Securities Act Registration No. 333-61751
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]
Post-Effective Amendment No. 2 [X]
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 4 [X]
STEIN ROE FLOATING RATE INCOME FUND
(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 Fund Three First National Plaza
One South Wacker Drive 70 West Madison Street, Suite 3300
Chicago, Illinois 60606 Chicago, Illinois 60602-4207
(Agents for service)
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]
________________________
It is proposed that this filing will become effective (check
appropriate box):
[ ] when declared effective pursuant to section 8(c)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 486
[ ] This post-effective amendment designates a new effective date
for a previously filed registration statement.
[ ] This Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act and
the Securities Act registration number of the earlier
effective registration statement is _______.
This registration incorporates a combined prospectus pursuant to
Rule 429 which relates to an earlier registration statement filed
by the Registrant on August 18, 1998, as amended to date (File No.
333-61751.
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(2) Fee
- ---------------- ------------ -------- ---------- ------------
Common Shares
of Beneficial
Interest
Class Z 10,000,000(1) $10.00 $100,000,000 $29,500 (3)
- ------------------------------------------------------------------
(1) Previously registered.
(2) Estimated solely for the purpose of calculating the
registration fee.
(3) Previously paid.
This Registration Statement has also been signed by Stein Roe
Floating Rate Limited Liability Company.
<PAGE>
STEIN ROE FLOATING RATE INCOME FUND
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)
1. Outside Front Cover Cover Page
2. Cover Pages; Other Cover Page; Outside Back Cover
Offering Information
3. Fee Table and Synopsis Fund Expenses; Prospectus Summary
4. Financial Highlights Financial Highlights
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- The Fund; Distributions and Income
Term Debt and Other Taxes; Periodic Tender Offers;
Securities Organization and Description of
Shares
11. Defaults and Arrears on
Senior Securities Not applicable
12. Legal Proceedings Not applicable
13. Table of Contents of Table of Contents of Statement
the Statement of of Additional Information
Additional Information
Part B (Statement of Additional Information)
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 and Other
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 1>
PROSPECTUS November _, 1999
Stein Roe Mutual Funds
STEIN ROE ADVISOR FLOATING RATE FUND
Class Z Shares
Stein Roe Advisor Floating Rate Fund is a non-diversified, closed-
end management investment company that is continuously offered.
Investment Objective. The Fund's investment objective is to
provide a high level of current income, consistent with
preservation of capital. The Fund 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 investment portfolio.
The Portfolio invests primarily in adjustable rate senior loans
(Senior Loans), the interest rates of which float or vary
periodically based upon a benchmark indicator of prevailing
interest rates. Senior Loans are business loans that have a
senior right to payment to most other debts of the borrower.
Senior Loans are often secured by specific assets of the borrower,
although the Portfolio may also invest in Senior Loans that are
not secured by any collateral.
The Securities and Exchange Commission has not approved or
disapproved these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a
criminal offense.
Price to Sales
Public (1) Load Proceeds to Fund (2)
- ------------------------------------------------------------------
Per Class Z Share $____ None $____
Total $100,000,000 None $100,000,000
____________________________
(1) The net asset value per Share on _______, 1999 was $____.
(2) Assuming the sale of all Shares registered hereby.
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 (SAI) regarding
the Fund dated ______, 1999, has been filed with the Securities
and Exchange Commission ("SEC") and can be obtained without charge
by calling 800-426-3750. A table of contents to the SAI is
located at page __ of this Prospectus. This Prospectus
incorporates by reference the entire SAI (together with any
supplement to it). The SAI and other related materials are
available at the SEC's internet web site (http://www.sec.gov).
Periodic Tender Offers. To provide liquidity to shareholders, the
Fund will make quarterly repurchase offers for 5% to 25% of its
outstanding shares. (See "Periodic Tender Offers.")
Not Exchange Listed. 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. An investment in the
Shares should be considered illiquid. (See "Special Risk
Considerations.")
Investment in the Fund involves certain risks, including the
possible loss of some or all of the principal investment and risks
associated with securities rated below investment grade. (See
"Special Risk Considerations.")
The Fund's investment adviser is Stein Roe & Farnham Incorporated
(Stein Roe). The address of the Fund is One South Wacker Drive,
Chicago, IL 60606.
This prospectus applies to the offering of shares of beneficial
interest of the Fund, which may be continuously issued and sold
from time to time by the Fund through the Distributor, as
distributor and principal underwriter, and through your financial
advisor. (See "How to Buy Shares.")
The Fund has applied for exemptive relief from the SEC with
respect to the Fund's distribution fee arrangements and multi-
class structure. As a condition of such relief, the Fund will be
required to comply with certain regulations that would not
otherwise be applicable to the Fund. There can be no assurance
that the relief will be granted. If the relief is not granted,
the effective date of the Fund's most recently filed registration
statement and the sale of the Fund's Class A, B, and C Shares will
be delayed.
Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by, any bank or other insured depository
institution, and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board or any other
government agency.
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary......................................4
Fund Expenses...........................................7
The Fund................................................8
Use of Proceeds.........................................8
Investment Objectives and Policies......................8
How the Portfolio Invests...............................9
Special Risk Considerations............................17
Other Investment Practices.............................21
Distributions and Income Taxes.........................26
Management of the Fund.................................28
How to Buy Shares......................................30
Periodic Tender Offers.................................31
Multiple Pricing System................................33
Net Asset Value........................................34
Performance Information................................35
Organization and Description of Shares.................37
Master Fund/Feeder Fund: Structure and Risk Factors....38
Shareholder Reports....................................39
Financial Highlights...................................40
Statement of Additional Information Table of Contents..41
<PAGE>
PROSPECTUS SUMMARY
This is only a summary. You should review the more detailed
information contained in this prospectus and in the SAI.
THE FUND. The Fund is a continuously-offered non-diversified,
closed-end management investment company, organized as a
Massachusetts business trust. The Fund invests all of
its net investable assets in Stein Roe Floating Rate
Limited Liability Company (Portfolio) under a
master/feeder structure. The Portfolio is a non-
diversified closed-end management investment company
organized as a Delaware limited liability company.
The Fund intends to offer its shares (Shares)
continuously through the Distributor, as principal
underwriter, and through financial advisors at a price
equal to the next determined net asset value per Share.
The minimum initial investment is $1,000 ($25 for
individual retirement accounts) and the minimum
subsequent investment is $50. The Fund reserves the
right to change the investment minimums and to refuse a
purchase order for any reason.
INVESTMENT OBJECTIVE. The investment objective of the Fund and of
the Portfolio is to provide a high level of current
income, consistent with preservation of capital. There
can be no assurance that the Portfolio or the Fund will
achieve its investment objective.
The Portfolio seeks to achieve the objective by investing
primarily in a portfolio of Senior Loans to corporations,
partnerships and other entities (Borrowers) that operate
in a variety of industries and geographic regions
(including domestic and foreign entities).
INVESTMENT POLICIES. 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. 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.
A maximum of 25% of the Fund's total assets (taken at
current value) may be invested in Senior Loans to
Borrowers and securities of other issuers in any one
industry. However, lenders and other persons positioned
between the Fund and the Borrower in the Senior Loan
process will likely conduct their activities in the
banking, finance, and financial services industries.
Accordingly, the Fund may be more at risk to any single
economic, political, or regulatory occurrence affecting
such industries.
HOW THE FUND INVESTS. 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. The Fund
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 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. 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 (Primary Lender).
Stein Roe expects the Portfolio's policy of acquiring
interests in floating or variable rate Senior Loans to
minimize the fluctuations in net asset value as a result
of changes in interest rates. However, the Fund is not a
money market fund and its net asset value will fluctuate.
SPECIAL RISK CONSIDERATIONS. You should consider the following
Special Risk Considerations before investing in the Fund.
As described below, the risks could cause you to lose
money as a result of investing in the Fund.
Non-Payment Risk. 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 Fund, a
reduction in the value of the Senior Loan experiencing
non-payment, and a potential decrease in the net asset
value of the Fund.
Below Investment Grade Securities. 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. These
securities are commonly referred to as high-yield debt or
"junk debt." The purchase of such Senior Loans exposes
the Fund to financial, market, and interest-rate risks
and greater credit risks than would the purchase of
higher-rated Senior Loans. Such investments are also
likely to result in increased fluctuation in the Fund's
net asset value, particularly in response to economic
downturns.
Restrictions on Resale of Senior Loans. Senior Loans, at
present, generally are not readily marketable and may be
subject to restrictions on resale. As a result, the
ability of the Fund to dispose of its investments in a
timely fashion and at a fair price may be restricted.
Tender Offer Risks. The Fund, as a fundamental policy,
will make quarterly repurchases for 5% to 25% of Shares
outstanding at net asset value. (See "Periodic Tender
Offers" below for more information.) However, Shares are
less liquid than shares of funds that trade on a stock
exchange. Under limited circumstances, the Fund may
suspend or postpone a quarterly repurchase offer-the Fund
must meet certain regulatory requirements to do so.
There is no guarantee that shareholders will be able to
sell all of their Shares that they desire to sell in a
quarterly repurchase offer.
Closed-End Fund Risks. 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 its Shares for trading on any national
securities exchange. There is not expected to be any
secondary trading market in the Shares and the Shares
should be considered illiquid. The Shares are,
therefore, not readily marketable. 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.
Legislation; Restrictions. 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 Fund may be adversely affected.
Non-Diversification Risk. The Portfolio is not subject
to the general limitations under the Investment Company
Act of 1940 (1940 Act) that, for 75% of its total assets,
it not invest more than 5% of its total assets in the
securities of a single issuer. The Portfolio does not
intend to invest more than 5% of the value of its assets
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 Borrowers,
it will be more susceptible than a more widely
diversified investment company to the consequences of any
single corporate, economic, political or regulatory
occurrence.
DISTRIBUTIONS. Income dividends are normally declared each
business day, paid monthly, and confirmed at least
quarterly. Capital gains, if any, are distributed at
least annually, usually in December. Income dividends
and capital gains distributions may be received in cash
or reinvested in additional full and fractional Shares of
the Fund.
INVESTMENT ADVISER. Stein Roe & Farnham Incorporated
DISTRIBUTOR. Liberty Funds Distributor, Inc.
PERIODIC TENDER OFFERS. The Fund has adopted a fundamental policy
to offer each calendar quarter to repurchase a specified
percentage (between 5% and 25%) of the Shares then
outstanding at its net asset value. Such repurchase
offers are referred to as a Tender Offer. Tender Offers
are scheduled to occur on the 15th day (or the next
business day if the 15th is not a business day) in the
months of March, June, September, and December. (See
"Periodic Tender Offers.")
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.
Shareholder Transaction Expenses Class Z
Sales Load Imposed (as a percentage of offering price) None
Sales Load Imposed on Reinvested Dividends None
Early Withdrawal Charge None
Exchange Fee None
Annual Expenses
(as a percentage of average net assets)
Management and Administrative Fees (1) 0.65%
Distribution and Service Fee None
Other Operating Expenses
Total Annual Expenses (after reimbursement) (2)
(1) Stein Roe receives a management fee of 0.45% from the
Portfolio and an administrative fee of 0.20% from the Fund.
(2) Stein Roe 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 of Class Z. Absent
such reimbursement, the Management and Administrative Fees and
Total Annual Expenses would be __% and ___%, respectively.
Any such reimbursement will lower the Class Z's overall
expense ratio and increase its overall return to investors.
Example. This Example helps you compare the cost of investing in
the Fund to the cost of investing in other mutual funds. The
Example assumes that (i) you invest $1,000 in the Fund, (ii) your
investment has a 5% return each year, (iii) operating expenses
remain the same, (iv) all income dividends and capital gains
distributions are reinvested in additional shares, and (v) no
expense reductions are in effect.:
Class 1 year 3 years 5 years 10 years
- ----------------------------------------------------------
Class Z
<PAGE>
THE FUND
The Fund is a 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. The Fund's principal office is located at One South Wacker
Drive, Chicago, IL 60606 and its telephone number is 1-800-345-
6611.
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.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE. 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's investment experience will correspond
directly to the investment experience of the Portfolio.
The Fund invests all of its net investable assets in the
Portfolio. 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 various factors, including changes in the credit
quality of Borrowers with respect to Senior Loan interests in
which the Portfolio invests.
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. The Fund is appropriate for investors
seeking a high level of current income consistent with capital
preservation.
POLICIES. Under normal market conditions, the Portfolio will
invest at least 80% of its total assets (either as a Primary
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). 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 Investors Service, Inc. (Moody's) or
BBB, A-3 or higher by Standard & Poor's, a division of The McGraw-
Hill Companies, Inc. (S&P) (or if unrated, determined by Stein Roe
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 Stein
Roe 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.
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 a 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.
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.
The typical practice of an Agent in relying exclusively or
primarily on reports from the Borrower may involve a risk of fraud
by the Borrower.
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 and certain other
obligations 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
from certain affiliates of the Borrower.
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.
Stein Roe will consider the terms of 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 or base lending (Prime Rate) rate offered
by one or more major United States banks or other standard lending
rates used by commercial lenders, such as the London Inter-Bank
Offered Rate (LIBOR) or the certificate of deposit (CD) rate.
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 outweigh 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 Fund to achieve a net return to shareholders that
consistently approximates the average published Prime Rate of
leading U.S. banks.
PRIMARY LENDER TRANSACTIONS, ASSIGNMENTS, AND PARTICIPATIONS. 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 Primary 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 the
Lender of 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, if unrated, determined by Stein Roe 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
the purchase, the Portfolio believes that the party from whom it
is purchasing the Participation is retaining an interest in the
underlying Senior Loan. In the event that the Portfolio does not
so believe, it will only purchase 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 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.
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.
When the Portfolio is a Primary 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 a
majority or some greater 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. When the Portfolio is a Primary
Lender originating a Senior Loan it may share in a fee paid by the
Borrower to the Primary Lenders. The Portfolio will never act as
the Agent, Originator, or principal negotiator or administrator of
a Senior Loan.
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 Stein Roe to be of comparable quality.
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, semiannually 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 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 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 anticipated 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 Fund's
net asset value will vary, Stein Roe 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, Stein Roe 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
Fund's net asset value. In addition to changes in interest rates,
various factors, including defaults by or changes in the credit
quality of Borrowers, will also affect the Fund's net asset value.
A default or serious deterioration in the credit quality of a
Borrower could cause a prolonged or permanent decrease in the
Fund's net asset value.
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. Stein Roe'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, Stein Roe'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 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 Stein Roe 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 Stein Roe may
consider such ratings in determining whether to invest in a
particular Senior Loan, Stein Roe is not required to consider
ratings and ratings will not be the determinative factor in Stein
Roe's analysis. To the extent that Senior Loans are rated, the
Portfolio may invest in the lowest rated loans, but does not
intend to invest more than 5% of its assets in Senior Loans rated
below B- or B3 by S&P or Moody's. 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 Stein Roe, 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, Stein Roe 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 a Primary 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 Portfolio 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. In the event that
like-yielding loans are not available in the market place, Stein
Roe believes that the prepayment of and subsequent reinvestment by
the Portfolio in Senior Loans could have a materially adverse
impact on the yield on the Portfolio's investment portfolio.
Prepayments 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. Such circumstances may include, without
limitation, obligations under revolving credit facilities and
facilities that provide for further loans to Borrowers based upon
compliance with specified financial requirements. 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 SAI.
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 warrants, equity
securities and junior debt securities only as are 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
Stein Roe 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. (See "Special Risk
Considerations.")
DEFENSIVE INVESTMENT POLICY. If Stein Roe determines that market
conditions temporarily warrant a defensive investment policy, the
Portfolio may (but it not required to) 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 SAI. 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 SAI, 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
You should consider the following Special Risk Considerations
before investing in the Fund. As described below, these risks
could cause you to lose money as a result of investing in the
Fund. The Fund and the Portfolio are both closed-end investment
companies. The Fund is designed primarily for long-term investors
and not as a trading vehicle.
NON-PAYMENT. Senior Loans, like other corporate debt obligations,
are subject to the risk of non-payment of scheduled interest or
principal. 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 Stein Roe 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 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.
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 Senior Loans 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 Stein Roe'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
Fund tenders for its Shares, and may result in borrowing to meet
short-term cash requirements.
ONGOING MONITORING. On behalf of the several Lenders, the Agent
generally will be required to administer and manage the Senior
Loans 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 a Primary 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 a Primary 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. Stein Roe will also monitor these
aspects of the Portfolio's investments and, where the Portfolio is
a Primary Lender or owns an Assignment, will be directly involved
with the Agent and the other Lenders regarding the exercise of
credit remedies.
LIMITED INFORMATION. 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 Stein Roe than would be the case for an investment
company that invests primarily in rated, registered or exchange
listed securities.
To the extent that Senior Loans are rated, the Portfolio may
invest in the lowest rated loans, but does not intend to invest
more than 5% of its assets in Senior Loans rated below B- or B3 by
S&P or Moody's.
BELOW INVESTMENT GRADE SECURITIES. Securities rated below
investment grade are commonly referred to as high-yield debt or
"junk debt." They are regarded as predominantly speculative with
respect to the issuing company's continuing ability to meet
principal and interest payments. The prices of high-yield
securities have been found to be less sensitive to interest rate
changes than higher-rated investments, but more sensitive to
adverse economic downturns or individual corporate developments.
A projection of an economic downturn or of a period of rising
interest rates, for example, could cause a decline in the prices
of high-yield securities.
The secondary market in which high-yield securities are traded is
generally less liquid than the market for higher-grade debt. Less
liquidity in the secondary trading market could adversely affect
the price at which the Portfolio could sell a high-yield Senior
Loan, and could adversely affect the net asset value of the Fund's
Shares. At times of less liquidity, it may be more difficult to
value high-yield Senior Loans because this valuation may require
more research, and elements of judgment may play a greater role in
the valuation since there is less reliable, objective data
available.
Investments in high-yield Senior Loans may result in greater net
asset value fluctuation than if the Portfolio did not make such
investments.
There is no limit on the percentage of assets that may be invested
in Senior Loans and other securities that are rated below
investment grade or that are unrated but of comparable quality.
INVESTMENTS IN NON-U.S. ISSUERS. 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.
INVESTMENTS IN EQUITY SECURITIES. To the extent the Portfolio
invests in equity securities, the value of its portfolio will be
affected by changes in the stock markets, which may be the result
of domestic or international political or economic news, changes
in interest rates, or changing investor sentiment. The stock
market can be volatile and stock prices can change substantially.
The equity securities of smaller companies are more sensitive to
these changes than those of larger companies. This market risk
will affect the Fund's net asset value, which will fluctuate as
the value of the securities held by the Portfolio changes. Not
all stock prices change uniformly or at the same time and not all
stock markets move in the same direction at the same time. Other
factors affect a particular stock's prices, such as poor earnings
reports by an issuer, loss of major customers, major litigation
against an issuer, or changes in governmental regulations
affecting an industry. Adverse news affecting one company can
sometimes depress the stock prices of all companies in the same
industry. Not all factors can be predicted.
LEGISLATION; RESTRICTIONS. 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 Senior Loan interests in a
manner that results in a price that, in the opinion of Stein Roe,
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 SAI.) 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 and the Portfolio intends to limit its investments so as
to comply with the diversification requirements imposed by the
Internal Revenue Code for qualification as a "regulated investment
company." 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
Stein Roe may use some or all of the following investment
practices when, in its opinion, their use is appropriate. These
investment practices involve certain special risk considerations.
Although Stein Roe believes that these investment practices may
further the 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 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, 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 loan 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 liquidity in connection with
Tender Offers for Fund Shares and for temporary, extraordinary or
emergency purposes. The Portfolio may enter into an agreement
with a financial institution providing for an unsecured
discretionary credit facility, the proceeds of which may be used
to finance, in part, repurchases. (See "Periodic Tender Offers.")
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
borrowings will be senior to those of the holders of Shares, and
the terms of any borrowings may contain provisions which limit
certain activities of the Portfolio, including the payment of
dividends to holders of 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 investments, intends to repay the borrowings.
Interest payments and fees incurred in connection with any
borrowings will reduce the amount of net income available for
payment to the holders of Shares.
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 Senior Loans 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,
including entering into put and call options, 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.
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 these
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 Senior Loans. 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 Stein Roe 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 Senior Loans depends on Stein Roe's
ability to predict correctly the direction and extent of movements
in interest rates. Although Stein Roe believes that use of the
hedging and risk management techniques described above will
benefit the Portfolio, if Stein Roe'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, Stein Roe 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 its 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 (NYSE) or other entities determined to be
creditworthy by Stein Roe, 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 Stein
Roe 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.
"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 Senior Loans in
connection with such purchase transactions prior to the date the
Portfolio actually takes delivery of such Senior Loans. 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 Senior Loans when delivery occurs may
be higher or lower than yields on the Senior Loans 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 Senior Loans
on such basis only with the intention of actually acquiring these
Senior Loans, but the Portfolio may sell such Senior Loans 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
Senior Loans for its investment portfolio consistent with its
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 NYSE. 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 liquid assets at minimal market
risk, although the Portfolio may be subject to various delays and
risks of loss if the counterparty 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
counterparty. In evaluating whether to enter into a repurchase
agreement, Stein Roe will consider carefully the creditworthiness
of the counterparty. If the member bank or member firm that is
the party to the repurchase agreement petitions for bankruptcy or
otherwise becomes subject to the 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 Stein Roe 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 SAI 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
Stein Roe, other service providers and the issuers in which the
Portfolio invests do not properly process and calculate date-
related information and data from and after January 1, 2000. This
is commonly known as the "Year 2000 Problem." The Fund's service
providers are taking steps that they believe are reasonably
designed to address the Year 2000 problem, including communicating
with vendors who furnish services, software and systems to the
Fund, to provide that date-related information and data can be
properly processed after January 1, 2000. Many Fund service
providers and vendors, including the Fund's service providers, are
in the process of making Year 2000 modifications to their software
and systems and believe that such modifications will be completed
on a timely basis prior to January 1, 2000. In addition, Year
2000 readiness is one of the factors considered by Stein Roe in
its ongoing selection of issuers in which the Portfolio invests,
to the extent that information is readily available. However, no
assurances can be given that the Fund will not be adversely
affected by these matters.
Although the loan documentation typically contains assurances that
Borrowers will be in compliance with Year 2000 issues, those
issues could affect the ability of Borrowers to meet their payment
obligations.
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.
If you do not indicate on your application your preferences for
handling distributions, the Fund will automatically reinvest all
distributions in additional Shares of the Fund. You can choose
one of the following options for distributions when you open your
account: (1) reinvest all distributions in additional Shares of
the Fund; (2) reinvest all distributions in shares of another
fund; (3) receive dividends in cash and reinvest capital gains; or
(4) receive all distributions in cash. Distributions of $10 or
less will automatically be reinvested in additional Shares. If
you elect to receive distributions by check and the check is
returned as undeliverable, or if you do not cash a distribution
check within six months of the check date, the distribution will
be reinvested in additional Shares.
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 SAI.
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 distribution payments and 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 INVESTMENT 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 SAI 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 investment adviser, Stein Roe & Farnham Incorporated, One
South Wacker Drive, Chicago, IL 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.
Stein Roe is registered as an investment adviser under the
Investment Advisers Act of 1940. Stein Roe is a wholly owned
indirect subsidiary of Liberty Financial Companies, Inc. ("Liberty
Financial"), which is a majority owned indirect subsidiary of
Liberty Mutual Insurance Company. Stein Roe and its predecessor
have advised and managed mutual funds since 1949 and have been
providing investment advisory services since 1932.
