, please refer
to the Prospectus under the caption "Investment Objectives and
Policies."
PORTFOLIO INVESTMENTS AND STRATEGIES
The following sets forth information about the investment
policies of the Fund and the Portfolio and the types of securities
the Portfolio may buy. Please read this information together with
information in the Prospectus under the caption "How the Fund
Invests."
Senior Loans. Senior Loans generally are arranged through
private negotiations between a Borrower and the Lenders
represented in each case by one or more Agents of the several
Lenders. Senior Loans in which the Portfolio will purchase
interests generally pay interest at rates that are periodically
redetermined by reference to a base lending rate plus a premium.
These base lending rates are generally Prime Rate, LIBOR, the CD
rate or other base lending rates used by commercial lenders. The
Senior Loans in the Portfolio's investment portfolio will at all
times have a dollar-weighted average time until next interest rate
redetermination of 90 days or less. Because of prepayment
provisions, the actual remaining maturity of Senior Loans may vary
substantially from the stated maturity of such loans. The Adviser
estimates actual average maturity of Senior Loans in the portfolio
will be approximately 18-24 months.
Participations and Assignments. The Portfolio may invest in
Participations in Senior Loans, may purchase Assignments of
portions of Senior Loans from third parties and may act as one of
the group of Original Lenders.
When the Portfolio purchases a Participation, the Portfolio
will typically enter into a contractual relationship with the
Lender selling the Participation, but not with the Borrower. As a
result, the Portfolio will assume the credit risk of both the
Borrower and the Lender selling the Participation, and the
Portfolio may not directly benefit from the collateral supporting
the Senior Loan in which it has purchased the Participation. The
Portfolio will purchase a Participation only when the Lender
selling the Participation, and any other institution
interpositioned between such Lender and the Portfolio, at the time
of investment have outstanding debt obligations rated investment
grade (BBB or A-3 or higher by S&P or Baa or P-3 or higher by
Moody's) or determined by the Adviser to be of comparable quality.
The rights of the Portfolio when it acquires a Participation may
be different from, and more limited than, the rights of Original
Lenders or of persons who acquire an Assignment. The Portfolio
may pay a fee or forgo a portion of interest payments to the
Lender selling a Participation or Assignment pursuant to the terms
of such Participation or Assignment.
Debt Restucturing. The Portfolio may purchase and retain in
its portfolio an interest in a Senior Loan to a Borrower that has
filed for protection under the federal bankruptcy laws or has had
an involuntary bankruptcy petition filed against it by its
creditors. The Adviser's decision to purchase or retain such an
interest will depend on its assessment of the likelihood that the
Portfolio ultimately will receive full repayment of the principal
amount of the Senior Loan interests, the likely duration, if any,
of a lapse in the scheduled repayment of principal and prevailing
interest rates. At times, in connection with the restructuring of
a Senior Loan either outside of bankruptcy court or in the context
of bankruptcy court proceedings, the Portfolio may determine or be
required to accept equity securities or junior debt securities in
exchange for all or a portion of a Senior Loan interest.
Depending upon, among other things, the Adviser's evaluation of
the potential value of such securities in relation to the price
that could be obtained by the Portfolio at any given time upon
sale thereof, the Portfolio may determine to hold such securities
in its portfolio. Any equity security or junior debt security
held by the Portfolio will not be treated as a Senior Loan and
thus will not count toward the 80% of the Portfolio's total assets
that normally will be invested in Senior Loans.
Bridge Financing. The Portfolio may acquire interests in
Senior Loans that are designed to provide temporary or "bridge"
financing to a Borrower pending the sale of identified assets or
the arrangement of longer-term loans or the issuance and sale of
debt obligations. A Borrower's use of a bridge loan involves a
risk that the Borrower may be unable to locate permanent financing
to replace the bridge loan, which may impair the Borrower's
perceived creditworthiness.
Other Securities. The Portfolio will acquire such warrants,
equity securities and junior debt securities only as an incident
to the purchase or intended purchase of interests in
collateralized Senior Loans. The Portfolio generally will acquire
interests in warrants, equity securities and junior debt
securities only when the Adviser believes that the relative value
being given by the Portfolio in exchange for such interests is
substantially outweighed by the potential value of such
instruments.
Investment in warrants, equity securities and junior debt
securities entails certain risks in addition to those associated
with investments in Senior Loans. Warrants and equity securities
have a subordinate claim on a Borrower's assets as compared with
debt securities, and junior debt securities have a subordinate
claim on such assets as compared with Senior Loans. As such, the
values of warrants and equity securities generally are more
dependent on the financial condition of the Borrower and less
dependent on fluctuations in interest rates than are the values of
many debt securities. The values of warrants, equity securities
and junior debt securities may be more volatile than those of
Senior Loans and thus may have an adverse impact on the ability of
the Portfolio to minimize fluctuations in its net asset value.
Defensive Investment Policy. If the Adviser determines that
market conditions temporarily warrant a defensive investment
policy, the Portfolio may invest, subject to its ability to
liquidate its relatively illiquid portfolio of Senior Loans, up to
100% of its assets in cash and high quality, short-term debt
securities. The Portfolio may also engage in interest rate and
other hedging transactions, lend portfolio holdings, purchase and
sell interests in Senior Loans and other portfolio debt securities
on a "when-issued" or "delayed-delivery" basis, and enter into
repurchase and reverse repurchase agreements. These investment
practices involve certain special risk considerations. The
Adviser may use some or all of the following investment practices
when, in the opinion of the Adviser, their use is appropriate.
Although the Adviser believes that these investment practices may
further the Portfolio's investment objective, no assurance can be
given that the utilization of these investment practices will
achieve that result.
Structured Noted. The Portfolio may invest up to 5% of its
total assets in structured notes, including "total rate of return
swaps" with rates of return determined by reference to the total
rate of return on one or more loans referenced in such notes. The
rate of return on the structured note may be determined by
applying a multiplier to the rate of total return on the
referenced loan or loans. Application of a multiplier is
comparable to the use of financial leverage, which is a
speculative technique. Leverage magnifies the potential for gain
and the risk of loss, because a relatively small decline in the
value of a referenced note could result in a relatively large loss
in the value of a structured note. Structured notes are treated
as Senior Loans for purposes of the Portfolio's policy of normally
investing at least 80% of its assets in Senior Loans.
Borrowing. The Portfolio may borrow money for the purpose of
obtaining short-term credits in connection with Tender Offers by
the Portfolio for its shares, to finance investments and for
temporary, extraordinary or emergency purposes. Under the
requirements of the 1940 Act, the Portfolio, immediately after any
such borrowings, must have an asset coverage of at least 300%.
Asset coverage is the ratio that the value of the total assets of
the Portfolio, less all liabilities and indebtedness not
represented by senior securities (as that term is defined in the
1940 Act), bears to the aggregate amount of any such borrowings by
the Portfolio.
The rights of any lenders to the Portfolio to receive
payments of interest on and repayments of principal of such
borrowings will be senior to those of the holders of Portfolio
shares, and the terms of any such borrowings may contain
provisions that limit certain activities of the Portfolio,
including the payment of dividends to holders of Portfolio shares
in certain circumstances. Further, the terms of any such
borrowings may, and the provisions of the 1940 Act do (in certain
circumstances), grant lenders certain voting rights in the event
of default in the payment of interest or repayment of principal.
In the event that such provisions would impair the Portfolio's
status as a regulated investment company, the Portfolio, subject
to the ability of the Portfolio to liquidate its relatively
illiquid portfolio, intends to repay the borrowings. Interest
payments and fees incurred in connection with any such borrowings
will reduce the amount of net income available for payment to the
holders of Portfolio shares. The Portfolio may enter into an
agreement with a financial institution providing for a facility,
the proceeds of which may be used to finance, in part,
repurchases.
Derivatives. The Portfolio may enter into various interest
rate hedging and risk management transactions. Certain of these
interest rate hedging and risk management transactions may be
considered to involve derivative instruments. A derivative is a
financial instrument whose performance is derived at least in part
from the performance of an underlying index, security or asset.
The values of certain derivatives can be affected dramatically by
even small market movements, sometimes in ways that are difficult
to predict. There are many different types of derivatives with
many different uses. The Portfolio expects to enter into these
transactions primarily to seek to preserve a return on a
particular investment or portion of its portfolio, and may also
enter into such transactions to seek to protect against decreases
in the anticipated rate of return on floating or variable rate
financial instruments the Portfolio owns or anticipates purchasing
at a later date, or for other risk management strategies such as
managing the effective dollar-weighted average duration of the
Portfolio's investment portfolio.
Hedging Transactions. In addition, the Portfolio may also
engage in hedging transactions to seek to protect the value of its
portfolio against declines in net asset value resulting from
changes in interest rates or other market changes. The Portfolio
does not intend to engage in such transactions to enhance the
yield on its portfolio. Market conditions will determine whether
and in what circumstances the Portfolio would employ any hedging
and risk management techniques. The Portfolio will not engage in
any of the transactions for speculative purposes and will use them
only as a means to hedge or manage the risks associated with
assets held in, or anticipated to be purchased for, the
Portfolio's investment portfolio or obligations incurred by the
Portfolio. The successful utilization of hedging and risk
management transactions requires skills different from those
needed in the selection of portfolio securities. The Adviser
believes that it possesses the skills necessary for the successful
utilization of hedging and risk management transactions. The
Portfolio will incur brokerage and other costs in connection with
its hedging transactions.
Interest Rate Swaps, Caps and Floors. The Portfolio may
enter into interest rate swaps or purchase or sell interest rate
caps or floors. The Portfolio will not sell interest rate caps or
floors that it does not own. Interest rate swaps involve the
exchange by the Portfolio with another party of their respective
obligations to pay or receive interest; e.g., an exchange of an
obligation to make floating rate payments for an obligation to
make fixed rate payments. For example, the Portfolio may seek to
shorten the effective interest rate redetermination period of a
Senior Loan to a Borrower that has selected an interest rate
redetermination period of one year. The Portfolio could exchange
the Borrower's obligation to make fixed rate payments for one year
for an obligation to make payments that readjust monthly. In such
event, the Portfolio would consider the interest rate
redetermination period of such Senior Loan to be the shorter
period.
The purchase of an interest rate cap entitles the purchaser,
to the extent that a specified index exceeds a predetermined
interest rate, to receive payments of interest at the difference
between the index and the predetermined rate on a notional
principal amount (the reference amount with respect to which
interest obligations are determined although no actual exchange of
principal occurs) from the party selling such interest rate cap.
The purchase of an interest rate floor entitles the purchaser, to
the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest at the difference
between the index and the predetermined rate on a notional
principal amount from the party selling such interest rate floor.
The Portfolio will not enter into swaps, caps or floors, if, on a
net basis, the aggregate notional principal amount with respect to
such agreements exceeds the net assets of the Portfolio.
In circumstances in which the Adviser anticipates that
interest rates will decline, the Portfolio might, for example,
enter into an interest rate swap as the floating rate payor or,
alternatively, purchase an interest rate floor. In the case of
purchasing an interest rate floor, if interest rates declined
below the floor rate, the Portfolio would receive payments from
its counterparty that would wholly or partially offset the
decrease in the payments it would receive with respect to the
portfolio assets being hedged. In the case where the Portfolio
purchases such an interest rate swap, if the floating rate
payments fell below the level of the fixed rate payment set in the
swap agreement, the Portfolio's counterparty would pay the
Portfolio amounts equal to interest computed at the difference
between the fixed and floating rates over the notional principal
amount. Such payments would offset or partially offset the
decrease in the payments the Portfolio would receive with respect
to floating rate portfolio assets being hedged.
The successful use of swaps, caps and floors to preserve the
rate of return on a portfolio of financial instruments depends on
the Adviser's ability to predict correctly the direction and
extent of movements in interest rates. Although the Adviser
believes that use of the hedging and risk management techniques
described above will benefit the Portfolio, if the Adviser's
judgment about the direction or extent of the movement in interest
rates is incorrect, the Portfolio's overall performance could be
worse than if it had not entered into any such transaction. For
example, if the Portfolio had purchased an interest rate swap or
an interest rate floor to hedge against its expectation that
interest rates would decline but instead interest rates rose, the
Portfolio would lose part or all of the benefit of the increased
payments it would receive as a result of the rising interest rates
because it would have to pay amounts to its counterparty under the
swap agreement or would have paid the purchase price of the
interest rate floor.
Inasmuch as these hedging transactions are entered into for
good-faith risk management purposes, the Adviser and the Portfolio
believe such obligations do not constitute senior securities. The
Portfolio will usually enter into interest rate swaps on a net
basis; i.e., where the two parties make net payments with the
Portfolio receiving or paying, as the case may be, only the net
amount of the two payments. The net amount of the excess, if any,
of the Portfolio's obligations over its entitlements with respect
to each interest rate swap will be accrued and an amount of cash
or liquid securities having an aggregate net asset value at least
equal to the accrued excess will be maintained. If the Portfolio
enters into a swap on other than a net basis, the Portfolio will
maintain the full amount of the Portfolio's obligations under each
such swap. Accordingly, the Portfolio does not treat swaps as
senior securities. The Portfolio may enter into swaps, caps and
floors with member banks of the Federal Reserve System, members of
the New York Stock Exchange or other entities determined to be
creditworthy by the Adviser, pursuant to procedures adopted and
reviewed on an ongoing basis by the Board. If a default occurs by
the other party to such transactions, the Portfolio will have
contractual remedies pursuant to the agreements related to the
transaction, but such remedies may be subject to bankruptcy and
insolvency laws that could affect the Portfolio's rights as a
creditor. The swap market has grown substantially in recent years
with a large number of banks and financial services firms acting
both as principals and as agents utilizing standardized swap
documentation. As a result, the swap market has become relatively
liquid. Caps and floors are more recent innovations and they are
less liquid than swaps. There can be no assurance, however, that
the Portfolio will be able to enter into interest rate swaps or to
purchase interest rate caps or floors at prices or on terms the
Adviser believes are advantageous to the Portfolio. In addition,
although the terms of interest rate swaps, caps and floors may
provide for termination, there can be no assurance that the
Portfolio will be able to terminate an interest rate swap or to
sell or offset interest rate caps or floors that it has purchased.