Stein Roe's mutual funds and institutional investment advisory
businesses are part of a larger business unit that includes
several separate legal entities known as Liberty Funds Group
(LFG). LFG includes certain affiliates of Stein Roe, including
Colonial Management Associates, Inc. (Colonial). The LFG business
unit is managed by a single management team. Colonial and other
LFG entities also share personnel, facilities, and systems with
Stein Roe that may be used in providing administrative or
operational services to the Funds. Colonial is a registered
investment adviser. Stein Roe also has a wealth management
business that is not part of LFG and is managed by a different
team. Stein Roe and the other entities that make up LFG are
subsidiaries of Liberty Financial Companies, Inc.
FEES AND EXPENSES. Stein Roe provides administrative services to
the Fund and the Portfolio and portfolio management services to
the Portfolio. Stein Roe is entitled to receive a monthly
administrative fee from the Fund, computed and accrued daily,
based on an annual rate of 0.20% of average net assets and a
monthly management fee from the Portfolio, computed and accrued
daily, based on an annual rate of 0.45% of average net assets of
the Portfolio. However, Stein Roe may waive a portion of its
fees.
Stein Roe provides office space and executive and other personnel
to the Fund and bears any sales or promotional expenses. The Fund
pays all expenses other than those paid by Stein Roe, including
but not limited to printing and postage charges, securities
registration and custodian fees, and expenses incidental to its
organization.
PORTFOLIO MANAGERS. Brian W. Good and James R. Fellows, vice
presidents of Stein Roe, have been primarily responsible for the
day-to-day management of the Portfolio since the Fund and the
Portfolio commenced operations. Mr. Fellows and Mr. Good have
been employed by Stein Roe since April 1998. Prior thereto, Mr.
Good was vice president and portfolio manager at Van Kampen
American Capital since 1989 and Mr. Fellows was vice president and
senior credit analyst at Van Kampen American Capital since 1988.
TRANSFER AGENT. Liberty Funds Services, Inc. ("Transfer Agent"),
P.O. Box 1722, Boston, MA 02105, 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, Transfer Agent
also provides certain investor accounting services to the
Portfolio.
DISTRIBUTOR. Fund Shares are offered for sale through Liberty
Funds Distributor, Inc. ("Distributor"). The Distributor is a
wholly owned indirect subsidiary of Liberty Financial. The
business address of the Distributor is One Financial Center,
Boston, MA 02111; however, all Fund correspondence should be
mailed to Stein Roe & Farnham Incorporated, One South Wacker
Drive, Chicago, IL 60606.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA 02101, is the custodian of the Fund and the
Portfolio and has custody of the securities and cash. 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.
HOW TO BUY SHARES
Your financial advisor can help you establish an appropriate
investment portfolio, buy shares, and monitor your investments.
When the Fund receives your purchase request in "good form," your
Shares will be bought at the next calculated net asset value. In
"good form" means that you placed your order with your brokerage
firm or your payment has been received and your application is
complete, including all necessary signatures.
Outlined below are various ways you can purchase Shares:
Method Instructions
- -----------------------------------------------------------------
Through your financial advisor Your financial advisor can help
you establish your account and buy Fund Shares on
your behalf.
By check
(new account) For new accounts, send a completed application and
check made payable to the Fund to the transfer
agent, Liberty Funds Services, Inc., P.O. Box
1722, Boston, MA 02105-1722.
By check (existing account) For existing accounts, fill out and
return the additional investment stub included in
your quarterly statement, or send a letter of
instruction, including your Fund name and account
number with a check made payable to the Fund to
Liberty Funds Services, Inc., P.O. Box 1722,
Boston, MA 02105-1722.
By exchange You or your financial advisor may acquire Shares
by exchanging shares you own in another Liberty
Fund for shares of the same class of the Fund at
no additional cost. To exchange by telephone,
call 1-800-422-3737. There may be an additional
charge when exchanging from a money market fund.
(See "How to Exchange Shares.")
By wire You may purchase Shares by wiring money from your
bank account to your Fund account. To wire funds
to your Fund account, call 1-800-422-3737 to
obtain a control number and the wiring
instructions.
By electronic funds transfer You may purchase Shares by
electronically transferring money from your bank
account to your Fund account by calling 1-800-422-
3737. Your money may take up to two business days
to be invested. You must set up this feature
prior to your telephone request. Be sure to
complete the appropriate section of the
application.
Automatic investment plan You can make monthly or quarterly
investments automatically from your bank account
to your Fund account. You can select a pre-
authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate
section of the application for this feature.
By dividend diversification You may automatically invest
dividends distributed by the Fund into the same
class of shares of another fund at no additional
sales charge. To invest your dividends in another
fund, call 1-800-422-3737.
Investment Minimums
Initial Investment $1,000
Subsequent Investments $50
Automatic Purchase Plans $50
Retirement Plans $25
The Fund reserves the right to change the investment minimums.
The Fund also reserves the right to refuse a purchase order for
any reason, including if it believes that doing so would be in the
best interest of the Fund and its shareholders.
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 calendar 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 p.m., Central
time) on the date the Tender Offer ends or within a maximum of 14
days after the Tender Offer ends as described below.
REPURCHASE PROCEDURE. At the beginning of each Tender Offer,
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, it is anticipated that each Repurchase Request
Deadline will be on the 15th day in each of the months of March,
June, September and December, or, if the 15th day is not a
business day, the next business day. 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 14th day after the
Repurchase Request Deadline or the next business day if the 14th
day is not a business day.
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 offers and the need to fund repurchase obligations may
affect the ability of the Fund to be fully invested, which may
reduce returns. Moreover, diminution in the size of the Fund
through repurchases without offsetting new sales may result in
untimely sales of Senior Loans and a higher expense ratio and may
limit the ability of the Fund to participate in new investment
opportunities. The Fund may borrow to meet repurchase
obligations, which entails certain risks and costs. The Fund may
also sell Senior Loans to meet repurchase obligations which, in
certain circumstances, may adversely affect the market for Senior
Loans and reduce the Fund's value.
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.
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 excess of that amount, 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 100
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 21 and 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 (if the
scheduled Repurchase Pricing Date is not the Repurchase Request
Deadline). 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 1-800-422-3737
to learn the net asset value per Share. The notice of the Tender
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 may
suspend or postpone a repurchase offer only: (A) if making or
effecting the repurchase offer would cause the Fund to lose its
status as a regulated investment company under the Internal
Revenue Code; (B) for any period during which the NYSE or any
market on which the securities owned by the Fund are principally
traded is closed, other than customary weekend and holiday
closings, or during which trading in such market is restricted;
(C) for any period during which an emergency exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable, or during which it is not reasonably
practicable for the Fund fairly to determine the value of its net
assets; or (D) for such other periods as the SEC may by order
permit for the protection of shareholders of the Fund.
LIQUIDITY REQUIREMENTS. The Fund and the Portfolio must maintain
liquid assets equal to their 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%
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 Board of the Portfolio has adopted procedures that are
reasonably designed to ensure that the assets are sufficiently
liquid so that the Fund and the Portfolio can comply with the
Tender Offer 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.
MULTIPLE PRICING SYSTEM
CHOOSING A SHARE CLASS. The Fund offers one class of Shares in
this prospectus - Class Z Shares, which are available to
institutional and other investors at net asset value without a
sales charge or early withdrawal charge. The Fund also offers
Classes A, B and C Shares through a separate prospectus.
HOW TO EXCHANGE SHARES. Shareholders of the Fund whose Shares are
repurchased during a Tender Offer may exchange those Shares for
shares of the same class of a fund distributed by the Distributor
(Liberty Funds) at net asset value. Fund shareholders will not be
able to participate in this exchange privilege at any time other
than in connection with a Tender Offer. If your shares are
subject to an EWC, you will not be charged an EWC upon the
exchange. However, when you sell the shares acquired through the
exchange, the Shares sold may be subject to a CDSC (a CDSC is the
deferred sales charge applicable to the open-end Liberty Funds) or
EWC, depending upon when you originally purchased the shares you
exchanged. For purposes of computing the CDSC or EWC, the length
of time you have owned your Shares will be computed form the date
of your original purchase and the applicable CDSC or EWC will be
the EWC of the original Fund.
Unless your account is part of a tax-deferred retirement plan, an
exchange is a taxable event. Therefore, you may realize a gain or
a loss for tax purposes. The Fund may terminate your exchange
privilege if Stein Roe determines that your exchange activity is
likely to adversely impact its ability to manage the Portfolio.
NET ASSET VALUE
The purchase or redemption price of Shares is the net asset value
per share. The Fund determines the net asset value of its Shares
as of the close of regular session trading on the NYSE (currently
3 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 of Trustees, the net asset value should be determined
on any such day, in which case the determination will be made at 3
p.m., Central time. The value of the Portfolio will be determined
by Stein Roe, following guidelines established and periodically
reviewed by the Board. Interests in Senior Loans will be valued
at fair value, which approximates market value. In determining
fair value, Stein Roe will consider on an ongoing basis, among
other factors, (i) the creditworthiness of the Borrower; (ii) the
current interest rate, period until next interest rate reset, and
maturity of such Senior Loan interests; and (iii) recent prices in
the market for instruments of similar quality, rate, and period
until next interest rate reset and maturity. It is expected that
the Fund's net asset value will fluctuate as a function of
interest rate and credit factors. Although the Fund's net asset
value will vary, Stein Roe 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, Stein Roe 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. Stein Roe 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, Stein Roe 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, Stein Roe may not rely solely
on, but may consider, to the extent Stein Roe 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, Stein Roe may rely to an increasing extent on such market
prices and quotations in valuing the Senior Loan interests in the
Portfolio. Other long-term debt securities for which market
quotations are not readily available are valued at fair value
based on valuations provided by pricing services approved by the
Board, which may employ electronic data processing techniques,
including a matrix system, to determine valuations. 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, caps, and floors will be
determined in accordance with a formula and then confirmed
periodically by obtaining a 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 Stein Roe 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.
In calculating the Fund's total return, 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 calculations of total return, current yield and
effective yield do 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 offers four classes of
Shares-Class A, Class B, Class C, and Class Z.
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.
However, 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. Further, 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 Shares are not, and are not expected 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.
Status of Shares. The Board of Trustees may classify or
reclassify any issued or unissued Shares of the Fund into Shares
of any class by redesignating such Shares or by setting or
changing in any one or more respects, from time to time, prior to
the issuance of such Shares, the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions or repurchase of such
Shares. Any such classification or reclassification will comply
with the provisions of the 1940 Act.
As of ____, 1999, the following Shares of the Fund were
outstanding:
(1) (2) (3) (4)
Amount Amount held by Fund Amount Outstanding
Title of Class Authorized or for its Account Exclusive of
Amount Shown
Under (3)
- -------------- ---------- ------------------ -----------------
Class A
Class B
Class C
Class Z
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.
Stein Roe 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 Senior Loans (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
Senior Loans 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, and could incur different
administrative fees, expenses, and sales commissions than the
Fund. 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 Senior Loans 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 Senior Loans, 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, IL 60606 or
by calling 800-426-3750. Stein Roe may provide administrative or
other services to one or more such investors.
SHAREHOLDER REPORTS
The Fund issues reports to its shareholders semi-annually that
include financial information.
FINANCIAL HIGHLIGHTS
The financial highlights table explains the Fund's financial
performance. We show information for Class Z Shares, which was
the only class of Shares outstanding as of the end of the fiscal
year. The Fund's fiscal year runs from September 1 to August 31.
The total returns in the table represent the return that investors
earned assuming that they reinvested all dividends and
distributions. Certain information in the table reflects the
financial results for a single Fund Share. Ernst & Young LLP, a
public accounting firm, audits this information and issues a
report that appears in the Fund's annual report along with the
financial statements. To request the Fund's annual report, please
call 800-422-3737.
PER SHARE DATA
For period
ending Aug. 31,
1999(a)
Net asset value, beginning of period $10.00
Income from investment operations
Net investment income (loss)
Net losses on securities (both realized
and unrealized)
Net asset value, end of period
Total return
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)
Ratio of net expenses to average net
assets (b) ____%(d)
Ratio of net investment income to average
net assets (c) ____%(d)
Portfolio turnover rate
________________
(a) From commencement of operations on Dec. 17, 1998.
(b) If the Fund had paid all of its expenses and there had been no
reimbursement of expenses by Stein Roe, this ratio would have
been ___% for the period ended Aug. 31, 1999.
(c) Computed with the effect of Stein Roe's expense reimbursement.
(d) These percentages are for periods of less than one year. They
have been converted to an annual basis making it easier to
compare to prior years.
<PAGE>
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL INFORMATION
Page
The Fund...................................................2
Investment Policies........................................2
Portfolio Investments and Strategies.......................3
Investment Restrictions...................................11
Tender Offer Fundamental Policy...........................14
Management................................................14
Financial Statements......................................17
Principal Shareholders....................................17
Investment Advisory and Other Services....................18
Distributor...............................................20
Transfer Agent............................................21
Custodian.................................................22
Independent Auditors......................................22
Portfolio Transactions....................................22
Additional Income Tax Considerations......................27
Investment Performance....................................27
- ----------------------------------------------------------------------------
<PAGE 1>
Statement of Additional Information Dated November __, 1999
STEIN ROE ADVISOR FLOATING RATE FUND
Suite 3200, One South Wacker Drive, Chicago, IL 60606
800-322-0593
This Statement of Additional Information (SAI) is not a
prospectus but provides additional information that should be read
in conjunction with the Fund's Prospectus dated ____________, 1999
and any supplements thereto. A Prospectus may be obtained at no
charge by telephoning 800-322-0593.
TABLE OF CONTENTS
Page
The Fund...................................................2
Investment Policies........................................2
Portfolio Investments and Strategies.......................3
Investment Restrictions...................................11
Tender Offer Fundamental Policy...........................14
Management................................................14
Financial Statements......................................17
Principal Shareholders....................................17
Investment Advisory and Other Services....................18
Distributor...............................................20
Transfer Agent............................................21
Custodian.................................................22
Independent Auditors......................................22
Portfolio Transactions....................................22
Additional Income Tax Considerations......................27
Investment Performance....................................27
<PAGE>
THE FUND
Stein Roe Floating Rate Income Fund (the "Fund") is a non-
diversified, closed-end management investment company. The Fund
is engaged in a continuous public offering of its Shares. The
Fund makes 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. Capitalized terms used in this
SAI and not otherwise defined have the meanings given them in the
Fund's Prospectus. The Fund's name was changed on November 4,
1998, from Stein Roe Floating Rate Income Trust to Stein Roe
Floating Rate Income Fund. The Fund's name was changed on October
__, 1999, from Stein Roe Floating Rate Income Fund to Stein Roe
Advisor Floating Rate Fund. The Fund offers four classes of
shares - Classes A, B, C, and Z.
Stein Roe & Farnham Incorporated ("Stein Roe") 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." The Fund's
investment experience will correspond directly to the investment
experience of the Portfolio.
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 SAI. The investment objective 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 the 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 or BBB, A-3 or higher by S&P (or if unrated, determined by
Stein Roe 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 Stein Roe 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. Stein Roe
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 Stein Roe 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. Stein Roe'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, Stein Roe'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 Stein Roe 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 Stein Roe 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. Stein Roe
may use some or all of the following investment practices when, in
the opinion of Stein Roe, their use is appropriate. Although
Stein Roe 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
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 liquidity in connection with Tender Offers
for Fund shares 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
shareholders. 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, including entering into put and
call options, 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. Stein Roe 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 Stein Roe 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
Stein Roe's ability to predict correctly the direction and extent
of movements in interest rates. Although Stein Roe believes that
use of the hedging and risk management techniques described above
will benefit the Portfolio, if Stein Roe'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, Stein Roe 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 its 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 Stein Roe, 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 Stein
Roe 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 Stein Roe to be of good standing and when, in the
judgment of Stein Roe, 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 Stein
Roe 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 its investment portfolio consistent
with its 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, Stein Roe 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 Stein Roe
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
Stein Roe 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 Stein Roe 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 Stein Roe 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 Stein Roe 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 Stein Roe 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;/3/
- -------------------
/3/ The Portfolio does not currently intend to purchase a put or
call option if the aggregate premiums paid for all put and call
options then held exceed 5% of its net asses (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;/4/
- ------------------
/4/ The Portfolio does not currently intend to commit more than 5%
of its assets to 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.
TENDER OFFER 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 be changed only 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 of the Fund, managers of the Portfolio, and
officers of the Fund and the Portfolio:
<TABLE>
<CAPTION>
Position(s) held Principal occupation(s)
Name, Age with the Trust during past five years
- ------------------ ------------------------ ---------------------------
<S> <C> <C>
William D. Andrews, 52 Executive Vice-President Executive vice president of Stein Roe & Farnham
Incorporated ("Stein Roe")
Gary A. Anetsberger, 43 Senior Vice-President; Chief financial officer and
Treasurer chief administrative officer of the Mutual Funds
division of Stein Roe; senior vice president of Stein
Roe since April 1996; vice president of Stein Roe
prior thereto
John A. Bacon Jr., 72 (3) Trustee/Manager Private investor
William W. Boyd, 72 (2)(3) Trustee/Manager Chairman and director of Sterling Plumbing
(manufacturer of plumbing products)
Thomas W. Butch, 42 (1)(2) Trustee/Manager,President President of Stein Roe Mutual Funds since March 1998;
senior vice president of Stein Roe prior thereto
Kevin M. Carome, 43 Executive Vice-President; Senior vice president,
Assistant Secretary legal, Liberty Funds Group LLC (an affiliate of Stein
Roe) since Jan. 1999; general counsel and secretary of
Stein Roe since Jan. 1998; associate general counsel
and vice president of Liberty Financial Companies,
Inc. (the indirect parent of Stein Roe) through Jan.
1999
J. Kevin Connaughton, 35 Vice-President Vice president of Colonial Management Associates, Inc.
("CMA"), since February 1998; senior tax manager,
Coopers & Lybrand, LLP from April 1996 to January,
1998; vice president, 440 Financial Group/First Data
Investor Services Group prior thereto
Lindsay Cook, 47 (1) Trustee/Manager Executive vice president of Liberty Financial
Companies, Inc. since March 1997; senior vice
president prior thereto
James R. Fellows, 34 Vice-President Vice president of Stein Roe since April 1998; vice
president and senior credit analyst, Van Kampen
American Capital prior thereto
Brian W. Good, 33 Vice-President Vice president of Stein Roe
since April 1998; vice president and portfolio
manager, Van Kampen American Capital prior thereto
Douglas A. Hacker, 43 (3) Trustee/Manager Senior vice president and chief financial officer of
UAL, Inc. (airline)
Loren A. Hansen, 51 Executive Vice-President Chief investment officer/equity of Colonial Management
Associates, Inc. since 1997; executive vice president
of Stein Roe since Dec. 1995; vice president of The
Northern Trust (bank) prior thereto
Timothy J. Jacoby, 47 Vice-President Fund treasurer for Liberty Funds Group LLC since Sept.
1996 and chief financial officer since Aug. 1997;
senior vice president of Fidelity Investments prior
thereto
Janet Langford Kelly,41(3) Trustee/Manager Senior vice president, secretary and general counsel
of Sara Lee Corporation (branded, packaged, consumer-
products manufacturer) since 1995; partner of Sidley &
Austin (law firm) prior thereto
Gail D. Knudsen, 37 Vice-President Vice president and assistant controller of CMA
Charles R. Nelson, 57 (3) Trustee/Manager Van Voorhis Professor of Political Economy of the
University of Washington
Nicolette D. Parrish, 49 Vice-President; Senior legal assistant and assistant secretary of
Assistant Secretary Stein Roe
Janet B. Rysz, 43 Assistant Secretary Senior legal assistant and assistant secretary of
Stein Roe
Thomas C. Theobald, 62 (3) Trustee/Manager Managing director, William Blair Capital Partners
(private equity fund)
Heidi J. Walter, 32 Vice President; Secretary Vice President of Stein Roe since March 1998; senior
legal counsel for Stein Roe since Feb. 1998; legal
counsel for Stein Roe from March 1995 to Jan. 1998;
associate with Beeler Schad & Diamond PC (law firm)
prior thereto
<FN>
__________________
(1) Trustee who is an "interested person" of the Fund and of Stein
Roe, as defined in the Investment Company Act of 1940.
(2) Member of the Executive Committee of the Board of Trustees,
which is authorized to exercise all powers of the Board with
certain statutory exceptions.
(3) Member of the Audit Committee of the Board, which makes
recommendations to the Board regarding the selection of
auditors and confers with the auditors regarding the scope and
results of the audit.
</TABLE>
Certain of the trustees and officers of the Fund and the
Portfolio are trustees or officers of other investment companies
managed by Stein Roe. Mr. Anetsberger, Mr. Butch, and Ms. Walter
are also officers of Liberty Funds Distributor, Inc., the Fund's
distributor. The address of Mr. Bacon is 4N640 Honey Hill Road,
Box 296, Wayne, IL 60184; that of Mr. Boyd is 2900 Golf Road,
Rolling Meadows, IL 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, IL 60602; that of Mr. Nelson is Department of
Economics, University of Washington, Seattle, WA 98195; that of
Mr. Theobald is Suite 1300, 222 West Adams Street, Chicago, IL
60606; that of Ms. Knudsen and Messrs. Connaughton and Jacoby is
One Financial Center, Boston, MA 02111; and that of the other
officers is One South Wacker Drive, Chicago, IL 60606.
Officers and trustees affiliated with Stein Roe 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 Stein Roe 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. The
following table sets forth compensation paid to the trustees
during the year ended Aug. 31, 1999:
Compensation from the
Stein Roe Fund Complex*
-----------------------
Aggregate Compensation Total Average
Name of Trustee from the Trust Compensation Per Series
- ------------------- -------------------- ------------ ----------
Thomas W. Butch -0- -0- -0-
Lindsay Cook -0- -0- -0-
John A. Bacon, Jr.
William W. Boyd
Douglas A. Hacker
Janet Langford Kelly
Charles R. Nelson
Thomas C. Theobald
____________
*As of Aug. 31, 1999, 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 Income Fund, and
the following open-end mutual funds: four series of Stein Roe
Income Trust, four series of Stein Roe Municipal Trust, 12 series
of Stein Roe Investment Trust, five series of Stein Roe Advisor
Trust, one series of Stein Roe Trust, 12 portfolios of SR&F Base
Trust, and five series of SteinRoe Variable Investment Trust.
FINANCIAL STATEMENTS
Please refer to the Fund's Aug. 31, 1999 Financial Statements
(statements of assets and liabilities and schedules of investments
as of Aug. 31, 1999 and the statements of operations, changes in
net assets, and notes thereto) and the report of independent
auditors contained in the Aug. 31, 1999 Annual Report of the Fund.
The Financial Statements and the report of independent auditors
(but no other material from the Annual Report) are incorporated
herein by reference. The Annual Report may be obtained at no
charge by telephoning 800-322-0593.
PRINCIPAL SHAREHOLDERS
Until the Fund completes the public offering of the Shares,
Stein Roe will be deemed to control the Fund under the 1940 Act.
As of July 30, 1999, the only persons known by the Fund to
own of record or "beneficially" 5% or more of its outstanding
shares within the definition of that term as contained in Rule
13d-3 under the Securities Exchange Act of 1934 were as follows:
Approximate % of
Name and Address Outstanding Shares Held
- ------------------------------------------------------------------
U.S. Bank NA, Custodian, IRA
F/B/O Thomas A. Callahan
75 Davis Street
Wollaston, MA 02170 15.7%
Stein Roe & Farnham Incorporated
One Financial Center, 13th floor
Boston, MA 02110 11.7%
Knox Family Trust
81 Simpsons Point Road
Brunswick, ME 04011 5.6%
Christopher B. Mann
619 Agua Fria St., #2
Santa Fe, NM 87501 5.2%
U.S. Bank NA, Custodian, Rollover IRA
Joseph F. McCann
352 E. 72nd Street, #9B
New York, NY 10021 28.8%
James Dondanville, Trustee
James Dobbie Descendants Trust
622 W. Arlington Place
Chicago, IL 60614 5.7%
James Dondanville, Trustee
Pamela Dobbie Descendants Trust
622 W. Arlington Place
Chicago, IL 60614 5.7%
As of July 30, 1999, clients of Stein Roe held ___ shares, or
approximately ___% of the Fund's outstanding shares. Stein Roe may
have discretionary authority over such shares and, accordingly,
they could be deemed to be owned "beneficially" by Stein Roe under
Rule 13d-3. However, Stein Roe disclaims actual beneficial
ownership of such shares.
INVESTMENT ADVISORY AND OTHER SERVICES
Stein Roe provides administrative services to the Fund and
the Portfolio and portfolio management services to the Portfolio.
Stein Roe is a wholly owned subsidiary of SteinRoe Services Inc.,
which is a wholly owned subsidiary of Liberty Financial Companies,
Inc. ("Liberty Financial"), which is a majority owned subsidiary
of Liberty Corporate Holdings, Inc., which is a wholly owned
subsidiary of LFC Holdings, Inc., which is a wholly owned
subsidiary of Liberty Mutual 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 Stein Roe are Kenneth R. Leibler, C. Allen
Merritt, Jr., and Thomas W. Butch. Mr. Leibler is President and
Chief Executive Officer of Liberty Financial; Mr. Merritt is Chief
Operating Officer of Liberty Financial; and Mr. Butch is President
of Stein Roe Mutual Funds. The business address of Messrs.
Leibler and Merritt is Federal Reserve Plaza, 600 Atlantic Avenue,
Boston, MA 02210; and that of Mr. Butch is One South Wacker Drive,
Chicago, IL 60606.
Stein Roe and its predecessor have been providing investment
advisory services since 1932. Stein Roe acts as investment
adviser to wealthy individuals, trustees, pension and profit
sharing plans, charitable organizations, and other institutional
investors. As of June 30, 1999, Stein Roe managed over $22.2
billion in assets: over $6.3 billion in equities and over $15.9
billion in fixed income securities (including $1 billion in
municipal securities). The $22.2 billion in managed assets
included over $9.2 billion held by mutual funds managed by Stein
Roe (approximately 15% of the mutual fund assets were held by
clients of Stein Roe). These mutual funds were owned by over
282,000 shareholders. The $9.2 billion in mutual fund assets
included over $679 million in over 42,000 IRA accounts. In
managing those assets, Stein Roe utilizes a proprietary computer-
based information system that maintains and regularly updates
information for approximately 7,500 companies. Stein Roe also
monitors over 1,400 issues via a proprietary credit analysis
system. At June 30, 1999, Stein Roe employed 18 research analysts
and 54 account managers. The average investment-related
experience of these individuals was 17 years.
Please refer to the descriptions of Stein Roe, the management
and administrative agreements, fees, expense limitation, and
transfer agency services under "Management of the Fund" and "Fund
Expenses" in the Prospectus, which are incorporated herein by
reference. The table below shows gross fees paid and any expense
reimbursements by Stein Roe during the past fiscal year:
Type of Payment Year Ended 8/31/99
- ---------------------------------------------------------------
Fund Administrative fee
Reimbursement
Portfolio Management fee
Stein Roe provides office space and executive and other
personnel to the Fund and bears any sales or promotional expenses.
The Fund pays all expenses other than those paid by Stein Roe,
including but not limited to printing and postage charges,
securities registration and custodian fees, and expenses
incidental to its organization.
The administrative agreement provides that Stein Roe shall
reimburse the Fund to the extent that total annual expenses of the
Fund (including fees paid to Stein Roe, but excluding taxes,
interest, 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, Stein Roe may 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 Stein Roe 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
Stein Roe of its duties under the agreement, except for liability
resulting from willful misfeasance, bad faith or gross negligence
on its part in the performance of its duties or from reckless
disregard by Stein Roe 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 Stein Roe determines is fair and appropriate,
unless otherwise specified by the Board.
Bookkeeping and Accounting
Pursuant to a separate agreement with the Fund, Stein Roe
receives a fee for performing certain bookkeeping and accounting
services. For these services, Stein Roe receives an annual fee of
$25,000 plus .0025 of 1% of average net assets over $50 million.
During the fiscal year ended Aug. 31, 1999, the Fund paid Stein
Roe $____ for services performed under this agreement.
DISTRIBUTOR
Shares of the Fund are distributed by Liberty Funds
Distributor, Inc. ("Distributor"), One Financial Center, Boston,
MA 02111, under a Distribution Agreement (the "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.
Distribution and Service Fees
In addition to an early withdrawal charge, each of Class A,
B, and C of Shares is authorized under a distribution plan (Plan)
to use the assets attributable to a class to finance certain
activities relating to the distribution of Shares to investors.
These include marketing and other activities to support the
distribution of the Class A, B, and C Shares and the services
provided to you by your financial advisor. The Plan was approved
and reviewed in a manner consistent with Rule 12b-1 under the 1940
Act, which regulates the manner in which an open-end investment
company may directly or indirectly bear the expenses of
distributing its shares. Although the Fund is not an open-end
investment company, it has undertaken to comply with the terms of
Rule 12b-1 as a condition of a pending exemptive order under the
1940 Act to permit it to have a multi-class structure, early
withdrawal charges, and distribution fees.
Under the Plan, the Fund pays the Distributor monthly
distribution and service fees at an annual rate of 0.35% of
average daily net assets attributable to Class A Shares, 0.60% of
average daily net assets attributable to Class B Shares, and 0.85%
of average daily net assets attributable to Class C Shares,
respectively. Since the distribution and service fees are payable
regardless of the Distributor's expenses, the Distributor may
realize a profit from the fees. The Plan authorizes any other
payments by the Fund to the Distributor and its affiliates to the
extent that such payments might be construed to be indirect
financing of the distribution of Fund Shares.
The trustees believe that the Plan could be a significant
factor in the growth and retention of Fund assets resulting in a
more advantageous expense ratio and increased investment
flexibility which could benefit each class of Fund shareholders.
The Plan will continue in effect from year to year so long as
continuance is specifically approved at least annually by a vote
of the trustees, including the trustees who are not interested
persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related
to the Plan (Independent Trustees), cast in person at a meeting
called for the purpose of voting on the Plan. The Plan may not be
amended to increase the fee materially without approval by a vote
of a majority of the outstanding voting securities of the relevant
class of Shares and all material amendments of the Plan must be
approved by the trustees in the manner provided in the foregoing
sentence. The Plan may be terminated at any time by a vote of a
majority of the Independent Trustees or by a vote of a majority of
the outstanding voting securities of the relevant class of Shares.
The continuance of the Plan will only be effective if the
selection and nomination of the Independent Trustees is effected
by such Independent Trustees.
Early Withdrawal Charges (EWCs). Certain investments in
Class A, B and C shares are subject to an EWC. You will pay the
EWC only on Shares you tender within a certain amount of time
after purchase. The EWC generally declines each year until there
is no charge for tendering Shares. The EWC is applied to the net
asset value at the time of purchase or repurchase, whichever is
lower. For purposes of calculating the EWC, the start of the
holding period is the first day of the month following each
purchase. Shares you purchase with reinvested dividends or
capital gains are not subject to an EWC. When Shares are
repurchased, the Fund will automatically repurchase those Shares
not subject to an EWC and then those you have held the longest.
This policy helps reduce and possibly eliminate the potential
impact of the EWC. In certain circumstances, EWCs may be waived,
as described in the SAI.
Conversion Feature. Class B shares will automatically
convert to Class A Shares after eight years and after that date,
Class B Shares will no longer be subject to the distribution fees
applicable to Class B Shares. Conversion will be on the basis of
the relative net asset values per share, without the imposition of
any sales charge, fee or other charge. The purpose of the
conversion feature is to relieve the holders of Class B Shares
from asset-based distribution expenses applicable to such Shares
at such time as the Class B Shares have been outstanding for a
duration sufficient for the Distributor to have been substantially
compensated for distribution-related expenses incurred in
connection with those Shares. Class C Shares do not convert to
Class A Shares. Therefore, holders of Class C Shares will
continue to bear the asset-based distribution fees on the Class C
Shares for as long as they hold such Shares.
TRANSFER AGENT
Liberty Funds Services, Inc. ("LFS") 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 LFS a fee at the annual rate of 0.140 of
1% of its average daily net assets. The Board believes the
charges by LFS 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, MA 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, IL 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.
PORTFOLIO TRANSACTIONS
Stein Roe places the orders for the purchase and sale of
portfolio securities and options and futures contracts for its
clients, including private clients and mutual fund clients
("Clients"). 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.
Stein Roe's overriding objective in selecting brokers and
dealers to effect portfolio transactions is to seek the best
combination of net price and execution. The best net price,
giving effect to brokerage commissions, if any, is an important
factor in this decision; however, a number of other judgmental
factors may also enter into the decision. These factors include
Stein Roe's knowledge of negotiated commission rates currently
available and other current transaction costs; the nature of the
security being purchased or sold; the size of the transaction; the
desired timing of the transaction; the activity existing and
expected in the market for the particular security;
confidentiality; the execution, clearance and settlement
capabilities of the broker or dealer selected and others
considered; Stein Roe's knowledge of the financial condition of
the broker or dealer selected and such other brokers and dealers;
and Stein Roe's knowledge of actual or apparent operation problems
of any broker or dealer.
Recognizing the value of these factors, Stein Roe may cause a
Client to pay a brokerage commission in excess of that which
another broker may have charged for effecting the same
transaction. Stein Roe has established internal policies for the
guidance of its trading personnel, specifying minimum and maximum
commissions to be paid for various types and sizes of transactions
and effected for Clients in those cases where Stein Roe has
discretion to select the broker or dealer by which the transaction
is to be executed. Stein Roe has discretion for all trades of the
Portfolio. Transactions which vary from the guidelines are
subject to periodic supervisory review. These guidelines are
reviewed and periodically adjusted, and the general level of
brokerage commissions paid is periodically reviewed by Stein Roe.
Evaluations of the reasonableness of brokerage commissions, based
on the factors described in the preceding paragraph, are made by
Stein Roe's trading personnel while effecting portfolio
transactions. The general level of brokerage commissions paid is
reviewed by Stein Roe, and reports are made annually to the Board
of Trustees.
Stein Roe maintains and periodically updates a list of
approved brokers and dealers which, in Stein Roe's judgment, are
generally capable of providing best price and execution and are
financially stable. Stein Roe's traders are directed to use only
brokers and dealers on the approved list, except in the case of
Client designations of brokers or dealers to effect transactions
for such Clients' accounts. Stein Roe generally posts certain
Client information on the "Alert" broker database system as a
means of facilitating the trade affirmation and settlement
process.
It is Stein Roe's practice, when feasible, to aggregate for
execution as a single transaction orders for the purchase or sale
of a particular security for the accounts of several Clients, in
order to seek a lower commission or more advantageous net price.
The benefit, if any, obtained as a result of such aggregation
generally is allocated pro rata among the accounts of Clients
which participated in the aggregated transaction. In some
instances, this may involve the use of an "average price"
execution wherein a broker or dealer to which the aggregated order
has been given will execute the order in several separate
transactions during the course of a day at differing prices and,
in such case, each Client participating in the aggregated order
will pay or receive the same price and commission, which will be
an average of the prices and commissions for the several separate
transactions executed by the broker or dealer.
Stein Roe sometimes makes use of an indirect electronic
access to the New York Stock Exchange's "SuperDOT" automated
execution system, provided through a NYSE member floor broker, W&D
Securities, Inc., a subsidiary of Jeffries & Co., Inc.,
particularly for the efficient execution of smaller orders in NYSE
listed equities. Stein Roe sometimes uses similar arrangements
through Billings & Co., Inc. and Driscoll & Co., Inc., floor
broker members of the Chicago Stock Exchange, for transactions to
be executed on that exchange. In using these arrangements, Stein
Roe must instruct the floor broker to refer the executed
transaction to another brokerage firm for clearance and
settlement, as the floor brokers do not deal with the public.
Transactions of this type sometimes are referred to as "step-in"
or "step-out" transactions. The brokerage firm to which the
executed transaction is referred may include, in the case of
transactions effected through W&D Securities, brokerage firms
which provide Stein Roe investment research or related services.
Stein Roe places certain trades for the Portfolio through its
affiliate AlphaTrade, Inc. ("ATI"). ATI is a wholly owned
subsidiary of Colonial Management Associates, Inc. ATI is a fully
disclosed introducing broker that limits its activities to
electronic execution of transactions in listed equity securities.
The Portfolio pays ATI a commission for these transactions. The
Fund and the Portfolio have adopted procedures consistent with
Investment Company Act Rule 17e-1 governing such transactions.
Certain of Stein Roe's officers also serve as officers, directors
and/or employees of ATI.
Consistent with the Rules of Fair Practice of National
Securities Dealers, Inc. and subject to seeking best executing and
such other policies as the trustees of the Fund may determine,
Stein Roe may consider sales of shares of the Fund as a factor in
the selection of broker-dealers to execute such mutual fund
securities transactions.
Investment Research Products and Services Furnished by Brokers and
Dealers
Stein Roe engages in the long-standing practice in the money
management industry of acquiring research and brokerage products
and services ("research products") from broker-dealer firms in
return directing trades for Client accounts to those firms. In
effect, Stein Roe is using the commission dollars generated from
these Client accounts to pay for these research products. The
money management industry uses the term "soft dollars" to refer to
this industry practice. Stein Roe may engage in soft dollar
transactions on trades for those Client accounts for which Stein
Roe has the discretion to select the brokers-dealer.
The ability to direct brokerage for a Client account belongs
to the Client and not to Stein Roe. When a Client grants Stein
Roe the discretion to select broker-dealers for Client trades,
Stein Roe has a duty to seek the best combination of net price and
execution. Stein Roe faces a potential conflict of interest with
this duty when it uses Client trades to obtain soft dollar
products. This conflict exists because Stein Roe is able to use
the soft dollar products in managing its Client accounts without
paying cash ("hard dollars") for the product. This reduces Stein
Roe's expenses.
Moreover, under a provision of the federal securities laws
applicable to soft dollars, Stein Roe is not required to use the
soft dollar product in managing those accounts that generate the
trade. Thus, the Client accounts that generate the brokerage
commission used to acquire the soft dollar product may not benefit
directly from that product. In effect, those accounts are cross
subsidizing Stein Roe's management of the other accounts that do
benefit directly from the product. This practice is explicitly
sanctioned by a provision of the Securities Exchange Act of 1934,
which creates a "safe harbor" for soft dollar transactions
conducted in a specified manner. Although it is inherently
difficult, if not impossible, to document, Stein Roe believes that
over time most, if not all, Clients benefit from soft dollar
products such that cross subsidizations even out.
Stein Roe attempts to reduce or eliminate this conflict by
directing Client trades for soft dollar products only if Stein Roe
concludes that the broker-dealer supplying the product is capable
of providing a combination of the best net price and execution on
the trade. As noted above, the best net price, while significant,
is one of a number of judgmental factors Stein Roe considers in
determining whether a particular broker is capable of providing
the best net price and execution. Stein Roe may cause a Client
account to pay a brokerage commission in a soft dollar trade in
excess of that which another broker-dealer might have charged for
the same transaction.
Stein Roe acquires two types of soft dollar research
products: (i) proprietary research created by the broker-dealer
firm executing the trade and (ii) other products created by third
parties that are supplied to Stein Roe through the broker-dealer
firm executing the trade.
Proprietary research consists primarily of traditional
research reports, recommendations and similar materials produced
by the in house research staffs of broker-dealer firms. This
research includes evaluations and recommendations of specific
companies or industry groups, as well as analyses of general
economic and market conditions and trends, market data, contacts
and other related information and assistance. Stein Roe's
research analysts periodically rate the quality of proprietary
research produced by various broker-dealer firms. Based on these
evaluations, Stein Roe develops target levels of commission
dollars on a firm-by-firm basis. Stein Roe attempts to direct
trades to each firm to meet these targets.
Stein Roe also uses soft dollars to acquire products created
by third parties that are supplied to Stein Roe through broker-
dealers executing the trade (or other broker-dealers who "step in"
to a transaction and receive a portion of the brokerage commission
for the trade). These products include the following:
* Database Services-comprehensive databases containing current
and/or historical information on companies and industries.
Examples include historical securities prices, earnings
estimates, and SEC filings. These services may include software
tools that allow the user to search the database or to prepare
value-added analyses related to the investment process (such as
forecasts and models used in the portfolio management process).
* Quotation/Trading/News Systems-products that provide real time
market data information, such as pricing of individual
securities and information on current trading, as well as a
variety of news services.
* Economic Data/Forecasting Tools-various macro economic
forecasting tools, such as economic data and economic and
political forecasts for various countries or regions.
* Quantitative/Technical Analysis-software tools that assist in
quantitative and technical analysis of investment data.
* Fundamental Industry Analysis-industry-specific fundamental
investment research.
* Fixed Income Security Analysis-data and analytical tools that
pertain specifically to fixed income securities. These tools
assist in creating financial models, such as cash flow
projections and interest rate sensitivity analyses, that are
relevant to fixed income securities.
* Other Specialized Tools-other specialized products, such as
specialized economic consulting analyses and attendance at
investment oriented conferences.
Many third-party products include computer software or on-
line data feeds. Certain products also include computer hardware
necessary to use the product.
Certain of these third party services may be available
directly from the vendor on a hard dollar basis. Others are
available only through broker-dealer firms for soft dollars.
Stein Roe evaluates each product to determine a cash ("hard
dollars") value of the product to Stein Roe. Stein Roe then on a
product-by-product basis targets commission dollars in an amount
equal to a specified multiple of the hard dollar value to the
broker-dealer that supplies the product to Stein Roe. In general,
these multiples range from 1.25 to 1.85 times the hard dollar
value. Stein Roe attempts to direct trades to each firm to meet
these targets. (For example, if the multiple is 1.5:1.0, assuming
a hard dollar value of $10,000, Stein Roe will target to the
broker-dealer providing the product trades generating $15,000 in
total commissions.)
The targets that Stein Roe establishes for both proprietary
and for third party research products typically will reflect
discussions that Stein Roe has with the broker-dealer providing
the product regarding the level of commissions it expects to
receive for the product. However, these targets are not binding
commitments, and Stein Roe does not agree to direct a minimum
amount of commissions to any broker-dealer for soft dollar
products. In setting these targets, Stein Roe makes a
determination that the value of the product is reasonably
commensurate with the cost of acquiring it. These targets are
established on a calendar year basis. Stein Roe will receive the
product whether or not commissions directed to the applicable
broker-dealer are less than, equal to or in excess of the target.
Stein Roe generally will carry over target shortages and excesses
to the next year's target. Stein Roe believes that this practice
reduces the conflicts of interest associated with soft dollar
transactions, since Stein Roe can meet the non-binding
expectations of broker-dealers providing soft dollar products over
flexible time periods. In the case of third party products, the
third party is paid by the broker-dealer and not by Stein Roe.
Stein Roe may enter into a contract with the third party vendor to
use the product. (For example, if the product includes software,
Stein Roe will enter into a license to use the software from the
vendor.)
In certain cases, Stein Roe uses soft dollars to obtain
products that have both research and non-research purposes.
Examples of non-research uses are administrative and marketing
functions. These are referred to as "mixed use" products. As of
the date of this SAI, Stein Roe acquires two mixed use products.
These are (i) a fixed income security data service and (ii) a
mutual fund performance ranking service. In each case, Stein Roe
makes a good faith evaluation of the research and non-research
uses of these services. These evaluations are based upon the time
spent by Firm personnel for research and non-research uses. Stein
Roe pays the provider in cash ("hard dollars") for the non-
research portion of its use of these products.
Stein Roe may use research obtained from soft dollar trades
in the management of any of its discretionary accounts. Thus,
consistent with industry practice, Stein Roe does not require that
the Client account that generates the trade receive any benefit
from the soft dollar product obtained through the trade. As noted
above, this may result in cross subsidization of soft dollar
products among Client accounts. As noted therein, this practice
is explicitly sanctioned by a provision of the Securities Exchange
Act of 1934, which creates a "safe harbor" for soft dollar
transactions conducted in a specified manner.
In certain cases, Stein Roe will direct a trade to one
broker-dealer with the instruction that it execute the trade and
pay over a portion of the commission from the trade to another
broker-dealer who provides Stein Roe with a soft dollar research
product. The broker-dealer executing the trade "steps out" of a
portion of the commission in favor of the other broker-dealer
providing the soft dollar product. Stein Roe may engage in step
out transactions in order to direct soft dollar commissions to a
broker-dealer which provides research but may not be able to
provide best execution. Brokers who receive step out commissions
typically are brokers providing a third party soft dollar product
that is not available on a hard dollars basis. Stein Roe has not
engaged in step out transactions as a manner of compensating
broker-dealers that sell shares of investment companies managed by
Stein Roe.
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.
The Yield formula is as follows: YIELD = 2[((a-b/cd) +1)6 -1].
Where: a = dividends and interest earned during the period
(For this purpose, the Fund will recalculate the
yield to maturity based on market value of each
portfolio security on each business day on which net
asset value is calculated.)
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the ending net asset value of 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).
For example, for a $1,000 investment in the Fund, the "Total
Return," the "Total Return Percentage," and the "Average Annual
Total Return" at August 31, 1999 were:
Total Average Annual
Total Return Return Percentage Total Return
- ------------------------------------------------------------------
Life of Fund*
______________
*Since commencement of operations on Dec. __, 1998.
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
Stein Roe will consider such fact in determining whether the
Portfolio should continue to hold the security.
- -------------------------------------------------------------------------------
<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: None
(2) Exhibits: [Note: As used herein, the term "Registration
Statement" refers to the Registration Statement of the
Registrant on Form N-2 under the Securities Act of 1933,
No. 333-61751. The term "Pre-Effective Amendment" refers
to a pre-effective amendment to the Registration
Statement and the term "PEA" refers to a post-effective
amendment to the Registration Statement.]
a. Agreement and Declaration of Trust as amended and restated
on Nov. 3, 1998. (Exhibit a to Pre-Effective Amendment No.
1.)*
b. By-laws of Registrant dated August 13, 1998 as amended on
Sept. 25, 1998. (Exhibit b to Pre-Effective Amendment No.
1.)*
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 11/20/98 as amended through 8/3/99.
h. Underwriting Agreement between Registrant and Liberty Funds
Distributor, Inc. dated 8/4/99.
i. None.
j. Form of Custodian Contract between Registrant and State
Street Bank and Trust Company. (Exhibit j to Pre-Effective
Amendment No. 1.)*
k. (1) Transfer Agency Agreement between Registrant and
Liberty Funds Services, Inc. dated 8/3/99.
(2) Accounting and Bookkeeping Agreement between
Registrant and Stein Roe & Farnham Incorporated
dated 8/3/99
(3) Administrative Agreement between Registrant and Stein
Roe & Farnham Incorporated dated 11/20/98 as amended
through 8/3/99.
l. Opinion and Consent of Bell, Boyd & Lloyd. (Exhibit 1 to
Pre-Effective Amendment No. 1.)*
m. None.
n. None.
o. None.
p. Initial Capital Agreement. (Exhibit p to Pre-Effective
Amendment No. 2.)*
q. Stein Roe & Farnham Funds Individual Retirement Account
Plan. Stein Roe & Farnham Prototype Paired Defined
Contribution Plan. (Exhibit q to Pre-Effective Amendment
No. 1.)*
r. Miscellaneous: Rule 12b-1 distribution plan and Rule 18f-3
plan.
----------
*Incorporated by reference.
Item 25. Marketing Arrangements
None.