New Financial Products. New financial products continue to
be developed and the Portfolio may invest in any such products as
may be developed to the extent consistent with its investment
objective and the regulatory and federal tax requirements
applicable to investment companies.
Lending of Portfolio Holdings. The Portfolio may seek to
increase its income by lending financial instruments in its
portfolio in accordance with present regulatory policies,
including those of the Board of Governors of the Federal Reserve
System and the SEC. Such loans may be made, without limit, to
brokers, dealers, banks or other recognized institutional
Borrowers of financial instruments and would be required to be
secured continuously by collateral, including cash, cash
equivalents or U.S. Treasury bills maintained on a current basis
at an amount at least equal to the market value of the financial
instruments loaned. The Portfolio would have the right to call a
loan and obtain the financial instruments loaned at any time on
five days' notice. For the duration of a loan, the Portfolio
would continue to receive the equivalent of the interest paid by
the issuer on the financial instruments loaned and also would
receive compensation from the investment of the collateral. The
Portfolio would not have the right to vote any financial
instruments having voting rights during the existence of the loan,
but the Portfolio could call the loan in anticipation of an
important vote to be taken among holders of the financial
instruments or in anticipation of the giving or withholding of
their consent on a material matter affecting the financial
instruments. As with other extensions of credit, such loans
entail risks of delay in recovery or even loss of rights in the
collateral should the Borrower of the financial instruments fail
financially. However, the loans would be made only to borrowers
deemed by the Adviser to be of good standing and when, in the
judgment of the Adviser, the consideration that can be earned
currently from loans of this type justifies the attendant risk.
The creditworthiness of firms to which the Portfolio lends its
portfolio holdings will be monitored on an ongoing basis by the
Adviser pursuant to procedures adopted and reviewed, on an ongoing
basis, by the Board. No specific limitation exists as to the
percentage of the Portfolio's assets that the Portfolio may lend.
"When-Issued" and "Delayed-Delivery" Transactions. The
Portfolio may also purchase and sell interests in Senior Loans and
other portfolio securities on a "when-issued" and "delayed-
delivery" basis. No income accrues to the Portfolio on such
interests or securities in connection with such purchase
transactions prior to the date the Portfolio actually takes
delivery of such interests or securities. These transactions are
subject to market fluctuation, the value of the interests in
Senior Loans and other portfolio debt securities at delivery may
be more or less than their purchase price, and yields generally
available on such interests or securities when delivery occurs may
be higher or lower than yields on the interests or securities
obtained pursuant to such transactions. Because the Portfolio
relies on the buyer or seller, as the case may be, to consummate
the transaction, failure by the other party to complete the
transaction may result in the Portfolio missing the opportunity of
obtaining a price or yield considered to be advantageous. When
the Portfolio is the buyer in such a transaction, however, it will
maintain cash or liquid securities having an aggregate value at
least equal to the amount of such purchase commitments until
payment is made. The Portfolio will make commitments to purchase
such interests or securities on such basis only with the intention
of actually acquiring these interests or securities, but the
Portfolio may sell such interests or securities prior to the
settlement date if such sale is considered to be advisable. To
the extent the Portfolio engages in "when-
issued" and "delayed-delivery" transactions, it will do so for the
purpose of acquiring interests or securities for the Portfolio's
investment portfolio consistent with the Portfolio's investment
objective and policies and not for the purpose of investment
leverage. No specific limitations exist as to the percentage of
the Portfolio's assets that may be used to acquire securities on a
"when-issued" or "delayed-delivery" basis.
Repurchase Agreements. The Portfolio may enter into
repurchase agreements (a purchase of, and simultaneous commitment
to resell, a financial instrument at an agreed upon price on an
agreed upon date) only with member banks of the Federal Reserve
System and member firms of the New York Stock Exchange. In
entering into a repurchase agreement, the Portfolio buys
securities from the bank or broker-dealer, with the agreement that
the seller will repurchase the securities at a higher price at a
later date. Such transactions afford an opportunity for the
Portfolio to earn a return on available cash at minimal market
risk, although the Portfolio may be subject to various delays and
risks of loss if the seller is unable to meet its obligation to
repurchase. Under the 1940 Act, repurchase agreements are deemed
to be collateralized loans of money by the Portfolio to the
Seller. In evaluating whether to enter into a repurchase
agreement, the Adviser will consider carefully the
creditworthiness of the seller. If the bank or broker-dealer that
is the seller petitions for bankruptcy or otherwise becomes
subject to the U.S. Bankruptcy Code, the law regarding the rights
of the Portfolio is unsettled. The securities underlying a
repurchase agreement will be marked to market every business day
and adjusted in amount so that the value of the collateral is at
least equal to the value of the loan, including the accrued
interest thereon, and the Adviser will monitor the value of the
collateral. No specific limitation exists as to the percentage of
the Portfolio's assets that may be invested in repurchase
agreements.
Reverse Repurchase Agreements. The Portfolio may enter into
reverse repurchase agreements with respect to debt obligations
that could otherwise be sold by the Portfolio. Under a reverse
repurchase agreement, the Portfolio sells a debt security and
simultaneously obtain the commitment of the purchaser (a
commercial bank or a broker-dealer) to sell the security back to
the Portfolio at an agreed upon price on an agreed upon date. The
Portfolio will maintain cash or liquid securities in an amount
sufficient to cover its obligations with respect to reverse
repurchase agreements. The Portfolio receives payment for such
securities only upon physical delivery or evidence of book entry
transfer by its custodian. SEC regulations require either that
securities sold by the Portfolio under a reverse repurchase
agreement be segregated pending repurchase or that the proceeds be
segregated on the Portfolio's books and records pending
repurchase. Reverse repurchase agreements could involve certain
risks in the event of default or insolvency of the other party,
including possible delays or restrictions upon the Portfolio's
ability to dispose of the underlying securities. An additional
risk is that the market value of securities sold by the Portfolio
under a reverse repurchase agreement could decline below the price
at which the Portfolio is obligated to repurchase them. Reverse
repurchase agreements are considered borrowings by the Portfolio
and as such are subject to the restrictions on borrowing described
below under "Investment Restrictions." The Portfolio will not
hold more than 5% of the value of its total assets in reverse
repurchase agreements as of the time the agreement is entered
into.
Rated Securities. For a description of the ratings applied
by Moody's and S&P to short-term securities, please refer to the
Appendix to the Prospectus. The rated short-term securities
described under Investment Policies above include securities given
a rating conditionally by Moody's or provisionally by S&P. If the
rating of a security held by the Portfolio is withdrawn or
reduced, the Portfolio is not required to sell the security, but
the Adviser will consider such fact in determining whether the
Portfolio should continue to hold the security.
Portfolio Turnover. The frequency and amount of portfolio
purchases and sales (known as the "turnover rate") will vary from
year to year. It is anticipated that the Portfolio's turnover
rate will be between 50% and 100%. The portfolio turnover rate is
not expected to exceed 100%, but may vary greatly from year to
year and will not be a limiting factor when the Adviser deems
portfolio changes appropriate. Although the Portfolio generally
does not intend to trade for short-term profits, the securities
held by the Portfolio will be
sold whenever the Adviser believes it is appropriate to do so,
without regard to the length of time a particular security may
have been held. Higher portfolio turnover involves
correspondingly greater brokerage commissions and other
transaction costs that the Portfolio will bear directly.
INVESTMENT RESTRICTIONS
The Fund and the Portfolio operate under the following
investment restrictions. Neither the Fund nor the Portfolio may:
(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 (the electric, gas, water and
telephone utility industries being treated as separate industries
for the purpose of this restriction) except that this restriction
does not apply to (i) obligations issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities; (ii)
securities the issuer of which is deemed to be in the financial
institutions industry, which includes commercial banks, thrift
institutions, insurance companies and finance companies; [the Fund
only] or (iii) investment by the Fund of all or substantially all
of its assets in another registered investment company having the
same investment objective and substantially similar investment
policies as the Fund;
(2) invest in a security if, as a result of such investment,
it would hold more than 10% of the outstanding voting securities
(taken at the time of such investment) of any one issuer [the 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) purchase or sell real estate (although it may purchase
securities secured by real estate or interests therein, or
securities issued by companies that invest in real estate, or
interests therein), except that it may hold for prompt sale and
sell real estate or interests in real estate to which it may gain
an ownership interest through the forfeiture of collateral
securing loans or debt securities held by it;
(4) 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;
(5) 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 (the purchase of Senior Loans, corporate debt securities,
and other investment assets with the proceeds of a permitted
borrowing or securities offering will not be deemed to be the
purchase of securities on margin);
(6) make loans, although it may (a) lend portfolio securities
and participate in an interfund lending program with other
investment companies to which the Adviser provides investment
advisory services 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 (including
interests in Assignments and Participation) and other Senior Loans
in which it is authorized to invest in accordance with its
respective investment objectives and policies;
(7) borrow except that it may (a) borrow for nonleveraging,
temporary or emergency purposes, (b) engage in reverse repurchase
agreements, hedging transactions, when-issued and delayed-delivery
transactions and similar investment strategies, and make other
borrowings, provided that the combination of (a) and (b) shall not
at anytime exceed 33-1/3% of the value of its total assets
(including the amount borrowed) less liabilities (other than for
borrowings) or such other percentage permitted by law, and (c)
enter into futures and options transactions (it may borrow from
banks, other investment companies to which the Adviser provides
investment advisory services, and other persons to the extent
permitted by applicable law);
(8) 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, [the 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
(9) issue any senior security except to the extent permitted
under the Investment Company Act of 1940 (for this purpose Senior
Loans shall not be deemed senior securities).
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 Fund and the Portfolio are also subject to the following
restrictions and policies that may be changed by the Board of the
Fund or of the Portfolio, as applicable. 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,
neither the Fund nor the Portfolio may:
(A) invest for the purpose of exercising control or
management [except to the extent that exercise by the Portfolio of
its rights under Loan Agreements would be deemed to be constitute
such control or management];
(B) purchase more than 3% of the stock of another investment
company (other than the Portfolio) or purchase stock of other
investment companies (other than the Portfolio) equal to more than
5% of its total assets (taken at market value at the time of
purchase) in the case of any one other investment company (other
than the Portfolio) and 10% of such assets (taken at market value
at the time of purchase) in the case of all other investment
companies (other than the Portfolio) 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 /2/;
- -------
/2/ The Fund has 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 Fund intends to operate within the applicable
limitations under Section 12(d)(1)(A) of that Act.
- --------
(C) purchase shares of open-end investment companies, except
in connection with a merger, consolidation, acquisition, or
reorganization;
(D) purchase a put or call option if the aggregate premiums
paid for all put and call options then held 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;
(E) write an option on a security unless the option is issued
by the Options Clearing Corporation, an exchange, or similar
entity;
(F) invest in limited partnerships in real estate unless they
are readily marketable;
(G) 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 that 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;
(H) 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;
(I) invest more than 10% of its net assets (taken at market
value at the time of a particular investment) in illiquid
securities,/3/ including repurchase agreements maturing in more
than seven days.
- -----------
/3/ 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.
- ----------
TENDER OFFERS FUNDAMENTAL POLICY
The Board has adopted a resolution setting forth the Fund's
fundamental policy that it will conduct quarterly Tender Offers
(the "Tender Offer Fundamental Policy").
The Tender Offer Fundamental Policy sets the interval between
each Repurchase Offer at one quarter and provides that the Fund
shall conduct a Tender Offer each quarter (unless suspended or
postponed in accordance with regulatory requirements). The
Repurchase Request Deadline will be established by the Fund and
will be based on factors such as market conditions, liquidity of
the Fund's assets and shareholder servicing conditions. The
Tender Offer Fundamental Policy also provides that the repurchase
pricing shall occur not later than fourteenth day after the
Repurchase Request Deadline or the next business day if the
fourteenth day is not a business day.
The Tender Offer Fundamental Policy may only be changed by a
majority vote of the outstanding voting securities. For more
information, please refer to the Prospectus under the caption
"Periodic Tender Offers."
MANAGEMENT
The following table sets forth certain information with respect to
trustees and officers of the Fund and the Portfolio:
<TABLE>
<CAPTION>
POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S)
NAME, AGE THE FUND DURING PAST FIVE YEARS
<S> <C> <C>
William D. Andrews, 51 Executive Vice-President Executive vice president of Stein Roe &
Farnham Incorporated (the "Adviser")
Gary A. Anetsberger, 42 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 Sterling
(2)(3) Plumbing Group, Inc. (manufacturer of
plumbing products)
Thomas W. Butch, 41 President President of the Adviser's Mutual Funds
division since March 1998; senior vice
president of the Adviser from Sept.
1994 to March 1998; first vice
president, corporate communications, of
Mellon Bank Corporation thereto
Lindsay Cook, 46 (1) Trustee Executive vice president of Liberty
Financial Companies, Inc. (the indirect
parent of the Adviser) since March
1997; senior vice president prior
thereto
Kevin M. Carome, 42 Vice-President; Associate general counsel and (since
Asst. Secretary Feb. 1995) vice president, Liberty
Financial Companies, Inc.; general
counsel and secretary of the Adviser
since Jan. 1998)
James R. Fellows, 33 Vice-President Vice president of the Adviser since
April 1998; vice president and senior
credit analyst, Van Kampen American
Capital prior thereto
Brian W. Good, 33 Vice-President Vice president of the Adviser since
April 1998; vice president and
portfolio manager, Van Kampen American
Capital prior thereto
Douglas A. Hacker,42(3) 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, 50 Executive Vice-President Chief investment officer 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, Trustee Senior vice president, secretary and
40 (3) general counsel of Sara Lee Corporation
(branded, packaged, consumer-products
manufacturer) since 1995; partner of
Sidley & Austin (law firm) prior
thereto
Charles R. Nelson, 56 Trustee Van Voorhis Professor of Political
(3) Economy of the University of Washington
Nicolette D. Parrish, Vice-President; Senior legal assistant and assistant
48 Assistant Secretary secretary of the Adviser
Sharon R. Robertson, 36 Controller Accounting manager for the Adviser's
Mutual Funds division
Janet B. Rysz, 42 Assistant Secretary Senior legal assistant and assistant
secretary of the Adviser
Thomas C. Theobald, 61 Trustee Managing director, William Blair
(3) Capital Partners (private equity fund)
since 1994; chief executive officer and
chairman of the Board of Directors of
Continental Bank Corporation prior
thereto
Scott E. Volk, 27 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 Vice President; Secretary Vice President of the Adviser since
March 1998; legal counsel for the
Adviser since March 1995; associate
with Beeler Schad & Diamond PC (law
firm) prior thereto
Hans P. Ziegler, 57 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 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 Fund 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.