Item 26. Other Expenses of Issuance and Distribution
Registration Fees $29,500
National Association of Securities
Dealers, Inc. Fees 10,500*
State Fees 41,000**
Printing Fees 20,000
Rating Agency Fees 0
Legal and Accounting Fees $170,000**
____________
*The Registrant's investment adviser has paid these fees in
lieu of the Registrant.
**Estimated 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 and Other Services"
and "Transfer Agent" is incorporated by reference.
Item 28. Number of Holders of Securities
Number of Record Holders
Title of Class as of 8/31/99
----------------------------------- ------------------------
Stein Roe Floating Rate Income Fund 17
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,
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
Stein Roe & Farnham Incorporated ("Stein Roe"), the investment
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 Liberty Corporation Holdings, Inc., which is a wholly 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. Stein Roe 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
Stein Roe, 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
and Other Services."
Certain directors and officers of Stein Roe also serve and have
during the past two years served in various capacities as
officers, directors, or trustees of SSI, of Colonial Management
Associates, Inc. (which is a subsidiary of Liberty Financial
Companies, Inc.), and of the Registrant and other investment
companies managed by SteinRoe. (The listed entities are located
at One South Wacker Drive, Chicago, Illinois 60606, except for
Colonial Management Associates, Inc., which is located at One
Financial Center, Boston, MA 02111, and SteinRoe Variable
Investment Trust and Liberty Variable Investment Trust, which
are located at Federal Reserve Plaza, Boston, MA 02210.) 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
Thomas W. Butch President; Director; Chmn. Vice President
Kevin M. Carome Assistant Clerk
Kenneth J. Kozanda Vice President; Treasurer
Kenneth R. Leibler Director
Karl J. Maurer Comptroller
C. Allen Merritt, Jr. Director; Vice President
Heidi J. Walter Vice President; Secretary
COLONIAL MANAGEMENT ASSOCIATES, INC.
Ophelia L. Barsketis Senior Vice President
Kevin M. Carome Senior Vice President
William M. Garrison Vice President
Loren A. Hansen Senior Vice President
Clare M. Hounsell Vice President
James P. Haynie Senior Vice President
Timothy J. Jacoby Senior Vice President
Deborah A. Jansen Senior Vice President
North T. Jersild Vice President
Yvonne T. Shields Vice President
SR&F BASE TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior V-P; Treasurer Controller
David P. Brady Vice-President
Thomas W. Butch President Executive V-P;
Trustee
Daniel K. Cantor Vice-President
Kevin M. Carome Executive VP; Asst. Secy. VP
Erik P. Gustafson Vice-President
Loren A. Hansen Executive Vice-President
James P. Haynie Vice-President
Harvey B. Hirschhorn Vice-President
Michael T. Kennedy Vice-President
Stephen F. Lockman Vice-President
Jane M. Naeseth Vice-President
Maureen G. Newman Vice-President
Gita R. Rao Vice-President
Michael E. Rega Vice-President
Veronica M. Wallace Vice-President
Heidi J. Walter Vice-President; Secretary
STEIN ROE INCOME TRUST; STEIN ROE INSTITUTIONAL TRUST; AND
STEIN ROE TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior V-P; Treasurer Controller
Thomas W. Butch President Exec. VP;
VP; Trustee
Kevin M. Carome Executive VP; Asst. Secy. VP
Loren A. Hansen Executive Vice-President
Michael T. Kennedy Vice-President
Stephen F. Lockman Vice-President
Lynn C. Maddox Vice-President
Jane M. Naeseth Vice-President
Heidi J. Walter Vice-President; Secretary
STEIN ROE INVESTMENT TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior V-P; Treasurer Controller
David P. Brady Vice-President
Thomas W. Butch President Exec. VP; VP;
Trustee
Daniel K. Cantor Vice-President
Kevin M. Carome Executive VP; Asst. Secy. VP
William M. Garrison Vice-President
Erik P. Gustafson Vice-President
Loren A. Hansen Executive Vice-President
James P. Haynie Vice-President
Harvey B. Hirschhorn Vice-President
Lynn C. Maddox Vice-President
Arthur J. McQueen Vice-President
Gita R. Rao Vice-President
Michael E. Rega Vice-President
Heidi J. Walter Vice-President; Secretary
LIBERTY-STEIN ROE ADVISOR TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior V-P; Treasurer Controller
David P. Brady Vice-President
Thomas W. Butch President Exec. VP;
VP; Trustee
Daniel K. Cantor Vice-President
Kevin M. Carome Executive VP; Asst. Secy. VP
Erik P. Gustafson Vice-President
Loren A. Hansen Executive Vice-President
James P. Haynie Vice-President
Harvey B. Hirschhorn Vice-President
Michael T. Kennedy Vice-President
Stephen F. Lockman Vice-President
Lynn C. Maddox Vice-President
Arthur J. McQueen Vice-President
Maureen G. Newman Vice-President
Gita R. Rao Vice-President
Michael E. Rega Vice-President
Heidi J. Walter Vice-President; Secretary
STEIN ROE MUNICIPAL TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior V-P; Treasurer Controller
Thomas W. Butch President Exec. VP;
VP; Trustee
Kevin M. Carome Executive VP; Asst. Secy. VP
Joanne T. Costopoulos Vice-President
Loren A. Hansen Executive Vice-President
Brian M. Hartford Vice-President
William C. Loring Vice-President
Lynn C. Maddox Vice-President
Maureen G. Newman Vice-President
Veronica M. Wallace Vice-President
Heidi J. Walter Vice-President; Secretary
STEINROE VARIABLE INVESTMENT TRUST
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior V-P; Treasurer Controller
Thomas W. Butch President
Kevin M. Carome Executive VP; Asst. Secy. VP
William M. Garrison Vice President
Erik P. Gustafson Vice President
Loren A. Hansen Executive Vice-President
Harvey B. Hirschhorn Vice President
Michael T. Kennedy VP
Jane M. Naeseth Vice President
William M. Wadden IV Vice President
Heidi J. Walter Vice President
STEIN ROE FLOATING RATE INCOME TRUST; STEIN ROE INSTITUTIONAL
FLOATING RATE INCOME TRUST, STEIN ROE FLOATING RATE LIMITED
LIABILITY COMPANY
William D. Andrews Executive Vice-President
Gary A. Anetsberger Senior V-P; Treasurer Controller
Thomas W. Butch President; Trustee or Manager
Kevin M. Carome Executive VP; Asst. Secy. VP
Brian W. Good Vice-President
James R. Fellows Vice-President
Loren A. Hansen Executive Vice-President
Heidi J. Walter Vice-President; Secretary
LIBERTY VARIABLE INVESTMENT TRUST
Ophelia L. Barsketis Vice President
Deborah A. Jansen Vice President
Kevin M. Carome Vice President
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 amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in
Chicago, Illinois on the 15th day of September, 1999.
STEIN ROE FLOATING RATE INCOME FUND
By: THOMAS W. BUTCH
Thomas W. Butch, President
Pursuant to the requirements of the Securities Act of 1933,
this amendment to the Registration Statement has been signed below
by the following persons in the capacities and on the dates
indicated:
Signature* Title Date
- ------------------------ --------------------- --------------
THOMAS W. BUTCH President and Trustee Sept. 15, 1999
Thomas W. Butch
Principal Executive Officer
GARY A. ANETSBERGER Senior Vice- Sept. 15, 1999
Gary A. Anetsberger President; Treasurer
Principal Financial Officer
J. KEVIN CONNAUGHTON Vice-President Sept. 15, 1999
J. Kevin Connaughton
Principal Accounting Officer
JOHN A. BACON JR. Trustee Sept. 15, 1999
John A. Bacon Jr.
WILLIAM W. BOYD Trustee Sept. 15, 1999
William W. Boyd
LINDSAY COOK Trustee Sept. 15, 1999
Lindsay Cook
DOUGLAS A. HACKER Trustee Sept. 15, 1999
Douglas A. Hacker
JANET LANGFORD KELLY Trustee Sept. 15, 1999
Janet Langford Kelly
CHARLES R. NELSON Trustee Sept. 15, 1999
Charles R. Nelson
THOMAS C. THEOBALD Trustee Sept. 15, 1999
Thomas C. Theobald
*Each person signing this amendment is signing in his or her
indicated capacity with the Registrant and also in their capacities
as managers and officers of Stein Roe Floating Rate Limited
Liability Company.
<PAGE>
INDEX OF EXHIBITS FILED WITH THIS AMENDMENT
STEIN ROE FLOATING RATE INCOME FUND
Exhibit
Number Exhibit
- -------- ---------------------------------------
g Management agreement
h Underwriting agreement
k(1) Transfer agency agreement
k(2) Accounting and bookkeeping agreement
k(3) Administrative agreement
r Rule 12b-1 plan and rule 18f-3 plan
<PAGE>
MANAGEMENT AGREEMENT
BETWEEN
STEIN ROE FLOATING RATE LIMITED LIABILITY
COMPANY AND
STEIN ROE & FARNHAM INCORPORATED
STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY, a Delaware
limited liability company under the Investment Company Act of 1940
("1940 Act") as a closed-end non-diversified management investment
company ("LLC"), hereby appoints STEIN ROE & FARNHAM INCORPORATED,
a Delaware corporation registered under the Investment Advisers
Act of 1940 as an investment adviser, of Chicago, Illinois
("Manager"), to furnish investment advisory and portfolio
management services with respect to its assets represented by the
shares of beneficial interest. LLC and Manager hereby agree that:
1. Investment Management Services. Manager shall manage the
investment operations of LLC, subject to the terms of this
Agreement and to the supervision and control of LLC's Board of
Managers ("Board"). Manager agrees to perform, or arrange for the
performance of, the following services for LLC:
(a) to obtain and evaluate such information relating to economies,
industries, businesses, securities and commodities markets,
and individual securities, commodities and indices as it may
deem necessary or useful in discharging its responsibilities
hereunder;
(b) to formulate and maintain a continuing investment program in a
manner consistent with and subject to (i) LLC's operating
agreement; (ii) LLC's investment objectives, policies, and
restrictions as set forth in written documents furnished by
the LLC to Manager; (iii) all securities, commodities, and tax
laws and regulations applicable to LLC; and (iv) any other
written limits or directions furnished by the Board to
Manager;
(c) unless otherwise directed by the Board, to determine from time
to time securities, commodities, interests or other
investments to be purchased, sold, retained or lent by LLC,
and to implement those decisions, including the selection of
entities with or through which such purchases, sales or loans
are to be effected;
(d) to use reasonable efforts to manage LLC so that it will
qualify as a regulated investment company under subchapter M
of the Internal Revenue Code of 1986, as amended;
(e) to make recommendations as to the manner in which voting
rights, rights to consent to LLC action, and any other rights
pertaining to LLC shall be exercised;
(f) to make available to LLC promptly upon request all of LLC's
records and ledgers and any reports or information reasonably
requested by LLC; and
(g) to the extent required by law, to furnish to regulatory
authorities any information or reports relating to the
services provided pursuant to this Agreement.
Except as otherwise instructed from time to time by the
Board, with respect to execution of transactions for LLC, Manager
shall place, or arrange for the placement of, all orders for
purchases, sales, or loans with issuers, brokers, dealers or other
counterparties or agents selected by Manager. In connection with
the selection of all such parties for the placement of all such
orders, Manager shall attempt to obtain most favorable execution
and price, but may nevertheless in its sole discretion as a
secondary factor, purchase and sell portfolio securities from and
to brokers and dealers who provide Manager with statistical,
research and other information, analysis, advice, and similar
services. In recognition of such services or brokerage services
provided by a broker or dealer, Manager is hereby authorized to
pay such broker or dealer a commission or spread in excess of that
which might be charged by another broker or dealer for the same
transaction if the Manager determines in good faith that the
commission or spread is reasonable in relation to the value of the
services so provided.
LLC hereby authorizes any entity or person associated with
Manager that is a member of a national securities exchange to
effect any transaction on the exchange for its account to the
extent permitted by and in accordance with Section 11(a) of the
Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder.
LLC hereby consents to the retention by such entity or person of
compensation for such transactions in accordance with Rule 11a-2-
2(T)(a)(iv).
Manager may, where it deems to be advisable, aggregate orders
for its other customers together with any securities of the same
type to be sold or purchased for LLC in order to obtain best
execution or lower brokerage commissions. In such event, Manager
shall allocate the shares so purchased or sold, as well as the
expenses incurred in the transaction, in a manner it considers to
be equitable and fair and consistent with its fiduciary
obligations to LLC and Manager's other customers.
Manager shall for all purposes be deemed to be an independent
contractor and not an agent of LLC and shall, unless otherwise
expressly provided or authorized, have no authority to act for or
represent LLC in any way.
2. Administrative Services. Manager shall supervise the
business and affairs of LLC and shall provide such services and
facilities as may be required for effective administration of LLC
as are not provided by employees or other agents engaged by LLC;
provided that Manager shall not have any obligation to provide
under this Agreement any such services which are the subject of a
separate agreement or arrangement between LLC and Manager, any
affiliate of Manager, or any third party administrator
("Administrative Agreements").
3. Use of Affiliated Companies and Subcontractors. In
connection with the services to be provided by Manager under this
Agreement, Manager may, to the extent it deems appropriate, and
subject to compliance with the requirements of applicable laws and
regulations and upon receipt of written approval of the Board,
make use of (i) its affiliated companies and their directors,
managers, trustees, officers, and employees and (ii)
subcontractors selected by Manager, provided that Manager shall
supervise and remain fully responsible for the services of all
such third parties in accordance with and to the extent provided
by this Agreement. All costs and expenses associated with
services provided by any such third parties shall be borne by
Manager or such parties.
4. Expenses Borne by LLC. Except to the extent expressly
assumed by Manager herein or under a separate agreement between
LLC and Manager and except to the extent required by law to be
paid by Manager, Manager shall not be obligated to pay any costs
or expenses incidental to the organization, operations or business
of LLC. Without limitation, such costs and expenses shall include
but not be limited to:
(a) all charges of depositories, custodians and other agencies for
the safekeeping and servicing of its cash, securities, and
other property;
(b) all charges for equipment or services used for obtaining price
quotations or for communication between Manager or LLC and the
custodian, transfer agent or any other agent selected by LLC;
(c) all charges for administrative and accounting services
provided to LLC by Manager, or any other provider of such
services;
(d) all charges for services of LLC's independent auditors and for
services to LLC by legal counsel;
(e) all compensation of Board, other than those affiliated with
Manager, all expenses incurred in connection with their
services to LLC, and all expenses of meetings of the Board or
committees thereof;
(f) all expenses incidental to holding meetings of holders of
units of interest in the LLC ("Unitholders"), including
printing and of supplying each record-date Unitholder with
notice and proxy solicitation material, and all other proxy
solicitation expense;
(g) all expenses of printing of annual or more frequent revisions
of LLC prospectus(es) and of supplying each then-existing
Unitholder with a copy of a revised prospectus;
(h) all expenses related to preparing and transmitting
certificates representing LLC shares;
(i) all expenses of bond and insurance coverage required by law or
deemed advisable by the Board;
(j) all brokers' commissions and other normal charges incident to
the purchase, sale, or lending of portfolio securities;
(k) all taxes and governmental fees payable to federal, state or
other governmental agencies, domestic or foreign, including
all stamp or other transfer taxes;
(l) all expenses of registering and maintaining the registration
of LLC under the 1940 Act and, to the extent no exemption is
available, expenses of registering LLC's shares under the 1933
Act, of qualifying and maintaining qualification of LLC and
its shares for sale under securities laws of various states or
other jurisdictions and of registration and qualification of
LLC under all other laws applicable to LLC or its business
activities;
(m) all interest on indebtedness, if any, incurred by LLC; and
(n) all fees, dues and other expenses incurred by LLC in
connection with membership of LLC in any trade association or
other investment company organization.
5. Allocation of Expenses Borne by LLC. Any expenses borne
by LLC that are attributable solely to the organization, operation
or business of LLC shall be paid solely out LLC's assets.
6. Expenses Borne by Manager. Manager at its own expense
shall furnish all executive and other personnel, office space, and
office facilities required to render the investment management and
administrative services set forth in this Agreement. Manager
shall pay all expenses of establishing, maintaining, and servicing
the accounts of Unitholders However, Manager shall not be
required to pay or provide any credit for services provided by
LLC's custodian or other agents without additional cost to LLC.
In the event that Manager pays or assumes any expenses of LLC
not required to be paid or assumed by Manager under this
Agreement, Manager shall not be obligated hereby to pay or assume
the same or similar expense in the future; provided that nothing
contained herein shall be deemed to relieve Manager of any
obligation to LLC under any separate agreement or arrangement
between the parties.
7. Management Fee. For the services rendered, facilities
provided, and charges assumed and paid by Manager hereunder, LLC
shall pay to Manager an annual fee of 0.85% of the average net
assets of LLC. The management fee shall accrue on each calendar
day, and shall be payable monthly on the first business day of the
next succeeding calendar month. The daily fee accrual shall be
computed by multiplying the fraction of one divided by the number
of days in the calendar year by the applicable annual rate of fee,
and multiplying this product by the net assets of LLC, determined
in the manner established by the Board, as of the close of
business on the last preceding business day on which LLC's net
asset value was determined.
8. Retention of Sub-Adviser. Subject to obtaining the
initial and periodic approvals required under Section 15 of the
1940 Act, Manager may retain one or more sub-advisers at Manager's
own cost and expense for the purpose of furnishing one or more of
the services described in Section 1 hereof with respect to LLC.
Retention of a sub-adviser shall in no way reduce the
responsibilities or obligations of Manager under this Agreement,
and Manager shall be responsible to LLC for all acts or omissions
of any sub-adviser in connection with the performance of Manager's
duties hereunder.
9. Non-Exclusivity. The services of Manager to LLC
hereunder are not to be deemed exclusive and Manager shall be free
to render similar services to others.
10. Standard of Care. Neither Manager, nor any of its
directors, officers, stockholders, agents or employees shall be
liable to LLC or its Unitholders for any error of judgment,
mistake of law, loss arising out of any investment, or any other
act or omission in the performance by Manager of its duties under
this Agreement, except for loss or liability resulting from
willful misfeasance, bad faith or gross negligence on Manager's
part or from reckless disregard by Manager of its obligations and
duties under this Agreement.
11. Amendment. This Agreement may not be amended as to LLC
without the affirmative votes (a) of a majority of the Board,
including a majority of those Managers who are not "interested
persons" of LLC or of Manager, voting in person at a meeting
called for the purpose of voting on such approval, and (b) of a
"majority of the outstanding shares" of LLC. The terms
"interested persons" and "vote of a majority of the outstanding
shares" shall be construed in accordance with their respective
definitions in the 1940 Act and, with respect to the latter term,
in accordance with Rule 18f-2 under the 1940 Act.
12. Effective Date and Termination. This Agreement shall
become effective as of the date hereof. This Agreement may be
terminated at any time, without payment of any penalty, by the
Board of LLC, or by a vote of a majority of the outstanding
shares, upon at least sixty (60) days' written notice to Manager.
This Agreement may be terminated by Manager at any time upon at
least sixty (60) days' written notice to LLC. This Agreement
shall terminate automatically in the event of its "assignment" (as
defined in the 1940 Act). Unless terminated as hereinbefore
provided, this Agreement shall continue in effect until June 30,
2000, and thereafter from year to year only so long as such
continuance is specifically approved at least annually (a) by a
majority of those Managers who are not interested persons of Board
or of Manager, voting in person at a meeting called for the
purpose of voting on such approval, and (b) by either the Board of
LLC or by a "vote of a majority of the outstanding shares" of LLC.
13. Ownership of Records; Interparty Reporting. All records
required to be maintained and preserved by LLC pursuant to the
provisions of rules or regulations of the Securities and Exchange
Commission under Section 31(a) of the 1940 Act or other applicable
laws or regulations which are maintained and preserved by Manager
on behalf of LLC and any other records the parties mutually agree
shall be maintained by Manager on behalf of LLC are the property
of LLC and shall be surrendered by Manager promptly on request by
LLC; provided that Manager may at its own expense make and retain
copies of any such records.
LLC shall furnish or otherwise make available to Manager such
copies of the financial statements, proxy statements, reports, and
other information relating to the business and affairs of each
Unitholder in LLC as Manager may, at any time or from time to
time, reasonably require in order to discharge its obligations
under this Agreement.
Manager shall prepare and furnish to LLC statistical data and
other information in such form and at such intervals as LLC may
reasonably request.
14. Non-Liability of Board and Unitholders. Any obligation
of LLC hereunder shall be binding only upon the assets of LLC and
shall not be binding upon any Manager, officer, employee, agent or
Unitholder of LLC. Neither the authorization of any action by the
Board or Unitholders of LLC nor the execution of this Agreement on
behalf of LLC shall impose any liability upon any Manager or any
Unitholder.
15. Use of Manager's Name. LLC may use the name "Stein Roe
_______ LLC" or any other name derived from the name "Stein Roe &
Farnham" only for so long as this Agreement or any extension,
renewal, or amendment hereof remains in effect, including any
similar agreement with any organization which shall have succeeded
to the business of Manager as investment adviser. At such time as
this Agreement or any extension, renewal or amendment hereof, or
such other similar agreement shall no longer be in effect, LLC
will cease to use any name derived from the name "Stein Roe &
Farnham" or otherwise connected with Manager, or with any
organization which shall have succeeded to Manager's business as
investment adviser.
16. References and Headings. In this Agreement and in any
such amendment, references to this Agreement and all expressions
such as "herein," "hereof," and "hereunder" shall be deemed to
refer to this Agreement 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 Agreement.
This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
Dated: November 20, 1998
STEIN ROE FLOATING RATE LIMITED
LIABILITY COMPANY
Attest: By: THOMAS W. BUTCH
Thomas W. Butch
NICOLETTE D. PARRISH President
Nicolette D. Parrish
Assistant Secretary
STEIN ROE & FARNHAM INCORPORATED
Attest: By: THOMAS W. BUTCH
Thomas W. Butch
President, Mutual Funds
NICOLETTE D. PARRISH division
Nicolette D. Parrish
Assistant Secretary
<PAGE>
AMENDMENT TO MANAGEMENT AGREEMENT BETWEEN
STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY AND
STEIN ROE & FARNHAM INCORPORATED
This Amendment dated as of August 3, 1999, amends the
Management Agreement dated November 20, 1998 (the "Agreement")
between Stein Roe Floating Rate Limited Liability Company and
Stein Roe & Farnham Incorporated. Paragraph 7 ("Management Fee")
of the Agreement is hereby amended to read as follows:
7. Management Fee. For the services rendered, facilities
provided, and charges assumed and paid by Manager hereunder, LLC
shall pay to Manager an annual fee of 0.45% of the average net
assets of LLC. The management fee shall accrue on each calendar
day, and shall be payable monthly on the first business day of the
next succeeding calendar month. The daily fee accrual shall be
computed by multiplying the fraction of one divided by the number
of days in the calendar year by the applicable annual rate of fee,
and multiplying this product by the net assets of LLC, determined
in the manner established by the Board, as of the close of
business on the last preceding business day on which LLC's net
asset value was determined.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first written above.
STEIN ROE FLOATING RATE LIMITED
LIABILITY COMPANY
Attest: By: THOMAS W. BUTCH
Thomas W. Butch
NICOLETTE D. PARRISH President
Nicolette D. Parrish
Assistant Secretary
STEIN ROE & FARNHAM INCORPORATED
By: THOMAS W. BUTCH
Attest: Thomas W. Butch
President, Mutual Funds
NICOLETTE D. PARRISH Division
Nicolette D. Parrish
Assistant Secretary
<PAGE>
UNDERWRITING AGREEMENT BETWEEN
STEIN ROE ADVISOR FLOATING RATE FUND
AND LIBERTY FUNDS DISTRIBUTOR, INC.