</TABLE>
Certain of the trustees and officers of the Fund and the
Portfolio are trustees or officers of other investment companies
managed by the Adviser. Ms. Walter and Mr. Butch are also vice
presidents 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, MA 02210; that of Mr. Hacker is P.O. Box 66100, Chicago,
IL 60666; that of Ms. Kelly is Three First National Plaza,
Chicago, Illinois 60602; that of Mr. Nelson is Department of
Economics, University of Washington, Seattle, Washington 98195;
that of Mr. Theobald is Suite 3300, 222 West Adams Street,
Chicago, IL 60606; and that of the officers is One South Wacker
Drive, Chicago, Illinois 60606.
Officers and trustees affiliated with the Adviser serve
without any compensation from the Fund. In compensation for their
services to the Fund, trustees who are not "interested persons" of
the Fund or the Adviser are paid an annual retainer plus an
attendance fee for each meeting of the Board or Standing Committee
attended. The Fund has no retirement or pension plan. For the
period from the start of business on _____________, 1998 to June
30, 1999, the end of the Fund's current fiscal year, it is
estimated that the trustees will earn the following compensation
in their capacities as trustees:
Aggregate Total Compensation Average Per
Compensation from the Stein Roe Series
Name of Trustee from the Fund Fund Complex* in Complex -
- -------------- ------------- ------------------ -----------
Lindsay Cook -0- -0-
William W. Boyd
Douglas A. Hacker
Janet Langford Kelly
Charles R. Nelson
Thomas C. Theobald
____________
*As of the date hereof, the Stein Roe Fund Complex consisted of
the Fund, the Portfolio for which the trustees serve on the Board
of Managers, Stein Roe Institutional Floating Rate Trust, and the
following series of open-end funds: 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, one series of
Stein Roe Trust, and 13 series of SR&F Base Trust.
PRINCIPAL SHAREHOLDERS
As of the date of this Prospectus, the Adviser owns 100% of
the issued and outstanding Shares and, until the Fund completes
the public offering of the Shares, the Adviser will be deemed to
control the Fund under the 1940 Act.
INVESTMENT ADVISORY SERVICES
The Adviser 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 of the
Fund" and "Fund Expenses" in the Prospectus, which are
incorporated herein by reference.
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 total annual expenses
of the Fund (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 expenses for the Fund, as described in the
Prospectus under "Fund Expenses." Any such reimbursements will
enhance the yield of the Fund.
The 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
the Portfolio or any shareholder of the Portfolio for any error of
judgment, mistake of law or any loss arising out of any
investment, or for any other act or omission in the performance by
the Adviser of its duties under the agreement, except for
liability resulting from willful misfeasance, bad faith or gross
negligence on the Adviser's part in the performance of its duties
or from reckless disregard by the Adviser of its obligations and
duties under the agreement.
Any expenses that are attributable solely to the
organization, operation, or business of the Fund shall be paid
solely out of the Fund's assets. Any expenses incurred by the
Fund that are not solely attributable to the Fund are apportioned
in such manner as the Adviser determines is fair and appropriate,
unless otherwise specified by the Board.
Bookkeeping and Accounting
Pursuant to a separate agreement with the Fund, the Adviser
receives a fee for performing certain bookkeeping and accounting
services for the Fund. For these services, the Adviser receives
an annual fee of $25,000 plus .0025 of 1% of average net assets
over $50 million.
DISTRIBUTOR
Shares of the Fund are distributed by Liberty Funds
Distributor, Inc. ("Distributor"), One Financial Center, Boston,
MA 02111, under a Distribution Agreement (the "Agreement"). The
Distributor is a subsidiary of Colonial Management Associates,
Inc., which is an indirect subsidiary of Liberty Financial. The
Agreement continues in effect from year to year, provided such
continuance is approved annually (1) by a majority of the Board or
by a majority of the outstanding voting securities of the Fund,
and (2) by a majority of the trustees who are not parties to the
Agreement or interested persons of any such party. The Fund 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 the prospectus and other expenses.
As agent, the Distributor offers Shares of the Fund to
investors in states where the Shares are qualified for sale, at
net asset value, without sales commissions or other sales load to
the investor. No sales commission or "12b-1" payment is paid by
the Fund. The Distributor offers the Fund's Shares only on a
best-efforts basis.
TRANSFER AGENT
SSI performs certain transfer agency services for the Fund, as
described under "Management of the Fund" in the Prospectus. For
performing these services, the Fund pays SSI a fee at the annual
rate of 0.140 of 1% of its average daily net assets. The Board
believes the charges by SSI to the Fund are comparable to those of
other companies performing similar services. (See "Investment
Advisory Services.") Under a separate agreement, SSI also
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 Fund and the Portfolio. 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.
The Fund 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 Fund 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 Fund.
PORTFOLIO TRANSACTIONS
The Adviser places the orders for the purchase and sale of
portfolio securities and options and futures contracts. 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. 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 commission, 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 feels are
useful.
In a few instances, the Adviser receives from brokers
products or services which are used by the Adviser both for
investment research and for administrative, marketing, or other
non-research or brokerage purposes. In such instances, 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.
The Fund does not believe it pays brokerage commissions
higher than those obtainable from other brokers in return for
research or brokerage products or services provided by brokers.
Research or brokerage products or services provided by brokers may
be used by the Adviser in servicing any or all of the clients of
the Adviser and such research products or services may not
necessarily be used by the Adviser in connection with client
accounts which paid commissions to the brokers providing such
products or services.
ADDITIONAL INCOME TAX CONSIDERATIONS
The Fund and the Portfolio intend to comply with the special
provisions of the Internal Revenue Code that relieve the Fund and
the Portfolio, as applicable, of federal income tax to the extent
of their respective net investment income and capital gains
currently distributed to their respective 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. The
"Yield" of the Fund 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 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 the Fund for the
period.
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).
The Fund may provide information about the Advisor and its
affiliates and other related funds in sales material or
advertisements provided to investors or prospective investors.
Sales materials or advertisements also may provide information on
the use of investment professionals by investors. For further
information, see "Performance Information" in the Prospectus.
Related Securities. For a description of the ratings applied
by Moody's and S&P to short-term securities, please refer to the
Appendix to the Prospectus. The rated short-term securities
described under Investment Policies above include securities given
a rating conditionally by Moody's or provisionally by S&P. If the
rating of a security held by the Portfolio is withdrawn or
reduced, the Portfolio is not required to sell the security, but
the Adviser will consider such fact in determining whether the
Portfolio should continue to hold the security.
FINANCIAL STATEMENTS
Following are the audited financial statements for the
initial capitalization of the Fund and the report of Ernst & Young
LLP dated ________, 1998. [To be supplied.]
<PAGE>
PART C
Item 24. Financial Statements and Exhibits
(1) Financial Statements:
(a) Financial statements included in Part A of this
registration statement:
None
(b) Financial statements included in Part B of this
registration statement:
Stein Roe Floating Rate Income Trust audited financial
statements for its initial capitalization dated
____________, 1998*
(2) Exhibits:
a. Agreement and Declaration of Trust dated August 13, 1998.
b. By-laws of Registrant dated August 13, 1998.
c. None.
d. None.
e. None.
f. None.
g. Portfolio Management Agreement between Stein Roe Floating
Rate Limited Liability Company and Stein Roe & Farnham
Incorporated dated August __, 1998.*
h. Underwriting Agreement between Registrant and Liberty Funds
Distributor, Inc. dated August __, 1998.*
i. None.
j. Custodian Contract between Registrant and State Street Bank
and Trust Company dated August __, 1998.*
k. (1) Transfer Agency Agreement between Registrant and
SteinRoe Services Inc. dated August ____, 1998.*
(2) Accounting and Bookkeeping Agreement between
Registrant and Stein Roe & Farnham Incorporated dated
August ___, 1998.*
(3) Sub-transfer Agent Agreement between SteinRoe Services
Inc. and Colonial Investors Service Center dated
August ___, 1998.*
l. Opinion and Consent of Bell, Boyd & Lloyd.*
m. None.
n. Consent of Ernst & Young LLP.*
o. None.
p. Subscription Agreement dated August ___, 1998.*
q. Stein Roe & Farnham Funds Individual Retirement Account
Plan.*
Stein Roe & Farnham Prototype Paired Defined Contribution
Plan.*
r. None.
_________
*To be filed by amendment.
Item 25. Marketing Arrangements
None.
Item 26. Other Expenses of Issuance and Distribution
Registration Fees $_______
National Association of
Securities Dealers, Inc. Fees $_______
State Taxes and Fees $_______
Printing Fees $_______
Rating Agency Fees $_______
Legal and Accounting Fees $_______
Item 27. 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. The
information in the Statement of Additional Information under the
captions "Management," "Investment Advisory Services" and
"Transfer Agent" is incorporated by reference.
Item 28. Number of Holders of Securities
Title of Class Number of Record Holders
----------------------- ------------------------
Stein Roe Floating Rate 0
Income Trust
Item 29. Indemnification
Article Eight 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 each person who serves or
has served at Registrant's request as a director, officer, or
trustee of another organization in which Registrant has any
interest as a shareholder, creditor or otherwise) ("Covered
Persons") under specified circumstances.
Section 17(h) of the Investment Company Act of 1940 ("1940
Act") provides that neither the Agreement and Declaration of Trust
nor the By-Laws of Registrant, nor any other instrument pursuant
to which Registrant is organized or administered, shall contain
any provision which protects or purports to protect any trustee or
officer of Registrant against any liability to Registrant or its
shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his office. In
accordance with Section 17(h) of the 1940 Act, Article Eight 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 Eight does not protect any person against any
liability to Registrant or to its shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in
the conduct of his office;
(ii) in the absence of a final decision on the merits by a
court or other body before whom a proceeding was brought that a
Covered Person was not liable by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office, no indemnification is
permitted under Article Eight unless a determination that such
person was not so liable is made on behalf of Registrant by (a)
the vote of a majority of the trustees who are not "interested
persons" of Registrant, as defined in Section 2(a)(19) of the 1940
Act ("disinterested trustees"), or (b) an independent legal
counsel as expressed in a written opinion; and
(iii) Registrant will not advance attorneys' fees or other
expenses incurred by a Covered Person in connection with a civil
or criminal action, suit or proceeding unless Registrant receives
an undertaking by or on behalf of the Covered Person to repay the
advance (unless it is ultimately determined that he is entitled to
indemnification) and (a) the Covered Person provides security for
his undertaking, or (b) Registrant is insured against losses
arising by reason of any lawful advances, or (c) a majority of the
disinterested, non-party trustees of Registrant or an independent
legal counsel as expressed in a written opinion, determine, based
on a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the
Covered Person ultimately will be found entitled to
indemnification.
Any approval of indemnification pursuant to Article Eight
does not prevent the recovery from any Covered Person of any
amount paid to such Covered Person in accordance with Article
Eight as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such Covered Person's
action was in, or not opposed to, the best interests of Registrant
or to have been liable to Registrant or its shareholders by reason
of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of such Covered
Person's office.
Article Eight also provides that its indemnification
provisions are not exclusive.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to
trustees, officers and controlling persons of the Registrant
pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant
of expenses incurred or paid by a trustee, officer, or controlling
person of the Registrant in connection with 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, the 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 whether
such indemnification by it is against public policy as expressed
in the Securities 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 premium 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, gross
negligence, in the performance of its duties, or by reason of its
reckless disregard of its duties and obligations under its
contract or agreement with the Registrant; for this purpose the
Registrant will rely on an allocation of premiums determined by
the insurance company.
[Pursuant to the indemnification agreement among the
Registrant, its transfer agent and its investment adviser dated
August ___, 1998, the Registrant, its trustees, officers and
employees, its transfer agent and the transfer agent's directors,
officers, and employees are indemnified by Registrant's investment
adviser against any and all losses, liabilities, damages, claims
and expenses arising out of any act or omission of the Registrant
or its transfer agent performed in conformity with a request of
the investment adviser that the transfer agent and the Registrant
deviate from their normal procedures in connection with the issue,
redemption or transfer of shares for a client of the investment
adviser.
Registrant, its trustees, officers, employees and
representatives and each person, if any, who controls the
Registrant within the meaning of Section 15 of the Securities Act
of 1933 are indemnified by the distributor of Registrant's shares
(the "distributor"), pursuant to the terms of the distribution
agreement, which governs the distribution of Registrant's shares,
against any and all losses, liabilities, damages, claims and
expenses arising out of the acquisition of any shares of the
Registrant by any person which (i) may be based upon any wrongful
act by the distributor or any of the distributor's directors,
officers, employees or representatives or (ii) may be based upon
any untrue or alleged untrue statement of a material fact
contained in a registration statement, prospectus, statement of
additional information, shareholder report or other information
covering shares of the Registrant filed or made public by the
Registrant or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
therein not misleading if such statement or omission was made in
reliance upon information furnished to the Registrant by the
distributor in writing. In no case does the distributor's
indemnity indemnify an indemnified party against any liability to
which such indemnified party would otherwise be subject by reason
of willful misfeasance, bad faith, or negligence in the
performance of its or his duties or by reason of its or his
reckless disregard of its or his obligations and duties under the
distribution agreement.]