THIS UNDERWRITING AGREEMENT ("Agreement"), made as of the 3rd
day of August, 1999 by and between Stein Roe Advisor Floating Rate
Fund, a business trust organized and existing under the laws of
the Commonwealth of Massachusetts (hereinafter called the "Fund"),
and Liberty Funds Distributor, Inc., a corporation organized and
existing under the laws of the Commonwealth of Massachusetts
(hereinafter called the "Distributor").
WITNESSETH:
WHEREAS, the Fund is engaged in business as an open-end
management investment company registered under the Investment
Company Act of 1940, as amended ("ICA-40"); and
WHEREAS, the Distributor is registered as a broker-dealer
under the Securities Exchange Act of 1934, as amended ("SEA-34")
and the laws of each state (including the District of Columbia and
Puerto Rico) in which it engages in business to the extent such
law requires, and is a member of the National Association of
Securities Dealers ("NASD") (such registrations and membership are
referred to collectively as the "Registrations"); and
WHEREAS, the Fund desires the Distributor to act as the
distributor in the public offering of its Shares of beneficial
interest (hereinafter called "Shares");
WHEREAS, the Fund shall pay all charges of its transfer,
shareholder recordkeeping, dividend disbursing and redemption
agents, if any; all expenses of notices, proxy solicitation
material and reports to shareholders; all expenses of preparation
of annual or more frequent revisions of the Fund's Prospectus and
Statement of Additional Information ("SAI") and of supplying
copies thereof to shareholders; all expenses of registering and
maintaining the registration of the Fund under ICA-40 and of the
Fund's Shares under the Securities Act of 1933, as amended ("SA-
33"); all expenses of qualifying and maintaining qualification of
such Fund and of the Fund's Shares for sale under securities laws
of various states or other jurisdictions and of registration and
qualification of the Fund under all laws applicable to the Fund or
its business activities; and
WHEREAS, Stein Roe & Farnham Incorporated, investment adviser
to the Funds, or its affiliates, may pay expenses incurred in the
sale and promotion of the Fund except as provided in the Fund's
12b-1 plan;
NOW, THEREFORE, in consideration of the premises and the
mutual promises hereinafter set forth, the parties hereto agree as
follows:
1. Appointment. The Fund appoints Distributor to act as
principal underwriter (as such term is defined in Sections
2(a)(29) of ICA-40) of its Shares for each series or class of the
Fund set forth on Schedule A hereto.
2. Delivery of Fund Documents. The Fund has furnished
Distributor with properly certified or authenticated copies of
each of the following in effect on the date hereof and shall
furnish Distributor from time to time properly certified or
authenticated copies of all amendments or supplements thereto:
(a) Agreement and Declaration of Trust;
(b) By-Laws;
(c) Resolutions of the Board of Trustees of the Fund
(hereinafter referred to as the "Board") selecting
Distributor as distributor and approving this form of
agreement and authorizing its execution.
The Fund shall furnish Distributor promptly with copies of
any registration statements filed by it with the Securities and
Exchange Commission ("SEC") under SA-33 or ICA-40, together with
any financial statements and exhibits included therein, and all
amendments or supplements thereto hereafter filed.
The Fund also shall furnish Distributor such other
certificates or documents which Distributor may from time to time,
in its discretion, reasonably deem necessary or appropriate in the
proper performance of its duties.
3. Distribution of Shares.
(a) Subject to the provisions of Paragraphs 6, 7, 10, 11,
12, 13 and 14 hereof, and to such minimum purchase
and other requirements as may from time to time be
indicated in the Fund's Prospectus, Distributor,
acting as principal for its own account and not as
agent for the Fund, shall have the right to purchase
Shares from the Fund. Distributor shall sell Shares
only in accordance with the Fund's Prospectus, on a
"best efforts" basis. Distributor shall purchase
Shares from the Fund at a price equal to the net
asset value, shall sell Shares at the public offering
price as defined in Paragraph 8, and shall retain all
sales charges.
(b) The Fund shall pay all expenses associated with
notices, proxy solicitation material, the preparation
of annual or more frequent revisions to the Fund's
Prospectus and SAI and of printing and supplying the
currently effective Prospectus and SAI to
shareholders, other than those necessitated by
Distributor's activities or rules and regulations
related to Distributor's activities where such
amendments or supplements result in expenses which
the Fund would not otherwise have incurred.
(c) The Distributor (or its affiliates) shall pay the
costs of printing and supplying all copies of the
Prospectus and SAI that it may reasonably request for
use in connection with the distribution of Shares.
The Distributor will also pay the expenses of the
preparation, excluding legal fees, and printing of
all amendments and supplements to the Fund's
Prospectus and SAI if the amendment or supplement
arises from Distributor's activities or rules and
regulations related to Distributor's activities and
those expenses would not otherwise have been incurred
by the Fund. Distributor will pay all expenses
incurred by Distributor in advertising, promoting and
selling Fund Shares.
(d) Prior to the continuous offering of any Fund Shares,
commencing on a date agreed upon by the Fund and the
Distributor, it is contemplated that the Distributor
may solicit subscriptions for such Shares during a
subscription period which shall last for such period
as may be agreed upon by the parties hereto. The
subscriptions will be payable within three business
days after the termination of the subscription
period, at which time the Fund will commence
operations.
4. Selling Agreements. Distributor is authorized to enter
into agreements with other broker-dealers providing for the
solicitation of unconditional orders for purchases of the Fund's
Shares authorized for issuance and registered under SA-33 and fix
therein the portion of the sales charge which may be reallowed to
the selected dealers, as permitted under that Fund's prospectus.
All such agreements shall be either in the form of agreement
attached hereto or in such other form as may be approved by the
officers of the Fund ("Selling Agreement"). Within the United
States, the Distributor shall offer and sell Shares to such
selected dealers as are members in good standing of the NASD;
"banks" as such term is defined in Section 3(a)(6) of the Exchange
Act or a "bank holding company" as such term is defined in the
Bank Holding Company Act of 1956, as amended, duly organized,
validly existing and in good standing under the laws of the
jurisdiction in which it was organized; and such other entities or
purchasers as otherwise mutually agreed in writing.
5. Conduct of Business. Other than as set forth in the
Fund's currently effective prospectus, Distributor will not
distribute any sales material or statements except literature or
advertising which conforms to the requirements of federal and
state securities laws and regulations which have been filed, where
necessary, with the appropriate regulatory authorities. Upon the
Fund's request, Distributor will furnish the Fund with copies of
all such materials prior to their use. Any sales material or
statements the substance of which is not included in the
Prospectus or SAI shall be submitted for advance approval by the
Fund.
6. Solicitation of Orders to Purchase Shares by Fund. The
rights granted to the Distributor shall be non-exclusive in that
the Fund reserves the right to solicit purchases from, and sell
its Shares to, investors. Further, the Fund reserves the right to
issue Shares in connection with the merger or consolidation of any
other investment company, trust or personal holding company with
the Fund, or the Fund's acquisition, by the purchase or otherwise,
of all or substantially all of the assets of an investment
company, trust or personal holding company, or substantially all
of the outstanding Shares or interests of any such entity. Any
right granted to Distributor to solicit purchases of Shares will
not apply to Shares that may be offered by the Fund to
shareholders by virtue of their being shareholders of the Fund.
7. Shares Covered by this Agreement. This Agreement relates
to the solicitation of orders to purchase Shares that are duly
authorized and registered and available for sale by the Fund,
including redeemed or repurchased Shares if and to the extent that
they may be legally sold and if, but only if, the Fund authorizes
the Distributor to sell them.
8. Public Offering Price. The public offering price for the
Fund's Shares will be the net asset value per Share next
determined by the Fund after the Distributor or its appointed
agent receives the order plus any sales charge as set forth in the
Fund's Prospectus. The net asset value per Share shall be
determined in the manner provided in the Fund's Agreement and
Declaration of Trust as now in effect or as they may be amended,
and as reflected in the Fund's then current Prospectus and SAI.
9. Compensation.
(a) Sales Charge. Distributor shall be entitled to charge
a sales charge on the sale or redemption, as
appropriate, of each series and class of each Fund's
Shares as set forth in the Fund's then current
Prospectus. Distributor may allow any dealers with
which it has signed selling agreements such
commissions or discounts from and not exceeding the
total sales charge as Distributor shall deem
advisable, so long as any such commissions or
discounts are set forth in the Fund's current
Prospectus to the extent required by the applicable
federal and state securities laws. Distributor may
also make payments to dealers from Distributor's own
resources, subject to the following conditions: (a)
any such payments shall not create any obligation for
or recourse against the Fund or any series or class,
and (b) the terms and conditions of any such payments
are consistent with the Fund's Prospectus and
applicable federal and state securities laws and are
disclosed in the Prospectus or SAI to the extent such
laws may require.
(b) Distribution Plans. Distributor shall also be
entitled to compensation for its services as provided
in any Distribution Plan adopted as to any series and
class of any Fund's Shares pursuant to Rule 12b-1
under the 1940 Act.
10. Suspension of Sales. If and whenever the determination
of the Fund's net asset value is suspended and until such
suspension is terminated, the Distributor shall not accept orders
for Shares except for unconditional orders placed before the
suspension. In addition, the Fund reserves the right to suspend
sales of Shares if, in the judgment of the Board of the Fund, it
is in the best interest of the Fund to do so, such suspension to
continue for such period as may be determined by the Board of the
Fund; and in that event, (i) at the direction of the Fund,
Distributor shall suspend receipt and acceptance of orders to
purchase Shares of the Fund until otherwise instructed by the Fund
and (ii) the Distributor shall not accept orders to purchase
Shares while such suspension remains in effect unless otherwise
directed by the Board.
11. Orders and Payment for Shares.
(a) Distributor shall direct orders for the purchase of
Shares of any series to the Fund's transfer agent.
At or prior to the time of delivery of any Shares the
Distributor will pay or cause to be paid to the
custodian of the Fund's assets, for the account of
such series, an amount in cash equal to the purchase
price of such Shares. The Fund's custodian and
transfer agent shall be identified in its Prospectus.
(b) The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all
purchase orders for Fund Shares received by the
Distributor. Any order may be rejected by the Fund;
provided, however, that the Fund will not arbitrarily
or without reasonable cause refuse to accept or
confirm orders for the purchase of Fund Shares from
eligible investors.
12. Repurchase or Redemption of Shares by the Fund.
(a) Any of the outstanding Fund Shares may be tendered to
the transfer agent for redemption at any time, other
than when the Fund suspends redemptions as permitted
by the Prospectus or applicable law, and the Fund
agrees to repurchase or redeem the Shares so tendered
in accordance with its obligations as set forth in
its Agreement and Declaration of Trust, as amended
from time to time, and in accordance with the
applicable provisions set forth in the Prospectus and
SAI. The price to be paid to redeem or repurchase
the Shares shall be equal to the net asset value
calculated in accordance with the provisions of the
Fund's Prospectus and SAI, less any contingent
deferred sales charge ("CDSC"), redemption fee or
other charge(s), if any, set forth in the Prospectus
or SAI of the Fund. All payments by the Fund
hereunder shall be made in the manner set forth
below.
(b) If Shares are tendered to the transfer agent for
redemption or repurchase by the Fund within seven
business days after Distributor's acceptance of the
original purchase order for such Shares, Distributor
will immediately refund to the Fund the full sales
commission (net of allowances to dealers or brokers)
allowed to Distributor on the original sale, and will
promptly, upon receipt thereof, pay to the Fund any
refunds from dealers or brokers of the balance of
sales commissions reallowed by Distributor. The
transfer agent shall notify Distributor of such
tender for redemption within ten days of the day on
which notice of such tender for redemption is
received by the transfer agent.
(c) The transfer agent shall pay the total amount of the
redemption price as defined in the above paragraph
12(a), pursuant to the instructions of the
Distributor in Federal Funds on or before the seventh
business day subsequent to its having received the
notice of redemption in proper form except as
otherwise provided in the Prospectus or SAI of the
Fund. The proceeds of any redemption of Shares shall
be paid by the transfer agent as follows: (i) any
applicable CDSC shall be paid to the Distributor, and
(ii) the balance shall be paid to or for the account
of the shareholder, in each case in accordance with
the applicable provision of the Prospectus and SAI.
13. Purchases for your own Account. Distributor may
purchase Shares for its own investment account upon Distributor's
written assurance that the purchase is for investment purposes and
that the Shares will not be resold except through redemption by
the Fund.
14. Stein Roe & Farnham Incorporated Investment Programs.
In connection with any program under which Stein Roe & Farnham
Incorporated or one of its affiliates offers investment advice to
shareholders, the Distributor is authorized to offer and sell
Shares of the Fund, as principal, to participants in such program.
The terms of this Agreement shall apply to such sales, including
terms as to the offering price of Shares, the proceeds to be paid
to the Fund, the duties of the Distributor, the payment of
expenses and indemnification obligations of the Fund and the
Distributor.
15. Authorized Representations. No Fund is authorized by
the Distributor to give on behalf of the Distributor any
information or to make any representations other than the
information and representations contained in the Fund's
registration statement filed with the SEC under SA-33 and/or ICA-
40 as it may be amended from time to time.
16. Registration of Additional Shares. The Fund hereby
agrees to register an indefinite number of Shares pursuant to Rule
24f-2 under ICA-40, as amended. The Fund will, in cooperation
with the Distributor, take such action as may be necessary from
time to time to qualify the Shares (so registered or otherwise
qualified for sale under SA-33), in any state mutually agreeable
to the Distributor and the Fund, and to maintain such
qualification; provided, however, that nothing herein shall be
deemed to prevent the Fund from registering its Shares without
approval of the Distributor in any state it deems appropriate.
17. Conformity With Law. Distributor agrees that in
soliciting orders to purchase Shares it shall duly conform in all
respects with applicable federal and state laws and the rules and
regulations of the NASD. Distributor will use its best efforts to
maintain its registrations in good standing during the term of
this Agreement and will promptly notify the Fund and Stein Roe &
Farnham Incorporated in the event of the suspension or termination
of any of the registrations.
18. Independent Contractor. Distributor shall be an
independent contractor and neither the Distributor, nor any of its
officers, directors, employees, or representatives is or shall be
an employee of the Fund in the performance of Distributor's duties
hereunder. Distributor shall be responsible for its own conduct
and the employment, control, and conduct of its agents and
employees and for injury to such agents or employees or to others
through its agents and employees and agrees to pay all employee
taxes thereunder. Distributor may appoint sub-agents or
distribute through dealers or otherwise as Distributor may
determine from time to time, but this Agreement shall not be
construed as authorizing any dealer or other person to accept
orders for sale or repurchase on the Fund's behalf or otherwise
act as the Fund's agent for any purpose.
19. Indemnification. Distributor agrees to indemnify and
hold harmless the Fund and each of the members of its Board and
its officers, employees and representatives and each person, if
any, who controls the Fund within the meaning of Section 15 of SA-
33 against any and all losses, liabilities, damages, claims and
expenses (including the reasonable costs of investigating or
defending any alleged loss, liability, damage, claim or expense
and reasonable legal counsel fees incurred in connection
therewith) to which the Fund or such of the members of its Board
and of its officers, employees, representatives, or controlling
person or persons may become subject under SA-33, under any other
statute, at common law, or otherwise, arising out of or based upon
(i) any violation of an applicable law, rule or regulation or
wrongful act by Distributor or any of Distributor's directors,
officers, employees or representatives, or (ii) any untrue
statement or alleged untrue statement of a material fact contained
in a registration statement, Prospectus, SAI, shareholder report
or other information covering Shares of the Fund filed or made
public by the Fund or any amendment thereof or supplement thereto
or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission
was made in reliance upon information furnished to the Fund by
Distributor in writing. In no case (i) is Distributor's indemnity
in favor of the Fund, or any person indemnified, to be deemed to
protect the Fund or such indemnified person against any liability
to which the Fund or such person would otherwise be subject by
reason of willful misfeasance, bad faith, or negligence in the
performance of its or his duties or by reason of its or his
reckless disregard of its or his obligations and duties under this
Agreement or (ii) is Distributor to be liable under its indemnity
agreement contained in this paragraph with respect to any claim
made against the Fund or any person indemnified unless the Fund or
such person, as the case may be, shall have notified Distributor
in writing of the claim within a reasonable time after the
summons, or other first written notification, giving information
of the nature of the claim served upon the Fund or upon such
person (or after the Fund or such person shall have received
notice of such service on any designated agent). However, failure
to notify Distributor of any such claim shall not relieve
Distributor from any liability which Distributor may have to the
Fund or any person against whom such action is brought otherwise
than on account of Distributor's indemnity agreement contained in
this Paragraph.
Distributor shall be entitled to participate, at its own
expense, in the defense, or, if Distributor so elects, to assume
the defense of any suit brought to enforce any such claim but, if
Distributor elects to assume the defense, such defense shall be
conducted by legal counsel chosen by Distributor and satisfactory
to the persons indemnified who are defendants in the suit. In the
event that Distributor elects to assume the defense of any such
suit and retain such legal counsel, persons indemnified who are
defendants in the suit shall bear the fees and expenses of any
additional legal counsel retained by them. If Distributor does
not elect to assume the defense of any such suit, Distributor will
reimburse persons indemnified who are defendants in such suit for
the reasonable fees of any legal counsel retained by them in such
litigation.
The Fund agrees to indemnify and hold harmless Distributor
and each of its directors, officers, employees, and
representatives and each person, if any, who controls Distributor
within the meaning of Section 15 of SA-33 against any and all
losses, liabilities, damages, claims or expenses (including the
damage, claim or expense and reasonable legal counsel fees
incurred in connection therewith) to which Distributor or such of
its directors, officers, employees, representatives or controlling
person or persons may become subject under SA-33, under any other
statute, at common law, or otherwise arising out of or based upon
(i) any violation of applicable law, rule or regulation or
wrongful act by the Fund or any of the members of the Fund's
Board, or the Fund's officers, employees or representatives other
than Distributor, or (ii) any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, Prospectus, SAI, shareholder report or other
information covering Shares filed or made public by the Fund or
any amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading unless such statement or omission was made in reliance
upon information furnished by Distributor to the Fund. In no case
(i) is the Fund's indemnity in favor of the Distributor or any
person indemnified to be deemed to protect the Distributor or such
indemnified person against any liability to which Distributor or
such indemnified person would otherwise be subject by reason of
willful misfeasance, bad faith, or negligence in the performance
of its or his duties or by reason of its or his reckless disregard
of its or his obligations and duties under this Agreement, or (ii)
is the Fund to be liable under its indemnity agreement contained
in this Paragraph with respect to any claim made against
Distributor or any person indemnified unless Distributor, or such
person, as the case may be, shall have notified the Fund in
writing of the claim within a reasonable time after the summons,
or other first written notification, giving information of the
nature of the claim served upon Distributor or upon such person
(or after Distributor or such person shall have received notice of
such service on any designated agent). However, failure to notify
a Fund of any such claim shall not relieve the Fund from any
liability which the Fund may have to Distributor or any person
against whom such action is brought otherwise than on account of
the Fund's indemnity agreement contained in this Paragraph.
The Fund shall be entitled to participate, at its own
expense, in the defense or, if the Fund so elects, to assume the
defense of any suit brought to enforce such claim but, if the Fund
elects to assume the defense, such defense shall be conducted by
legal counsel chosen by the Fund and satisfactory to the persons
indemnified who are defendants in the suit. In the event that the
Fund elects to assume the defense of any such suit and retain such
legal counsel, the persons indemnified who are defendants in the
suit shall bear the fees and expenses of any additional legal
counsel retained by them. If the Fund does not elect to assume
the defense of any such suit, the Fund will reimburse the persons
indemnified who are defendants in such suit for the reasonable
fees and expenses of any legal counsel retained by them in such
litigation.
20. Duration and Termination of this Agreement. With
respect to the Fund and the Distributor, this Agreement shall
become effective upon its execution ("Effective Date") and unless
terminated as provided herein, shall remain in effect through June
30, 1998, and from year to year thereafter, but only so long as
such continuance is specifically approved at least annually (a) by
a vote of majority of the members of the Board of the Fund who are
not interested persons of the Distributor or of the Fund, voting
in person at a meeting called for the purpose of voting on such
approval, and (b) by the vote of either the Board of the Fund or a
majority of the outstanding Shares of the Fund. This Agreement
may be terminated by and between an individual Fund and
Distributor at any time, without the payment of any penalty (a) on
60 days' written notice, by the Board of the Fund or by a vote of
a majority of the outstanding Shares of the Fund, or by
Distributor, or (b) immediately, on written notice by the Board of
the Fund, in the event of termination or suspension of any of the
Registrations. This Agreement will automatically terminate in the
event of its assignment. In interpreting the provisions of this
Paragraph 20 the definitions contained in Section 2(a) of ICA-40
(particularly the definitions of "interested person",
"assignment", and "majority of the outstanding Shares") shall be
applied.
21. Amendment of this Agreement. No provision of this
Agreement may be changed, waived, discharged, or terminated
orally, but only by an instrument in writing signed by each party
against which enforcement of the change, waiver, discharge, or
termination is sought. If the Fund should at any time deem it
necessary or advisable in the best interests of the Fund that any
amendment of this Agreement be made in order to comply with the
recommendations or requirements of the SEC or any other
governmental authority or to obtain any advantage under state or
Federal tax laws and notifies Distributor of the form of such
amendment, and the reasons therefor, and if Distributor should
decline to assent to such amendment, the Fund may terminate this
Agreement forthwith. If Distributor should at any time request
that a change be made in the Fund's Agreement and Declaration of
Trust or By-Laws or in its methods of doing business, in order to
comply with any requirements of Federal law or regulations of the
SEC, or of a national securities association of which Distributor
is or may be a member, relating to the sale of Shares, and the
Fund should not make such necessary changes within a reasonable
time, Distributor may terminate this Agreement forthwith.
22. Liability. It is understood and expressly stipulated
that neither the shareholders of the Fund nor the members of the
Board of the Fund shall be personally liable hereunder. The
obligations of the Fund are not personally binding upon, nor shall
resort to the private property of, any of the members of the Board
of the Fund, nor of the shareholders, officers, employees or
agents of the Fund, but only the Fund's property shall be bound.
A copy of the Declaration of Trust and of each amendment thereto
has been filed by the Trust with the Secretary of State of The
Commonwealth of Massachusetts and with the Clerk of the City of
Boston, as well as any other governmental office where such filing
may from time to time be required.
23. Miscellaneous. The captions in this Agreement are
included for convenience or reference only, and in no way define
or limit any of the provisions hereof or otherwise affect their
construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one
and the same instrument.
24. Notice. Any notice required or permitted to be given by
a party to this Agreement or to any other party hereunder shall be
deemed sufficient if delivered in person or sent by registered or
certified mail, postage prepaid, addressed by the party giving
notice to each such other party at the address provided below or
to the last address furnished by each such other party to the
party giving notice.
If to the Fund: One South Wacker Drive
Chicago, Illinois 60606
Attn: Secretary
If to Distributor: One Financial Center
Boston, Massachusetts 02111
Attn: Secretary
LIBERTY FUNDS DISTRIBUTOR, INC.
By:_____________________________
ATTEST:
__________________________
STEIN ROE ADVISOR FLOATING RATE FUND
By: THOMAS W. BUTCH
Thomas W. Butch
President
ATTEST:
NICOLETTE D. PARRISH
Nicolette D. Parrish
Assistant Secretary
<PAGE>
Schedule A to Underwriting Agreement
Between Stein Roe Advisor Floating Rate Fund and
Liberty Funds Distributor, Inc.