Item 30. 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
John McLandsborough Vice-President
Arthur J. McQueen Vice-President
Richard B. Peterson 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
M. Jane McCart Vice-President
John McLandsborough Vice-President
Arthur J. McQueen Vice-President
Richard B. Peterson 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
M. Jane McCart 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
John McLandsborough Vice President
Jane M. Naeseth Vice President
Richard B. Peterson 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
STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY
Gary A. Anetsberger Senior Vice President
Heidi J. Walter Vice President, Secretary
STEIN ROE INSTITUTIONAL FLOATING RATE INCOME TRUST
Gary A. Anetsberger Senior Vice President
Heidi J. Walter Vice President, Secretary
STEIN ROE INSTITUTIONAL FLOATING RATE INCOME TRUST
Gary A. Anetsberger Senior Vice-President
Heidi J. Walter Vice President; Secretary
Item. 31. 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 32. Management Services
None.
Item 33. Undertakings
1. The Registrant undertakes to suspend the offering of shares
until the prospectus is amended if: (a) subsequent to the
effective date of the Registration Statement, the net asset value
declines more than 10 percent from its net asset value as of the
effective date of the Registration Statement; or (b) the net asset
value increases to an amount greater than its net proceeds as
stated in the prospectus.
2. Not applicable.
3. Not applicable.
4. The Registrant undertakes:
a. To file, during any period in which offers or sales are
being made, a post-effective amendment to the registration
statement:
(1) To include any prospectus required by Section 10(a)(3)
of the 1933 Act;
(2) To reflect in the prospectus any facts or events after
the effective date of the registration statement (or
the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement; and
(3) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
b. That, for the purpose of determining any liability under
the 1933 Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of those
securities at that time shall be deemed to be the initial
bona fide offering thereof; and
c. To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
d. To send by first class mail or other means designed to
ensure equally prompt delivery, within two business days
of receipt of a written or oral request, any Statement of
Additional Information.
5. Not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the registrant has duly
caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in Chicago, Illinois
on August 18, 1998.
STEIN ROE FLOATING RATE INCOME TRUST
By WILLIAM H. BELDEN III
William H. Belden III
President and sole Trustee
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature* Title Date
WILLIAM H. BELDEN III President & Trustee August 18, 1998
William H. Belden III
GARY A. ANETSBERGER Senior Vice-President August 18, 1998
Gary A. Anetsberger,
Principal Financial Officer
*This Registration Statement has also been signed by the above
persons in their capacities as sole manager and officers of Stein
Roe Floating Rate Limited Liability Company.
<PAGE>
Index of Exhibits Filed with this Registration Statement
Exhibit EDGAR Number Exhibit No. Exhibit
2(a) 99.2(a) Agreement and Declaration of Trust dated
August 13, 1998
2(b) 99.2(b) By-laws of the Registrant dated August
13, 1998
STEIN ROE FLOATING RATE INCOME TRUST
AGREEMENT AND DECLARATION OF TRUST
AGREEMENT AND DECLARATION OF TRUST made at Boston, Massachusetts,
this 13th day of August, 1998, by the Trustee hereunder and by the
holders of shares of beneficial interest to be issued hereunder as
hereinafter provided
WITNESSETH that
WHEREAS, this Trust has been formed to carry on the business of an
investment company; and
WHEREAS, the Trustees have agreed to manage all property coming
into their hands as trustees of a Massachusetts voluntary
association with transferable shares in accordance with the
provisions hereinafter set forth;
NOW, THEREFORE, the Trustees hereby declare that they will hold
all cash, securities and other assets, which they may from time to
time acquire in any manner as Trustees hereunder, IN TRUST to
manage and dispose of the same upon the following terms and
conditions for the benefit of the holders from time to time of
Shares in this Trust as hereinafter set forth.
ARTICLE I
Name and Definitions
Name
Section 1. This Trust shall be known as "Stein Roe Floating Rate
Income Trust", and the Trustees shall conduct the business of the
Trust under that name or any other name as they may from time to
time determine.
Definitions
Section 2. Whenever used herein, unless otherwise required by the
context or specifically provided:
(a) The "Trust" refers to the Massachusetts business trust
established by this Agreement and Declaration of Trust, as amended
from time to time;
(b) "Trustees" refers to the Trustees of the Trust named herein
or elected in accordance with Article IV;
(c) "Shares" means the equal proportionate transferable units of
interest into which the beneficial interest in the Trust shall be
divided from time to time or, if more than one series or class of
Shares is authorized by the Trustees, the equal proportionate
transferable units into which each series or class of Shares shall
be divided from time to time;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940
and the Rules and Regulations thereunder, all as amended from time
to time;
(f) The terms "Affiliated Person", "Assignment", "Commission",
"Interested Person", "Principal Underwriter", "Majority
Shareholder Vote" (the 67% or 50% requirement of the third
sentence of Section 2(a)(42) of the 1940 Act, whichever may be
applicable) and "Person" shall have the meanings given them in the
1940 Act;
(g) "Declaration of Trust" shall mean this Agreement and
Declaration of Trust as amended or restated from time to time;
(h) "Bylaws" shall mean the Bylaws of the Trust as amended from
time to time;
(i) The term "series" or "series of Shares" refers to the
division of Shares into two or more series as provided in Article
III, Section 1 hereof;
(j) The term "class" or "class of Shares" refers to the division
of Shares representing any series into two or more classes as
provided in Article III, Section 1 hereof; and
(k) "Continuing Trustee" shall mean any Trustee (i) who is not a
Person, or an Affiliated Person of a Person, who enters or
proposes to enter into any transaction with the Trust described in
Section 5 of Article IX hereof (an "Interested Party") and (ii)
who has been a Trustee for a period of at least twelve months (or
since the commencement of the Trust's operations if that period is
less than twelve months), or is a successor to a Continuing
Trustee who is not an Interested Party and was recommended or
elected to succeed a Continuing Trustee by a majority of the then
Continuing Trustees.
ARTICLE II
Purpose of Trust
The purpose of the Trust is to provide investors a managed
investment primarily in securities, debt instruments and other
instruments and rights of a financial character.
ARTICLE III
Shares
Division of Beneficial Interest
Section 1. The Trustees may, without Shareholder approval,
authorize one or more series of Shares (which series may be
divided into two or more classes), Shares of each such series or
class having such preferences, voting powers and special or
relative rights or privileges (including conversion rights, if
any) as the Trustees may determine and as shall be set forth in
the Bylaws. The number of Shares of each series or class
authorized shall be unlimited except as the Bylaws may otherwise
provide. The Trustees may from time to time divide or combine the
Shares of any series or class into a greater or lesser number
without thereby changing the proportionate beneficial interest in
the series or class.
Ownership of Shares
Section 2. The ownership of Shares shall be recorded on the books
of the Trust or a transfer or similar agent. No certificates
certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees
may make such rules as they consider appropriate for the issuance
of Share certificates, the transfer of Shares and similar matters.
The record books of the Trust as kept by the Trust or any transfer
or similar agent, as the case may be, shall be conclusive as to
who are the Shareholders of each series or class and as to the
number of Shares of each series or class held from time to time by
each Shareholder.
Investment in the Trust
Section 3. The Trustees shall accept investments in the Trust
from such persons and on such terms and for such consideration,
which may consist of cash or tangible or intangible property or a
combination thereof, as they or the Bylaws from time to time
authorize.
No Preemptive Rights
Section 4. Shareholders shall have no preemptive or other right
to subscribe to any additional Shares or other securities issued
by the Trust.
Status of Shares and Limitation of Personal Liability
Section 5. Shares shall be deemed to be personal property giving
only the rights provided in this Declaration of Trust or the
Bylaws. Every Shareholder by virtue of having become a
Shareholder shall be held to have expressly assented and agreed to
the terms of this Declaration of Trust and the Bylaws and to have
become a party hereto and thereto. The death of a Shareholder
during the continuance of the Trust shall not operate to terminate
the same nor entitle the representative of any deceased
Shareholder to an accounting or to take any action in court or
elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Trust. Ownership of Shares
shall not entitle the Shareholder to any title in or to the whole
or any part of the Trust property or right to call for a partition
or division of the same or for an accounting, nor shall the
ownership of Shares constitute the Shareholders partners. Neither
the Trust nor the Trustees, nor any officer, employee or agent of
the Trust shall have any power to bind personally any Shareholder,
nor except as specifically provided herein to call upon any
Shareholder for the payment of any sum of money or assessment
whatsoever other than such as the Shareholder may at any time
personally agree to pay.
ARTICLE IV
The Trustees
Election
Section 1. A Trustee may be elected either by the Trustees or by
the Shareholders. The number of Trustees shall be fixed from time
to time by the Trustees. Each Trustee elected by the Trustees or
the Shareholders shall serve until he or she retires, resigns, is
removed or dies or until the next meeting of Shareholders called
for the purpose of electing Trustees and until the election and
qualification of his successor. At any meeting called for the
purpose, a Trustee may be removed by vote of the holders of two-
thirds of the outstanding Shares. The initial Trustee, who shall
serve until the first meeting of Shareholders at which Trustees
are elected and until his successor is elected and qualified, or
until he sooner dies, resigns or is removed, shall be Gregory T.
Pusch.
Effect of Death, Resignation, etc. of a Trustee
Section 2. The death, declination, resignation, retirement,
removal or incapacity of the Trustees, or any one of them, shall
not operate to annul the Trust or to revoke any existing agency
created pursuant to the terms of this Declaration of Trust.
Powers
Section 3. Subject to the provisions of this Declaration of
Trust, the business of the Trust shall be managed by the Trustees,
and they shall have all powers necessary or convenient to carry
out that responsibility. Without limiting the foregoing, the
Trustees may adopt Bylaws not inconsistent with this Declaration
of Trust providing for the conduct of the business of the Trust
and may amend and repeal them to the extent that such Bylaws do
not reserve that right to the Shareholders of one or more series
or classes. Subject to the voting power of one or more series or
classes of Shares as set forth in the Bylaws, the Trustees may
fill vacancies in or add to their number, and may elect and remove
such officers and appoint and terminate such agents as they
consider appropriate; they may appoint from their own number, and
terminate, any one or more committees consisting of two or more
Trustees, including an executive committee which may, when the
Trustees are not in session, exercise some or all of the power and
authority of the Trustees as the Trustees may determine; they may
employ one or more custodians of the assets of the Trust and may
authorize such custodians to employ subcustodians and to deposit
all or any part of such assets in a system or systems for the
central handling of securities, retain a transfer agent or a
Shareholder servicing agent, or both, provide for the distribution
of Shares by the Trust, through one or more principal underwriters
or otherwise, set record dates for the determination of
Shareholders with respect to various matters, and in general
delegate such authority as they consider desirable to any officer
of the Trust, to any committee of the Trustees and to any agent or
employee of the Trust or to any such custodian or underwriter.
Without limiting the foregoing, the Trustees shall have power and
authority:
(a) To invest and reinvest cash, and to hold cash uninvested;
(b) To sell, exchange, lend, pledge, mortgage, hypothecate, write
options on and lease any or all of the assets of the Trust except
as otherwise provided in Article IX, Section 5;
(c) To vote or give assent, or exercise any rights of ownership,
with respect to stock or other securities or property; and to
execute and deliver proxies or powers of attorney to such person
or persons as the Trustees shall deem proper, granting to such
person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;
(d) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(e) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form,
or in the name of the Trustees or of the Trust or in the name of a
custodian, subcustodian or other depositary or a nominee or
nominees or otherwise;
(f) To the extent necessary or appropriate to give effect to the
preferences and special or relative rights or privileges of any
series or classes of Shares, to allocate assets, liabilities,
income and expenses of the Trust to a particular series or class
of Shares or to apportion the same among two or more series or
classes;
(g) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or
issuer, any security of which is or was held in the Trust; to
consent to any contract, lease, mortgage, purchase or sale of
property by such corporation or issuer, and to pay calls or
subscriptions with respect to any security held in the Trust;
(h) To join other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to
deposit any security with, or transfer any security to, any such
committee, depositary or trustee, and to delegate to them such
power and authority with relation to any security (whether or not
so deposited or transferred) as the Trustees shall deem proper,
and to agree to pay, and to pay, such portion of the expenses and
compensation of such committee, depositary or trustee as the
Trustees shall deem proper;
(i) To compromise, arbitrate or otherwise adjust claims in favor
of or against the Trust or any matter in controversy, including
but not limited to claims for taxes;
(j) To enter into joint ventures, general or limited partnerships
and any other combinations or associations;
(k) To borrow funds;
(l) To endorse or guarantee the payment of any notes or other
obligations of any person; to make contracts of guaranty or
suretyship, or otherwise assume liability for payment thereof; and
to mortgage and pledge the Trust property or any part thereof to
secure any or all of such obligations;
(m) To purchase and pay for entirely out of Trust property such
insurance as they may deem necessary or appropriate for the
conduct of the business of the Trust, including, without
limitation, insurance policies insuring the assets of the Trust
and payment of distributions and principal on its portfolio
investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers or
managers, principal underwriters, or independent contractors of
the Trust individually against all claims and liabilities of every
nature arising by reason of holding, being or having held any such
office or position, or by reason of any action alleged to have
been taken or omitted by any such person as Shareholder, Trustee,
officer, employee, agent, investment adviser or manager, principal
underwriter, or independent contractor, including any action taken
or omitted that may be determined to constitute negligence,
whether or not the Trust would have the power to indemnify such
person against such liability;
(n) To pay pensions for faithful service, as deemed appropriate
by the Trustees, and to adopt, establish and carry out pension,
profit-sharing, share bonus, share purchase, savings, thrift and
other retirement, incentive and benefit plans, trusts and
provisions, including the purchasing of life insurance and annuity
contracts as a means of providing such retirement and other
benefits, for any or all of the Trustees, officers, employees and
agents of the Trust; and
(o) To purchase or otherwise acquire Shares.
The Trustees shall not in any way be bound or limited by any
present or future law or custom in regard to investments by
trustees. Except as otherwise provided herein or from time to
time in the Bylaws, any action to be taken by the Trustees may be
taken by a majority of the Trustees present at a meeting of the
Trustees (a quorum being present), within or without
Massachusetts. Except as otherwise provided herein or from time
to time in the Bylaws, any action to be taken by the Trustees may
be taken at a meeting held by means of a conference telephone or
other communications equipment by means of which all persons
participating in the meeting can hear each other at the same time
and participation by such means shall constitute presence in
person at a meeting, or by written consent of a majority of the
Trustees then in office (or such greater number as may be required
by this Declaration of Trust or the Bylaws).
Payment of Expenses by Trust
Section 4. The Trustees are authorized to pay, or to cause to be
paid, out of the assets of the Trust all expenses, fees, charges,
taxes and liabilities incurred or arising in connection with the
Trust, or in connection with the management thereof, including,
but not limited to, the Trustees' compensation and such expenses
and charges for the services of the Trust's officers, employees,
investment adviser or manager, principal underwriter, auditor,
counsel, custodian, transfer agent, Shareholder servicing agent,
and such other agents or independent contractors and such other
expenses and charges as the Trustees may deem necessary or proper
to incur.
Ownership of Assets of the Trust
Section 5. Title to all of the assets of the Trust shall at all
times be considered as vested in the Trustees.
Advisory, Management and Distribution
Section 6. Subject to a favorable Majority Shareholder Vote, the
Trustees may, at any time and from time to time, contract for
exclusive or nonexclusive advisory and/or management services with
any corporation, trust, association or other organization (the
"Manager"), every such contract to comply with such requirements
and restrictions as may be set forth in the Bylaws; and any such
contract may contain such other terms interpretive of or in
addition to said requirements and restrictions as the Trustees may
determine, including, without limitation, authority to determine
from time to time what investments shall be purchased, held, sold
or exchanged and what portion, if any, of the assets of the Trust
shall be held uninvested and to make changes in the Trust's
investments. The Trustees may also, at any time and from time to
time, contract with the Manager or any other corporation, trust,
association or other organization, appointing it exclusive or
nonexclusive distributor or principal underwriter for the Shares,
every such contract to comply with such requirements and
restrictions as may be set forth in the Bylaws; and any such
contract may contain such other terms interpretive of or in
addition to said requirements and restrictions as the Trustees may
determine.
The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is
a shareholder, director, officer, partner, trustee, employee,
manager, adviser, principal underwriter or distributor or agent of
or for any corporation, trust, association, or other organization,
or of or for any parent or affiliate of any organization, with
which an advisory or management contract, or principal
underwriter's or distributor's contract, or transfer, Shareholder
servicing or other agency contract may have been or may hereafter
be made, or that any such organization, or any parent or affiliate
thereof, is a Shareholder or has an interest in the Trust, or that
(ii) any corporation, trust, association or other organization
with which an advisory or management contract or principal
underwriter's or distributor's contract, or transfer, Shareholder
servicing or other agency contract may have been or may hereafter
be made also has an advisory or management contract, or principal
underwriter's or distributor's contract, or transfer, Shareholder
servicing or other agency contract with one or more other
corporations, trusts, associations, or other organizations, or has
other business or interests
shall not affect the validity of any such contract or disqualify
any Shareholder, Trustee or officer of the Trust from voting upon
or executing the same or create any liability or accountability to
the Trust or its Shareholders.
ARTICLE V
Shareholders' Voting Powers and Meetings
Voting Powers
Section 1. Subject to the voting powers of one or more series or
classes of Shares as set forth in this Declaration of Trust or in
the Bylaws, the Shareholders shall have power to vote only (i) for
the election of Trustees as provided in Article IV, Section 1,
(ii) for the removal of Trustees as provided in Article IV,
Section 1, (iii) with respect to any Manager as provided in
Article IV, Section 6, (iv) with respect to any termination of
this Trust to the extent and as provided in Article IX, Section 4,
(v) with respect to any merger, consolidation or sale of assets of
the Trust to the extent and as provided in Article IX, Section 5,
(vi) with respect to any conversion of the Trust to the extent and
as provided in Article IX, Section 6, (vii) with respect to any
amendment of this Declaration of Trust to the extent and as
provided in Article IX, Section 9, (viii) to the same extent as
the stockholders of a Massachusetts business corporation as to
whether or not a court action, proceeding or claim should or
should not be brought or maintained derivatively or as a class
action on behalf of the Trust or the Shareholders, and (ix) with
respect to such additional matters relating to the Trust as may be
required by this Declaration of Trust, the Bylaws or any
registration of the Trust with the Securities and Exchange
Commission (or any successor agency) or any state, or as the
Trustees may consider necessary or desirable. Each whole Share
shall be entitled to one vote as to any matter on which it is
entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote. Notwithstanding any other
provision of this Declaration of Trust, on any matter submitted to
a vote of Shareholders, all Shares of the Trust then entitled to
vote shall, except as otherwise provided in the Bylaws, be voted
in the aggregate as a single class without regard to series or
classes of Shares. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by proxy.
A proxy with respect to Shares held in the name of two or more
persons shall be valid if executed by any one of them unless at or
prior to exercise of the proxy the Trust receives a specific
written notice to the contrary from any one of them. A proxy
purporting to be executed by or on behalf of a Shareholder shall
be deemed valid unless challenged at or prior to its exercise and
the burden of proving invalidity shall rest on the challenger.
Until Shares of any series or class are issued, the Trustees may
exercise all rights of Shareholders and may take any action
required by law, this Declaration of Trust or the Bylaws to be
taken by Shareholders as to such series or class.
Voting Power and Meetings
Section 2. Meetings of Shareholders of any or all series or
classes may be called by the Trustees from time to time for the
purpose of taking action upon any matter requiring the vote or
authority of the Shareholders of such series or class as herein
provided or upon any other matter deemed by the Trustees to be
necessary or desirable. Written notice of any meeting of
Shareholders shall be given or caused to be given by the Trustees
by mailing such notice at least seven days before such meeting,
postage prepaid, stating the time, place and purpose of the
meeting, to each Shareholder entitled to vote at such meeting at
the Shareholder's address as it appears on the records of the
Trust. If the Trustees shall fail to call or give notice of any
meeting of Shareholders for a period of 30 days after written
application by Shareholders holding at least 25% of the then
outstanding Shares of all series and classes entitled to vote at
such meeting requesting a meeting to be called for a purpose
requiring action by the Shareholders as provided herein or in the
Bylaws, then Shareholders holding at least 25% of the then
outstanding Shares of all series and classes entitled to vote at
such meeting may call and give notice of such meeting, and
thereupon the meeting shall be held in the manner provided for
herein in case of call thereof by the Trustees. Notice of a
meeting need not be given to any Shareholder if a written waiver
of notice, executed by him or her before or after the meeting, is
filed with the records of the meeting, or to any Shareholder who
attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him or her.
Quorum and Required Vote
Section 3. A majority of Shares entitled to vote on a particular
matter shall be a quorum for the transaction of business on that
matter at a Shareholders' meeting, except that where this
Declaration of Trust or the Bylaws require that holders of any
series or class shall vote as an individual series or class, then
a majority of the aggregate number of Shares of that series or
class entitled to vote shall be necessary to constitute a quorum
for the transaction of business by that series or class. Any
lesser number shall be sufficient for adjournments. Any adjourned
session or sessions may be held, within a reasonable time after
the date set for the original meeting, without the necessity of
further notice. Except when a different vote is required by any
provision of this Declaration of Trust or the Bylaws, a majority
of the Shares voted shall decide any questions and a plurality
shall elect a Trustee, provided that where the Bylaws require that
the holders of any series or class shall vote as an individual
series or class, a majority of the Shares of that series or class
voted on the matter (or a plurality with respect to the election
of a Trustee) shall decide that matter insofar as that series or
class is concerned.
Action by Written Consent
Section 4. Any action taken by Shareholders may be taken without
a meeting if a majority of Shareholders entitled to vote on the
matter (or such different proportion thereof as shall be required
by any express provision of this Declaration of Trust or the
Bylaws) consent to the action in writing and such written consents
are filed with the records of the meetings of Shareholders. Such
consent shall be treated for all purposes as a vote taken at a
meeting of Shareholders.
Additional Provisions
Section 5. The Bylaws may include further provisions, not
inconsistent with this Declaration of Trust, regarding
Shareholders' voting powers, the conduct of meetings and related
matters.
ARTICLE VI
Distributions
The Trustees may each year, or more frequently if they so
determine, distribute to the Shareholders of each series or class
such amounts as the Trustees may determine, subject to the
preferences and special or relative rights or privileges of the
various series or classes of Shares. Any such distribution to the
Shareholders of a particular series or class shall be made to said
Shareholders pro rata in proportion to the number of Shares of
such series or class held by each of them. Such distributions
shall be made in cash or Shares or other property or a combination
thereof as determined by the Trustees.
ARTICLE VII
Compensation and Limitation of Liability of Trustees
Compensation
Section 1. The Trustees as such shall be entitled to reasonable
compensation from the Trust; they may fix the amount of their
compensation. Nothing herein shall in any way prevent the
employment of any Trustee for advisory, management, legal,
accounting, investment banking or other services and payment for
the same by the Trust.
Limitation of Liability
Section 2. The Trustees shall not be responsible or liable in any
event for any neglect or wrongdoing of any officer, agent,
employee, manager or principal underwriter of the Trust, nor shall
any Trustee be responsible for the act or omission of any other
Trustee, but nothing herein contained shall protect any Trustee
against any liability to which he or she would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his or her office.
Every note, bond, contract, instrument, certificate or undertaking
and every other act or thing whatsoever executed or done by or on
behalf of the Trust or the Trustees or any of them in connection
with the Trust shall be conclusively deemed to have been executed
or done only in or with respect to their or his or her capacity as
Trustees or Trustee, and such Trustees or Trustee shall not be
personally liable thereon.
ARTICLE VIII
Indemnification
Trustees, Officers, etc.
Section 1. The Trust shall indemnify each of its Trustees and
officers (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which
the Trust has any interest as a shareholder, creditor or
otherwise) (hereinafter referred to as a "Covered Person") against
all liabilities and expenses, including, but not limited to,
amounts paid in satisfaction of judgments, in compromise or as
fines and penalties, and counsel fees reasonably incurred by any
Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal,
before any court or administrative or legislative body, in which
such Covered Person may be or may have been involved as a party or
otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of being
or having been such a Covered Person except with respect to any
matter as to which such Covered Person shall have been finally
adjudicated in any such action, suit or other proceeding (a) not
to have acted in good faith in the reasonable belief that such
Covered Person's action was in the best interests of the Trust or
(b) to be 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. Expenses, including counsel fees so incurred by
any such Covered Person (but excluding amounts paid in
satisfaction of judgments, in compromise or as fines or
penalties), shall be paid from time to time by the Trust in
advance of the final disposition of any such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such
Covered Person to repay amounts so paid to the Trust if it is
ultimately determined that indemnification of such expenses is not
authorized under this Article; provided, however, that either (a)
such Covered Person shall have provided appropriate security for
such undertaking, (b) the Trust shall be insured against losses
arising from any such advance payments or (c) either a majority of
the disinterested Trustees acting on the matter (provided that a
majority of the disinterested Trustees then in office acts on the
matter), or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available facts
(as opposed to a full trial type inquiry), that there is reason to
believe that such Covered Person will be found entitled to
indemnification under this Article.
Compromise Payment
Section 2. As to any matter disposed of (whether by a compromise
payment, pursuant to a consent decree or otherwise) without an
adjudication by a court, or by any other body before which the
proceeding was brought, that such Covered Person either (a) did
not act in good faith in the reasonable belief that his or her
action was in the best interests of the Trust or (b) is 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 his or her office, indemnification
shall be provided if (a) approved as in the best interests of the
Trust, after notice that it involves such indemnification, by at
least a majority of the disinterested Trustees acting on the
matter (provided that a majority of the disinterested Trustees
then in office acts on the matter) upon a determination, based
upon a review of readily available facts (as opposed to a full
trial type inquiry), that such Covered Person acted in good faith
in the reasonable belief that his or her action was in the best
interests of the Trust and is not 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 his or her office, or (b) there has been obtained an
opinion in writing of independent legal counsel, based upon a
review of readily available facts (as opposed to a full trial type
inquiry), to the effect that such Covered Person appears to have
acted in good faith in the reasonable belief that his or her
action was in the best interests of the Trust and that such
indemnification would not protect such Covered Person against any
liability to the Trust to which he or she 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 or her office. Any approval pursuant to this
Section shall not prevent the recovery from any Covered Person of
any amount paid to such Covered Person in accordance with this
Section as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have acted
in good faith in the reasonable belief that such Covered Person's
action was in the best interests of the Trust or 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.
Indemnification Not Exclusive
Section 3. The right of indemnification hereby provided shall not
be exclusive of or affect any other rights to which such Covered
Person may be entitled. As used in this Article VIII, the term
"Covered Person" shall include such person's heirs, executors and
administrators, and a "disinterested Trustee" is a Trustee who is
not an "interested person" of the Trust as defined in Section
2(a)(19) of the 1940 Act (or who has been exempted from being an
"interested person" by any rule, regulation or order of the
Securities and Exchange Commission) and against whom none of such
actions, suits or other proceedings or another action, suit or
other proceeding on the same or similar grounds is then or has
been pending. Nothing contained in this Article shall affect any
rights to indemnification to which personnel of the Trust, other
than Trustees or officers, and other persons may be entitled by
contract or otherwise under law, nor the power of the Trust to
purchase and maintain liability insurance on behalf of any such
person.
Shareholders
Section 4. In case any Shareholder or former Shareholder shall be
held to be personally liable solely by reason of his or her being
or having been a Shareholder and not because of his or her acts or
omissions or for some other reason, the Shareholder or former
Shareholder (or his or her heirs, executors, administrators or
other legal representatives or, in the case of a corporation or
other entity, its corporate or other general successor) shall be
entitled to be held harmless from and indemnified against all loss
and expense arising from such liability.