The classes of the Fund covered by this agreement are:
Name of Class Effective Date
Stein Roe Advisor Floating Rate Fund
Class A August 3, 1999
Class B August 3, 1999
Class C August 3, 1999
Class Z August 3, 1999
Dated: August 3, 1999
TRANSFER AGENT AGREEMENT
Agreement dated as of October 19, 1998, between Stein Roe
Floating Rate Income Fund and Stein Roe Institutional Floating
Rate Income Fund, each a Massachusetts business trust (the
"Trust") comprised of the series of portfolios listed in Schedule
A (as the same may from time to time be amended to add or to
delete one or more series, all referred to herein as the "Fund"),
and Liberty Funds Services, Inc. ("LFS"), a Massachusetts
corporation.
WHEREAS, the Trust has appointed LFS as Transfer Agent,
Registrar and Dividend Disbursing Agent for each series of the
Trust listed in Schedule A, each a registered investment company,
WHEREAS, LFS desires to accept such appointment and to
perform such services upon the terms and subject to the conditions
set forth herein; and
WHEREAS, Stein Roe & Farnham, Inc. ("SRF") is the investment
adviser to the Fund and Liberty Securities Corporation is the
principal distributor ("Distributor") of its shares.
NOW THEREFORE, in consideration of the mutual promises and
covenants set forth herein, the parties hereto agree as follows:
1. Appointment. The Trust hereby appoints LFS to act as its
agent in respect of the purchase, redemption and transfer of Fund
shares and dividend disbursing services in connection with such
shares other than with respect to Fund shares held in omnibus
accounts as to which such services are performed by other
financial institutions as described in the Fund's Prospectus from
time to time. LFS accepts such appointment and will perform the
duties and functions described herein in the manner hereinafter
set forth.
LFS agrees to provide the necessary facilities, equipment and
personnel to perform its duties and obligations hereunder in
accordance with the practice of transfer agents of investment
companies registered with the Securities and Exchange Commission
and in compliance with all laws applicable to mutual fund transfer
agents and the Fund.
LFS agrees that it shall perform usual and ordinary services
as transfer agent, registrar and dividend disbursing agent, which
are necessary and appropriate for investment companies registered
with the Securities and Exchange Commission, except as otherwise
specifically excluded herein, including but not limited to:
receiving and processing payments for purchases of Fund shares,
opening shareholder accounts, receiving and processing requests
for liquidation of Fund shares , transferring and canceling stock
certificates, maintaining all shareholder accounts, preparing
annual shareholder meetings lists, mailing proxy materials,
receiving and tabulating proxies, mailing shareholder reports and
prospectuses, account research, shareholder correspondence and
telephone services, providing order room services to brokers,
withholding taxes on accounts, disbursing income dividends and
capital gains distributions, preparing and filing U.S. Treasury
Department Form 1099 for shareholders, preparing and mailing
confirmation forms to shareholders for all purchases and
liquidations of Fund shares and other confirmable transactions in
shareholder accounts, recording reinvestment of dividends and
distributions in Fund shares, and causing liquidation of shares
and disbursements to be made to withdrawal plan holders.
2. Fees and Charges. The Trust will pay LFS for the
services provided hereunder in accordance with and in the manner
set forth in Schedule B to this Agreement.
3. Representations and Warranties of LFS. LFS represents
and warrants to the Trust that:
(a) It is a corporation duly organized and existing in
good standing under the laws of the Commonwealth of
Massachusetts;
(b) It is duly qualified to carry on its business in the
Commonwealth of Massachusetts;
(c) It is empowered under applicable state and federal
laws and by its Articles of Organization and By-Laws
to enter into and perform the services contemplated by
this Agreement and it is in compliance and shall
continue during the term of this Agreement to be in
compliance with all such applicable laws;
(d) All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement;
(e) It has and shall continue to have and maintain the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement; and
(f) It has filed a Registration Statement on SEC Form TA-1
and will file timely an amendment to same respecting
this Transfer Agent Agreement with the Securities and
Exchange Commission; it is duly registered as a
transfer agent as provided in Section 17Ac of the
Securities and Exchange Act of 1934, and it will
remain so registered and will comply with all state
and federal laws and regulations relating to transfer
agents throughout the term of this Agreement.
4. Representations and Warranties of the Trust. The Trust
represents and warrants to LFS that:
(a) It is a business trust duly organized and existing and
in good standing under the laws of the State of
Massachusetts;
(b) The Fund is an closed-end management investment company
registered as an interval fund under Section 23c-3 of
the Investment Company Act of 1940;
(c) Registration statements under the Securities Act of
1933 and applicable state laws are currently effective
and will remain effective at all times with respect to
all shares of the Fund being offered for sale;
(d) The Trust is empowered under applicable laws and
regulations and by its Agreement and Declaration of
Trust and By-Laws to enter into and perform this
Agreement; and
(e) All requisite proceedings and actions have been taken
to authorize it to enter into and perform this
Agreement.
5. Copies of Documents. The Trust promptly from time to
time will furnish LFS with copies of the following Trust and Fund
documents and all amendments or supplements thereto: the Agreement
and Declaration of Trust ; the By-Laws; and the Registration
Statement under Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, together with any
other information reasonably requested by LFS. The Prospectus and
Statement of Additional Information contained in such Registration
Statement, as from time to time amended and supplemented, are
herein collectively referred to as the "Fund's Prospectus."
On or before the date of effectiveness of this Agreement, or
as soon thereafter as is reasonably practicable, and from time-to-
time thereafter, the Trust will furnish LFS with certified copies
of the resolutions of the Trustees of the Trust authorizing this
Agreement and designating authorized persons to give instructions
to LFS; if applicable, a specimen of the certificate for shares of
the Fund in the form approved by the Trustees of the Trust, with a
certificate of the Secretary of the Trust as to such approval; and
certificates as to any change in any officer, director, or
authorized person of the Trust.
6. Share Certificates. Unless and until the Trustees of the
Trust resolve that all of the Trust's shares of beneficial
interest, or all of the shares of a particular series or class of
such shares, shall be issued in uncertificated form, LFS shall
maintain a sufficient supply of blank share certificates
representing such shares, in the form approved from time to time
by the Trustees of the Trust. Such blank share certificates shall
be properly signed, manually or by facsimile signature, by the
duly authorized officers of the Trust, and shall bear the seal or
facsimile thereof of the Trust; and notwithstanding the death,
resignation or removal of any officer of the Trust authorized to
sign such share certificates, LFS may continue to countersign
certificates which bear the manual or facsimile signature of such
officer until otherwise directed by the Trust.
7. Lost or Destroyed Certificates. In case of the alleged
loss or destruction of any share certificate, no new certificate
shall be issued in lieu thereof, unless there shall first be
furnished to LFS an affidavit of loss or non-receipt by the holder
of shares with respect to which a certificate has been lost or
destroyed, supported by an appropriate bond paid for by the
shareholder which is satisfactory to LFS and issued by a surety
company satisfactory to LFS. LFS shall place and maintain stop
transfer instructions on all lost certificates as to which it
receives notice.
8. Purchases; Receipt of Funds for Investment. LFS will
maintain one or more accounts with BankBoston, N.A. ("Bank"), in
the name, or for the benefit, of the Trust into which it will
deposit funds payable to LFS or SteinRoe Services, Inc. as agent
for, or otherwise identified as being for the account of, the
Trust, prior to crediting such funds to the respective accounts of
the Trust and the Distributor.
Thereafter, LFS will determine the amount of any such funds
due the Trust (equal to the number of Trust shares sold by the
Trust computed pursuant to paragraph 9 hereof, multiplied by the
net asset value of Trust shares next determined after receipt of
such purchase order) and the amount of funds due the Distributor
(equal to the sales charge applicable to such sale, computed
pursuant to the Prospectus), respectively, deposit the portion due
the Distributor in its account with such bank as may from time to
time be designated by the Distributor ("Distributor's Account"),
deposit the net amount due the Trust in its account with the
financial institution from time to time selected by the Trust as
custodian of the Fund ("Custodian"), and notify the Distributor
and Custodian, respectively, (such notification to the Distributor
to include the amount of such sales charge to be remitted by the
Distributor to the dealer participating in the sale, of such
deposits, such notification to be given as soon as practicable on
the next business day stating the total amount deposited to said
accounts during the previous business day.
9. Shareholder Accounts. Upon receipt of any funds referred
to in paragraph 8, LFS will compute the number of shares purchased
by the shareholder according to the appropriate offering price of
Fund shares determined in accordance with applicable federal laws
and regulations and as described in the Prospectus of the Fund,
and:
(a) In the case of a new shareholder, open and maintain an
open account for such shareholder in the name or names
set forth in the subscription application form;
(b) Unless the Trustees of the Trust have resolved that all
of the Trust's shares of beneficial interest, or all of
the shares of a particular series or class, shall be
issued in uncertificated form, and if specifically
requested in writing by the shareholder, countersign,
issue and mail, by first class mail, to the shareholder
at his or her address, a share certificate for full
shares purchased;
(c) Send to the shareholder a confirmation indicating the
amount of full and fractional shares purchased (in the
case of fractional shares, rounded to three decimal
places) and the price per share;
(d) In the case of a request to establish a plan or program
being offered by the Fund's Prospectus, open and
maintain such plan or program for the shareholder in
accordance with the terms thereof; and
(e) Perform such other services and initiate and maintain
such other books and records as are customarily
undertaken by transfer agents in maintaining
shareholder accounts for registered investment company
investors;
all subject to requirements set forth in the Fund's Prospectus
with respect to rejection of orders.
For closed accounts, LFS will maintain account records
through June of the calendar year following the year in which the
account is closed.
10. Unpaid Checks; Accounts Assigned for Collection. If any
check or other order for payment of money on the account of any
shareholder or new investor is returned unpaid for any reason, LFS
will:
(a) Give prompt notification to the Distributor of such
non-payment; and
(b) Take such other steps, including imposition of a
reasonable processing or handling fee, as LFS may, in
LFS's discretion, deem appropriate, or as the Trust or
the Distributor may instruct LFS, provided that any
authorization to pay such order notwithstanding
insufficient shareholder account funds, is expressly
on the condition that the Trust or Distributor, as the
case may be, shall indemnify LFS and payor bank in
respect of such payment.
11. Dividends and Distributions. The Trust will promptly
notify LFS of the declaration of any dividend or distribution with
respect to Fund shares, the amount of such dividend or
distribution, the date each such dividend or distribution shall be
paid, and the record date for determination of shareholders
entitled to receive such dividend or distribution. As dividend
disbursing agent, LFS will, on or about the payment date of any
such dividend or distribution, notify the Custodian of the
estimated amount of cash required to pay such dividend or
distribution, and the Trust agrees that on or before the mailing
date of such dividend or distribution it will instruct the
Custodian to make available to LFS sufficient funds in the
dividend and distribution account maintained by LFS with the Bank.
As dividend disbursing agent, LFS will prepare and distribute to
shareholders any funds to which they are entitled by reason of any
dividend or distribution and, in the case of shareholders entitled
to receive additional shares by reason of any such dividend or
distribution, LFS will make appropriate credits to their accounts
and cause to be prepared and mailed to shareholders confirmation
statements and, of such additional shares. LFS will maintain all
records necessary to reflect the crediting of dividends and
distributions which are reinvested in shares of the Fund.
12. Redemptions. As agent for the Trust, LFS will receive
and process, in accordance with the Fund's Prospectus, share
certificates and requests for redemption of shares, as follows:
(a) If such certificate or request complies with standards
for redemption, LFS will notify the Custodian of the
actual amount of cash required to pay redemptions, and
the Trust hereby instructs the Custodian to make
available to LFS sufficient funds in the redemption
account maintained by LFS with the Bank. LFS will
deposit any contingent deferred sales charge ("CDSC")
due the Distributor in accordance with the Fund's
Prospectus, in the Distributor's Account and pay to
the shareholder from funds deposited from time to time
in the redemption account maintained by LFS with the
Bank, the appropriate redemption price as set forth in
the Fund's Prospectus;
(b) If such certificate or request does not comply with
the standards for redemption, LFS will promptly notify
the shareholder and shall effect the redemption at the
price in effect at the time of receipt of documents
complying with the standard; and
(c) LFS shall notify the Trust and the Distributor as soon
as practicable on each business day of the total
number of Trust shares and funds covered by requests
for redemption which were received by LFS in proper
form on the previous business day, and shall notify
the Distributor of deposits to its account with
respect to any CDSC.
13. Transfer and Exchanges. LFS will receive and process
transfers of shares of the Fund and exchanges between series of
the Trust and other investments as, and to the extent, permitted
in the Prospectus of the Fund. If shares to be transferred are
represented by outstanding certificates, LFS will, upon surrender
to it of the certificates in proper form for transfer, credit the
same to the transferee on its books. If shares are to be
exchanged , LFS will process such exchange in the same manner as a
redemption and sale of shares, in accordance with the Fund's
Prospectus.
14. Systematic Withdrawal Plans. LFS will administer
systematic withdrawal plans pursuant to the provisions of
withdrawal orders duly executed by shareholders and the Fund's
Prospectus. Prior to the payment date, LFS will withdraw from a
shareholder's account and present for redemption as many shares as
shall be sufficient to make such withdrawal payment pursuant to
the provisions of the shareholder's withdrawal plan and the
Prospectus.
15. Letters of Intent and Other Plans. LFS will process
such letters of intent for investing in shares as are provided for
in the Prospectus, and LFS will act as escrow agent pursuant to
the terms of such letters of intent duly executed by shareholders.
LFS will make appropriate deposits for the adjustment of sales
charges as therein provided and will currently report the same to
the Distributor, it being understood, however, that computations
of any adjustment of sales charge shall be the responsibility of
the Distributor or the Trust. LFS will process such accumulation
plans, group programs and other plans or programs for investing in
shares as are provided for the Prospectus.
16. Tax Returns and Reports. LFS will prepare and file tax
returns and reports with the Internal Revenue Service and any
other federal, state or local governmental agency which may
require such filings, including state abandoned property laws, and
conduct appropriate communications relating thereto, and, if
required, mail to shareholders such forms for reporting dividends
and distributions paid by the Fund as are required by applicable
laws, rules and regulations, and LFS will withhold such sums as
are required to be withheld under applicable Federal and state
income tax laws, rules and regulations. LFS will also make
reasonable attempt to obtain such tax withholding information from
shareholders as is required to be obtained on behalf of the Trust
under applicable federal or state laws.
17. Record Keeping. LFS will maintain records, which at all
times will be the property of the Trust and available for
inspection by the Trust and Distributor, showing for each
shareholder's account the following information:
(a) Name, address, and United States taxpayer
identification or Social Security number, if provided
(or amounts withheld with respect to dividends and
distributions on shares if a taxpayer identification
or Social Security number is not provided);
(b) Number of shares held for which certificates have not
been issued and for which certificates have been
issued;
(c) Historical information regarding the account of each
shareholder, including dividends and distributions
paid, if any, and the date and price for transactions
on a shareholder's account;
(d) Any stop or restraining order placed against a
shareholder's account;
(e) Information with respect to withholdings of taxes as
required under applicable Federal and state laws and
regulations;
(f) Any capital gain or dividend reinvestment order and
plan application relating to the current maintenance
of a shareholder's account; and
(g) Any instructions as to letters of intent, record
addresses and any correspondence or instructions
relating to the current maintenance of a shareholder's
account.
LFS shall maintain at its expense those records necessary to
carry out its duties under this Agreement; remaining records will
be preserved at the Trust's expense for the periods prescribed by
law. In addition, LFS shall maintain at its expense for periods
prescribed by law all records which the Fund or LFS is required to
keep and maintain pursuant to any applicable statute, rule or
regulation, including without limitation Rule 31(a)-1 under the
Investment Company Act of 1940, relating to the maintenance of
records in connection with the services to be provided hereunder.
At the end of the period in which records must be retained by
law, such records and documents will either be provided to the
Trust or destroyed in accordance with prior written authorization
from the Trust.
18. Retirement Plan Services. LFS shall provide sub-
accounting services for retirement plan shareholders representing
group relationships with special recordkeeping needs.
19. Other Information Furnished. LFS will furnish to the
Trust and the Distributor such other information, including
shareholder lists and statistical information, as may be agreed
upon from time to time between LFS, the Distributor or the Trust.
LFS shall notify the Trust of any request or demand to inspect the
share records of the Fund, and will not permit or refuse such
inspection until receipt of written instructions from the Trust as
to such permission or refusal unless required by law.
LFS shall provide to the Trust any results of studies and
evaluations of systems of internal accounting controls performed
for the purpose of meeting the requirements of Regulation
240.17Ad-13(a) of the Securities Exchange Act of 1934.
20. Shareholder Inquiries. LFS will respond promptly to
written correspondence from shareholders, registered
representatives of broker-dealers engaged in selling Trust shares,
the Trust and the Distributor relating to its duties hereunder.
LFS also will respond to telephone inquiries from shareholders
with respect to existing accounts.
21. Communications to Shareholders and Meetings. LFS will
determine all shareholders entitled to receive, and will cause to
be addressed and mailed, all communications by the Fund to its
shareholders, including quarterly and annual statements or
reports, tender offer materials, proxy material for meetings, and
periodic communications. LFS will cause to be received, examined
and tabulated return proxy cards for meetings of shareholders and
certify the vote to the Trust.
22. Insurance. LFS will not reduce or allow to lapse any of
its insurance coverage from time to time in effect, including but
not limited to, errors and omissions, fidelity bond and electronic
data processing coverage, without the prior written consent of the
Trust. Attached as Schedule D to this Agreement is a list of the
insurance coverage which LFS has in effect as of the date of
execution of this Agreement.
24. Duty of Care and Indemnification. LFS will at all times
use reasonable care, due diligence and act in good faith in
performing its duties hereunder. LFS will not be liable or
responsible for delays or errors by reason of circumstances beyond
its control, including without limitation acts of civil or
military authority, national or state emergencies, labor
difficulties, fire, mechanical breakdown, flood or catastrophe,
acts of God, insurrection, war, riots or failure of
transportation, communication or power supply.
LFS may rely on certifications of those individuals
designated as authorized persons to give instructions to LFS as to
proceedings or facts in connection with any action taken by the
shareholders of the Fund or Trustees of the Trust, and upon
instructions not inconsistent with this Agreement from individuals
who have been so authorized. Upon receiving authorization from an
individual designated as an authorized person to give instructions
to LFS, LFS may apply to counsel for the Trust, or counsel for
SRF, at the Fund's expense, for advice. With respect to any
action reasonably taken on the basis of such certifications or
instructions or in accordance with the advice of counsel of the
Trust, or counsel for SRF, the Trust will indemnify and hold
harmless LFS from any and all losses, claims, damages, liabilities
and expenses (including reasonable counsel fees and expenses).
The Trust will indemnify LFS against and hold LFS harmless
from any and all losses, claims, damages, liabilities and expenses
(including reasonable counsel fees and expenses) in respect of any
claim, demand, action or suit not resulting from LFS's bad faith,
negligence, lack of due diligence or willful misconduct and
arising out of, or in connection with its duties under this
Agreement.
LFS shall indemnify the Trust against and hold the Trust
harmless from any and all losses, claims, damages, liabilities and
expenses (including reasonable counsel fees and expenses) in
respect to any claim, demand, action or suit resulting from LFS's
bad faith, negligence, lack of due diligence or willful
misconduct, and arising out of, or in connection with, its duties
under this Agreement. For purposes of this Transfer Agent
Agreement, "lack of due diligence" shall mean the processing by
LFS of a Fund share transaction in accordance with a practice that
is not substantially in compliance with (1) a transaction
processing practice approved by the Trust's Trustees, (2)
insurance coverage's, or (3) generally accepted industry practices
of mutual fund agents.
LFS shall also be indemnified and held harmless by the Trust
against any loss, claim, damage, liability and expenses (including
reasonable counsel fees and expenses) by reason of any act done by
it in good faith with due diligence and in reasonable reliance
upon any instrument or certificate for shares reasonably believed
by it (a) to be genuine and (b) to be signed, countersigned or
executed by any person or persons authorized to sign, countersign,
or execute such instrument or certificate.
In addition, the Trust will indemnify and hold LFS harmless
against any loss, claim, damage, liability and expense (including
reasonable counsel fees and expenses) in respect of any claim,
demand, action or suit as a result of the negligence of the Fund,
the Trust or SRF as a result of LFS's acting upon any instructions
reasonably believed by LFS to have been executed or orally
communicated by a duly authorized officer or employee of the Fund,
Trust or SRF as a result of acting in reliance upon written or
oral advice reasonably believed by LFS to have been given by
counsel for the Fund, Trust or SRF.
In any case in which a party to this Agreement may be asked
to indemnify or hold harmless the other party hereto, the party
seeking indemnification shall advise the other party of all
pertinent facts concerning the situation giving rise to the claim
or potential claim for indemnification, and each party shall use
reasonable care to identify and notify the other promptly
concerning any situation which presents or appears likely to
present a claim for indemnification. Prior to admitting to or
agreeing to settle any claim subject to this Section, each party
shall give the other reasonable opportunity to defend against said
claim in either party's name.
25. Termination and Amendment. This Agreement shall
continue in effect until May 30, 1999, and will automatically be
renewed for successive one year terms thereafter unless
terminated, effective as of the expiration of the then current
term, by not less than one hundred eighty (180) days written
notice prior to any renewal date. Upon termination hereof, the
Trust shall pay LFS such compensation as may be due to LFS as of
the date of such termination for services rendered and expenses
incurred, as described in Schedule B. This Agreement may be
modified or amended from time to time by mutual agreement between
the Trust and LFS.
26. Successors. In the event that in connection with
termination of this Agreement a successor to any of LFS's duties
or responsibilities hereunder is designated by the Trust by
written notice to LFS, LFS shall promptly, at the expense of the
Trust, transfer to such successor, a certificate list of the
shareholders of the Fund (with name, address and taxpayer
identification or Social Security number), a historical record of
the account of each shareholder and the status thereof, all other
relevant books, records, correspondence and other data established
or maintained by LFS under this Agreement in machine readable form
and will cooperate in the transfer of such duties and
responsibilities, and in the establishment of books, records and
other data by such successor. LFS shall be entitled to
reimbursement of its reasonable out-of-pocket expenses in respect
of assistance provided in accordance with the preceding sentence.
27. Miscellaneous. This Agreement shall be construed in
accordance with and governed by the laws of The Commonwealth of
Massachusetts.
28. Liability. It is understood and expressly stipulated
that neither the shareholders of the Funds which are series of the
Trust nor the members of the Board of the Trust shall be
personally liable hereunder. The obligations of the Trust are not
personally binding upon, nor shall resort be had to the private
property of, any of the members of the Board of the Trust, nor of
the shareholders, officers, employees or agents of the Trust, but
only the Trust's property shall be bound. A copy of the
Declaration of Trust and of each amendment thereto has been filed
by the Trust with the Secretary of State of The Commonwealth of
Massachusetts and with the Clerk of the City of Boston, as well as
any other governmental office where such filing may from time to
time be required.
The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the
provisions of this Agreement or otherwise affect their
construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which taken together shall
constitute one and the same instrument.
LFS shall keep confidential all records and information
provided to LFS by the Trust, and prior, present or prospective
shareholders of the Fund, except to the extent disclosures are
required by this Agreement, by the Fund's registration statement,
or by a reasonable request or a valid subpoena or warrant issued
by a court, state or federal agency or other governmental
authority.
Neither LFS nor the Trust may use each other's name in any
written material without written consent of such other party,
provided, however, that such consent shall not unreasonably
withheld. LFS and the Trust hereby consent to all uses of their
respective names which refer in accurate terms to appointment and
duties under this Agreement or which are required by any
governmental or regulatory authority including required filings.
The Trust, the Fund and SRF consent to use of their respective
names and logos by LFS for shareholder correspondence and
statements.