ARTICLE IX
Miscellaneous
Trustees, Shareholders, etc. Not Personally Liable; Notice
Section 1. All persons extending credit to, contracting with or
having any claim against the Trust shall look only to the assets
of the Trust for payment under such credit, contract or claim, and
neither the Shareholders nor the Trustees, nor any of the Trust's
officers, employees or agents, whether past, present or future,
shall be personally liable therefor. Nothing in this Declaration
of Trust shall protect any Trustee against any liability to which
such Trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of the office of Trustee.
Every note, bond, contract, instrument, certificate or undertaking
made or issued by the Trustees or by any officer or officers shall
give notice that this Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts and shall
recite that the same was executed or made by or on behalf of the
Trust or by them as Trustee or Trustees or as officer or officers
and not individually and that the obligations of such instrument
are not binding upon any of them or the Shareholders individually
but are binding only upon the assets and property of the Trust,
and may contain such further recital as he or she or they may deem
appropriate, but the omission thereof shall not operate to bind
any Trustee or Trustees or officer or officers or Shareholder or
Shareholders individually.
Trustee's Good Faith Action, Expert Advice, No Bond or Surety
Section 2. The exercise by the Trustees of their powers and
discretions hereunder shall be binding upon everyone interested.
A Trustee shall be liable for his or her own willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and for nothing
else. The Trustees may take advice of counsel or other experts
with respect to the meaning and operation of this Declaration of
Trust, and shall be under no liability for any act or omission in
accordance with such advice or for failing to follow such advice.
The Trustees shall not be required to give any bond as such, nor
any surety if a bond is required.
Liability of Third Persons Dealing with Trustees
Section 3. No person dealing with the Trustees shall be bound to
make any inquiry concerning the validity of any transaction made
or to be made by the Trustees or to see to the application of any
payments made or property transferred to the Trust or upon its
order.
Duration and Termination of Trust
Section 4. Unless terminated as provided herein, the Trust shall
continue without limitation of time. Subject to the voting powers
of one or more series or classes of Shares as set forth in this
Declaration of Trust or the Bylaws, the Trust may be terminated at
any time (i) by vote of Shareholders holding at least three-
fourths of the Shares entitled to vote (except if such termination
is recommended by at least three-fourths of the total number of
the Trustees then in office and by at least three-fourths of the
total number of Continuing Trustees then in office, a Majority
Shareholder Vote shall be sufficient authorization) or (ii) by the
Trustees by written notice to the Shareholders, provided that at
least three-fourths of the total number of Trustees then in office
and at least three-fourths of the total number of Continuing
Trustees then in office have approved such action. Upon
termination of the Trust, after paying or otherwise providing for
all charges, taxes, expenses and liabilities, whether due or
accrued or anticipated, of the Trust as may be determined by the
Trustees, the Trust shall, in accordance with such procedures as
the Trustees consider appropriate, reduce the remaining assets to
distributable form in cash or shares or other property, or any
combination thereof, and distribute the proceeds to the
Shareholders, ratably according to the number of Shares held by
the several Shareholders on the date of termination, except to the
extent otherwise required or permitted by the preferences and
special or relative rights or privileges of any series or classes
of Shares.
Merger, Consolidation and Sale of Assets
Section 5. The Trust may merge or consolidate with any other
corporation, association, trust or other organization or may sell,
lease or exchange all or substantially all of its assets,
including its good will, upon such terms and conditions and for
such consideration when and as authorized at any meeting of
Shareholders called for the purpose, or may liquidate or dissolve
when and as authorized, by the affirmative vote of the holders of
not less than three-fourths of the Shares entitled to vote;
provided, however, that if such merger, consolidation, sale,
lease, exchange, liquidation or dissolution is recommended by at
least three-fourths of the total number of Trustees then in office
and by at least three-fourths of the total number of Continuing
Trustees then in office, a Majority Shareholder Vote shall be
sufficient authorization. Nothing contained herein shall be
construed as requiring approval of the Shareholders for any sale
of assets in the ordinary course of business of the Trust. The
provisions of this Section shall be subject to the voting powers
of one or more series or classes of Shares as set forth in this
Declaration of Trust or the Bylaws.
Conversion
Section 6. Subject to the voting powers of one or more series or
classes of Shares as set forth in this Declaration of Trust or the
Bylaws, the Trust may be converted at any time from a "closed-end
company" to an "open-end company" as those terms are defined in
Section 5(a)(2) and 5(a)(1) of the 1940 Act, respectively, as in
effect on the date of the execution hereof, upon the approval of
such a proposal, together with any necessary amendments to the
Declaration of Trust to permit such a conversion, by the holders
of three-fourths of the Shares entitled to vote; provided,
however, that if such proposal is recommended by at least three-
fourths of the total number of Trustees then in office and by at
least three-fourths of the total number of Continuing Trustees
then in office, such proposal may be adopted by a Majority
Shareholder Vote. Upon the adoption of such proposal and related
amendments by the Trust's Shareholders as provided above, the
Trust shall, upon complying with any requirements of the 1940 Act
and state law, become an "open-end" investment company. Such
affirmative vote or consent shall be in addition to the vote or
consent of the holders of the Shares otherwise required by law,
this Declaration of Trust or the Bylaws or any agreement between
the Trust and any national securities exchange.
Derivative and Class Actions
Section 7. No Shareholder shall bring or maintain any action,
proceeding or claim derivatively or as a class action on behalf of
the Trust or the Shareholders unless approved by the Trustees and,
to the same extent required as to stockholders of a Massachusetts
business corporation, by the Shareholders. A Trustee who is not
an "interested person" of the Trust, as defined in the 1940 Act,
shall not be disqualified from acting on such matter by reason of
such Trustee's service as a director or trustee of one or more
other registered investment companies having the same Manager or
distributor.
Filing and Copies, References, Headings
Section 8. The original or a copy of this instrument and of each
amendment hereto shall be kept at the office of the Trust where it
may be inspected by any Shareholder. A copy of this instrument
and of each amendment hereto shall be filed by the Trust with the
Secretary of State of The Commonwealth of Massachusetts and with
the Boston City Clerk, as well as any other governmental office
where such filing may from time to time be required. Anyone
dealing with the Trust may rely on a certificate by an officer of
the Trust as to whether or not any such amendments have been made
and as to any matters in connection with the Trust hereunder, and,
with the same effect as if it were the original, may rely on a
copy certified by an officer of the Trust to be a copy of this
instrument or of any such amendments. In this instrument and in
any such amendment, references to this instrument and all
expressions like "herein", "hereof" and "hereunder" shall be
deemed to refer to this instrument as amended or affected by any
such amendments. Headings are placed herein for convenience of
reference only and shall not be taken as a part hereof or control
or affect the meaning, construction or effect of this instrument.
This instrument may be executed in any number of counterparts each
of which shall be deemed an original.
Applicable Law
Section 9. This Declaration of Trust is made in The Commonwealth
of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said
Commonwealth. The Trust shall be of the type commonly called a
Massachusetts business trust, and without limiting the provisions
hereof, the Trust may exercise all powers which are ordinarily
exercised by such a trust.
Amendments
Section 10. Subject to the voting powers of one or more series or
classes of Shares, as set forth in this Declaration of Trust or
the Bylaws, this Declaration of Trust may be amended at any time
by an instrument in writing signed by a majority of the then
Trustees (a) when authorized to do so by vote of Shareholders
holding a majority of the Shares entitled to vote, except that an
amendment amending or affecting the provisions of Section 2(k) of
Article I, Section 1 of Article IV, Section 4, 5 or 6 of this
Article IX or this sentence shall require the vote of Shareholders
holding three-fourths of the Shares entitled to vote if such
amendment has not been recommended by at least three-fourths of
the total number of Trustees then in office and by at least three-
fourths of the total number of Continuing Trustees then in office,
or (b) without Shareholder approval as may be necessary or
desirable in order to authorize one or more series or classes of
Shares as provided in Section 1 of Article III. Amendments having
the purpose of changing the name of the Trust or of supplying any
omission, curing any ambiguity or curing, correcting or
supplementing any defective or inconsistent provision contained
herein shall not require authorization by Shareholder vote.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
seal in the City of Boston, Massachusetts for himself and his
assigns, as of the day and year first above written.
GREGORY T. PUSCH
Gregory T. Pusch
THE COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. Boston, August 13, 1998
Then personally appeared the above-named Gregory T. Pusch and
acknowledged the foregoing instrument to be his free act and deed,
before me,
______________________________
Notary Public
My Commission Expires:
Trustee Address
c/o Ropes & Gray
One International Place
Boston, MA 02110
Trust Address
1 South Wacker
Chicago, IL 60606
EXHIBIT 2
STEIN ROE FLOATING RATE INCOME TRUST
BY-LAWS
<PAGE>
ARTICLE I. AGREEMENT AND DECLARATION OF TRUST,
LOCATION OF OFFICES AND SEAL.............................1
Section 1.01. Agreement and Declaration of Trust........1
Section 1.02. Principal Office..........................1
Section 1.03. Seal......................................1
ARTICLE II. BOARD OF TRUSTEES...............................1
Section 2.01. Number and Term of Office.................1
Section 2.02. Power to Declare Dividends................1
Section 2.03. Annual and Regular Meetings...............2
Section 2.04. Special Meetings..........................3
Section 2.05. Notice....................................3
Section 2.06. Waiver of Notice..........................3
Section 2.07. Quorum and Voting.........................3
Section 2.08. Action Without a Meeting..................3
ARTICLE III. EXECUTIVE COMMITTEE AND OTHER COMMITTEES.......3
Section 3.01. How Constituted...........................3
Section 3.02. Powers of the Executive Committee.........4
Section 3.03. Other Committees of the Board of Trustees.4
Section 3.04. Proceedings, Quorum and Manner of Acting..4
Section 3.05. Other Committees..........................4
Section 3.06. Action Without a Meeting..................4
Section 3.07. Waiver of Notice..........................4
ARTICLE IV. OFFICERS........................................5
Section 4.01. General...................................5
Section 4.02. Election, Term of Office and
Qualifications.........................5
Section 4.03. Resignation...............................5
Section 4.04. Removal...................................5
Section 4.05. Vacancies and Newly Created Offices.......5
Section 4.06. Chairman of the Board.....................6
Section 4.07. President.................................6
Section 4.08. Executive Vice-Presidents and Vice-
Presidents.............................6
Section 4.09. Senior Vice-President.....................6
Section 4.10. Treasurer and Assistant Treasurers........6
Section 4.11. Secretary and Assistant Secretaries.......7
Section 4.12. Controller and Assistant Controllers......7
Section 4.13. Subordinate Officers......................7
Section 4.14. Remuneration..............................7
Section 4.15. Surety Bonds..............................7
ARTICLE V. CUSTODY OF SECURITIES............................8
Section 5.01. Employment of a Custodian.................8
Section 5.02. Provisions of Custodian Contract..........8
Section 5.03. Action upon Termination of Custodian
Contract................................9
ARTICLE VI. EXECUTION OF INSTRUMENTS, RIGHTS AS SECURITY
HOLDER........................................9
Section 6.01. General...................................9
Section 6.02. Checks, Notes, Drafts, Etc................9
Section 6.03. Rights as Security Holder................10
ARTICLE VII. SHARES OF BENEFICIAL INTEREST.................10
Section 7.01. Certificates.............................10
Section 7.02. Uncertificated Shares....................10
Section 7.03. Transfers of Shares......................10
Section 7.04. Registered Shareholders..................11
Section 7.05. Transfer Agents and Registrars...........11
Section 7.06. Fixing of Record Date....................11
Section 7.07. Lost, Stolen, or Destroyed Certificates..11
Section 7.08. Resumption of Issuance of Certificates/
Cancellation of Certificates............12
ARTICLE VIII. FISCAL YEAR, ACCOUNTANT......................12
Section 8.01. Fiscal Year..............................12
Section 8.02. Accountants..............................12
ARTICLE IX. AMENDMENTS.....................................12
Section 9.01. General..................................12
Section 9.02. By Shareholders Only.....................12
ARTICLE X. MISCELLANEOUS...................................13
Section 10.01. Restrictions and Limitations............13
<PAGE> 1
STEIN ROE FLOATING RATE INCOME TRUST
BY-LAWS
(By-Laws Adopted by Board of Trustees on August 13, 1998)
ARTICLE I. AGREEMENT AND DECLARATION OF TRUST, LOCATION OF
OFFICES AND SEAL
Section 1.01. Agreement and Declaration of Trust.
These By-Laws shall be subject to the Agreement and
Declaration of Trust as now in effect or hereinafter amended
("Declaration of Trust") of Stein Roe Floating Rate Income Trust,
a Massachusetts business trust established by the Declaration
of Trust (the "Trust").
Section 1.02. Principal Office. A principal office of
the Trust shall be located in Boston, Massachusetts. The
Trust may also maintain a principal office in the City of
Chicago, State of Illinois. The Trust may, in addition,
establish and maintain such other offices and places of
business as the Board of Trustees may from time to time
determine.
Section 1.03. Seal. The seal of the Trust shall be
circular in form and shall bear the name of the Trust, the
word "Massachusetts," and the year of its organization. The
form of the seal shall be subject to alteration by the Board
of Trustees and the seal may be used by causing it or a
facsimile to be impressed or affixed or printed or otherwise
reproduced. Any officer or Trustee of the Trust shall have
authority to affix the seal of the Trust to any document
requiring the same. Unless otherwise required by the Board
of Trustees, the seal shall not be necessary to be placed on,
and its absence shall not impair the validity of, any
document, instrument or other paper executed and delivered by
or on behalf of the Trust.
ARTICLE II. BOARD OF TRUSTEES
Section 2.01. Number and Term of Office. The
Board of Trustees shall initially consist of the
initial sole Trustee, which number may be increased
or subsequently decreased by a resolution of a
majority of the entire Board of Trustees, provided
that the number of Trustees shall not be less than
one nor more than twenty-one. 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.
Section 2.02. Power to Declare Dividends.
(a) The Board of Trustees, from time to time as it may
deem advisable, may declare and pay dividends to the
shareholders of any series of the Trust in cash or other
property of that series, out of any source available to that
series for dividends, according to the respective rights and
interests of shareholders of that series and in accordance with
the applicable provisions of the Declaration of Trust.