This Agreement shall be binding upon and shall inure to the
benefit of the Trust and LFS and their respective successors and
assigns. Neither the Trust nor LFS shall assign this Agreement
nor its rights and obligations under this Agreement without the
express written consent of the other party.
This Agreement may be amended only in writing by mutual
agreement of the parties.
Any notice and other instrument in writing authorized or
required by this Agreement be given to the Trust or LFS shall be
sufficiently given if addressed to that party and mailed or
delivered to it as its office set for the below or at such other
place as it may from time to time designate in writing.
The Trust and the Fund:
Stein Roe Institutional Floating Rate Income Trust
Stein Roe Floating Rate Income Trust
One South Wacker Drive
Suite 3300
Chicago, Illinois 60606
Attn: Heidi J. Walter, Esq.
LFS:
Liberty Funds Service, Inc.
One Financial Center
Boston, Massachusetts 02111
Attn: Mary McKenzie; with a separate copy to Attn: Nancy
L. Conlin, Esq.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and sealed as of the date first
above written.
STEIN ROE FLOATING RATE INCOME TRUST
STEIN ROE INSTITUTIONAL FLOATING
RATE INCOME TRUST
By: THOMAS W. BUTCH
Name: Thomas W. Butch
Title: President
LIBERTY FUNDS SERVICES, INC.
By: DAVEY S. SCOON
Name: Davey S. Scoon
Title: President
<PAGE>
SCHEDULE A
The Trusts consists of the following series of portfolios:
Stein Roe Institutional Floating Rate Income Fund
Stein Roe Floating Rate Income Fund
<PAGE>
TRANSFER AGENT AGREEMENT BETWEEN
STEIN ROE FLOATING RATE INCOME FUND,
STEIN ROE INSTITUTIONAL FLOATING RATE INCOME FUND,
AND LIBERTY FUNDS SERVICES, INC.
SCHEDULE B
Fee Schedule:
Stein Roe Institutional Floating Rate Income Fund - 0.05%
Stein Roe Floating Rate Income Fund - 0.17%
Dated: August 3, 1999
STEIN ROE INSTITUTIONAL FLOATING RATE
INCOME FUND
BY: THOMAS W. BUTCH
President
Attest:
NICOLETTE D. PARRISH
Nicolette D. Parrish
Assistant Secretary
STEIN ROE FLOATING RATE INCOME FUND
BY: THOMAS W. BUTCH
President
Attest:
NICOLETTE D. PARRISH
Nicolette D. Parrish
Assistant Secretary
LIBERTY FUNDS SERVICES, INC.
By: ______________________________
Attest:
___________________________
AMENDED AND RESTATED
ACCOUNTING AND BOOKKEEPING AGREEMENT
This Agreement is made this 3rd day of August, 1999, by and
between Stein Roe Floating Rate Income Fund, a Massachusetts
business trust, (hereinafter referred to as the "Fund") and Stein
Roe & Farnham Incorporated ("Stein Roe"), a Delaware corporation.
1. Appointment. The Fund hereby appoints Stein Roe to act as its
agent to perform the services described herein with respect to the
Fund. Stein Roe hereby accepts appointment as the Fund's agent
and agrees to perform the services described herein.
2. Accounting.
(a) Pricing. Stein Roe shall value all securities and other
assets of the Fund, and compute the net asset value per
share of the Fund, at such times and dates and in the
manner and by such methodology as is specified in the then
currently effective prospectus and statement of additional
information for the Fund, and pursuant to such other
written procedures or instructions furnished to Stein Roe
by the Fund. To the extent procedures or instructions
used to value securities or other assets of the Fund under
this Agreement are at any time inconsistent with any
applicable law or regulation, the Fund shall provide Stein
Roe with written instructions for valuing such securities
or assets in a manner which the Fund represents to be
consistent with applicable law and regulation.
(b) Net Income. Stein Roe shall calculate with such frequency
as the Fund shall direct, the net income of the Fund for
dividend purposes and on a per share basis. Such
calculation shall be at such times and dates and in such
manner as the Fund shall instruct Stein Roe in writing.
For purposes of such calculation, Stein Roe shall not be
responsible for determining whether any dividend or
interest accruable to the Fund is or will be actually
paid, but will accrue such dividend and interest unless
otherwise instructed by the Fund.
(c) Capital Gains and Losses. Stein Roe shall calculate gains
or losses of the Fund from the sale or other disposition
of assets as the Fund shall direct.
(d) Yields. At the request of the Fund, Stein Roe shall
compute yield for the Fund for such periods and using such
formula as shall be instructed by the Fund.
(e) Communication of Information. Stein Roe shall provide the
Fund, the Fund's transfer agent and such other parties as
directed by the Fund with the net asset value per share,
the net income per share and yields for the Fund at such
time and in such manner and format and with such frequency
as the parties mutually agree.
(f) Information Furnished by the Fund. The Fund shall furnish
Stein Roe with any and all instructions, explanations,
information, specifications and documentation deemed
necessary by Stein Roe in the performance of its duties
hereunder, including, without limitation, the amounts
and/or written formula for calculating the amounts, and
times of accrual of liabilities and expenses of the Fund.
The Fund shall also at any time and from time to time
furnish Stein Roe with bid, offer and/or market values of
securities owned by the Fund if the same are not available
to Stein Roe from a pricing or similar service designated
by the Fund for use by Stein Roe to value securities or
other assets. Stein Roe shall at no time be required to
commence or maintain any utilization of, or subscriptions
to, any such service which shall be the sole
responsibility and expense of the Fund.
3. Recordkeeping.
(a) Stein Roe shall, as agent for the Fund, maintain and keep
current and preserve the general ledger and other
accounts, books, and financial records of the Fund
relating to activities and obligations under this
Agreement in accordance with the applicable provisions of
Section 31(a) of the General Rules and Regulations under
the Investment Company Act of 1940, as amended (the
"Rules").
(b) All records maintained and preserved by Stein Roe pursuant
to this Agreement which the Fund is required to maintain
and preserve in accordance with the Rules shall be and
remain the property of the Fund and shall be surrendered
to the Fund promptly upon request in the form in which
such records have been maintained and preserved.
(c) Stein Roe shall make available on its premises during
regular business hours all records of the Fund for
reasonable audit, use and inspection by the Fund, its
agents and any regulatory agency having authority over the
Fund.
4. Instructions, Opinion of Counsel, and Signatures.
(a) At any time Stein Roe may apply to a duly authorized agent
of the Fund for instructions regarding the Fund, and may
consult counsel for the Fund or its own counsel, in
respect of any matter arising in connection with this
Agreement, and it shall not be liable for any action taken
or omitted by it in good faith in accordance with such
instructions or with the advice or opinion of such
counsel. Stein Roe shall be protected in acting upon any
such instruction, advice, or opinion and upon any other
paper or document delivered by the Fund or such counsel
believed by Stein Roe to be genuine and to have been
signed by the proper person or persons and shall not be
held to have notice of any change of authority of any
officer or agent of the Fund, until receipt of written
notice thereof from the Fund.
(b) Stein Roe may receive and accept a certified copy of a
vote of the Board of Trustees of the Fund as conclusive
evidence of (i) the authority of any person to act in
accordance with such vote or (ii) any determination or any
action by the Board of Trustees pursuant to its Agreement
and Declaration of Fund as described in such vote, and
such vote may be considered as in full force and effect
until receipt by Stein Roe of written notice to the
contrary.
5. Compensation. The Fund shall reimburse Stein Roe for any and
all out-of-pocket expenses and charges in performing services
under this Agreement. For the services provided under this
Agreement, the Fund shall pay Stein Roe an annual fee, calculated
and paid monthly, equal to $25,000 plus .0025 percent per annum of
the average daily net assets in excess of $50 million. Such fee
shall be paid within thirty days after receipt of monthly invoice.
Stein Roe shall invoice the Fund as soon as practicable after the
end of each calendar month, and the Fund shall promptly pay Stein
Roe the invoiced amount.
6. Confidentiality of Records. Stein Roe agrees not to disclose
any information received from the Fund to any other client of
Stein Roe or to any other person except its employees and agents,
and shall use its best efforts to maintain such information as
confidential. Upon termination of this Agreement, Stein Roe shall
return to the Fund all records in the possession and control of
Stein Roe related to the Fund's activities, other than Stein Roe's
own business records, it being also understood and agreed that any
programs and systems used by Stein Roe to provide the services
rendered hereunder will not be given to the Fund.
7. Liability and Indemnification.
(a) Stein Roe shall not be liable to the Fund for any action
taken or thing done by it or its employees or agents on
behalf of the Fund in carrying out the terms and
provisions of this Agreement if done in good faith and
without negligence or misconduct on the part of Stein Roe,
its employees or agents.
(b) The Fund shall indemnify and hold Stein Roe, and its
controlling persons, if any, harmless from any and all
claims, actions, suits, losses, costs, damages, and
expenses, including reasonable expenses for counsel,
incurred by it in connection with its acceptance of this
Agreement, in connection with any action or omission by it
or its employees or agents in the performance of its
duties hereunder to the Fund, or as a result of acting
upon instructions believed by it to have been executed by
a duly authorized agent of the Fund or as a result of
acting upon information provided by the Fund in form and
under policies agreed to by Stein Roe and the Fund,
provided that: (i) this indemnification shall not apply
to actions or omissions constituting negligence or
misconduct on the part of Stein Roe or its employees or
agents, including but not limited to willful misfeasance,
bad faith, or gross negligence in the performance of their
duties, or reckless disregard of their obligations and
duties under this Agreement; and (ii) Stein Roe shall give
the Fund prompt notice and reasonable opportunity to
defend against any such claim or action in its own name or
in the name of Stein Roe.
(c) Stein Roe shall indemnify and hold harmless the Fund from
and against any and all claims, demands, expenses and
liabilities which the Fund may sustain or incur arising
out of, or incurred because of, the negligence or
misconduct of Stein Roe or its agents or contractors, or
the breach by Stein Roe of its obligations under this
Agreement, provided that: (i) this indemnification shall
not apply to actions or omissions constituting negligence
or misconduct on the part of the Fund or its other agents
or contractors and (ii) the Fund shall give Stein Roe
prompt notice and reasonable opportunity to defend against
any such claim or action in its own name or in the name of
the Fund.
8. Further Assurances. Each party agrees to perform such further
acts and execute such further documents as are necessary to
effectuate the purposes hereof.
9. Dual Interests. It is understood and agreed that some person
or persons may be trustees, officers, or shareholders of both the
Fund and Stein Roe, and that the existence of any such dual
interest shall not affect the validity hereof or of any
transactions hereunder except as otherwise provided by specific
provision of applicable law.
10. Amendment and Termination. This Agreement may be modified or
amended from time to time, or terminated, by mutual agreement
between the parties hereto and may be terminated by at least one
hundred eighty (180) days' written notice given by one party to
the other. Upon termination hereof, the Fund shall pay to Stein
Roe such compensation as may be due from it as of the date of such
termination, and shall reimburse Stein Roe for its costs,
expenses, and disbursements payable under this Agreement to such
date. In the event that, in connection with termination, a
successor to any of the duties or responsibilities of Stein Roe
hereunder is designated by the Fund by written notice to Stein
Roe, Stein Roe shall promptly upon such termination and at the
expense of the Fund, deliver to such successor all relevant books,
records, and data established or maintained by Stein Roe under
this Agreement and shall cooperate in the transfer of such duties
and responsibilities, including provision, at the expense of the
Fund, for assistance from Stein Roe personnel in the establishment
of books, records, and other data by such successor.
11. Assignment. Any interest of Stein Roe under this Agreement
shall not be assigned or transferred either voluntarily or
involuntarily, by operation of law or otherwise, without prior
written notice to the Fund.
12. Use of Affiliated Companies and Subcontractors. In connection
with the services to be provided by Stein Roe under this
Agreement, Stein Roe may, to the extent it deems appropriate, and
subject to compliance with the requirements of applicable laws and
regulations and upon receipt of approval of the Trustees, make use
of (i) its affiliated companies and their directors, trustees,
officers, and employees and (ii) subcontractors selected by Stein
Roe, provided that Stein Roe shall supervise and remain fully
responsible for the services of all such third parties in
accordance with and to the extent provided by this Agreement. All
costs and expenses associated with services provided by any such
third parties shall be borne by Stein Roe or such parties.
13. Notice. Any notice under this Agreement shall be in writing,
addressed and delivered or sent by registered mail, postage
prepaid to the other party at such address as such other party may
designate for the receipt of such notices. Until further notice
to the other parties, it is agreed that the address of the Fund
and Stein Roe is One South Wacker Drive, Chicago, Illinois 60606,
Attention: Secretary.
14. Non-Liability of Trustees and Shareholders. Any obligation of
the Fund hereunder shall be binding only upon the assets of the
Fund, as provided in the Agreement and Declaration of Fund of the
Fund, and shall not be binding upon any trustee, officer,
employee, agent or shareholder of the Fund. Neither the
authorization of any action by the Trustees or the shareholders of
the Fund, nor the execution of this Agreement on behalf of the
Fund shall impose any liability upon any trustee or any
shareholder. Nothing in this Agreement shall protect any trustee
against any liability to which such trustee would otherwise be
subject by willful misfeasance, bad faith or gross negligence in
the performance of his duties, or reckless disregard of his
obligations and duties under this Agreement.
15. References and Headings. In this Agreement and in any such
amendment, references to this Agreement and all expressions such
as "herein," "hereof," and "hereunder," shall be deemed to refer
to this Agreement as amended or affected by any such amendments.
Headings are placed herein for convenience of reference only and
shall not be taken as part hereof or control or affect the
meaning, construction or effect of this Agreement. This Agreement
may be executed in any number of counterparts, each of which shall
be deemed an original.
16. Governing Law. This Agreement shall be governed by the laws
of the State of Illinois.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the day and year first above written.
STEIN ROE FLOATING RATE INCOME FUND
Attest: By: THOMAS W. BUTCH
Thomas W. Butch
NICOLETTE D. PARRISH President
Nicolette D. Parrish
Assistant Secretary
STEIN ROE & FARNHAM INCORPORATED
By: THOMAS W. BUTCH
Attest: Thomas W. Butch
President, Mutual Funds
NICOLETTE D. PARRISH Division
Nicolette D. Parrish
Assistant Secretary
<PAGE>
ADMINISTRATIVE AGREEMENT
BETWEEN
STEIN ROE FLOATING RATE INCOME FUND
AND
STEIN ROE & FARNHAM INCORPORATED
STEIN ROE FLOATING RATE INCOME FUND, a Massachusetts business
trust registered under the Securities Act of 1933 ("1933 Act") and
the Investment Company Act of 1940 ("1940 Act") (the "Fund"),
hereby appoints STEIN ROE & FARNHAM INCORPORATED, a Delaware
corporation, of Chicago, Illinois ("Administrator"), to furnish
certain administrative services with respect to the Fund.
The Fund and Administrator hereby agree that:
1. Administrative Services. Subject to the terms of this
Agreement and the supervision and control of the Fund's Board of
Trustees ("Trustees"), Administrator shall provide the following
services with respect to the Fund:
(a) Preparation and maintenance of the Fund's registration
statement with the Securities and Exchange Commission ("SEC");
(b) Preparation and periodic updating of the prospectus and
statement of additional information for the Fund
("Prospectus");
(c) Preparation, filing with appropriate regulatory authorities,
and dissemination of various reports for the Fund, including
but not limited to semiannual reports to shareholders under
Section 30(d) of the 1940 Act, annual and semiannual reports
on Form N-SAR, and notices pursuant to Rule 24f-2;
(d) Arrangement for all meetings of shareholders, including the
collection of all information required for preparation of
proxy statements, the preparation and filing with appropriate
regulatory agencies of such proxy statements, the supervision
of solicitation of shareholders and shareholder nominees in
connection therewith, tabulation (or supervision of the
tabulation) of votes, response to all inquiries regarding such
meetings from shareholders, the public and the media, and
preparation and retention of all minutes and all other records
required to be kept in connection with such meetings;
(e) Maintenance and retention of all Fund charter documents and
the filing of all documents required to maintain the Fund's
status as a Massachusetts business trust and as a registered
open-end investment company;
(f) Arrangement and preparation and dissemination of all materials
for meetings of the Board of Trustees and committees thereof
and preparation and retention of all minutes and other records
thereof;
(g) Preparation and filing of the Fund's federal, state, and local
income tax returns and calculation of any tax required to be
paid in connection therewith;
(h) Calculation of all Fund expenses and arrangement for the
payment thereof;
(i) Calculation of and arrangement for payment of all income,
capital gain, and other distributions to shareholders of the
Fund;
(j) Determination, after consultation with the officers of the
Fund, of the jurisdictions in which shares of beneficial
interest of the Fund ("Shares") shall be registered or
qualified for sale, or may be sold pursuant to an exemption
from such registration or qualification, and preparation and
maintenance of the registration or qualification of the Shares
for sale under the securities laws of each such jurisdiction;
(k) Provision of the services of persons who may be appointed as
officers of the Fund by the Board of Trustees (it is agreed
that some person or persons may be officers of both the Fund
and the Administrator, and that the existence of any such dual
interest shall not affect the validity of this Agreement
except as otherwise provided by specific provision of
applicable law);
(l) Preparation and, subject to approval of the Fund's Chief
Financial Officer, dissemination of the Fund's quarterly
financial information to the Board of Trustees and preparation
of such other reports relating to the business and affairs of
the Fund as the officers and Board of Trustees may from time
to time reasonably request;
(m) Administration of the Fund's Code of Ethics and periodic
reporting to the Board of Trustees of Trustee and officer
compliance therewith;
(n) Provision of internal legal, accounting, compliance, audit,
and risk management services and periodic reporting to the
Board of Trustees with respect to such services;
(o) Negotiation, administration, and oversight of third party
services to the Fund including, but not limited to, custody,
tax, transfer agency, disaster recovery, audit, and legal
services;
(p) Negotiation and arrangement for insurance desired or required
of the Fund and administering all claims thereunder;
(q) Response to all inquiries by regulatory agencies, the press,
and the general public concerning the business and affairs of
the Fund, including the oversight of all periodic inspections
of the operations of the Fund and its agents by regulatory
authorities and responses to subpoenas and tax levies;
(r) Handling and resolution of any complaints registered with the
Fund by shareholders, regulatory authorities, and the general
public;
(s) Monitoring legal, tax, regulatory, and industry developments
related to the business affairs of the Fund and communicating
such developments to the officers and Board of Trustees as
they may reasonably request or as the Administrator believes
appropriate;
(t) Administration of operating policies of the Fund and
recommendation to the officers and the Board of Trustees of
the Fund of modifications to such policies to facilitate the
protection of shareholders or market competitiveness of the
Fund and to the extent necessary to comply with new legal or
regulatory requirements;
(u) Responding to surveys conducted by third parties and reporting
of Fund performance and other portfolio information; and
(v) Filing of claims, class actions involving portfolio
securities, and handling administrative matters in connection
with the litigation or settlement of such claims.
2. Use of Affiliated Companies and Subcontractors. In
connection with the services to be provided by Administrator under
this Agreement, Administrator may, to the extent it deems
appropriate, and subject to compliance with the requirements of
applicable laws and regulations and upon receipt of approval of
the Trustees, make use of (i) its affiliated companies and their
directors, trustees, officers, and employees and (ii)
subcontractors selected by Administrator, provided that
Administrator shall supervise and remain fully responsible for the
services of all such third parties in accordance with and to the
extent provided by this Agreement. All costs and expenses
associated with services provided by any such third parties shall
be borne by Administrator or such parties.
3. Instructions, Opinions of Counsel, and Signatures. At
any time Administrator may apply to a duly authorized agent of the
Fund for instructions regarding the Fund, and may consult counsel
for the Fund or its own counsel, in respect of any matter arising
in connection with this Agreement, and it shall not be liable for
any action taken or omitted by it in good faith in accordance with
such instructions or with the advice or opinion of such counsel.
Administrator shall be protected in acting upon any such
instruction, advice, or opinion and upon any other paper or
document delivered by the Fund or such counsel believed by
Administrator to be genuine and to have been signed by the proper
person or persons and shall not be held to have notice of any
change of authority of any officer or agent of the Fund, until
receipt of written notice thereof from the Fund.
4. Expenses Borne by Fund. Except to the extent expressly
assumed by Administrator herein or under a separate agreement
between the Fund and Administrator and except to the extent
required by law to be paid by Administrator, the Fund shall pay
all costs and expenses incidental to its organization, operations
and business. Without limitation, such costs and expenses shall
include but not be limited to:
(a) All charges of depositories, custodians and other agencies for
the safekeeping and servicing of its cash, securities, and
other property;
(b) All charges for equipment or services used for obtaining price
quotations or for communication between Administrator or the
Fund and the custodian, transfer agent or any other agent
selected by the Fund;
(c) All charges for investment advisory, portfolio management, and
accounting services provided to the Fund by the Administrator,
or any other provider of such services;
(d) All charges for services of the Fund's independent auditors
and for services to the Fund by legal counsel;
(e) All compensation of Trustees, other than those affiliated with
Administrator, all expenses incurred in connection with their
services to the Fund, and all expenses of meetings of the
Trustees or committees thereof;
(f) All expenses incidental to holding meetings of shareholders,
including printing and of supplying each record-date
shareholder with notice and proxy solicitation material, and
all other proxy solicitation expenses;
(g) All expenses of printing of annual or more frequent revisions
of the Fund's prospectus(es) and of supplying each then-
existing shareholder with a copy of a revised prospectus;
(h) All expenses related to preparing and transmitting
certificates representing the Fund's shares;
(i) All expenses of bond and insurance coverage required by law or
deemed advisable by the Board of Trustees;
(j) All brokers' commissions and other normal charges incident to
the purchase, sale, or lending of Fund securities;
(k) All taxes and governmental fees payable to federal, state or
other governmental agencies, domestic or foreign, including
all stamp or other transfer taxes;
(l) All expenses of registering and maintaining the registration
of the Fund under the 1940 Act and, to the extent no exemption
is available, expenses of registering the Fund's shares under
the 1933 Act, of qualifying and maintaining qualification of
the Fund's shares for sale under securities laws of various
states or other jurisdictions and of registration and
qualification of the Fund under all other laws applicable to
the Fund or its business activities;
(m) All interest on indebtedness, if any, incurred by the Fund;
and
(n) All fees, dues and other expenses incurred by the Fund in
connection with membership of the Fund in any trade
association or other investment company organization.
5. Allocation of Expenses Borne by the Fund. Any expenses
borne by the Fund that are attributable solely to the
organization, operation or business of the Fund shall be paid
solely out of Fund assets.
6. Expenses Borne by Administrator. Administrator at its
own expense shall furnish all executive and other personnel,
office space, and office facilities required to render the
services set forth in this Agreement. However, Administrator
shall not be required to pay or provide any credit for services
provided by the Fund's custodian or other agents without
additional cost to the Fund.
In the event that Administrator pays or assumes any expenses
of the Fund not required to be paid or assumed by Administrator
under this Agreement, Administrator shall not be obligated hereby
to pay or assume the same or similar expense in the future;
provided that nothing contained herein shall be deemed to relieve
Administrator of any obligation to the Fund under any separate
agreement or arrangement between the parties.
7. Administration Fee. For the services rendered,
facilities provided, and charges assumed and paid by Administrator
hereunder, the Fund shall pay to Administrator out of the assets
of the Fund fees at the annual rate of 0.25%. The administrative
fee shall accrue on each calendar day, and shall be payable
monthly on the first business day of the next succeeding calendar
month. The daily fee accrual shall be computed by multiplying the
fraction of one divided by the number of days in the calendar year
by the applicable annual rate of fee, and multiplying this product
by the net assets of the Fund, determined in the manner
established by the Board of Trustees, as of the close of business
on the last preceding business day on which the Fund's net asset
value was determined.