(b) The Board of Trustees may prescribe from time to
time that dividends declared on shares of a series may be
payable at the election of any of the shareholders of that
series (exercisable before the declaration of the dividend),
either in cash or in shares of that series; provided that the
net asset value of the shares received by a shareholder
electing to receive dividends in shares (determined as of
such time as the Board of Trustees shall have prescribed in
accordance with the Declaration of Trust) shall not exceed
the full amount of cash to which the shareholder would be
entitled if he elected to receive cash.
(c) The Board of Trustees shall cause any dividend
payment to shareholders of a series to be accompanied by a
written statement if wholly or partly from any source other
than:
(i) such series' accumulated undistributed net income
[determined in accordance with generally accepted
accounting principles and the rules and
regulations then in effect of the Securities and
Exchange Commission or any other governmental
body having similar jurisdiction over the Trust
(the "SEC")] and not including profits or losses
realized upon the sale of securities or other
properties of the series; or
(ii) the series' net income so determined for the
current or preceding fiscal year.
Such statement shall adequately disclose the source or
sources of such payment and the basis of calculation and
shall be in such form as the SEC may prescribe.
Section 2.03. Annual and Regular Meetings. Annual and
regular meetings of the Board of Trustees may be held without
call or notice and at such places at such times as the Board
of Trustees may from time to time determine provided that
notice of the first regular meeting following any such
determination shall be given to absent Trustees. Members of
the Board of Trustees or any committee designated thereby may
participate in a meeting of such Board or committee by means
of a conference telephone or other communications equipment,
by means of which all persons participating in the meeting
can hear each other at the same time. Participation by such
means shall constitute presence in person at a meeting;
provided, however, that the Board of Trustees shall not enter
into, renew, or perform any contract or agreement, written or
oral, whereby a person undertakes regularly to serve or act
as investment adviser with respect to any series of the Trust
unless the terms of such contract or agreement and any
renewal thereof have been approved by the vote of a majority
of Trustees who are not parties to such contract or agreement
or interested persons of any such party, which votes shall be
cast at a meeting called for the purpose of voting on such
approval at which such persons are physically present.
Section 2.04. Special Meetings. Special meetings of
the Board of Trustees shall be held whenever called and at
such place and time determined by the President, Executive
Vice-President or Secretary (or, in the absence or disability
of the President, Executive Vice-President and Secretary, by
any Vice-President), or a majority of the Trustees then in
office, at the time and place specified in the respective
notices or waivers of notice of such meetings.
Section 2.05. Notice. If notice of a meeting of the
Board of Trustees is required or desired to be given, notice
stating the time and place shall be mailed to each Trustee at
his residence or regular place of business at least five days
before the day on which the meeting is to be held or caused
to be delivered to him personally or to be transmitted to him
by telephone, telegraph, cable, or wireless at least one day
before the meeting.
Section 2.06. Waiver of Notice. No notice required or
desired to be given of any meeting need be given to any
Trustee who attends such meeting in person or to any Trustee
who waives notice of such meeting in writing (which waiver
shall be filed with records of such meeting), whether before
or after the time of the meeting.
Section 2.07. Quorum and Voting. At all meetings of
the Board of Trustees, the presence of one-third of the
number of Trustees then in office shall constitute a quorum
for the transaction of business; provided, however, a quorum
shall not be less than the lesser of two Trustees or 100% of
all Trustees then in office. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting
without further notice, from time to time, until a quorum
shall be present. The action of a majority of the Trustees
present at a meeting at which a quorum is present shall be
the action of the Board of Trustees, unless the concurrence
of a greater proportion is required for such action by law,
by the Declaration of Trust, or by these By- Laws.
Section 2.08. Action Without a Meeting. Any action
required or permitted to be taken at any meeting of the Board
of Trustees may be taken without a meeting, if written
consents thereto are signed by a majority of the members of
the Board, unless the consent of a larger number is required
pursuant to applicable law in which case the consents of such
number shall be required, and such written consents are filed
with the minutes of proceedings of the Board of Trustees.
ARTICLE III. EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 3.01. How Constituted. By resolution adopted
by the Board of Trustees, the Board may designate one or more
committees, including an Executive Committee, each of which
shall consist of at least two Trustees. Each member of a
committee shall be a Trustee and shall hold office during the
pleasure of the Board.
Section 3.02. Powers of the Executive Committee.
Unless otherwise provided by resolution of the Board of
Trustees, the Executive Committee shall have and may exercise
all powers of the Board of Trustees in the management of the
business and affairs of the Trust that may lawfully be
exercised by an executive committee, except the power to
recommend to shareholders any matter requiring shareholder
approval, amend the Declaration of Trust or By-Laws, or
approve any merger or share exchange that does not require
shareholder approval.
Section 3.03. Other Committees of the Board of
Trustees. To the extent provided by resolution of the Board,
other committees of the Board shall have and may exercise any
of the powers that may lawfully be granted to the Executive
Committee.
Section 3.04. Proceedings, Quorum and Manner of Acting.
In the absence of appropriate resolution of the Board of
Trustees, each committee may adopt such rules and regulations
governing its proceedings, quorum and manner of acting as it
shall deem proper and desirable, provided that the quorum
shall not be less than two Trustees except that, in the case
of a committee (other than the Executive Committee)
consisting of two Trustees, one Trustee shall constitute a
quorum unless the Board by resolution specifies that a quorum
for that committee shall consist of two Trustees. In the
absence of any member of any such committee, the members
thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of
Trustees to act in the place of such absent member.
Section 3.05. Other Committees. The Board of Trustees
may appoint other committees, each consisting of one or more
persons, who need not be Trustees. Each such committee shall
have such powers and perform such duties as may be assigned
to it from time to time by the Board of Trustees, but shall
not exercise any power which may lawfully be exercised only
by the Board of Trustees or a committee thereof.
Section 3.06. Action Without a Meeting. Any action
required or permitted to be taken at any meeting of any
committee may be taken without a meeting, if written consents
thereto are signed by a majority of the members of the
committee unless the consent of a larger number is required
pursuant to applicable law in which case the consents of such
number shall be required, and such written consents are filed
with the minutes of proceedings of the Board of Trustees or
of the committee.
Section 3.07. Waiver of Notice. Whenever any notice of
the time, place or purpose of any meeting of any committee is
required to be given under the provisions of any applicable
law or under the provisions of the Declaration of Trust or
these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice and filed with the
records of the meeting, whether before or after the holding
of such meeting, or actual attendance at the meeting in
person, shall be deemed equivalent to the giving of such
notice to such persons.
ARTICLE IV. OFFICERS
Section 4.01. General. The officers of the Trust shall
be a President, a Secretary, a Senior Vice-President, a
Treasurer and a Controller, and may include one or more
Executive Vice-Presidents, Vice-Presidents, Assistant
Secretaries, Assistant Treasurers or Assistant Controllers
and such other officers as may be appointed in accordance
with the provisions of Section 4.13 hereof. The Board of
Trustees may elect, but shall not be required to elect, a
Chairman of the Board.
Section 4.02. Election, Term of Office and
Qualifications. The officers of the Trust (except those
appointed pursuant to Section 4.13 hereof) shall be chosen by
the Board of Trustees at its first meeting or such subsequent
meetings as shall be held prior to its first annual meeting
and thereafter annually. If any officers are not chosen at
any annual meeting, such officers may be chosen at any
subsequent regular or special meeting of the Board. Except
as provided in Sections 4.03, 4.04 and 4.05 hereof, each
officer chosen by the Board of Trustees shall hold office
until the next annual meeting of the Board of Trustees and
until his successor shall have been chosen and qualified or
until his earlier death. Any person may hold one or more
offices of the Trust except the offices of President and
Vice-President, but no officer shall execute, acknowledge, or
verify an instrument in more than one capacity, if such
instrument is required by law, by the Declaration of Trust,
or by these By-Laws to be executed, acknowledged or verified
by two or more officers. The Chairman of the Board, if any,
shall be chosen from among the Trustees of the Trust and may
hold such office only so long as he continues to be a
Trustee. No other officer need be a Trustee.
Section 4.03. Resignation. Any officer may resign his
office at any time by delivering a written resignation to the
Board of Trustees, the President, the Secretary, or any
Assistant Secretary. Unless otherwise specified therein,
such resignation shall take effect upon delivery.
Section 4.04. Removal. Any officer may be removed from
office, whenever in the Board's judgment the best interest of
the Trust will be served thereby, by the vote of a majority
of the Board of Trustees given at any regular or special
meeting. In addition, any officer or agent appointed in
accordance with the provisions of Section 4.13 hereof may be
removed, either with or without cause, by any officer upon
whom such power of removal shall have been conferred by the
Board of Trustees.
Section 4.05. Vacancies and Newly Created Offices. If
any vacancy shall occur in any office by reason of death,
resignation, removal, disqualification, or other cause, or if
any new office shall be created, such vacancy or newly
created office may be filled by the Board of Trustees at any
regular or special meeting or, in the case of any office
created pursuant to Section 4.13 hereof, by any officer upon
whom such power shall have been conferred by the Board of
Trustees. An officer chosen by the Board of Trustees to fill
a vacancy or a newly created office shall serve until the
next annual meeting of the Board of Trustees and until his
successor shall have been chosen and qualified or until his
earlier death, resignation or removal.
Section 4.06. Chairman of the Board. In the absence or
disability of the President, the Chairman of the Board, if
there be such an officer, shall preside at all shareholders'
meetings and at all meetings of the Board of Trustees. He
shall have such other powers and perform such other duties as
may be assigned to him from time to time by the Board of
Trustees.
Section 4.07. President. The President shall be the
chief executive officer and shall preside at all
shareholders' meetings and at all meetings of the Board of
Trustees. Subject to the supervision of the Board of
Trustees, he shall have the general charge of the business,
affairs and property of the Trust and general supervision
over its other officers, employees and agents.
Section 4.08. Executive Vice-Presidents and Vice-
Presidents. The Board of Trustees may from time to time
elect one or more Executive Vice-Presidents and one or more
Vice-Presidents, who shall have such powers and perform such
duties as from time to time may be assigned to them by the
Board of Trustees or the President. At the request of the
President, the Executive Vice-President, and if no Executive
Vice-President is present or able, the Vice-President may
perform all the duties of the President and, when so acting,
shall have all the powers of and be subject to all the
restrictions upon the President. If there are two or more
Executive Vice-Presidents or Vice-Presidents, the earliest
elected to the more senior office present and able shall
perform the duties of the President in his absence or
disability.
Section 4.09. Senior Vice-President. The Senior Vice-
President shall be the principal financial officer of the
Trust and shall have general charge of the finances and books
of account of the Trust. Except as otherwise provided by the
Board of Trustees, he shall have general supervision of the
funds and property of the Trust and of the performance by the
Custodian of its duties with respect thereto. He shall
render to the Board of Trustees, whenever directed by the
Board, an account of the financial condition of the Trust and
of all his transactions as Senior Vice-President; and as soon
as possible after the close of each fiscal year he shall make
and submit to the Board of Trustees a like report for such
fiscal year. He shall perform all the acts incidental to the
office of Senior Vice-President, subject to the control of
the Board of Trustees. At the request of any Executive Vice-
President, or if no Executive Vice-President is present or
able, the Senior Vice-President may perform all of the duties
of the Executive Vice-President (except to the extent that
such duties have otherwise been delegated by or pursuant to
these By-Laws) and, when so acting, shall have all the powers
of and be subject to all the restrictions upon the Executive
Vice-President.
Section 4.10. Treasurer and Assistant Treasurers. The
Treasurer and any Assistant Treasurer may perform such duties
of the Senior Vice-President as the Senior Vice-President or
the Board of Trustees may assign, and, in the absence of
the Senior Vice-President, may perform all the duties of the
Senior Vice-President.
Section 4.11. Secretary and Assistant Secretaries. The
Secretary shall attend to the giving and serving of all
notices of the Trust and shall record all proceedings of the
meetings of the shareholders, Trustees, the Executive
Committee and other committees, in a book to be kept for that
purpose. He shall keep in safe custody the seal of the
Trust, and shall have charge of the records of the Trust,
including the share books and such other books and papers as
the Board of Trustees may direct and such books, reports,
certificates and other documents required by law to be kept,
all of which shall, at all reasonable times, be open to
inspection by any Trustee. He shall perform all the acts
incidental to the office of Secretary, subject to the control
of the Board of Trustees.
Any Assistant Secretary may perform such duties of the
Secretary as the Secretary or the Board of Trustees may
assign, and, in the absence of the Secretary, he may perform
all the duties of the Secretary.
Section 4.12. Controller and Assistant Controllers.
The Controller shall be the chief accounting officer of the
Trust. He shall direct the preparation and maintenance, on a
current basis, of such accounting books, records and reports
as may be necessary to permit the directors, officers and
executives of the Trust or as may be required by law. He
shall perform all the acts incidental to the office of
Controller, subject to the control of the Board of Trustees,
the Executive Vice-President or the Senior Vice-President.
Any Assistant Controller may perform such duties of the
Controller as the Controller or the Board of Trustees may
assign, of the Controller.
Section 4.13. Subordinate Officers. The Board of
Trustees from time to time may appoint such other officers or
agents as it may deem advisable, each of whom shall have such
title, hold office for such period, have such authority and
perform such duties as the Board of Trustees may determine.
The Board of Trustees from time to time may delegate to one
or more officers or agents the power to appoint any such
subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties.
Section 4.14. Remuneration. The salaries, if any, or
other compensation of the officers of the Trust shall be
fixed from time to time by resolution of the Board of
Trustees, except that the Board of Trustees may by resolution
delegate to any person or group of persons the power to fix
the salaries or other compensation of any subordinate
officers or agents appointed in accordance with the
provisions of Section 4.13 hereof.
Section 4.15. Surety Bonds. The Board of Trustees may
require any officer or agent of the Trust to execute a bond
to the Trust [including, without limitation, any bond
required by the Investment Company Act of 1940, or any rule
or regulation thereunder, all as now in effect or as
hereafter amended or added (the "1940 Act") and the rules and
regulations of the SEC] in such sum and with such surety or
sureties as the Board of Trustees may determine, conditioned
upon the faithful performance of his duties to the Trust,
including responsibility for negligence and for the
accounting of any of the Trust's property, funds, or
securities that may come into his hands.