8. State Expense Limitation. If for any fiscal year, the
Fund's aggregate operating expenses ("Aggregate Operating
Expenses") exceed the applicable percentage expense limit imposed
under the securities law and regulations of any state in which
Shares of the Fund are qualified for sale (the "State Expense
Limit"), the Administrator shall pay the Fund the amount of such
excess. For purposes of this State Expense Limit, Aggregate
Operating Expenses shall (a) include (i) any fees or expense
reimbursements payable to Administrator pursuant to this
Agreement, and (ii) to the extent the Fund invests all or a
portion of its assets in another investment company registered
under the 1940 Act, the pro rata portion of that company's
operating expenses allocated to the Fund, and (iii) any
compensation payable to Administrator pursuant to any separate
agreement relating to the Fund's investment operations and
portfolio management and (iv) other expenses incurred in the
ordinary course of business, but (b) exclude any interest, taxes,
brokerage commissions, and other normal charges incident to the
purchase, sale or loan of securities, commodity interests or other
investments held by the Fund, litigation and indemnification
expense, and other extraordinary expenses not incurred in the
ordinary course of business. Except as otherwise agreed to by the
parties or unless otherwise required by the law or regulation of
any state, any reimbursement by Administrator to the Fund under
this section shall not exceed the administrative fee payable to
Administrator by the Fund under this Agreement.
Any payment to the Fund by Administrator hereunder shall be
made monthly, by annualizing the Aggregate Operating Expenses for
each month as of the last day of the month. An adjustment for
payments made during any fiscal year of the Fund shall be made on
or before the last day of the first month following such fiscal
year of the Fund if the Annual Operating Expenses for such fiscal
year (i) do not exceed the State Expense Limitation or (ii) for
such fiscal year there is no applicable State Expense Limit.
9. Non-Exclusivity. The services of Administrator to the
Fund hereunder are not to be deemed exclusive and Administrator
shall be free to render similar services to others.
10. Standard of Care. Neither Administrator, nor any of its
directors, officers or stockholders, agents or employees shall be
liable to the Fund or its shareholders for any action taken or
thing done by it or its subcontractors or agents on behalf of the
Fund in carrying out the terms and provisions of this Agreement if
done in good faith and without negligence or misconduct on the
part of Administrator, its subcontractors, or agents.
11. Indemnification. The Fund shall indemnify and hold
Administrator and its controlling persons, if any, harmless from
any and all claims, actions, suits, losses, costs, damages, and
expenses, including reasonable expenses for counsel, incurred by
it in connection with its acceptance of this Agreement, in
connection with any action or omission by it or its agents or
subcontractors in the performance of its duties hereunder to the
Fund, or as a result of acting upon any instruction believed by it
to have been executed by a duly authorized agent of the Fund or as
a result of acting upon information provided by the Fund in form
and under policies agreed to by Administrator and the Fund,
provided that: (i) this indemnification shall not apply to actions
or omissions constituting negligence or misconduct of
Administrator or its agents or subcontractors, including but not
limited to willful misfeasance, bad faith, or gross negligence in
the performance of their duties, or reckless disregard of their
obligations and duties under this Agreement; and (ii)
Administrator shall give the Fund prompt notice and reasonable
opportunity to defend against any such claim or action in its own
name or in the name of Administrator.
Administrator shall indemnify and hold harmless the Fund from
and against any and all claims, demands, expenses and liabilities
which the Fund may sustain or incur arising out of, or incurred
because of, the negligence or misconduct of Administrator or its
agents or subcontractors, provided that the Fund shall give
Administrator prompt notice and reasonable opportunity to defend
against any such claim or action in its own name or in the name of
the Fund.
12. Effective Date, Amendment, and Termination. This
Agreement shall become effective as of the date hereof and, unless
terminated as hereinafter provided, shall remain in effect
thereafter from year to year so long as such continuance is
specifically approved with respect to the Fund at least annually
by a majority of the Trustees who are not interested persons of
the Fund or Administrator.
This Agreement may be modified or amended from time to time
by mutual agreement between the Administrator and the Fund and may
be terminated by Administrator or the Fund by at least sixty (60)
days' written notice given by the terminating party to the other
party. Upon termination, the Fund shall pay to Administrator such
compensation as may be due under this Agreement as of the date of
such termination and shall reimburse Administrator for its costs,
expenses, and disbursements payable under this Agreement to such
date. In the event that, in connection with a termination, a
successor to any of the duties or responsibilities of
Administrator hereunder is designated by the Fund by written
notice to Administrator, upon such termination Administrator shall
promptly, and at the expense of the Fund with respect to which
this Agreement is terminated, transfer to such successor all
relevant books, records, and data established or maintained by
Administrator under this Agreement and shall cooperate in the
transfer of such duties and responsibilities, including provision,
at the expense of the Fund, for assistance from Administrator
personnel in the establishment of books, records, and other data
by such successor.
13. Assignment. Any interest of Administrator under this
Agreement shall not be assigned either voluntarily or
involuntarily, by operation of law or otherwise, without the prior
written consent of the Fund.
14. Books and Records. Administrator shall maintain, or
oversee the maintenance by such other persons as may from time to
time be approved by the Board of Trustees to maintain, the books,
documents, records, and data required to be kept by the Fund under
the 1940 Act, the laws of the Commonwealth of Massachusetts or
such other authorities having jurisdiction over the Fund or as may
otherwise be required for the proper operation of the business and
affairs of the Fund (other than those required to be maintained by
any investment adviser retained by the Fund in accordance with
Section 15 of the 1940 Act).
Administrator will periodically send to the Fund all books,
documents, records, and data of the Fund that are no longer needed
for current purposes or required to be retained as set forth
herein. Administrator shall have no liability for loss or
destruction of said books, documents, records, or data after they
are returned to the Fund.
Administrator agrees that all such books, documents, records,
and data which it maintains shall be maintained in accordance with
Rule 31a-3 of the 1940 Act and that any such items maintained by
it shall be the property of the Fund. Administrator further
agrees to surrender promptly to the Fund any such items it
maintains upon request, provided that the Administrator shall be
permitted to retain a copy of all such items. Administrator
agrees to preserve all such items maintained under Rule 31a-1 for
the period prescribed under Rule 31a-2 of the 1940 Act.
The Fund shall furnish or otherwise make available to
Administrator such copies of the financial statements, proxy
statements, reports, and other information relating to the
business and affairs of the Fund as Administrator may, at any time
or from time to time, reasonably require in order to discharge its
obligations under this Agreement.
15. Non-Liability of Trustees and Shareholders. Any
obligation of the Fund hereunder shall be binding only upon the
assets of the Fund and shall not be binding upon any Trustee,
officer, employee, agent or shareholder of the Fund. Neither the
authorization of any action by the Trustees or shareholders of the
Fund nor the execution of this Agreement on behalf of the Fund
shall impose any liability upon any Trustee or any shareholder.
16. Use of Administrator's Name. The Fund may use its name
or any other name derived from the name "Stein Roe & Farnham" only
for so long as this Agreement or any extension, renewal, or
amendment hereof remains in effect, including any similar
agreement with any organization which shall have succeeded to the
business of Administrator as it relates to the services it has
agreed to furnish under this Agreement. At such time as this
Agreement or any extension, renewal or amendment hereof, or such
other similar agreement shall no longer be in effect, the Fund
will cease to use any name derived from the name "Stein Roe &
Farnham" or otherwise connected with Administrator, or with any
organization which shall have succeeded to Administrator's
business herein described.
17. References and Headings. In this Agreement and in any
such amendment, references to this Agreement and all expressions
such as "herein," "hereof," and "hereunder" shall be deemed to
refer to this Agreement 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 Agreement.
This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original.
Dated: November _, 1998
STEIN ROE FLOATING RATE INCOME FUND
Attest: By:_____________________________
Thomas W. Butch
___________________ President
Nicolette D. Parrish
Assistant Secretary
STEIN ROE & FARNHAM INCORPORATED
Attest: By:____________________________
Thomas W. Butch
President, Mutual Funds
________________________ division
Nicolette D. Parrish
Assistant Secretary
<PAGE>
AMENDMENT TO ADMINISTRATIVE AGREEMENT BETWEEN
STEIN ROE FLOATING RATE INCOME FUND AND
STEIN ROE & FARNHAM INCORPORATED
This Amendment dated as of August 3, 1999, amends the
Administrative Agreement dated November 20, 1998 (the "Agreement")
between Stein Roe Institutional Floating Rate Income Fund and
Stein Roe & Farnham Incorporated. Paragraph 7 ("Administration
Fee") of the Agreement is hereby amended to read as follows:
7. Administration Fee. For the services rendered,
facilities provided, and charges assumed and paid by Administrator
hereunder, the Fund shall pay to Administrator out of the assets
of the Fund fees at the annual rate of 0.20%. The administrative
fee shall accrue on each calendar day, and shall be payable
monthly on the first business day of the next succeeding calendar
month. The daily fee accrual shall be computed by multiplying the
fraction of one divided by the number of days in the calendar year
by the applicable annual rate of fee, and multiplying this product
by the net assets of the Fund, determined in the manner
established by the Board of Trustees, as of the close of business
on the last preceding business day on which the Fund's net asset
value was determined.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first written above.
STEIN ROE FLOATING
RATE INCOME FUND
By: THOMAS W. BUTCH
Thomas W. Butch, President
ATTEST:
By: NICOLETTE D. PARRISH
Nicolette D. Parrish
Assistant Secretary
STEIN ROE & FARNHAM
INCORPORATED
By: THOMAS W. BUTCH
Thomas W. Butch
President, Mutual Funds Division
ATTEST:
By: NICOLETTE D. PARRISH
Nicolette D. Parrish
Assistant Secretary
<PAGE>
Stein Roe Mutual Funds
Rule 12b-1 Distribution Plan
Each Massachusetts Business Trust (Trust) designated in
Appendix 1 as revised from time to time, acting severally, adopts
as of August 3, 1999, the following distribution plan (the Plan)
pursuant to Rule 12b-1 (the Rule) under the Investment Company Act
of 1940 (Act) on behalf of each Fund in that Trust for the purpose
of providing personal service and/or the maintenance of
shareholder accounts and to facilitate the distribution of shares
of the Funds.
I. Plans Applying to Class A, B and C Shares
Except as indicated below, each Fund having Class A, B or C
Shares shall pay a service fee at the annual rate of 0.25% of the
net assets of its Class A, B and C Shares, and a distribution fee
at the annual rate of 0.75% of the average daily net assets of its
Class B and C Shares.
II. Payments of Fees Under the Plan
Each Fund shall make all payments of service and distribution
fees under this Plan to Liberty Funds Distributor, Inc. (LFDI)
monthly, on the 20th day of each month or, if such day is not a
business day, on the next business day thereafter. No Fund shall
pay, nor shall LFDI be entitled to receive, any amount under this
Plan if such payment would result in LFDI receiving amounts in
excess of those permitted by applicable law or by rules of the
National Association of Securities is Dealers, Inc.
III. Use of Fees.
LFDI may pay part or all of the service and distribution fees
it receives from a Fund as commissions to financial service firms
that sell Fund Shares or as reimbursements to financial service
firms or other entities that provide shareholder services to
record or beneficial owners of shares (including third-party
administrators of qualified plans). This provision does not
obligate LFDI to make any such payments nor limit the use that
LFDI may make of the fees it receives.
IV. Reporting
LFDI shall provide to the Trust's Trustees, and the Trustees
shall review, at least quarterly, reports setting forth all Plan
expenditures, and the purposes for those expenditures. Amounts
payable under this paragraph are subject to any limitations on
such amounts prescribed by applicable laws or rules.
V. Other Payments Authorized
Payments by the Trust to LFDI and its affiliates (including
Colonial Management Associates, Inc.) other than as set forth in
Section I which may be indirect financing of distribution costs
are authorized by this Plan.
VI. Continuation; Amendment; Termination
This Plan shall continue in effect with respect to a Class of
Shares only so long as specifically approved for that Class at
least annually as provided in the Rule. The Plan may not be
amended to increase materially the service fee or distribution fee
with respect to a Class of Shares without such shareholder
approval as is required by the Rule and any applicable orders of
the Securities and Exchange Commission, and all material
amendments of the Plan must be approved in the manner described in
the Rule. The Plan may be terminated with respect to any Class of
Shares at any time as provided in the Rule without payment of any
penalty. The continuance of the Plan shall be effective only if
the selection and nomination of the Trust's Trustees who are not
interested persons (as defined under the Act) of the Trust is
effected by such non-interested Trustees as required by the Rule.
Approved by the Trustees as of the date
set forth above:
By: HEIDI J. WALTER
Heidi J. Walter, Secretary For Each
Trust
<PAGE>
APPENDIX 1
Stein Roe Investment Trust
Stein Roe International Fund
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
Stein Roe Growth Stock Fund
Stein Roe Disciplined Stock Fund
Stein Roe Young Investor Fund
Stein Roe Growth Investor Fund
Stein Roe Capital Opportunities Fund
Stein Roe Midcap Growth Fund
Stein Roe Small Company Growth Fund
Stein Roe Asia Pacific Fund
Stein Roe Large Company Focus Fund
Stein Roe Income Trust
Stein Roe Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe High Yield Fund
Stein Roe Cash Reserves Fund
Stein Roe Municipal Trust
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Municipal Money Market Fund
Stein Roe Advisor Floating Rate Fund
<PAGE>
STEIN ROE INCOME TRUST
STEIN ROE INVESTMENT TRUST
STEIN ROE MUNICIPAL TRUST
STEIN ROE ADVISOR FLOATING RATE FUND
Plan pursuant to Rule 18f-3(d) under the
Investment Company Act of 1940
Effective August 3, 1999
Each Series (each a "Stein Roe Fund") of Stein Roe Income Trust,
Stein Roe Investment Trust, and Stein Roe Municipal Trust, (each a
"Trust") as set forth in Schedule I and Stein Roe Advisor Floating
Rate Fund ("Floating Rate Fund") may from time to time issue one
or more of the following classes of shares as authorized by the
Board of Trustees and as provided for herein: Class A shares,
Class B shares, Class C shares and Class Z shares. Each class is
subject to such investment minimums and other conditions of
eligibility as set forth in the Stein Roe Funds or Floating Rate
Fund's prospectus and statement of additional information as from
time to time in effect. The differences in expenses among these
classes of shares and the conversion and exchange features of each
class of shares, are set forth below. These differences are
subject to change, to the extent permitted by law and by the
Declaration of Trust and By-laws of the Trusts and the Floating
Rate Fund, by action of the Board of Trustees.
CLASS A SHARES
Class A shares of the Stein Roe Funds and Floating Rate Fund are
offered at net asset value ("NAV") plus the initial sales charges
described in the Stein Roe Funds and Floating Rate Fund's
prospectus and statement of additional information as from time to
time in effect. Initial sales charges may not exceed 6.50%, and
may be reduced or waived as permitted by Rule 22d-1 under the
Investment Company Act of 1940 ( the "1940 Act") and as described
in the Stein Roe Funds and Floating Rate Fund's prospectus and
statement of additional information from time to time in effect.
Purchases of $1 million to $5 million of Class A shares that are
redeemed within 18 months from purchase are subject to a
contingent deferred sales charge ("CDSC") of 0.50% of either the
purchase price or the NAV of the shares redeemed, whichever is
less. Purchases in excess of $5 million of Class A shares that
are redeemed within 18 months from purchase are subject to a CDSC
of 0.50% only on assets redeemed below the $5 million level. The
CDSC may be reduced or waived as permitted by Rule 6c-10 under the
1940 Act and as described in the Stein Roe Funds and Floating Rate
Fund's prospectus and statement of additional information as from
time to time in effect.
Class A shares pay distribution and service fees pursuant to a
plan adopted pursuant to Rule 12b-1 under the 1940 Act ("12b-1
Plan") as described in the Stein Roe Funds and Floating Rate
Fund's prospectus and statement of additional information in
effect from time to time. Such fees may be in amounts up to but
may not exceed, respectively, 0.10% and 0.25% per annum of the
average daily net assets attributable to such class.
Class A shares pay service fees equaling a portion of the transfer
agency fee attributable to that class as described in the Floating
Rate Fund's prospectus and statement of additional information in
effect from time to time. Total transfer agency fees, including
such service component, may not exceed 0.30% of average annual net
assets attributable to the class.
Class A shares of the Stein Roe Funds and Floating Rate Fund may
be exchanged, at the holder's option, for Class A shares of any
other Stein Roe Fund, Floating Rate Fund, any Liberty-Stein Roe
Advisor Trust Fund ("Advisor Fund") and most funds advised by
Colonial Management Associates, Inc. or distributed by Liberty
Funds Distributor, Inc. ("LFD") or its successor without the
payment of a sales charge, except that if shares of any Stein Roe
Fund, Floating Rate Fund, Advisor Fund or non-money market
Colonial Fund are exchanged within five months after purchase for
shares of another Stein Roe Fund, Floating Rate Fund, Advisor Fund
or Colonial Fund with a higher sales charge, then the difference
in sales charges must be paid on the exchange.
In addition, Class A shares of Stein Roe Funds or Floating Rate
Fund may be exchanged, at the holder's option, for Class A shares
of any other Stein Roe Fund, Floating Rate Fund, any Advisor Fund
or a Colonial Fund offering Class A shares, without the payment of
a CDSC. The holding period for determining the CDSC will include
the holding period of the shares exchanged. If the Class A shares
received in the exchange are subsequently redeemed, the amount of
the CDSC, if any, will be determined by the schedule of the Stein
Roe Fund, Floating Rate Fund, Advisor Fund or Colonial Fund in
which the original investment was made.
CLASS B SHARES
Class B shares are offered at NAV, without an initial sales
charge. Class B shares that are redeemed within the period of
time after purchase (not more than 8 years) specified in each
Stein Roe Funds or Floating Rate Fund's prospectus and statement
of additional information as from time to time in effect are
subject to a CDSC of up to 3% of either the purchase price or the
NAV of the shares redeemed, whichever is less; such percentage may
be lower for certain Funds and declines the longer the shares are
held, all as described in the Stein Roe Funds or Floating Rate
Fund's prospectus and statement of additional information as from
time to time in effect. Class B shares purchased with reinvested
distributions are not subject to a CDSC. The CDSC is subject to
reduction or waiver in certain circumstances, as permitted by Rule
6c-10 under the 1940 Act and as described in the Stein Roe Funds
or Floating Rate Fund's prospectus and statement of additional
information as from time to time in effect.
Class B shares pay distribution and service fees pursuant to a
12b-1 Plan as described in Stein Roe Funds or Floating Rate Fund's
prospectus and statement of additional information in effect from
time to time. Such fees may be in amounts up to but may not
exceed, respectively, 0.55% and 0.25% per annum of the average
daily net assets attributable to such class.
Class B shares pay service fees equaling a portion of the transfer
agency fee attributable to that class as described in the Stein
Roe Funds or Floating Rate Fund's prospectus and statement of
additional information in effect from time to time. Total
transfer agency fees, including such service component, may not
exceed 0.30% of average annual net assets attributable to the
class.
Class B shares automatically convert to Class A shares of the same
Stein Roe Fund or Floating Rate Fund eight years after purchase,
except that Class B shares purchased through the reinvestment of
dividends and other distributions on Class B shares convert to
Class A shares proportionally to the amount of Class B shares
otherwise being converted.
Class B shares of Stein Roe Funds and Floating Rate Fund may be
exchanged, at the holder's option, for Class B shares of any other
Stein Roe Fund, Floating Rate Fund, any Advisor Fund or a Colonial
Fund offering Class B shares, without the payment of a CDSC. The
holding period for determining the CDSC and the conversion to
Class A shares will include the holding period of the shares
exchanged. If the Class B shares received in the exchange are
subsequently redeemed, the amount of the CDSC, if any, will be
determined by the schedule of the Stein Roe Fund or Floating Rate
Fund, Advisor Fund or Colonial Fund in which the original
investment was made.
CLASS C SHARES
Class C shares are offered at NAV without an initial sales charge.
Class C shares that are redeemed within up to three years from
purchase may be subject to a CDSC of 1% of either the purchase
price or the NAV of the shares redeemed, whichever is less. Class
C shares purchased with reinvested dividends or capital gain
distributions are not subject to a CDSC. The CDSC may be reduced
or waived in certain circumstances as permitted by Rule 6c-10
under the 1940 Act and as described in the Stein Roe Funds or
Floating Rate Fund's prospectus and statement of additional
information as from time to time in effect.
Class C shares pay distribution and service fees pursuant to a
12b-1 Plan as described in the Stein Roe Funds or Floating Rate
Fund's prospectus and statement of additional information in
effect from time to time. Such fees may be in amounts up to but
may not exceed, respectively, 0.60% and 0.25% per annum of the
average daily net assets attributable to such class.
Class C shares pay service fees equaling a portion of the transfer
agency fee attributable to that class as described in the Stein
Roe Funds or Floating Rate Fund's prospectus and statement of
additional information in effect from time to time. Total
transfer agency fees, including such service component, may not
exceed 0.30% of average annual net assets attributable to the
class.
Class C shares of Stein Roe Funds or Floating Rate Fund may be
exchanged, at the holder's option, for Class C shares of any other
Stein Roe Fund, Floating Rate Fund, any Advisor Fund or a Colonial
Fund offering Class C shares, without the payment of a CDSC. The
holding period for determining the CDSC will include the holding
period of the shares exchanged. If the Class C shares received in
the exchange are subsequently redeemed, the amount of the CDSC, if
any, will be determined by the schedule of the Stein Roe Fund or
Floating Rate Fund, Advisor Fund or Colonial Fund in which the
original investment was made. Only one exchange of any Stein Roe
Fund, Floating Rate Fund, Advisor Fund or Colonial Fund's Class C
shares may be made in any three month period. For this purpose,
an exchange into a Stein Roe Fund, Floating Rate Fund, Advisor
Fund or Colonial Fund and a prior or subsequent exchange out of a
Stein Roe Fund, Floating Rate Fund, Advisor Fund or Colonial Fund
constitutes an "exchange."
CLASS Z SHARES
Class Z shares are offered at NAV, without an initial sales
charge, 12b-1 fee or CDSC.
Class Z shares pay service fees equaling a portion of the transfer
agency fee attributable to that class as described in the Stein
Roe Funds or Floating Rate Fund's prospectus and statement of
additional information in effect from time to time. Total
transfer agency fees may not exceed 0.30% of average annual net
assets attributable to the class.
Class Z shares of Stein Roe Funds may be exchanged, at the
holder's option, for Class Z shares of any other Stein Roe Fund.
Class Z shares of any Stein Roe Fund or Floating Rate Fund may not
be exchanged for Class Z shares of any Colonial Fund.
<PAGE>
Schedule I
Stein Roe Investment Trust
Stein Roe International Fund
Stein Roe Growth & Income Fund
Stein Roe Balanced Fund
Stein Roe Growth Stock Fund
Stein Roe Disciplined Stock Fund
Stein Roe Young Investor Fund
Stein Roe Growth Investor Fund
Stein Roe Capital Opportunities Fund
Stein Roe Midcap Growth Fund
Stein Roe Small Company Growth Fund
Stein Roe Asia Pacific Fund
Stein Roe Large Company Focus Fund
Stein Roe Income Trust
Stein Roe Income Fund
Stein Roe Intermediate Bond Fund
Stein Roe High Yield Fund
Stein Roe Cash Reserves Fund
Stein Roe Municipal Trust
Stein Roe Intermediate Municipals Fund
Stein Roe Managed Municipals Fund
Stein Roe High-Yield Municipals Fund
Stein Roe Municipal Money Market Fund