ARTICLE V. CUSTODY OF SECURITIES
Section 5.01. Employment of a Custodian. The Trust
shall place and at all times maintain in the custody of a
Custodian (including any sub-custodian for the Custodian) all
securities owned by the Trust and cash representing the
proceeds from sales of securities owned by the Trust and of
capital stock or other units of beneficial interest issued to
the Trust, payments of principal upon securities owned by the
Trust, or capital distribution in respect to capital stock or
other units of beneficial interest owned by the Trust,
pursuant to a written contract with such Custodian. The
Custodian shall be a bank or trust company having not less
than $2,000,000 aggregate capital, surplus and undivided
profits (as shown in its last published report).
Section 5.02. Provisions of Custodian Contract. The
Custodian contract shall be upon such terms and conditions
and may provide for such compensation as the Board of
Trustees deems necessary or appropriate, provided such
contract shall further provide that the Custodian shall
deliver securities owned by the Trust only upon sale of such
securities for the account of the Trust and receipt of
payment therefor by the Custodian or when such securities may
be called, redeemed, retired, or otherwise become payable.
Such limitations shall not prevent:
(a) the delivery of securities for examination to the
broker selling the same in accord with the "street delivery"
custom whereby such securities are delivered to such broker
in exchange for a delivery receipt exchanged on the same day
for an uncertified check of such broker to be presented on
the same day for certification;
(b) the delivery of securities of an issuer in exchange
for or for conversion into other securities alone or cash and
other securities, pursuant to any plan of merger,
consolidation, reorganization, recapitalization, or
readjustment of the securities of such issuer;
(c) the conversion by the Custodian of securities owned
by the Trust, pursuant to the provisions of such securities,
into other securities;
(d) the surrender by the Custodian of warrants, rights,
or similar securities owned by the Trust in the exercise of
such warrants, rights, or similar securities, or the
surrender of interim receipts or temporary securities for
definitive securities;
(e) the delivery of securities as collateral on
borrowing effected by the Trust; or
(f) the delivery of securities owned by the Trust as a
redemption in kind of securities issued by the Trust.
The Custodian shall deliver funds of the Trust for the
purchase of securities for the portfolio of the Trust only
upon the delivery of such securities to the Custodian, but
such limitation shall not prevent the release of funds by the
Custodian for redemption of shares issued by the Trust, for
payment of interest, dividend disbursements, taxes or
management fees, for payments in connection with the
conversion, exchange or surrender of securities owned by the
Trust as set forth in subparagraphs (b), (c) and (d) above or
for operating expenses of the Trust.
The term "security" shall be broadly construed and shall
include, without limitation, the various types of securities
set forth in Section 3(a)(10) of the Securities Exchange Act
of 1934.
Section 5.03. Action upon Termination of Custodian
Contract. The contract of employment of the Custodian may be
terminated by either party on 60 days' written notice to the
other party. Upon termination of the Custodian contract,
resignation of the Custodian, or inability of the Custodian
to continue to serve, the Board of Trustees shall use its
best efforts to obtain a successor custodian. If a successor
custodian is found, the Trust shall require the retiring
Custodian to deliver the cash and securities owned by the
Trust directly to the successor custodian. In the event that
no successor custodian which has the required qualifications
and is willing to serve can be found, the Board of Trustees
shall call a special meeting of the shareholders to submit to
the shareholders, before delivery of the cash and securities
owned by the Trust to other than a successor custodian, the
question of whether the Trust shall function without a
custodian or shall be liquidated.
ARTICLE VI. EXECUTION OF INSTRUMENTS, RIGHTS AS
SECURITY HOLDER
Section 6.01. General. All deeds, documents,
transfers, contracts, agreements and other instruments
requiring execution by the Trust shall be signed by the
President, the Executive Vice-President, the Senior Vice-
President, the Controller, the Secretary, or the Treasurer,
or as the Board of Trustees may otherwise, from time to time,
authorize. Any such authorization may be general or confined
to specific instances.
Section 6.02. Checks, Notes, Drafts, Etc. Except as
otherwise authorized by the Board of Trustees, all checks and
drafts for the payment of money shall be signed in the name
of the Trust by the Custodian, and all requisitions or orders
for the payment of money by the Custodian or for the issue of
checks and drafts therefor, all promissory notes, all
assignments of shares or securities standing in
the name of the Trust and all requisitions or orders for the
assignment of shares or securities standing in the name of
the Custodian or its nominee, or for the execution of powers
to transfer the same, shall be signed in the name of the
Trust by not less than two of its officers. Promissory
notes, checks, or drafts payable to the Trust may be endorsed
only to the order of the Custodian or its agent.
Section 6.03. Rights as Security Holder. Unless
otherwise ordered by the Board of Trustees, any officer shall
have full power and authority on behalf of the Trust to (1)
exercise (or waive) any and all rights, powers and privileges
incident to the ownership of any securities or other
obligations which may be owned by the Trust; and (2) attend
and to act and to vote, or in the name of the Trust to
execute proxies to vote, at any meeting of security holders
of any company in which the Trust may hold securities. At
any such meeting, any officer shall possess and may exercise
(in person or by proxy) any and all rights, powers and
privileges incident to the ownership of such securities.
ARTICLE VII. SHARES OF BENEFICIAL INTEREST
Section 7.01. Certificates. The Trust shall not issue
share certificates unless the Trustees so authorize. In the
event that certificates are issued, each certificate will be
valid if signed by the President or a Vice-President and
countersigned by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer and sealed with the
seal. The signatures may be either manual or facsimile
signatures and the seal may be either facsimile or any other
form of seal. In case any officer who has signed any
certificate ceases to be an officer of the Trust before the
certificate was issued, the certificate nevertheless has the
same effect as if the officer had not ceased to be such
officer as of the date of its issue.
Section 7.02. Uncertificated Shares. The Trust's share
ledger shall be deemed to represent and certify the number of
full and/or fractional shares of a series owned of record by
a shareholder in those instances where a certificate for such
shares has not been issued.
Section 7.03. Transfers of Shares. Shares of any
series of the Trust shall be transferable on the books of the
Trust at the request of the record holder thereof in person
or by a duly authorized attorney, upon presentation to the
Trust or its transfer agent of a duly executed assignment or
authority to transfer, or proper evidence of succession, and,
if the shares are represented by a certificate, a duly
endorsed certificate or certificates of shares surrendered
for cancellation, and with such proof of the authenticity of
the signatures as the Trust or its transfer agent may
reasonably require, provided, whether or not such shares are
represented by any certificate or certificates of shares,
that:
(a) the Trust has no duty to inquire into adverse claims
or has discharged any such duty;
(b) any applicable law relating to the collection of
taxes has been complied with; and
(c) the transfer is in fact rightful or is to a bona
fide purchaser.
The transfer shall be recorded on the books of the Trust
and the old certificates, if any, shall be cancelled.
Section 7.04. Registered Shareholders. The Trust shall
be entitled to treat the holder of record of shares of each
series as the holder in fact thereof and, accordingly, shall
not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person,
whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Commonwealth of
Massachusetts.
Section 7.05. Transfer Agents and Registrars. The
Board of Trustees may, from time to time, appoint or remove
transfer agents and/or registrars of transfers of shares of
the Trust, and it may appoint the same person as both
transfer agent and registrar. Upon any such appointment
being made, all certificates representing shares thereafter
issued shall be countersigned by one of such transfer agents
or by one of such registrars of transfers or by both and
shall not be valid unless so countersigned. If the same
person shall be both transfer agent and registrar, only one
countersignature by such person shall be required.
Section 7.06. Fixing of Record Date. The Board of
Trustees may fix in advance a date as a record date for the
determination of the shareholders of any series entitled to
notice of or to vote at any meeting of such shareholders or
any adjournment thereof, or to express consent to Trust
action in writing without a meeting, or to receive payment of
any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change,
conversion, or exchange of shares of such series, or for the
purpose of any other lawful action, provided that such record
date shall not be a date more than 60 days, and, in the case
of a meeting of shareholders, not less than 10 days, prior to
the date on which the particular action requiring such
determination of shareholders of such series is to be taken.
In such case only such shareholders as shall be shareholders
of record of such series on the record date so fixed shall be
entitled to such notice of, and to vote at, such meeting or
adjournment, or to give such consent, or to receive payment
of such dividend or other distribution, or to receive such
allotment of rights, or to exercise such rights, or to take
such other action, as the case may be, notwithstanding any
transfer or redemption of any shares of such series on the
books of the Trust after any such record date. If no record
date has been fixed for the determination of shareholders,
the record date for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the day on which notice
of the meeting is mailed, which shall not be more than 60
days before the meeting, or, if notice is waived by all
shareholders entitled thereto, at the close of business on
the tenth day before the day on which the meeting is held.
Section 7.07. Lost, Stolen, or Destroyed Certificates.
Before transferring on the books of the Trust shares
represented by a certificate that is alleged to have been
lost, stolen, or destroyed, the Board of Trustees or any
officer authorized by the Board may, in its or his
discretion, require the owner of the lost, stolen, or
destroyed certificate (or his legal representative) to give
the Trust a bond or other indemnity, in such form and in such
amount as of the Board or any such officer may direct and
with such surety or sureties as may be satisfactory to the
Board or any such officer, sufficient to indemnify the Trust
against any claim that may be made against it on account of
the alleged loss, theft, or destruction of any such
certificate.
Section 7.08. Resumption of Issuance of
Certificates/Cancellation of Certificates. The Trustees may
at any time resume the issuance of share certificates. The
Trustees may, by written notice to each shareholder, require
the surrender of share certificates to the Trust for
cancellation. Such surrender and cancellation shall not
affect the ownership of shares in the Trust.
ARTICLE VIII. FISCAL YEAR, ACCOUNTANT
Section 8.01. Fiscal Year. The fiscal year of each
series of shares of the Trust shall be established by the
Board of Trustees.
Section 8.02. Accountants. For each series of the
shares of the Trust, the Trust shall employ an independent
public accountant or firm of independent public accountants
as the Accountant for such series to examine and certify or
issue its report on the financial statements of that series
of the Trust. Each Accountant's certificates and reports
shall be addressed both to the Board of Trustees and to the
shareholders of the applicable series.
ARTICLE IX. AMENDMENTS
Section 9.01. General. Except as provided in Section
9.02 hereof, all By-Laws of the Trust, whether adopted by the
Board of Trustees or the shareholders, shall be subject to
amendment, alteration, or repeal, and new By-Laws may be
made, by the affirmative vote of either:
(a) the holders of record of a majority of the votes
represented by outstanding shares of the Trust entitled to
vote at any meeting, the notice or waiver of notice of which
shall have specified or summarized the proposed amendment,
alteration, repeal, or new By-Law; or
(b) a majority of the Trustees, at any regular or
special meeting.
Section 9.02. By Shareholders Only.
(a) No amendment of any section of these By-Laws shall
be made except by the shareholders of the Trust, if the By-
Laws provide that such section may not be amended, altered or
repealed except by the shareholders.
(b) From and after the issue of any shares of the Trust
to the public, no amendment of this Article IX or Article X
shall be made except by the shareholders of the Trust.
ARTICLE X. MISCELLANEOUS
Section 10.01. Restrictions and Limitations.
(a) Except as hereinafter provided, no officer or
Trustee of the Trust, no officer, director, or stockholder
(or partner of a stockholder) of the investment adviser of
the Trust (as that term is defined in the 1940 Act) or of any
underwriter of the Trust, and no investment adviser or
underwriter of the Trust shall take long or short positions
in the securities issued by the Trust. The foregoing
provision shall not prevent the purchase from the Trust of
shares of any series issued by the Trust by any person at the
price available to shareholders of the Trust generally at the
time of such purchase, or as described in the current
Prospectus of the Trust, or prior to commencement of the
public offering of shares of the Trust, at the net asset
value of such shares.
(b) The Trust shall not lend assets of the Trust to any
officer or Trustee of the Trust or to any officer, director,
or stockholder (or partner of a stockholder) of, or person
financially interested in, the investment adviser or any
underwriter of the Trust, or to the investment adviser of the
Trust or to any underwriter of the Trust.
(c) The Trust shall not restrict the transferability or
negotiability of the shares of the Trust, except in
conformity with the statements with respect thereto contained
in the Trust's Registration Statement, and not in
contravention of such rules and regulations as the SEC may
prescribe.
(d) The Trust shall not permit any officer or Trustee of
the Trust, or any officer, director, or stockholder (or
partner of a stockholder) of the investment adviser or any
underwriter of the Trust to deal for or on behalf of the
Trust with himself as principal or agent, or with any
partnership, association, or trust in which he has a
financial interest; provided that the foregoing provisions
shall not prevent (1) officers and Trustees of the Trust from
buying, holding, redeeming, or selling shares in the Trust,
or from being officers, directors, or stockholders (or
partners of a stockholder) of or otherwise financially
interested in the investment adviser or any underwriter of
the Trust; (2) purchases or sales of securities or other
property by the Trust from or to an affiliated person or to
the investment adviser or any underwriter of the Trust, if
such transactions are not prohibited by the 1940 Act or have
been exempted by SEC order from the prohibitions of the 1940
Act; (3) purchases of investments for the portfolio of the
Trust through a securities dealer who is, or one or more of
whose partners, stockholders, officers, or directors is, an
officer or Trustee of the Trust, if such transactions are
handled in the capacity of broker only and commissions
charged do not exceed customary brokerage charges for such
services; (4) employment of legal counsel, registrar,
transfer agent, dividend disbursing agent, or custodian who
is, or has a partner, stockholder, officer, or director who
is, an officer or Trustee of the Trust, if only customary
fees are charged for services to the Trust; (5) sharing
statistical, research, legal and management expenses and
office hire and expenses with any other investment company
in which an officer or Trustee of the Trust is an officer,
trustee, or director or otherwise financially interested.
END OF BY-LAWS
